UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 333-170173

O’DONNELL STRATEGIC INDUSTRIAL

REIT, INC.

(Exact name of registrant as specified in its charter)


Maryland		27-3648243
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

3 San Joaquin Plaza, Suite 160 Newport Beach, California 92660		(949) 718-9898
(Address of principal executive offices; zip code)		(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Exchange on Which Registered
None		None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

There is no established market for the registrant’s shares of common stock. The registrant is currently conducting a public offering of its shares of common stock pursuant to a Registration Statement on Form S-11, which shares are being sold at $10.00 per share, with discounts available for certain categories of purchasers.

No shares of common stock were held by non-affiliates as of June 30, 2012.

The number of shares of common stock outstanding as of March 29, 2013 was 284,335.

Documents Incorporated by Reference.

The Registrant incorporated by reference portions’ of the Registrant’s proxy statement for the 2013 annual meeting of stockholders, which is expected to be filed no later than April 30, 2013, into Items 10, 11, 12, 13 and 14 of Part III.

TABLE OF CONTENTS


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		2

PART I
ITEM 1.	BUSINESS	3
ITEM 1A.	RISK FACTORS	18
ITEM 1B.	UNRESOLVED STAFF COMMENTS	39
ITEM 2.	PROPERTIES	39
ITEM 3.	LEGAL PROCEEDINGS	39
ITEM 4.	MINE SAFETY DISCLOSURES	39

PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	40
ITEM 6.	SELECTED FINANCIAL DATA	44

ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	45

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	54
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	54
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	54
ITEM 9A.	CONTROLS AND PROCEDURES	54
ITEM 9B.	OTHER INFORMATION	55

PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	56
ITEM 11.	EXECUTIVE COMPENSATION	56
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	56
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	56
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	56

PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	57

SIGNATURES

EX 31.1

EX 31.2

EX 32.1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K of O’Donnell Strategic Industrial Trust, Inc., other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “would,” “could,” “should,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We caution readers not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission (the “SEC”). We make no representation or warranty (express or implied) about the accuracy of any such forward-looking statements contained in this Annual Report on Form 10-K. Additionally, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. The forward-looking statements should be read in light of the risk factors identified in the Item 1A. “Risk Factors” section of this Annual Report on Form 10-K.

PART I

ITEM 1. BUSINESS

Formation

O’Donnell Strategic Industrial REIT, Inc. (the “Company”) was formed on September 2, 2010 as a Maryland corporation that qualified as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). Substantially all of the Company’s business is expected to be conducted through the Company’s operating partnership, O’Donnell Strategic Industrial REIT Operating Partnership, LP (the “Operating Partnership”), formed on September 9, 2010. The Company is the sole general partner of the Operating Partnership. O’Donnell Strategic Industrial Advisors, LLC, a Delaware limited liability company (the “Advisor”) formed on August 5, 2010, is the Operating Partnership’s sole limited partner and owner of an insignificant noncontrolling partnership interest of less than 0.01% of the Operating Partnership. The Advisor has invested $1,000 in the Operating Partnership in exchange for limited partnership interests. Pursuant to the Limited Partnership Agreement of the Operating Partnership (the “Partnership Agreement”), the Company will contribute funds as necessary to the Operating Partnership. Thereafter, the Operating Partnership will allocate income and distribute cash to each partner in proportion to their respective ownership interests.

The Company intends to acquire and manage a portfolio of income-producing industrial real estate assets comprised primarily of warehouse properties, including bulk distribution and general purpose warehouses leased to creditworthy tenants. In addition, the Company may also selectively invest in light manufacturing properties and other types of industrial properties. Further, the Company may invest in mezzanine, bridge, commercial real estate and other real estate loans, provided that the underlying real estate meets the Company’s criteria for direct investment, as well as real estate debt securities and equity securities of REITs and other real estate companies. As of December 31, 2012, the Company owned two properties, comprising approximately 96,000 rentable square feet of single-tenant industrial space located in two states. As of December 31, 2012, the rentable space at these properties was 100% leased.

Subject to certain restrictions and limitations, the business of the Company is externally managed by the Advisor pursuant to an advisory agreement (the “Advisory Agreement”), which has a term of one year and is reconsidered on an annual basis by the board of directors of the Company. The Advisor also will source and present investment opportunities to the Company’s board of directors and provide investment management, marketing, investor relations and other administrative services on the Company’s behalf.

On October 11, 2010, the Company issued 22,222 shares of common stock to the Advisor at a purchase price of $9.00 per share, for an aggregate purchase price of $200,000. On October 11, 2010, the Advisor invested $1,000 in the Company in exchange for 1,000 shares of convertible stock of the Company, as described in Note 7. On April 12, 2011 and July 6, 2012, under the independent directors’ compensation plan and subject to such plan’s conditions and restrictions, each of the Company’s independent directors received 3,000 shares of restricted common stock, for a total of 24,000 shares of common stock as described in Note 7. As of December 31, 2012 and December 31, 2011, there were 284,335 and 34,222 shares, respectively, of common stock issued and outstanding, and 1,000 shares of convertible stock issued and outstanding at both dates.

Pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933, as amended (the “Securities Act”), the Company is offering for sale to the public on a “best efforts” basis a maximum of $1,000,000,000 in shares of the Company’s common stock (the “Maximum Offering Amount”), at an initial price of $10.00 per share (the “Offering”). The Company is also offering up to $100,000,000 in shares of the Company’s common stock pursuant to a distribution reinvestment plan (the “DRP”), under which the Company’s stockholders may elect to have distributions reinvested in additional shares of the Company’s common stock at an initial price of $9.50 per share. The Company may reallocate the shares between the Offering and the DRP. The registration statement of the Offering was first declared effective by the Securities and Exchange Commission (the “SEC”) on August 15, 2011.

The Company retained SC Distributors, LLC to serve as the dealer manager of the Offering. The Dealer Manager is responsible for marketing the Company’s shares of common stock being offered pursuant to the Offering. The Company intends to use substantially all of the net proceeds from the Offering to invest in a diverse portfolio of real estate and real estate-related assets as described above.

On August 8, 2012, the Company issued the initial 221,013 shares of common stock in the Offering to the Advisor and other subscribers, satisfying the minimum offering requirement for the Offering, and commenced its principal operations. As of December 31, 2012, the Company had issued 284,335 shares of its common stock in the Offering, for gross proceeds of approximately $2,371,000 before selling commissions and dealer manager fees of approximately $22,028. Subscription payments received from residents of Pennsylvania and Tennessee will be held in an escrow account until the Company raises an aggregate of $50,000,000 and $20,000,000, respectively, in gross offering proceeds. The conditions of that special escrow account were not satisfied for Pennsylvania or Tennessee residents as of December 31, 2012. As of March 29, 2013, the Company had 110,241,981 shares of common stock remaining in the Offering.

As the Company accepts subscriptions for shares of its common stock, it will transfer substantially all of the net proceeds of the Offering to the Operating Partnership as a capital contribution. The Partnership Agreement provides that the Operating Partnership will be operated in a manner that will enable the Company to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability, and (3) ensure that the Operating Partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended (the “Code”), which classification could result in the Operating Partnership being taxed as a corporation, rather than as a partnership. In addition to the administrative and operating costs and expenses incurred by the Operating Partnership in acquiring and operating real properties for the Company, the Operating Partnership will pay all of the Company’s administrative costs and expenses, and such expenses will be treated as expenses of the Operating Partnership.

Investment Objectives

Our primary investment objectives are:

•

to preserve, protect and return our stockholders’ invested capital;

•

to pay stable and attractive cash distributions to our stockholders; and

•

to realize capital appreciation in the value of our investments over the long term.

We cannot assure stockholders that we will achieve our investment objectives or that the value of our assets will not decrease. Subject to the approval of our board of directors, our Advisor will have substantial discretion within our investment policies with respect to the selection of specific investments and the purchase and sale of our assets. Our board of directors will review our investment policies at least annually to determine whether our investment policies continue to be in the best interests of our stockholders. Each such determination by our board of directors and the basis therefore will be set forth in the minutes of the meetings of our board of directors.

Investment Strategy

We intend to acquire and manage a diversified portfolio of income-producing industrial properties comprised primarily of warehouse properties, leased to creditworthy tenants. In addition, we may selectively invest in other types of commercial real estate. While our investment focus will be on high-quality, income-producing industrial real estate assets, we may also selectively invest in industrial properties that offer value-add opportunities through renovation, redevelopment, re-tenanting or repositioning, and in unimproved land upon which improvements are to be constructed or completed. We do not anticipate that value-add opportunities will comprise a significant percentage of the aggregate cost of our portfolio. For each of our property investments, we will seek to acquire environmentally-friendly or “green” properties that are certified under the Leadership in Energy and Environmental Design (LEED) Green Building Rating System, and intend to work towards LEED certification for any properties that are not LEED certified at the time we acquire them.

In addition to investments in real property, we may seek to invest in first mortgage, mezzanine, bridge, and other real estate loans, provided that the underlying real estate meets our criteria for direct investment, as well as securities of REITs and other real estate companies, which we collectively refer to as “real estate-related assets.” We may also make any other investment that, in the opinion of our board of directors, meets our investment objectives, is consistent with our intent to operate as a REIT and is in our best interests. We may make our investments either on our own behalf or through joint ventures with third parties.

Following the investment of substantially all of the net offering proceeds of our Offering, we anticipate that industrial properties will comprise approximately 90% of the aggregate cost of our portfolio and a combination of investments in other sectors of commercial real estate and real estate-related assets will comprise approximately 10% of the aggregate cost of our portfolio. This targeted portfolio allocation may be revised by our board of directors from time to time, or at any time, if our board determines that a different portfolio composition is in our and our stockholders’ best interests.

Industrial Focus

We believe that by focusing on investments in industrial properties, we will have the opportunity to provide a stable and secure source of income for our stockholders and maximize returns upon disposition of our assets. We believe that there are a variety of advantages to investing in industrial properties, including, but not limited to, the following:

•

We believe that industrial properties generally exhibit relatively stable occupancy rates as compared to other commercial real estate asset classes.

•

We believe that industrial properties typically have relatively low maintenance requirements as compared to other real estate asset sectors.

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Industrial building designs are often generic, which we believe allows for ready use by a wide variety of potential tenants and results in relatively few re-tenanting and capital improvement costs when re-leasing a facility.

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Industrial buildings are typically located in in-fill markets that have little available land for development and significant barriers to entry.

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Industrial properties are typically leased pursuant to “triple-net” leases which require the lessee to pay or reimburse the owner of the property for the majority of the expenses related to repairs, maintenance, property taxes, utilities, insurance and other property operating costs, which we believe helps to insulate the landlord from future increases in such expenses. In addition, industrial properties are generally leased to large, creditworthy corporate tenants.

•

With current constraints in the capital markets and the expectation of numerous distressed properties becoming available for sale, we expect capitalization rates to rise significantly, which we believe will cause asset values to fall substantially. As a result, we believe opportunities to purchase attractive industrial properties well below replacement costs will arise during the period of time we will be investing the proceeds of the Offering.

•

We anticipate that as the U.S. economy improves and consumer spending increases, companies will be forced to increase product inventories and lease more industrial space, which we believe will in turn increase the demand for industrial space. According to CBRE MarketView Atlanta Industrial 2010, at the close of 2009 inventory levels were at their lowest levels since World War II.

•

Construction of industrial facilities has fallen sharply in recent years due to weak demand fundamentals and tightened lending conditions that made it difficult to obtain financing and the recent credit crisis has negatively impacted speculative development in the industrial sector and resulted in the postponement of active industrial construction projects. We believe that new construction will continue to be limited in the industrial sector through 2013 and that the continuing trend of limited construction will increase demand and support rent growth as the U.S. economy recovers.

Industrial Properties

Property Characteristics

We intend to invest primarily in quality income-producing industrial properties, with a focus upon well-constructed bulk distribution and general purpose warehouse properties located within the target markets described below. Within the industrial sector, bulk distribution and general purpose warehouse properties are generally characterized by their stable cash flows and relatively low maintenance and capital improvement costs. Although the characteristics of the individual investments in industrial properties we make will vary, we intend to focus on investments in Class A properties between approximately 50,000 and 1,000,000 square feet in size. We intend to focus on Class A properties because we believe that tenants are typically willing to pay higher rents for Class A properties and that Class A properties are often the first properties to be leased in any given market. In addition, we believe that Class A properties generally command higher prices when they are sold. We anticipate that the industrial properties we acquire will typically possess all or some combination of the following key characteristics:

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Rectangular shape – In an industrial warehouse, inventory is typically stored on racks which run perpendicular to the loading doors. We believe that it is most efficient when product is unloaded off a truck, sent directly back to storage racks and then eventually brought directly back out to be shipped on another truck.

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High ceilings – We believe that higher ceilings generally increase a tenant’s cubic storage capacity per rentable square foot as opposed to lower ceilings.

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Loading doors – We believe that a ratio of approximately 1 loading door per 10,000 square feet allows inventory to flow in and out of a building quickly and efficiently.

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Grade level doors – Grade level doors generally permit smaller trucks to deliver product to a warehouse via dollies.

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Early Suppression Fast Response (ESFR) sprinklers – ESFR sprinkler systems generally permit tenants to “high pile” flammable inventory and thus store more inventory per rentable square foot without the additional cost of in-rack sprinkler systems.

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Truck courts – Large truck courts allow tenants to store their excess product and trucks outside of a building in a secured environment without paying additional rent. In addition, we believe that large truck courts allow trucks to unload their goods quickly and efficiently.

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T5 lighting – T5 fluorescent lights are smaller and more energy efficient than older metal halogen or strip fluorescent lights, which we believe reduces energy costs.

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Skylights – Skylights in a building may allow tenants to work during the day without turning on a building’s electrical light, which we believe reduces energy costs.

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Office build out – We intend to acquire buildings with contemporary office space which occupies approximately 5% to 10% of the building’s total space.

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LEED Certification – We will seek to acquire (or cost-effectively retrofit) properties that meet the Leadership in Environmental Design (LEED) Green Building Rating System certification criteria in order to potentially enhance occupancy, income and overall return on investment. See “– Green Buildings” below.

•

Triple Net Leases – We will seek to establish relatively long-term triple-net leases that pass the responsibility and expense risk of taxes, insurance and common area maintenance to the tenant. See “– Lease Terms” below.

We will primarily seek to acquire existing properties, the space in which has been leased or pre-leased to national, regional and local corporate tenants who satisfy our standards for creditworthiness. However, we may acquire properties with some level of vacancy at the time of acquisition. In addition, we may acquire properties which are under construction or develop properties directly or in joint ventures with third party developers. We anticipate that the properties we acquire or develop will provide generic storage and work space suitable for and adaptable to a broad range of potential tenants and operations. We may invest in stand-alone, single-tenant properties, multi-tenant properties, multiple buildings that comprise an entire industrial park or complex, or one or more buildings within an industrial park or complex.

We intend to target properties valued at between $5,000,000 and $50,000,000, although we have not established any maximum or minimum purchase price for any individual investment. We feel that our targeted price range provides us all the benefits of economies of scale, but also enables us to diversify risk across investments, tenants and geographic locations. We will determine the appropriate purchase price for any particular property based upon capitalization rates, price per square foot, and other metrics dictated by the location and quality of the property in question. We will also consider acquisitions of property portfolios.

We initially intend to acquire properties with leverage, provided that we may also acquire properties on an all-cash basis to take advantage of discounted prices and other opportunities, with the intent of placing debt on the property following the closing of the acquisition.

Green Buildings

We will seek to acquire properties which are certified pursuant to the Leadership in Energy and Environmental Design (LEED) Green Building Rating System, and intend to work towards achieving LEED certification of any property that is not LEED certified at the time of acquisition. Generally considered one of the most credible and widely recognized third-party environmental rating systems, the LEED rating system was developed by the U.S. Green Building Council (USGBC), a non-profit industry organization, in 2000. The LEED rating process begins with registering a project to determine if it is a viable candidate for LEED certification. Under the LEED rating system, participants must meet prerequisites and obtain a minimum number of design and performance credits to in order to obtain a LEED certification. Depending on the number of credits obtained, a project will be awarded one of four progressive levels of LEED certification: Certified, Silver, Gold or Platinum.

According to the USGBC, as of November 2011, 32,451 commercial projects, comprising approximately 8 billion square feet of construction space in all 50 states in the United States and 91 countries, have been registered for LEED certification and 11,082 commercial projects, totaling approximately 2 billion square feet, had been LEED certified. Projects have been LEED registered and/or certified in all 50 states and over 120 countries. The expansion of LEED certified buildings in the market has been mirrored by growth in the USGBC itself. As of January 2012, the USGBC had 79 local U.S. chapters, over 30,000 individual members and more than 14,141 member companies and organizations. In addition, according to the USGBC, as of November 2011, more than 170,000 building professionals across all areas of practice have become LEED credentialed professionals through The Green Building Certification Institute’s professional credentialing program. According to USGBC, buildings in the U.S. are responsible for approximately 39% of carbon dioxide emissions, approximately 40% of energy consumption, approximately 13% water consumption and approximately 15% of GDP per year, making green building a source of significant economic and environmental opportunity.

The LEED rating system has been adopted as the green building standard by the federal government and many state and local governments nationwide. According to the USGBC, as of September 2010, various LEED initiatives including legislation, executive orders, resolutions, ordinances, policies, and incentives have been implemented in 45 states, including 442 localities (384 cities/towns and 58 counties), 35 state governments (including the Commonwealth of Puerto Rico), 14 federal agencies or departments, and numerous public school jurisdictions and institutions of higher education across the U.S. The General Services Administration, or the GSA, the landlord for the civilian federal government, has adopted a requirement that all new GSA construction and substantial renovations of federally-owned properties must achieve a minimum of LEED Gold certification.

Potential benefits of LEED certified and other green buildings include healthier work environments through improved natural light, ventilation, thermal control and air quality, lower energy, water and waste disposal costs, lower maintenance and operations costs and savings stemming from improved health, increased productivity and decreased turnover of workers. According to the 2009 study “Doing Well by Doing Good? Green Office Buildings” by Eichholtz, Kok & Quigley, office buildings with either a U.S. Environmental Protection Agency Energy Star or LEED certification were found to command a premium in rental rates and sales prices over conventional office buildings. In the 2009 study “Why Do Companies Rent Green? Real Property and Corporate Social Responsibility” by Eichholtz, Kok & Quigley, the authors propose that in addition to economic benefits and improved employee health, the use of green space by a corporate tenant may signal to the corporation’s stockholders and customers that it has “a long-run commitment” to a corporate social responsibility policy. The authors argue that corporate tenants may seek out green building space in order to improve their reputation and help attract and retain employees and customers.

We believe that the potential environmental, health-related and economic benefits of green buildings will continue to drive the growth of the green building industry and increase demand among corporate tenants for LEED certified buildings. By targeting existing LEED certified properties and working towards LEED certification for properties that are not LEED certified at the time of acquisition, we believe that we will be able to attract and retain commercial tenants who recognize and appreciate the advantages of green buildings. Further, we believe that we will be able to benefit from the premiums that we believe can be charged for renting space in LEED certified buildings, which we believe will allow us to maximize income from our portfolio for distributions to our stockholders.

Target Markets

When products enter the United States and are shipped across the country, they generally follow predetermined cargo routes through major distribution hubs or “gateway” markets that are strategically located near ports, railways, major highway trucking routes and cargo airports. We have identified five key “gateway” markets that we believe are well-suited for industrial real estate investing. We intend to invest up to 80% (by acquisition cost) of our portfolio in industrial properties located within these gateway markets and their sub-markets:


Gateway Markets	Approximate Square Feet of Industrial Space⁽¹⁾
Greater Los Angeles Area (Los Angeles, Orange County and Inland Empire)		1,214,146,315
Chicago		1,120,423,930
New York/New Jersey		724,311,477
Atlanta		500,879,539
Dallas/Fort Worth		518,977,780

Gateway Markets Total		4,078,739,041

U.S. Total		11,988,386,626

(1)	According to Jones Lang LaSalle North America Industrial Outlook Q4 2011.

The gateway markets are characterized by the following traits:

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Location. Each gateway market is located near large areas of dense population.

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Excellent Transportation Infrastructure. Each of the gateway markets are distribution hubs that connect airports, highways and/or ports.

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Deep Draft Ports. Each of the gateway markets have access to a deep draft port. According to the American Association of Port Authorities and the U.S. Census Bureau, deep draft ports, which accommodate ocean-going vessels, account for approximately 99% of all import and export traffic through U.S. ports by volume and approximately 64% by value.

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Infill Markets. Each of the gateway markets is an infill market, or a market with significant physical barriers to new development. According to AMB Infill Strategy, July 2010, infill industrial submarkets receive a 220 basis point premium in total return over secondary markets over the past ten years and have outperformed less supply constrained submarkets in occupancy by more than 300 basis points over the past ten years.

We believe that the gateway markets possess the following specific positive attributes:

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Greater Los Angeles Area

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According to the U.S. Census Bureau, Population Distribution in 2005, Los Angeles is the second largest population center in the U.S.

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Los Angeles is the busiest port in the U.S. according to the Intermodal Association of North America (IANA), Intermodal Industry Statistics, Top 20 U.S. Ports.

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According to Grubb & Ellis, Logistics Market Trends, First Half 2010, approximately 44% of all containerized cargo that enters the U.S. passes through ports in Southern California.

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According to Jones Lang LaSalle North America Industrial Outlook Q2 2010, as of June 2010, Los Angeles had the lowest industrial property vacancy rate of any major market in the U.S.

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Chicago

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According to the U.S. Census Bureau, Population Distribution in 2005, Chicago is the third largest population center in the U.S.

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A centralized location in the U.S. with an extensive transportation network of airports, highways and rail lines and a strong manufacturing and distribution base.

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According to the U.S. Department of Transportation, Federal Railroad Administration (2010), Chicago is the largest rail hub in the U.S. and more than half of all U.S. freight passes through Chicago rail yards.

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New York/New Jersey

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According to the U.S. Census Bureau, Population Distribution in 2005, New York is the largest population center in the U.S.

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According to the IANA, Intermodal Industry Statistics, Top 20 U.S. Ports, New York is the 3^rd busiest port in the U.S.

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According to The Port Authority of New York & New Jersey, Terminal Improvements (2010), The Port Authority of New York and New Jersey has launched $3 billion in improvement initiatives to the Port of New York and New Jersey.

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According to the Jones Lang LaSalle North America Industrial Outlook Q2 2010, Northern New Jersey saw an increase from May 2009 to May 2010 in container traffic (22%), vehicle volume (32%) and intermodal rail (18%).

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Atlanta

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Receives goods from the ports of Charleston, Jacksonville and the Port of Savannah, the 4^th busiest port in the U.S. according to the IANA, Intermodal Industry Statistics, Top 20 U.S. Ports.

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According to the Georgia Department of Transportation Statewide Strategic Transportation Plan, 2010-2030, approximately $1.2 billion in improvements are currently planned for the Port of Savannah in order to increase its capacity.

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The industrial hub of the Southern U.S. with a well-developed transportation infrastructure and multiple airports, highways and rail lines.

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Dallas/Fort Worth

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A centrally located distribution center with access to an extensive network of interstate highways, railways and cargo airports.

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Access to Houston, the 7^th busiest port in the U.S. according to the IANA, Intermodal Industry Statistics, Top 20 U.S. Ports.

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According to the Jones Lang LaSalle North America Industrial Outlook Q2 2010, the Dallas/Fort Worth economy has outperformed most others in the nation, with positive job growth each month since January 2010.

In addition to the gateway markets listed above, we may invest in any other market or submarket in the U.S., including, without limitation, Memphis, Houston, Phoenix, Orlando, Miami, Seattle and Boston. We may also make selective investments in properties located in Canada, Mexico, Europe, Asia and South America, although we anticipate that investments in properties located in such international markets will be limited to no more than 10% of the aggregate cost of our portfolio.

Portfolio Diversification

In order to reduce the risk profile of our investments and enhance our ability to meet our investment objectives, we intend to acquire a portfolio of industrial properties that is diversified in terms of geography, tenants, tenant industry and lease rollover or expirations. In particular, we will generally seek to avoid having any single tenant account for a significant portion of our total net rental income and, to the extent reasonably practicable, we will manage our portfolio so as to avoid excessive amounts of lease rollover or expirations in any given year in relation to our average annual lease rollover or expirations. Notwithstanding the foregoing, there can be no assurance that we will achieve our objective of portfolio diversification, and the number and mix of properties we acquire will ultimately depend upon real estate market conditions and other circumstances existing at the time we acquire properties, as well as the amount of proceeds we raise in the Offering. We are not limited as to the geographic area in which we may conduct our operations, although we intend to focus on investments within the U.S. We are not specifically limited in the number or size of properties we may acquire, or in the percentage of net proceeds of the Offering that we may invest in a single property, provided that our board of directors must determine that each investment we make is in the best interests of our stockholders. Although we intend to focus on investments in industrial properties, we are not restricted to investments in such properties. See “– Other Property Investments” below.

Lease Terms

We anticipate that the majority of the properties we acquire will be leased to tenants pursuant to relatively long-term leases with terms of 3 to 10 years or more at the time of the property acquisition, although we may acquire properties leased to tenants with shorter lease terms if the property is in an attractive location or has other significant favorable attributes. In addition, we may acquire properties which are completely or partially vacant at the time of acquisition. We anticipate that the majority of the leases at properties we acquire will provide for fixed annual base rentals with periodic rental increases based on the consumer price index or similar adjustments, which we believe will help ensure consistent, predictable income over time. We do not anticipate that any of the rentals due under leases at our properties will be based on the income or profits of any tenant or other person. Generally, we anticipate that the leases at properties we acquire will require each tenant to procure, at its own expense, commercial general liability insurance. The landlord obtains property insurance covering the building for the full replacement value and naming the ownership entity and the lender, if applicable, as the additional insured on the policy, and the tenant then reimburses the landlord for this expense.

We anticipate that the majority of the properties we acquire will be leased to tenants under what is generally referred to as a “triple net” or “NNN” lease. A triple net lease typically provides that the tenant of a property is required to pay or reimburse the landlord of the property for all or a majority of the cost of property repairs and maintenance, property taxes, utilities, insurance, capital costs and management and other operating costs, in addition to lease payments. As the landlord in a net lease, depending on market conditions, we may have responsibility for certain capital repairs or replacements of specific structural components of the property such as the roof of the building, the truck court and parking areas and the interior floor or slab of the building. When space in a property becomes vacant, existing leases expire, or we acquire properties under development or requiring substantial refurbishment or renovation, we anticipate that we will enter into triple net leases. Notwithstanding the foregoing, the terms and conditions of any lease we enter into with our tenants may vary substantially from those we describe herein.

We anticipate that tenant improvements required to be funded by us as the landlord under leases in connection with newly acquired properties will be funded from our offering proceeds. However, when a tenant at one of our properties does not renew its lease or otherwise vacates its space in one of our properties, we may be required to expend funds for tenant improvements and tenant refurbishments to the vacated space in order to attract new tenants. Given that we do not anticipate maintaining permanent working capital reserves, we may not have access to funds required in the future for tenant improvements and tenant refurbishments in order to attract new tenants to lease vacated space.

Creditworthiness of Tenants

Our advisor has developed a specific underwriting process for determining the creditworthiness of in-place and prospective tenants at our properties. Our advisor’s underwriting process will include analyzing financial data and other information about the tenant, such as income statements, balance sheets, net worth, cash flow, business plans and data provided by industry credit rating services. In evaluating the credit worthiness of an in-place or prospective tenant, our advisor may not always use specific quantifiable standards, and may consider a variety of other factors, including, as applicable, the proposed terms of the acquisition, the operating history of the property with such tenant or tenants, the tenant’s market share and track record within its industry segment, the general health and outlook of the tenant’s industry segment, the lease length and terms at the time of the acquisition and any other information our advisor may deem relevant.

Although we may enter into leases with any type of tenant, we anticipate that a majority of the tenants in the industrial properties in which we invest will be corporations or other entities that have a substantial net worth and operating income, or whose lease obligations are guaranteed by another corporation or entity with a substantial net worth or who otherwise meet the creditworthiness standards developed by our advisor. We believe that leasing our properties to credit-worthy tenants will help provide greater certainty of lease payments and stabilized occupancy over time. In instances in which we obtain guarantees of leases by the corporate parent of the tenant, our advisor will typically analyze the creditworthiness of the guarantor using similar methods to those described above for determining the creditworthiness of tenants.

Form of Ownership

Our investments in real properties will generally take the form of holding fee title or a long-term leasehold estate. We intend to acquire such interests either (1) directly through our operating partnership or (2) indirectly through wholly-owned limited liability companies or through investments in joint ventures, partnerships, limited liability companies, co-tenancies or other co-ownership arrangements with the developers of the real properties, affiliates of our advisor or other entities. We may also obtain options to acquire real estate properties. The amount paid for any such option, if any, is normally surrendered if the property is not purchased and may or may not be credited against the purchase price if the property is purchased. In addition, we may purchase properties and lease them back to the sellers of such properties. While we will use our best efforts to structure any such leaseback transaction such that the lease will be characterized as a “true lease” so that we will be treated as the owner of the property for federal income tax purposes, we cannot give assurance that the Internal Revenue Service will not challenge such characterization. In the event that any such re-characterization was successful, deductions for depreciation and cost recovery relating to such real property would be disallowed, interest and penalties could be assessed by the Internal Revenue Service and it is possible that under some circumstances we could fail to qualify as a REIT.

Due Diligence

Prior to investing in a real property, our advisor will undertake an extensive property and site review. Our advisor will typically also undertake a long-term viability and fair value analysis, including an inspection of the property and surrounding area by an acquisition specialist and an assessment of market area demographics. Depending on the property to be acquired and terms agreed to, our advisor or a qualified affiliate of our advisor will obtain, evaluate and assess, as applicable, the following:

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historical net operating income data of the property;

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historical occupancy rates at the property;

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a list of the current tenants at the property and the terms of their respective leases;

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the financial condition and creditworthiness of current tenants at the property;

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a schedule of historical, current year and projected future tenant improvements and capital expenditures;

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historical and projected operating expenses for the property along with that of the comparable properties;

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current and historical data on real estate taxes and potential increases in real estate taxes over the projected term of the investment;

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competitive rents in the same geographical area for similar properties;

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historical, current year and projected utility expenses for the property;

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service and vendor contracts, parking management agreements, ground leases, and property management agreements related to the property;

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macroeconomic and microeconomic employment and demographic data and trends of the submarket where the property is located;

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regional, market and property specific supply and demand dynamics;

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physical condition and design characteristics of the property;

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property location and positioning within its market; and

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all appropriate environmental due diligence assessments and reports, including, but not limited to, a preliminary investigation comprised of record reviews, interviews and physical property inspections.

Other Property Investments

We intend to invest primarily in industrial properties. However, we may also make selective acquisitions of other types of commercial properties that we determine meet our overall investment objectives. We believe that the recent downturn in the commercial real estate market has provided an opportunity for us to purchase these types of investment properties at historically low prices during the period in which we will be investing the net proceeds of the Offering, thereby enhancing our ability to realize substantial appreciation on the ultimate dispositions of the properties. In selecting investments in other property types, we will generally follow the same criteria and guidelines outlined above for industrial investments, adapted as necessary to meet the unique characteristics of each property type.

Development and Construction of Real Properties

We may invest a portion of the proceeds available for investment from the Offering in unimproved land upon which improvements are to be constructed or completed or which require substantial renovation or refurbishment. However, we do not expect that investments in unimproved real properties which are not acquired for the purpose of immediately producing rental or other operating income and on which development or construction is not expected to occur within one year of the acquisition will exceed 10% of the overall cost of our property portfolio. Development of real properties is subject to risks relating to the ability of the builder or developer to control construction costs and build in conformity with plans, specifications and timetables. Our Advisor may elect to employ one or more project managers (who under some circumstances may be affiliated with our Advisor) to plan, supervise and implement the development and construction of any unimproved real properties which we acquire. Any such project managers would be compensated by us.

Acquisitions from Affiliates

We are not precluded from acquiring real properties, directly or through joint ventures, from our affiliates. All such transactions or investments will be approved by a majority of our independent directors and, generally, may not be acquired for a value, at the time the transaction was entered into, in excess of the appraised fair market value of such investment. Subject to this limitation, our sponsor, its affiliates and its employees (including our officers and directors) may make substantial profits in connection with any such investment and our cost to acquire the property may be in excess of the cost that we would have incurred if we had acquired the property from an unaffiliated third party. See “Risk Factors – Risks Related to Conflicts of Interest.”

Joint Venture Investments

We may enter into joint ventures, partnerships, co-tenancies and other co-ownership arrangements or participations with real estate developers, owners and other affiliated or non-affiliated third parties for the purpose of owning and/or operating real properties. We may also enter into joint ventures for the development or improvement of properties. Joint venture investments permit us to own interests in large properties and other investments without unduly limiting the diversity of our portfolio. Our investment may be in the form of equity or debt. In determining whether to recommend investment in a particular joint venture, our Advisor will evaluate the real property that such joint venture owns or is being formed to own under the same criteria described elsewhere in this Annual Report on Form 10-K for the selection of our real property investments.

We have not established the specific terms we will require in the joint venture agreements we may enter into, or the safeguards we will apply to, or require in, our potential joint ventures. Particular terms and conditions or safeguards we will require in joint ventures will be determined on a case-by-case basis after our Advisor and board of directors consider all facts they feel are relevant, such as the nature and attributes of our other potential joint venture partners, the proposed structure of the joint venture, the nature of the operations, liabilities and assets the joint venture may conduct and own, and the proportion of the size of our interest when compared to the interests owned by other parties. We expect to consider specific safeguards to address potential consequences relating to:

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the management of the joint venture, such as obtaining certain approval rights in joint ventures we do not control or providing for procedures to address decisions in the event of an impasse if we share control of the joint venture;

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our ability to exit a joint venture, such as requiring buy/sell rights, redemption rights or forced liquidation under certain circumstances; and

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our ability to control transfers of interests held by other parties in the joint venture, such as requiring consent, rights of first refusal or forced redemption rights in connection with transfers.

Any joint ventures with our affiliates will result in certain conflicts of interest. See “Risk Factors – Risks Related to Conflicts of Interest.”

Real Estate-Related Assets

We may invest a portion of our portfolio in real estate-related assets other than properties. These real estate-related assets include, but are not limited to, first mortgages and other indebtedness secured by high-quality industrial properties. We will initially target (1) loans that, due to the recent general downturn in economic conditions, are in default or (2) loans that the borrower is unable to refinance and, therefore, the borrower is likely to default on, which we refer to as “distressed loans.” Holders of distressed loans must choose between foreclosing upon the real property securing the distressed loan or selling the loan. Many holders of distressed loans generally avoid foreclosure proceedings on the real property securing the distressed loan due to the sometimes lengthy and expensive nature of the foreclosure process. Moreover, most lenders do not have the expertise necessary to effectively manage commercial real estate and do not wish to incur the costs and liabilities associated with the ownership of real property. An event of default by the borrower under these loans may present us with attractive opportunities to acquire the properties securing these loans through foreclosure in what is commonly referred to as a “loan-to-own” transaction.

When determining whether to make investments in real estate-related assets, we will consider a variety of factors, including:

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positioning our overall investment portfolio to achieve an optimal mix of real estate investments;

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the diversification benefits of the real estate-related assets relative to the rest of our portfolio;

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the potential for the investment to deliver high current income and attractive risk-adjusted total returns; and

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other factors considered important to meeting our investment objectives.

Debt Investments

Our investments in real estate-related assets will focus primarily on acquiring first mortgage loans. We believe that the current credit market conditions provide us with substantial near-term opportunities to invest in these types of assets at a discount to their par value in order to realize predictable income and attractive overall returns. We may invest in mortgage loans structured to permit us to retain the entire loan or to sell or securitize the lower yielding senior portions of the loan and retain the higher yielding subordinate investment (or vice-versa). We may also acquire seasoned mortgage loans in the secondary market secured by single assets as well as portfolios of performing loans originated by third party lenders such as banks, life insurance companies and other owners. We will not make or invest in mortgage loans unless we obtain an appraisal of the underlying property from a certified independent appraiser. We will maintain each appraisal in our records for at least five years. In addition to the appraisal, we will seek to obtain a customary lender’s title insurance policy or commitment as to the priority of the mortgage or condition of the title. In evaluating a potential investment in a mortgage loan, we will generally focus upon the quality of the underlying property as opposed to the credit quality of the loan, as we will typically seek to eventually acquire the underlying property securing the loan pursuant to a loan-to-own transaction. However, we will not make or invest in mortgage loans on any one property if the aggregate amount of all mortgage loans outstanding on the property, including our borrowings, would exceed an amount equal to 85% of the appraised value of the property, unless we find substantial justification for exceeding such limit due to the presence of other underwriting criteria. We may find such substantial justification in connection with the purchase of mortgage loans in cases in which we believe there is a high probability of our foreclosure upon the property in order to acquire the underlying assets and in which the cost of the mortgage loan investment does not exceed the appraised value of the underlying property.

In addition to investments in first mortgages, we may make selective investments in other real estate loans, including second mortgage loans, mezzanine loans, bridge loans and participations in such loans in situations in which we believe that the underlying credit and/or property is attractive and the potential returns to us are significant given the level of associated risk.

In evaluating prospective investments in loans, our Advisor will consider a variety of factors, including the following:

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the fundamentals of the underlying property and other collateral by which it is secured;

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the ratio of the amount of the investment to the value of the underlying property and other collateral by which the underlying property is secured;

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the liquidity of the investment;

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the quality, experience and creditworthiness of the borrower and/or guarantor; and

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general economic conditions.

Our Advisor will evaluate all potential loan investments to determine if the security for the loan and the loan-to-value ratio meets our investment criteria and objectives. Although most loans that we will consider for investment would provide for monthly payments of interest only and repayment of principal at maturity, some loans may also provide for principal amortization.

Equity Securities

We may seek to invest in other real estate companies when we consider it more efficient to acquire an entity that already owns assets meeting our investment objectives than to acquire such assets directly. In most cases, we will evaluate the feasibility of investing in these entities using the same criteria we will use in evaluating a particular property. These investments will be made through the purchase of common or preferred stock or options to acquire stock. We do not expect our non-controlling equity investments in other public companies to exceed 10% of the proceeds of the Offering, assuming we sell the Maximum Offering Amount, or to represent a substantial portion of our assets at any given time.

Borrowing Policies

We intend to use leverage to provide additional funds to support our investments in properties. We expect that after we have invested substantially all of the proceeds of the Offering in properties and real estate-related assets, our debt financing will be approximately 50% of the sum of the cost of our real properties (before deducting depreciation and amortization) plus the value of our other investments. During the period when we are acquiring our portfolio, we expect to temporarily employ greater leverage in order to quickly build a diversified portfolio of assets. By operating on a leveraged basis, we expect that we will have more funds available for investments. This will generally allow us to make more investments than would otherwise be possible, potentially resulting in enhanced investment returns and a more diversified portfolio. However, our use of leverage increases the risk of default on loan payments and the resulting foreclosure on a particular asset. In addition, lenders may have recourse to assets other than those specifically securing the repayment of the indebtedness. When debt financing is unattractive due to high interest rates or other reasons, or when financing is otherwise unavailable on a timely basis, we may purchase certain assets for cash with the intention of obtaining debt financing at a later time.

We may leverage our portfolio by assuming or incurring secured or unsecured asset-level or operating partnership-level debt. An example of asset-level debt is a mortgage loan secured by an individual real estate property or portfolio of real estate properties incurred or assumed in connection with our acquisition of such property or portfolio of properties. An example of operating partnership-level debt is borrowing under a line of credit. Borrowings under a line of credit may be used to fund acquisitions, to repurchase shares or for any other corporate purpose.

Our board of directors will review our aggregate borrowings, including secured and unsecured debt, at least quarterly to ensure they remain reasonable in relation to our net assets and may from time to time modify our leverage policy in light of then-current economic conditions, relative costs of debt and equity capital, fair values of our properties, general conditions in the market for debt and equity securities, growth and acquisition opportunities or other factors. Our actual leverage may be higher or lower than our target leverage depending on a number of factors, including the availability of attractive investment and disposition opportunities, inflows and outflows of capital and increases and decreases in the value of our portfolio. In particular, large outflows of capital over short periods of time could cause our leverage to be substantially higher than our 50% target.

There is no limitation on the amount we may invest in any single improved real property. However, under our charter, we are precluded from borrowing in excess of 300% of the value of our net assets. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, reserves for bad debts or other non-cash reserves, less total liabilities. The preceding calculation is generally expected to approximate 75% of the aggregate cost of our assets. However, we may borrow in excess of this amount if such excess is approved by a majority of the independent directors and disclosed to stockholders in our next quarterly report, along with a justification for such excess. In the event that we borrow in excess of the debt limitations in our charter, we will review our debt levels at that time and take action to reduce any such excess as soon as practicable.

Our charter restricts us from obtaining loans from any of our directors, our Advisor and any of our affiliates unless such loan is approved by a majority of the directors, including a majority of the independent directors, not having a conflict of interest in the transaction as fair, competitive and commercially reasonable and no less favorable to us than comparable loans between unaffiliated parties. Our aggregate borrowings will be reviewed by our board of directors at least quarterly.

Disposition Policies

We generally will acquire properties with an expectation of holding each property for an extended period. However, circumstances might arise which could result in a shortened holding period for certain properties. The period that we will hold our real estate-related assets will vary depending on the type of asset, interest rates and other factors. Our Advisor will develop an exit strategy for each investment we make in a property or real estate-related asset that will be modified over the period we hold the investment in order to conform to changing market conditions and property-level factors. Our Advisor will continually perform a hold-sell analysis on each investment we make in a property or real estate-related asset in order to determine the optimal time to hold the investment and generate an attractive return for our stockholders. Economic and market conditions may influence us to hold investments for different periods of time. We may dispose of a property or real estate-related asset before the end of the expected holding period if we believe that market conditions have maximized its value to us or the sale of the asset would otherwise be in the best interests of our stockholders. Relevant factors our Advisor will consider when considering whether to dispose of a property or real estate-related asset include:

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the prevailing economic, real estate and securities market conditions;

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the extent to which the investment has realized its expected total return;

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benefits associated with disposing of the investment and diversifying and rebalancing our investment portfolio;

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the opportunity to pursue a more attractive investment;

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compliance with REIT qualification requirements;

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the involuntarily liquidation or lease default of a major tenant at a property;

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the opportunity to enhance overall investment returns through sale of the investment;

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the fact that the investment was acquired as part of a portfolio acquisition and does not meet our general acquisition criteria;

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our Advisor’s judgment that the value of the investment might decline;

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liquidity benefits with respect to the availability of sufficient funds for our share repurchase program; and

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other factors that, in the judgment of our Advisor, determine that the sale of the investment is in our stockholders’ best interests.

The determination of whether a particular investment should be sold or otherwise disposed of will be made after consideration of all relevant factors, including prevailing economic conditions, with a view toward achieving maximum total return for the investment. We cannot make assurances that this objective will be realized. The selling price of a real property which is net leased will be determined in large part by the amount of rent payable under the leases for such real property and the remaining term of the leases. In connection with our sales of real properties, we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale. The terms of payment will be affected by custom in the area in which the real property being sold is located and by the then-prevailing economic conditions. We may sell investments to affiliates. While there is no minimum on the price we must receive in such transactions, a majority of our directors, including a majority of our independent directors, not otherwise interested in such transaction must approve such transactions as being fair and reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties.

Conflicts of Interest

We are subject to various conflicts of interest arising out of our relationship with our sponsor and its affiliates, some of whom serve as our executive officers and directors, including the following:

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the officers and key personnel of our Advisor must allocate their time between advising us and managing our sponsor’s and our other affiliates’ businesses and the other real estate projects and business activities in which they may be involved;

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the compensation payable by us to our Advisor and other affiliates may not be on terms that would result from arm’s-length negotiations between unaffiliated parties, and fees such as the acquisition fees and asset management fees payable to our Advisor are based upon the cost of assets we acquire and will generally be payable regardless of the value or performance of the assets we acquire, and thus may create an incentive for the Advisor to accept a higher purchase price for assets or to purchase assets that may not otherwise be in our best interest;

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the property management fees payable to our property manager will generally be payable regardless of the quality of services provided to us; and

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the real estate professionals acting on behalf of our Advisor must determine which investment opportunities to recommend to us and any other entities advised by such professionals.

Our officers and affiliates of our Advisor will try to balance our interests with the interests of real estate programs sponsored by our sponsor to whom they owe duties. However, to the extent that these persons take actions that are more favorable to other entities than to us, these actions could have a negative impact on our financial performance and, consequently, on distributions to our stockholders and the value of our stock. In addition, our directors, officers and certain of our stockholders may engage for their own account in business activities of the types conducted or to be conducted by our subsidiaries and us.

Our independent directors have an obligation to function on our behalf in all situations in which a conflict of interest may arise and will have a fiduciary obligation to act on behalf of our stockholders. Our directors also have a fiduciary obligation to supervise our relationship with our Advisor.

Certain Conflict Resolution Procedures

We have adopted the procedures set forth below to address the potential conflicts of interest arising out of our relationship with our Advisor and its affiliates.

Allocation of Investment Opportunities

Many investment opportunities that are suitable for us may also be suitable for our sponsor or affiliates of our sponsor. Under the Advisory Agreement, our sponsor has agreed that any opportunity identified by our sponsor or its affiliates to invest in an industrial property that is suitable for us and one or more affiliates must first be presented to us for potential investment. Unless our board of directors determines not to proceed with the investment, the investment opportunity must not be presented to any other real estate investment fund, program or joint venture owned, managed or advised by our sponsor or any of its affiliates. Our sponsor or its affiliates are not required to present any such investment opportunity to us during any period in which we do not have sufficient available funds, or a reasonable opportunity of obtaining available funds, with which to make the investment.

Compensation Involving Our Advisor and its Affiliates

The independent directors will evaluate at least annually whether the compensation that we contract to pay to our Advisor and its affiliates is reasonable in relation to the nature and quality of services performed and that such compensation is within the limits prescribed by our charter. The independent directors will supervise the performance of our Advisor and its affiliates and the compensation we pay to them to determine that the provisions of our compensation arrangements are being performed appropriately. This evaluation will be based on the factors set forth below as well as any other factors deemed relevant by the independent directors:

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the quality and extent of the services and advice furnished;

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the amount of fees paid in relation to the size, composition and performance of our investments;

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the success of our Advisor in generating investment opportunities that meet our investment objectives;

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rates charged to other externally advised REITs and similar investors by advisors performing similar services; and

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additional revenues realized by our Advisor and its affiliates through their relationship with us, whether we pay them or they are paid by others with whom we do business.

The independent directors will record these factors in the minutes of the meetings at which they make such evaluations. Our independent directors will not approve the renewal of the Advisory Agreement for another one-year term if they determine that the compensation that we pay to our Advisor and affiliates is not reasonable in relation to the nature and quality of the services performed based upon the factors set forth above. In such circumstances, we would expect our independent directors to negotiate changes to the fees payable to our Advisor and affiliates in connection with the renewal of the Advisory Agreement. If the result of such negotiations were not acceptable to our independent directors, our independent directors could ultimately determine that it is in the best interests of our company and our stockholders to hire a third party to serve as our advisor.

Acquisition, Leases and Sales Involving Affiliates

We will not purchase or lease assets in which our sponsor, our Advisor, any of our directors or any of their affiliates has an interest without a determination by a majority of our board of directors (including a majority of the independent directors) not otherwise interested in the transaction that such transaction is fair and reasonable to us and on terms and conditions no less favorable to us than those available from unaffiliated third parties. In no event may we acquire any such asset at an amount in excess of its current appraised value.

Our charter provides that the consideration we pay for real property will ordinarily be based on the fair market value of the property as determined by a majority of the members of our board of directors or the members of a duly authorized committee of the board. In cases in which a majority of our independent directors so determine, and in all cases in which real property is acquired from our Advisor, any of our directors or any of their affiliates, the fair market value shall be determined by an independent expert selected by our independent directors not otherwise interested in the transaction.

Mortgage Loans Involving Affiliates

Our charter generally prohibits us from investing in or making mortgage loans, including when the transaction is with our Advisor, or our sponsor, our directors or any of their affiliates, unless an independent expert appraises the underlying property. We must keep the appraisal for at least five years and make it available for inspection and duplication by any of our common stockholders. In addition, we must obtain a mortgagee’s or owner’s title insurance policy or commitment as to the priority of the mortgage or the condition of the title. Our charter prohibits us from making or investing in any mortgage loans that are subordinate to any lien or other indebtedness of our sponsor, our Advisor, our directors or any of our affiliates.

Loans and Expense Reimbursements Involving Affiliates

We will not make any loans to our Advisor, our sponsor, our directors or any of their affiliates except mortgage loans for which an appraisal is obtained from an independent appraiser. In addition, we will not borrow from these persons unless a majority of our board of directors, including a majority of the independent directors, approve the transaction as being fair, competitive and commercially reasonable, and no less favorable to us than comparable loans between unaffiliated parties. These restrictions on loans will only apply to advances of cash that are commonly viewed as loans, as determined by our board of directors. By way of example only, the prohibition on loans would not restrict advances of cash for legal expenses or other costs incurred as a result of any legal action for which indemnification is being sought, nor would the prohibition limit our ability to advance reimbursable expenses incurred by our directors or officers, our sponsor, our advisor or any of their affiliates.

In addition, our directors and officers, our sponsor, our Advisor, and any of their affiliates will be entitled to reimbursement, at cost, for actual expenses incurred by them on behalf of us or joint ventures in which we are a joint venture partner, subject to the limitation on reimbursement of operating expenses to the extent that they exceed the greater of 2% of our average invested assets or 25% of our net income.

Employees

We do not currently have any employees nor do we currently intend to hire any employees who will be compensated directly by us. Each of our executive officers, including each executive officer who serves as a director, is employed by our Advisor or its affiliates and receives compensation for his or her services, including services performed on our behalf, from our Advisor or its affiliates. We do not intend to pay any compensation directly to our executive officers. Our executive officers, as employees of our Advisor or its affiliates, will be entitled to receive awards in the future under our long-term incentive plan as a result of their status as employees of our Advisor, although we do not currently intend to grant any such awards.

We are dependent on our Advisor and its affiliates for services that are essential to us, including the sale of shares of our common stock in the Offering, asset acquisition decisions, property management and other general administrative responsibilities. In the event that these entities were unable to provide these services to us, we would be required to obtain such services from other sources.

We reimburse our Advisor and its affiliates for expenses incurred in connection with its provision of administrative, acquisition, property management, asset management, financing, accounting and investor relations services to us, including personnel costs, subject to certain limitations. During the years ended December 31, 2012, 2011 and 2010 we did not incur any amounts in connection with such services.

Insurance

See section captioned “– Lease Terms.”

Competition

As we purchase properties, we may compete with other affiliates for opportunities to acquire or sell real properties in certain geographic areas. As a result of this competition, certain investment opportunities may not be available to us. We and our Advisor have developed procedures to resolve potential conflicts of interest in the allocation of investment opportunities between us and our affiliates. Our Advisor is required to provide information to our board of directors to enable our board of directors, including the independent directors, to determine whether such procedures are being fairly applied.

Certain of our sponsor’s affiliates currently own or manage properties in geographic areas in which we expect to acquire properties. Conflicts of interest will exist to the extent that we own or manage real properties in the same geographic areas where real properties owned or managed by other affiliates are located. In such a case, a conflict could arise in the leasing of real properties in the event that we and another affiliate were to compete for the same tenants in negotiating leases, or a conflict could arise in connection with the resale of real properties in the event that we and another affiliate were to attempt to sell similar real properties at the same time. Conflicts of interest may also exist at such time as we or our affiliates managing real property on our behalf seek to employ leasing agents, developers, contractors or building managers.

Concentration of Credit Risk

As of December 31, 2012, we had no cash on deposit in excess of federally insured levels. We limit investment of cash investments to financial institutions with high credit standing; therefore, we believe we are not exposed to any significant credit risk on cash.

For the year ended December 31, 2012, two tenants accounted for 100% of the Company’s 2012 gross annualized rental revenues.

Litigation

In the ordinary course of business, we may become subject to litigation or claims. We are not aware of any material pending legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition.

Environmental Matters

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. In connection with ownership and operation of real estate, we may be potentially liable for costs and damages related to environmental matters. We intend to take commercially reasonable steps to protect ourselves from the impact of these laws, including obtaining environmental assessments of most properties that we acquire.

Available Information

Our principal executive offices are located at 3 San Joaquin Plaza, Suite 160, Newport Beach, California, 92660 and our telephone number is (949) 718-9898. We maintain a website at www.theindustrialREIT.com, at which there is additional information about us and our affiliates. The contents of that site are not incorporated by reference in, or otherwise a part of, this filing.

We electronically file our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports with the SEC. We have also filed Registration Statements on Form S-11, amendments to our Registration Statements and supplements to our prospectuses in connection with our Offering. Copies of our filings with the SEC may be obtained from the SEC’s website, at http://www.sec.gov. Access to these filings is free of charge.

ITEM 1A. RISK FACTORS

The factors described below represent our principal risks. Other factors may exist that we do not consider to be significant based on information that is currently available or that we are not currently able to anticipate.

General Investment Risks

We have no prior operating history, and there is no assurance that we will be able to successfully achieve our investment objectives.

We, our sponsor and our Advisor are newly formed entities with no prior operating history and our management and the management of our Advisor have no prior experience operating a public company. Because there is no assurance that we will be able to successfully achieve our investment objectives, an investment in shares of our common stock may entail more risk than an investment in the stock of a real estate investment trust with a substantial operating history.

Due to the fact that the Offering is a “blind pool” offering, stockholders will not have the opportunity to evaluate our investments prior to purchasing shares of our common stock.

Neither we nor our Advisor has made any investments or identified any investments that we may make with the proceeds of the Offering. As a result, we are not able to provide stockholders with any information to assist them in evaluating the economic merits, transaction terms or other financial or operational data concerning any specific investment that we have made or may make prior to stockholders’ purchases of shares of our common stock. Instead, stockholders must rely on our Advisor and our board of directors to implement our investment strategy and policies, to evaluate our investment opportunities and to structure the terms of our investments. Because stockholders are not able to evaluate our investments in advance of purchasing shares of our common stock, our Offering is more speculative and may entail more risk than other types of offerings. This additional risk may hinder stockholders’ ability to achieve their own personal investment objectives related to portfolio diversification, risk-adjusted investment returns and other objectives.

The Offering is a “best efforts” offering and if we are unable to raise substantial funds in the Offering, we will be limited in the number and type of investments we may make, which could negatively impact our stockholders’ investment.

Our Offering is being made on a “best efforts” basis, which means that the broker-dealers participating in the Offering are only required to use their best efforts to sell shares of our common stock, have no firm commitment or obligation to purchase any of the shares of our common stock and may choose to emphasize other investment products over our Offering. If we raise substantially less than the maximum offering amount in the Offering, we will make fewer investments, resulting in less diversification in terms of the number of investments we own, the geographic regions in which our real properties are located and the types of investments that we make. Further, it is likely that in our early stages of growth we may not be able to achieve portfolio diversification consistent with our longer-term investment objectives, increasing the likelihood that any single investment’s poor performance would materially affect our overall investment performance. Our inability to raise substantial funds and make investments would also increase our fixed operating expenses as a percentage of gross income. Each of these factors could have an adverse effect on our financial condition and ability to make distributions to our stockholders.

Disruptions in the financial markets and deteriorating economic conditions could adversely impact our ability to implement our investment strategy and achieve our investment objectives.

U.S. and global financial markets have recently experienced extreme volatility and disruption. There has been a widespread tightening in overall credit markets, devaluation of the assets underlying certain financial contracts and increased borrowing by governmental entities. The recent turmoil in the capital markets has constrained equity and debt capital available for investment in real estate, resulting in fewer buyers seeking to acquire properties, increases in capitalization rates and lower property values. Future disruptions in the financial markets and deteriorating economic conditions could impact the value of our investments in properties. Additionally, if potential purchasers of real properties continue to have difficulty finding debt to finance property acquisitions, capitalization rates could continue to increase and property values could continue to decrease. Current economic conditions greatly increase the risks of our investments. See “– Risks Related to Our Investments.”

We will have fewer funds available for investments and our stockholders’ overall return may be reduced if we pay distributions from sources other than our cash flow from operations.

Our organizational documents permit us to pay distributions from any source. If we fund distributions from financings or the net proceeds of the Offering, we will have less funds available for investment than if our distributions came solely from cash flow from operations and our stockholders’ overall return may be reduced. We expect to have little, if any, cash flow from operations available for distribution until we make substantial investments. Further, because we may receive income at various times during our fiscal year and because we may need cash flow from operations during a particular period to fund expenses, we expect that at least during the early stages of our development and from time to time during our operational stage, we will declare distributions in anticipation of cash flow that we expect to receive during a later period and we will pay these distributions in advance of our actual receipt of these funds. In these instances, we expect to look to third party borrowings to fund our distributions, but we may determine to use net proceeds from our Offering when borrowings are not available or if our board of directors determines it is appropriate to do so. We have not established a limit on the amount of proceeds we may use from the Offering to fund distributions.

In addition, if the aggregate amount of cash we distribute to stockholders in any given year exceeds the amount of our “REIT taxable income” generated during the year, the excess amount will either be (1) a return of capital or (2) a gain from the sale or exchange of property to the extent that a stockholder’s basis in our common stock equals or is reduced to zero as the result of our current or prior year distributions.

The success of the Offering and our ability to implement our business strategy are dependent, in part, on the ability of the Dealer Manager to implement its business strategy, to hire and retain key employees and to successfully establish, operate and maintain a network of broker-dealers.

The dealer manager for the Offering is SC Distributors, LLC. The success of our Offering and our ability to implement our business strategy are dependent upon the ability of our Dealer Manager to hire and retain key employees, establish, operate and maintain a network of licensed securities broker-dealers and other agents and implement its business strategy. The success of our Dealer Manager will be determined in large part by Patrick J. Miller, the president of our Dealer Manager, and the loss of his services could harm our ability to raise capital. If the Dealer Manager is unable to hire qualified employees, build a sufficient network of broker-dealers and implement its business strategy, we may not be able to raise adequate proceeds in our Offering to implement our investment strategy. In addition, our Dealer Manager intends to serve as the Dealer Manager for or participate in the distribution of the securities of other issuers. To the extent that our Dealer Manager serves as dealer manager for other issuers, our Dealer Manager may experience conflicts of interest in allocating its time between our Offering and such other issuers, which could adversely affect our ability to raise adequate proceeds in our Offering and implement our investment strategy. Further, the participating broker-dealers retained by our Dealer Manager may have numerous competing investment products, some with similar or identical investment strategies and areas of focus as us, which they may elect to emphasize to their retail clients.

Our stockholders may be required to hold their investment for an indefinite period.

Our charter does not require our board of directors to pursue a transaction providing liquidity to our stockholders within any specified period of time, or at all. Market conditions and other factors could cause us to delay the listing of our shares on a national securities exchange or delay the commencement of our liquidation or other type of liquidity transaction, such as a merger or sale of assets, beyond seven years from the termination of our offering stage. If our board of directors does determine to pursue a liquidity transaction, we would be under no obligation to conclude the process within a set time. If we adopt a plan of liquidation, the timing of the sale of assets will depend on real estate and financial markets, economic conditions in areas in which properties are located, and federal income tax effects on stockholders, that may prevail in the future. We cannot guarantee that we will be able to liquidate all of our assets. Even if we adopt a plan of liquidation, we would likely remain in existence until all our investments are liquidated. If we do not pursue a liquidity transaction, or delay such a transaction due to market conditions, shares of our common stock may continue to be illiquid and our stockholders may, for an indefinite period of time, be unable to convert their investment to cash easily and could suffer losses on their investment.

Our stockholders may not receive a full return of their invested capital due to the payment of fees to our Advisor and its affiliates, which reduces cash available for investment.

The full offering price paid by our stockholders will not be invested in real properties and real estate-related assets because a portion of the offering price from the sale of the shares of our common stock in our Offering will be used to pay expenses and fees. As a consequence, our stockholders will only receive a full return of their invested capital if (1) we sell our assets or our company for a sufficient amount in excess of the original purchase price of our assets or (2) the market value of our company after we list our shares of common stock on a national securities exchange substantially exceeds the original purchase price of our assets.

Our stockholders’ interests in us could be diluted and we could incur other significant costs associated with being self-managed if we internalize our management functions.

In the future our board of directors may elect to internalize our management functions, in which case we may elect to negotiate the acquisition of our Advisor’s assets and personnel. At this time, we cannot anticipate the form or amount of consideration we would pay in connection with an acquisition of our Advisor’s assets and personnel in an internalization transaction or the other terms relating to any such acquisition. Such consideration could take many forms, including cash payments, promissory notes and shares of our common stock. The payment of such consideration could result in dilution of our stockholders’ interests in us and could have an adverse effect on our results of operations and ability to make distributions to our stockholders. Additionally, following an internalization transaction, the real estate professionals at our Advisor that become our employees may receive more compensation than they received from our Advisor or its affiliates. These possibilities may provide incentives to our Advisor or these individuals to pursue an internalization transaction rather than an alternative strategy, even if such alternative strategy might otherwise be in our stockholders’ best interests.

Following an internalization of our management function, we would no longer bear the costs of the various fees and expenses we expect to pay to our Advisor under the Advisory Agreement. However, our direct expenses following an internalization of our management function would include general and administrative costs, including legal, accounting and other expenses related to corporate governance and compliance. We would also be required to employ personnel, and thus would be subject to the various potential liabilities commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances. In addition, we would incur the compensation and benefits costs of our officers and other employees and consultants that previously would have been paid by our Advisor or its affiliates. However, there are no assurances that the key personnel of our Advisor will become our employees upon any internalization of our Advisor, as they may instead remain employees of our sponsor or its affiliates. We cannot reasonably estimate the amount that we would save in fees and expenses that we would no longer be required to pay to our Advisor or the costs we would incur if we internalized our management function. If the expenses we assume as a result of an internalization of our management function exceed the amount that we save in fees and expenses that we would no longer be required to pay to our Advisor, our results of operations and our ability to make distributions to our stockholders could be materially and adversely affected.

In some cases internalization transactions involving the acquisition of an advisor have resulted in litigation. If we were to become involved in such litigation in connection with an internalization of our management functions, we could be forced to spend significant amounts of money defending ourselves in such litigation, regardless of the merit of the claims against us, which would reduce the amount of funds available for us to make investments or make distributions to our stockholders.

Our share repurchase program places certain limits on our stockholders’ ability to have their shares of common stock repurchased by us. Stockholders may not be able to sell any of their shares of our common stock back to us, and if stockholders do sell their shares, they may not receive the price they paid upon subscription.

Our share repurchase program may provide our stockholders with an opportunity to have their shares of common stock repurchased by us. We anticipate that shares of our common stock may be repurchased on a quarterly basis. No shares may be repurchased under our share repurchase program until after the first anniversary of the date of purchase of such shares; provided, however, that we may waive the one year holding requirement in certain circumstances, including in the case of shares being repurchased in connection with a stockholder’s death, disability or bankruptcy. Prior to the completion of our offering stage, we will repurchase shares of our common stock pursuant to our share repurchase program at a discount from the purchase price per share of the shares being repurchased based upon how long such shares have been held as of the date of repurchase. Notwithstanding the foregoing, once we establish an estimated per share value of our common stock that is not based on the price to acquire a share in our primary offering or any follow-on public offering, shares of our common stock will be repurchased at a price equal to the lesser of the price paid for the shares by the redeeming stockholder and 95% of the most recently calculated estimated per share value of our common stock. We expect our Advisor, or another firm chosen for that purpose, to determine an estimated per share value of our common stock that is not based on the price to acquire a share of our common stock in the primary offering or any follow-on public offering beginning no later than 18 months after the completion of our offering stage. Given that beginning no later than 18 months after the completion of our offering stage shares will be repurchased pursuant to our share repurchase program at a price equal to the lesser of the price paid for the shares being redeemed and 95% of the most recently calculated estimated per share value of our common stock, our Advisor may have an incentive to determine that the estimated per share value of our shares is higher than it might otherwise determine in the event that our sponsor has sponsored another program that is then engaged in a continuous public offering in order to demonstrate better prior performance information to the prospective stockholders in such other program.

Our share repurchase program contains certain restrictions and limitations, including those relating to the number of shares of our common stock that we can repurchase at any given time and limiting the funds we will use to repurchase shares pursuant to the share repurchase program. Further, we have no obligation to repurchase shares if the repurchase would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. Our board of directors reserves the right to amend or terminate the share repurchase program at any time upon 30 days’ notice to our stockholders. Therefore, our stockholders may not have the opportunity to make a repurchase request prior to a potential termination of the share repurchase program and our stockholders may not be able to sell any of their shares of common stock back to us. Moreover, if our stockholders do sell their shares of common stock back to us pursuant to the share repurchase program, they may be forced to do so at a discount to the purchase price such stockholders paid for their shares.

Our success is dependent on the performance of our Advisor and its affiliates.

The performance of our Advisor and its affiliates will determine our ability to achieve our investment objectives and to pay distributions to our stockholders. Our Advisor and its affiliates are sensitive to trends in the general economy, as well as the commercial real estate and credit markets. To the extent that any decline in revenues and operating results impacts the performance of our Advisor and its affiliates, our financial condition and ability to pay distributions to our stockholders could also suffer.

We may not be able to achieve our investment objectives if we are delayed in identifying, or are unable to identify, suitable investments.

Any delays we encounter in selecting, acquiring and developing real properties could adversely affect our ability to achieve our investment objectives and make distributions to our stockholders. Because we are conducting our Offering on a “best efforts” basis, our ability to commit to purchase specific assets will depend, in part, on the amount of offering proceeds we have raised at a given time. If we are unable to access sufficient capital, we may suffer from delays in deploying the capital into suitable investments.

We are uncertain of our sources for funding our future capital needs. If we do not have sufficient funds from operations to cover our expenses and cannot obtain debt or equity financing on acceptable terms, our ability to cover our expenses will be adversely affected.

The net proceeds of the Offering will be used for investments in real properties and real estate-related assets and for payment of operating expenses, various fees and other expenses. During the initial stages of the Offering, we may not have sufficient funds from operations to cover our expenses. Accordingly, in the event that we develop a need for additional capital in the future, sources of funding may not be available to us. If we do not have sufficient funds from cash flow generated by our investments or out of the net proceeds from the Offering, or cannot obtain debt or equity financing on acceptable terms, our financial condition and ability to make distributions to our stockholders may be adversely affected.

Risks Relating to Our Organizational Structure

Maryland law and our organizational documents limit our stockholders’ right to bring claims against our officers and directors.

Maryland law provides that a director will not have any liability as a director so long as he or she performs his or her duties in accordance with the applicable standard of conduct. In addition, our charter provides that, subject to the applicable limitations set forth therein or under Maryland law, no director or officer will be liable to us or our stockholders for monetary damages. Our charter also provides that we will generally indemnify our directors, our officers, our Advisor and its affiliates for losses they may incur by reason of their service in those capacities unless their act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, they actually received an improper personal benefit in money, property or services or, in the case of any criminal proceeding, they had reasonable cause to believe the act or omission was unlawful. Moreover, we have entered into separate indemnification agreements with each of our directors and executive officers. As a result, we and our stockholders may have more limited rights against these persons than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by these persons. However, our charter provides that we may not indemnify our directors, our advisor and its affiliates for loss or liability suffered by them or hold our directors or our advisor and its affiliates harmless for loss or liability suffered by us unless they have determined that the course of conduct that caused the loss or liability was in our best interests, they were acting on our behalf or performing services for us, the liability was not the result of negligence or misconduct by our non-independent directors, our advisor and its affiliates or gross negligence or willful misconduct by our independent directors, and the indemnification or agreement to hold harmless is recoverable only out of our net assets, including the proceeds of insurance, and not from the stockholders. As a result, we and our stockholders may be entitled to a more limited right of action than we would otherwise have if these indemnification rights were not granted.

The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may benefit our stockholders.

Our charter restricts the direct or indirect ownership by one person or entity to no more than 9.8% of the value of our then outstanding shares of capital stock (which includes common stock and any preferred stock we may issue) and no more than 9.8% of the value or number, whichever is more restrictive, of our then outstanding shares of common stock unless exempted by our board of directors. These restrictions may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our common stock on terms that might be financially attractive to stockholders or which may cause a change in our management. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease our stockholders’ ability to sell their shares of our common stock.

We may issue preferred stock or other classes of common stock, which issuance could adversely affect the holders of our common stock issued pursuant to our Offering.

Stockholders in the Offering do not have preemptive rights to purchase any shares issued by us in the future. We may issue, without stockholder approval, preferred stock or other classes of common stock with rights that could dilute the value of our stockholders’ shares of common stock. However, the issuance of preferred stock must also be approved by a majority of our independent directors not otherwise interested in the transaction, who will have access, at our expense, to our legal counsel or to independent legal counsel. The issuance of preferred stock or other classes of common stock would increase the number of stockholders entitled to distributions without simultaneously increasing the size of our portfolio of investments. Under our charter, we have authority to issue a total of 1,100,000,000 shares of capital stock, of which 999,999,000 shares are designated as common stock with a par value of $0.01 per share, 1,000 shares are designated as convertible stock with a par value of $0.01 per share and 100,000,000 shares are designated as preferred stock with a par value of $0.01 per share. Our board of directors, with the approval of a majority of the independent directors and without any action by our stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares of capital stock or the number of shares of capital stock of any class or series that we have authority to issue. If we ever created and issued preferred stock with a distribution preference over common stock, payment of any distribution preferences of outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred stock or a separate class or series of common stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of our securities, or the removal of incumbent management.

Our stockholders’ investment will be diluted upon conversion of the convertible stock.

Our Advisor has been issued 1,000 shares of our convertible stock. Under limited circumstances, each outstanding share of our convertible stock may be converted into shares of our common stock, which will have a dilutive effect to our stockholders. Our convertible stock will be converted into shares of common stock if (1) we have made total distributions on the then outstanding shares of our common stock equal to the price paid for those shares plus a 7.0% cumulative, non-compounded, annual return on that price, (2) we list our common stock for trading on a national securities exchange or enter into a merger whereby holders of our common stock receive listed securities of another issuer), or (3) our Advisory Agreement is terminated or expires and is not renewed (other than because of a material breach by the Advisor). Upon any of these events, each share of convertible stock will be converted into a number of shares of common stock equal to 1/1000 of the quotient of (A) 15% of the amount, if any, by which (i) our enterprise value plus the aggregate value of the distributions paid to date on the then outstanding shares exceeds (ii) the aggregate purchase price paid by stockholders for those outstanding shares plus a 7.0% cumulative, non-compounded, annual return on the original issue price of the shares, divided by (B) our enterprise value divided by the number of outstanding shares of our common stock on an as-converted basis as of the date of conversion. Upon the issuance of our common stock in connection with the conversion of our convertible stock, our stockholders’ interests in us will be diluted.

We may grant stock-based awards to our directors, employees and consultants pursuant to our long-term incentive plan, which will have a dilutive effect on our stockholders’ investment in us.

We have adopted a long-term incentive plan, pursuant to which we are authorized to grant restricted stock, stock options, stock appreciation rights, restricted or deferred stock units, performance awards, dividend equivalents or other stock-based awards to directors, employees and consultants selected by our board of directors for participation in the plan. We have issued and intend only to issue awards of restricted stock to our independent directors under our long-term incentive plan. The issuance of these stock-based awards under our long-term incentive plan will dilute our stockholders’ investment in our shares of common stock.

The conversion of the convertible stock held by our Advisor upon termination of the Advisory Agreement and the voting rights granted to the holder of our convertible stock may discourage a takeover attempt or prevent us from effecting a merger that otherwise would have been in the best interests of our stockholders.

If we engage in a merger in which we are not the surviving entity or our Advisory Agreement is terminated without cause, our Advisor may be entitled to conversion of the convertible stock it holds and to require that we purchase all or a portion of the limited partnership interests in our Operating Partnership that it holds at any time thereafter for cash or our common stock. The existence of this convertible stock may deter a prospective acquirer from bidding on our company, which may limit the opportunity for stockholders to receive a premium for their stock that might otherwise exist if an investor attempted to acquire us through a merger.

The affirmative vote of two-thirds of the outstanding shares of convertible stock, voting as a single class, will be required (1) for any amendment, alteration or repeal of any provision of our charter that materially and adversely changes the rights of the convertible stock and (2) to effect a merger of our company into another entity, or a merger of another entity into our company, unless in each case each share of convertible stock (A) will remain outstanding without a material and adverse change to its terms and rights or (B) will be converted into or exchanged for shares of stock or other ownership interest of the surviving entity having rights identical to that of our convertible stock. In the event that we propose to merge with or into another entity, including another REIT, our Advisor could, by exercising these voting rights, determine whether or not we are able to complete the proposed transaction. By voting against a proposed merger, our Advisor could prevent us from effecting the merger, even if the merger otherwise would have been in the best interests of our stockholders.

Our UPREIT structure may result in potential conflicts of interest with limited partners in our Operating Partnership whose interests may not be aligned with those of our stockholders.

Limited partners in our Operating Partnership have the right to vote on certain amendments to the operating partnership agreement, as well as on certain other matters. Persons holding such voting rights may exercise them in a manner that conflicts with the interests of our stockholders. As general partner of our Operating Partnership, we are obligated to act in a manner that is in the best interest of all partners of our Operating Partnership. Circumstances may arise in the future when the interests of limited partners in our Operating Partnership may conflict with the interests of our stockholders. These conflicts may be resolved in a manner stockholders do not believe are in their best interest.

Our stockholders’ investment return may be reduced if we are required to register as an investment company under the Investment Company Act; if we are subject to registration under the Investment Company Act, we will not be able to continue our business.

Neither we, our Operating Partnership or any of our subsidiaries intend to register as an investment company under the Investment Company Act. Our Operating Partnership’s and subsidiaries’ intended investments in real estate will represent the substantial majority of our total asset mix. In order for us not to be subject to regulation under the Investment Company Act, we intend to engage, through our Operating Partnership and our wholly and majority owned subsidiaries, primarily in the business of buying real estate. These investments must be made within a year after our Offering ends.

We expect that most of our assets will be held through wholly-owned or majority-owned subsidiaries of our Operating Partnership. We expect that most of these subsidiaries will be outside the definition of an “investment company” under Section 3(a)(1) of the Investment Company Act as they are generally expected to hold at least 60% of their assets in real property. Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which we refer to as the “40% test.” Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.

We believe that we, our Operating Partnership and most of the subsidiaries of our Operating Partnership will not fall within either definition of investment company under Section 3(a)(1) of the Investment Company Act as we intend to invest primarily in real property, through our wholly or majority-owned subsidiaries, the majority of which we expect to have at least 60% of their assets in real property. As these subsidiaries would be investing either solely or primarily in real property, they would be outside of the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. We are organized as a holding company that conducts its businesses primarily through our Operating Partnership, which in turn is a holding company conducting its business through its subsidiaries. Both we and our Operating Partnership intend to conduct our operations so that they comply with the 40% test. We will monitor our holdings to ensure continuing and ongoing compliance with this test. In addition, we believe that neither we nor our Operating Partnership will be considered an investment company under Section 3(a)(1)(A) of the Investment Company Act because neither we nor our Operating Partnership will engage primarily or hold itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through our Operating Partnership’s wholly owned or majority owned subsidiaries, we and our Operating Partnership will be primarily engaged in the non-investment company businesses of these subsidiaries.

In the event that the value of investment securities held by a subsidiary of our Operating Partnership were to exceed 40% of the value of its total assets, we expect that subsidiary to be able to rely on the exclusion from the definition of “investment company” provided by Section 3(c)(5)(C) of the Investment Company Act. Section 3(c)(5)(C), as interpreted by the staff of the SEC, requires each of our subsidiaries relying on this exception to invest at least 55% of its portfolio in “mortgage and other liens on and interests in real estate,” which we refer to as “qualifying real estate assets,” and maintain at least 80% of its assets in qualifying real estate assets or other real estate-related assets. The remaining 20% of the portfolio can consist of miscellaneous assets. What we buy and sell is therefore limited by these criteria. How we determine to classify our assets for purposes of the Investment Company Act will be based in large measure upon no-action letters issued by the SEC staff in the past and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a qualifying real estate asset and a real estate-related asset. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than ten years ago. Pursuant to this guidance, and depending on the characteristics of the specific investments, certain mortgage loans, participations in mortgage loans, mortgage-backed securities, mezzanine loans, joint venture investments and the equity securities of other entities may not constitute qualifying real estate assets and therefore investments in these types of assets may be limited. No assurance can be given that the SEC staff will concur with our classification of our assets. Future revisions to the Investment Company Act or further guidance from the SEC staff may cause us to lose our exclusion from registration or force us to re-evaluate our portfolio and our investment strategy. Such changes may prevent us from operating our business successfully.

In the event that we, or our Operating Partnership, were to acquire assets that could make either entity fall within the definition of an investment company under Section 3(a)(1) of the Investment Company Act, we believe that we would still qualify for an exclusion from registration pursuant to Section 3(c)(6). Although the SEC staff has issued little interpretive guidance with respect to Section 3(c)(6), we believe that we and our Operating Partnership may rely on Section 3(c)(6) if 55% of the assets of our Operating Partnership consist of, and at least 55% of the income of our Operating Partnership is derived from, qualifying real estate assets owned by wholly owned or majority-owned subsidiaries of our operating partnership.

To ensure that neither we, our Operating Partnership or any of our subsidiaries are required to register as an investment company, each entity may be unable to sell assets that it would otherwise want to sell and may need to sell assets that it would otherwise wish to retain. In addition, we, our Operating Partnership or our subsidiaries may be required to acquire additional income- or loss-generating assets that we might not otherwise acquire or forego opportunities to acquire interests in companies that we would otherwise want to acquire. Although we, our Operating Partnership and our subsidiaries intend to monitor our portfolio periodically and prior to each acquisition and disposition, any of these entities may not be able to maintain an exclusion from registration as an investment company. If we, our Operating Partnership or our subsidiaries are required to register as an investment company but fail to do so, the unregistered entity would be prohibited from engaging in our business, and criminal and civil actions could be brought against such entity. In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business.

Risks Related To Conflicts of Interest

We depend on our Advisor and its key personnel and if any of such key personnel were to cease to be affiliated with our Advisor, our business could suffer.

Our ability to achieve our investment objectives is dependent upon the performance of our Advisor. Our success depends to a significant degree upon the continued contributions of certain of the key personnel of our Advisor, each of whom would be difficult to replace. If our Advisor were to lose the benefit of the experience, efforts and abilities of any these individuals, our operating results could suffer.

Our Advisor and its affiliates, including our officers and our affiliated directors, will face conflicts of interest caused by compensation arrangements with us, which could result in actions that are not in the best interests of our stockholders.

Our Advisor and its affiliates will receive substantial fees from us in return for their services and these fees could influence the advice provided to us. Among other matters, these compensation arrangements could affect the judgment of our Advisor and its affiliates with respect to:

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public offerings of equity by us, which generate additional funds for the purchase of assets and thus may allow our Advisor and its affiliates to earn increased acquisition fees, asset management fees and property management fees;

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the sale of assets, which will cause the asset management fees and property management fees payable to our Advisor and its affiliates to decrease; and

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the purchase of assets, which may allow our Advisor or its affiliates to earn additional acquisition fees, asset management fees and property management fees.

Our Advisor will have considerable discretion with respect to the terms and timing of our acquisition, disposition and leasing transactions. Our Advisor may face conflicts of interest concerning certain actions taken on our behalf, particularly due to the fact that the acquisition fees and asset management fees payable to our Advisor are based upon the cost of the real properties and real estate-related assets we acquire and not on the value or performance of our assets, and the fact that the asset management fees payable to our Advisor will not decrease based on changes in the value of our assets, which may create an incentive for our Advisor to purchase assets that may not otherwise be in our best interest. Our Advisor may also receive a disposition fee in connection with our sale of a real property or real estate-related asset, regardless of the performance of the asset, which may create an incentive for our Advisor to recommend the disposition of assets that would not otherwise be in our best interest. Additionally, the property management fees payable to our property manager will generally be payable regardless of the quality of services provided to us. The property management and leasing fees payable to our property manager will be in an amount no greater than the amount that is usual and customary for comparable services rendered to similar properties in the geographic market of the properties in question, as determined by our Advisor and approved as fair and reasonable in relation to the services being performed by our board of directors, including a majority of our independent directors. As a result, there may be an incentive for our Advisor to provide market survey information to our board of directors which would support the payment of higher property management and leasing fees than might otherwise be warranted. In evaluating our investments, dispositions and management strategies, the opportunity for our Advisor and its affiliates to earn these fees may lead our Advisor to place undue emphasis on criteria relating to its short-term compensation at the expense of other criteria, such as the preservation of capital, which could result in decisions that are not in the best interests of our stockholders.

We may compete with affiliates of our sponsor for opportunities to acquire or sell investments, which may have an adverse impact on our operations.

We may compete with affiliates of our sponsor for opportunities to acquire or sell real properties and other real estate-related assets. We may also buy or sell real properties and other real estate-related assets at the same time as affiliates of our sponsor. In this regard, there is a risk that our sponsor will select for us investments that provide lower returns to us than investments purchased by its affiliates. Certain of our affiliates own or manage real properties in geographical areas in which we expect to own real properties. As a result of our potential competition with affiliates of our sponsor, certain investment opportunities that would otherwise be available to us may not in fact be available. This competition may also result in conflicts of interest that are not resolved in our favor.

The time and resources that our sponsor and its affiliates could devote to us may be diverted to other investment activities.

We cannot currently estimate the time our officers and directors will be required to devote to us because the time commitment required of our officers and directors will vary depending upon a variety of factors, including, but not limited to, general economic and market conditions effecting us, the amount of proceeds raised in our Offering and our Advisor’s ability to locate and acquire investments that meet our investment objectives. Since these professionals engage in and will continue to engage in other business activities on behalf of themselves and others, these professionals will face conflicts of interest in allocating their time among us, our Advisor, other affiliates and other business activities in which they are involved. This could result in actions that are more favorable to other affiliates than to us. In the event that some or all of the key professionals who perform services for our Advisor as well as other programs sponsored by our sponsor become full-time employees of another program in connection with an internalization of that program’s management function, our Advisor may need to replace such professionals, or we may need to find a replacement advisor to replace the management services our Advisor provides to us, which could adversely impact our operating performance. In addition, we may compete with other affiliates for the same stockholders and investment opportunities. We may also co-invest with any such investment entity. Even though all such co-investments will be subject to approval by our independent directors, they could be on terms not as favorable to us as those we could achieve co-investing with a third party.

Our Advisor may have conflicting fiduciary obligations if we acquire assets from affiliates of our sponsor or enter into joint ventures with affiliates of our sponsor. As a result, in any such transaction we may not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.

Our Advisor may cause us to invest in a property owned by, or make an investment in equity securities in or real estate-related loans to, our sponsor or its affiliates or through a joint venture with affiliates of our sponsor. In these circumstances, our Advisor will have a conflict of interest when fulfilling its fiduciary obligation to us. In any such transaction, we would not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.

The fees we pay to affiliates in connection with our Offering and in connection with the acquisition and management of our investments were determined without the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.

The fees to be paid to our Advisor, our property manager and other affiliates for services they provide for us were determined without the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties, may be in excess of amounts that we would otherwise pay to third parties for such services and may reduce the amount of cash that would otherwise be available for investments in real properties and distributions to our stockholders.

Risks Related To Investments in Real Estate

Real property investments are subject to risks that could adversely affect our operating results.

Real property investments are subject to varying risks which cannot be entirely eliminated. Some of these risks include:

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changes in global, national, regional or local economic, demographic or real estate market conditions;

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changes in the supply of or demand for similar or competing properties in an area;

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competition for real property investments targeted by our investment strategy;

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bankruptcies, financial difficulties or lease defaults by our tenants;

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changes in interest rates and availability of financing;

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changes in the terms of available financing, including more conservative loan-to-value requirements and shorter debt maturities;

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changes in government rules, regulations and fiscal policies, including changes in tax, real estate, environmental and zoning laws; and

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the illiquidity of real estate investments generally.

All of these risks are beyond our control and could affect our ability to meet our obligations and make distributions to our stockholders. The value of the real properties we acquire may decrease following the date we acquire such properties due to the risks described above or any other unforeseen changes in market conditions. If the value of our real properties decreases, we may be forced to dispose of the properties at a price lower than the price we paid to acquire our properties, which could adversely impact our results of operations and our ability to make distributions and return capital to our stockholders.

We will compete with numerous other persons and entities for real estate assets and tenants.

We will compete with numerous other persons and entities in acquiring real property and attracting tenants to real properties we acquire. These persons and entities may have greater experience and financial strength than us. There is no assurance that we will be able to acquire real properties or attract tenants to real properties we acquire on favorable terms, if at all. For example, our competitors may be willing to offer space at rental rates below our rates, causing us to lose existing or potential tenants and pressuring us to reduce our rental rates to retain existing tenants or convince new tenants to lease space at our properties. Each of these factors could adversely affect our financial condition and ability to pay distributions to our stockholders.

We will be dependent on tenants for revenue and our inability to lease our real properties or to collect rent from our tenants will adversely affect our results of operations and returns to our stockholders.

We are dependent on the lease payments of the tenants of the properties in which we invest for revenue. Many of the properties in which we invest may be occupied by only one tenant and, therefore, our revenues from those properties will be materially dependent on the creditworthiness and financial stability of such tenants. A default of a tenant on its lease payments to us would cause us to lose revenue from the property and force us to find an alternative source of revenue to meet any expenses associated with the property and prevent a foreclosure if the property is subject to a mortgage. In the event of a default by a single or major tenant of a property, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment and re-leasing the property. If a lease of a single or major tenant of a property is terminated, we may not be able to lease the property for the rent previously received or sell the property without incurring a loss. A default by a tenant, the failure of a guarantor of a tenant to fulfill its obligations or a tenant’s election not to extend a lease upon its expiration could have an adverse effect on our financial condition and our ability to pay distributions to our stockholders.

If we acquire a high concentration of properties in a particular geographic area, or properties leased to tenants in a particular industry, the adverse effect on our financial condition caused by an economic downturn in that particular geographic area or tenant industry will be magnified.

We are dependent on the lease payments of the tenants of the properties in which we invest for revenue, and as a result, our performance is indirectly affected by the financial results of our tenants, as financial difficulties experienced by our tenants could result in defaults by our tenants in their obligations to us. We intend to acquire a portfolio of properties that is diversified in terms of geographic area and tenant industry.

However, to the extent that we acquire a concentration of properties located in a particular geographic area, any economic downturn or other factor that disproportionately impacts that geographic area would have a magnified adverse effect on our tenants and our performance. Similarly, if the tenants of the properties in our portfolio become concentrated in a particular industry or industries, any economic downturn or other factor that disproportionately impacts that industry would have a magnified adverse effect on our tenants and our performance.

Elevated vacancy rates could have an adverse impact on our ability to make distributions to our stockholders and the value of an investment in our shares.

The recent recession has led to an overall decline in the commercial real estate market and historically high vacancy rates in the commercial real estate sector, and may cause vacancy rates to continue to trend upward in the future. Increased vacancy rates generally result in lowered rental rates, increased expenses from tenant improvements and concessions, reduced revenues from properties and an increase in the number of properties facing foreclosure. In the event that we experience increased vacancy rates or rates which are substantially higher than we had anticipated, we may be forced to offer lower rental rates and more favorable lease terms and tenant improvements or concessions than expected in order to attract or retain tenants. While such measures may help us to attract and retain tenants, they may also reduce our revenues and impair our ability to repay financing associated with our properties and pay distributions to our stockholders. Our revenues will also be negatively impacted during any periods in which our properties are vacant or experience decreased occupancy. In addition, increased vacancy rates could cause the value of our investments in commercial properties to decrease below the amount we paid for such investments. An increase in vacancy rates may have a more significant impact on us, as compared to other investment vehicles, as our investment strategy relies on relatively long-term leases for industrial properties with a relatively limited number of tenants in order to provide a stable stream of income to our stockholders.

Our properties may be leased at below-market rates under long-term leases.

We intend to seek to negotiate longer-term leases to reduce the cash flow volatility associated with lease rollovers, provided that contractual rent increases are included. These leases may allow tenants to renew the lease with pre-defined rate increases. If we do not accurately judge the potential for increases in market rental rates, we may set the rental rates of these long-term leases at levels such that even after contractual rental increases, the resulting rental rates are less than then-current market rental rates. Further, we may be unable to terminate such leases or adjust the rent to then-prevailing market rates. As a result, our income and distributions to our stockholders could be lower than if we did not enter into long-term leases.

Properties that incur vacancies for a significant period of time may be difficult to sell on favorable terms.

Any of the properties in which we invest may incur vacancies as a result of the default of a tenant under its lease, the expiration of a tenant’s lease or the early termination of a lease by a tenant. In addition, because a property’s market value depends principally upon the value of the property’s leases, the resale value of a property with prolonged vacancies could decline, which could make it more difficult for us to sell the property on favorable terms and could further reduce our ability to pay distributions to our stockholders.

We may not have funds available for future tenant improvements or capital needs, which could adversely affect our results of operations and our ability to pay distributions to our stockholders.

When the tenant of a property we have acquired does not renew its lease or otherwise vacates its space, in order to attract one or more new tenants, we may be required to expend substantial funds to carry out tenant improvements in the vacated space. In addition, although we expect that the leases with tenants in the properties we acquire will require tenants to pay routine property maintenance costs, we will likely be responsible for any major structural repairs to the properties we acquire, such as repairs to the foundation, exterior walls and rooftops. Substantially all of the net proceeds from our Offering will be used to invest in real property and to pay various fees and expenses, and we do not anticipate that we will maintain permanent working capital reserves. If we do not establish sufficient reserves for working capital or obtain adequate secured financing to supply necessary funds for capital improvements or similar expenses, we may be required to defer necessary or desirable improvements to our real properties. If we defer such improvements, the applicable real properties may suffer from a greater risk of obsolescence and decline in value, it may be more difficult for us to attract or retain tenants to such real properties or the amount of rent we can charge at such real properties may decrease. We cannot make assurances that we will have any sources of funding available to us for repair or reconstruction of damaged real property in the future.

We may obtain only limited warranties when we acquire a property and thus may have only limited recourse in the event our due diligence did not identify any issues that lower the value of the property.

Property is often sold in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, property purchase agreements may contain only limited warranties and representations and indemnification provisions that will only survive for a limited period after the closing of the acquisition. To the extent that we acquire properties with limited warranties, we will increase the risk that we may lose some or all of our invested capital in the property, as well as the loss of rental income from that property.

We may not always be able to sell a property when we desire to do so, or at a price that is equal to, or greater than, the price for which we acquired the property, which could adversely impact our ability to pay distributions to our stockholders.

Real properties are illiquid investments, and the real estate market is affected by many factors that are beyond our control, including general economic conditions, availability of financing, interest rates, supply and demand, and other factors. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser will be acceptable to us, and we cannot predict the length of time needed to find a willing purchaser and to close the sale of a real property. In addition, the leases at some of our properties may not provide for increases in rent over the course of the lease term. When that is the case, the value of the leased property to a potential purchaser may not increase over time, which may restrict our ability to sell that property. Moreover, in acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. Our inability to sell a property when we desire to do so may cause us to reduce our selling price for the property. Any delay in our receipt of proceeds, or diminishment of proceeds, from the sale of a property could adversely impact our ability to pay distributions to our stockholders.

We may acquire properties which are subject to lock-out provisions, which may prohibit us from selling a property, or may require us to maintain certain debt levels for a specified period of time on a property.

Some of the properties in which we invest may be subject to lock-out provisions, which are provisions that prohibit the prepayment of a loan during a specified time period and may include terms that provide strong financial disincentives for borrowers to prepay their outstanding loan balance. If we invest in a property which is subject to a lock-out provision, we could be restricted in selling or otherwise disposing of or refinancing the property when we desire to do so, prohibited from reducing or refinancing the outstanding indebtedness with respect to such property or increasing the amount of indebtedness with respect to such property. In addition, lock-out provisions could prevent us from taking other actions during the lock-out period that could be in the best interests of our stockholders. In particular, lock-out provisions could impair our ability to participate in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders.

If our operating expenses increase, our cash flow from operations and funds available to acquire investments or make distributions to our stockholders could be decreased.

If we are unable to lease properties pursuant to “net” leases that require the tenants to pay all or a majority of the properties’ operating expenses, if our tenants fail to pay these operating expenses as required or if the operating expenses we are required to pay exceed our projections, we could have less funds available for future acquisitions or cash available for distributions to our stockholders. In addition, if any property we acquire is not fully occupied or if rents are being paid in an amount that is insufficient to cover the operating expenses of the property, we could be required to expend funds with respect to that property for operating expenses.

Significant covenants, conditions and restrictions may restrict our ability to operate the properties which we acquire.

The properties we acquire may be contiguous with other parcels of real property or comprise part of the same industrial center. In such cases, we will be subject to significant covenants, conditions and restrictions, known as “CC&Rs,” restricting the operation of such properties and any improvements on such properties. In addition, the operation and management of the contiguous properties may impact such properties. Compliance with CC&Rs may adversely affect our operating costs and reduce the amount of funds that we have available to pay distributions to our stockholders.

Our operating results may be negatively affected by potential development and construction delays and resultant increased costs and risks.

We may use proceeds from our Offering to acquire properties upon which we will construct improvements. If we engage in development or construction projects, we will be subject to uncertainties associated with re-zoning for development, environmental concerns of governmental entities and/or community groups, and our builder’s ability to build in conformity with plans, specifications, budgeted costs, and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control. Delays in completion of construction could also give tenants the right to terminate preconstruction leases. We may incur additional risks if we make periodic progress payments or other advances to builders before they complete construction. These and other such factors can result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and our return on our investment could suffer.

In addition, we may invest in unimproved real property. Returns from development of unimproved properties are also subject to risks associated with re-zoning the land for development and environmental concerns of governmental entities and/or community groups.

The properties we acquire will face competition that affects tenants’ ability to pay rent and the amount of rent paid to us, which may affect the amount of distributions we make to our stockholders.

We intend to acquire properties located in developed areas in which there will be numerous other industrial properties within the market area of each of our properties that will compete with us for tenants. The number of competitive properties near the properties we acquire will have a material effect on our ability to rent space at our properties and the amount of rents charged at our properties. If additional competitive properties are built in close proximity to our properties, competition for customer traffic and creditworthy tenants will increase, which could result in decreased cash flow from our tenants and may require us to make capital improvements to properties that we would not have otherwise made, thus affecting the amount of distributions we pay to our stockholders.

Our industrial tenants may be adversely affected by a decline in manufacturing activity in the U.S.

Fluctuations in manufacturing activity in the U.S. may adversely affect our industrial tenants and therefore the demand for and profitability of any industrial properties we acquire. Trade agreements with foreign countries have given employers the option to utilize less expensive foreign manufacturing workers. Outsourcing manufacturing activities could reduce the demand for U.S. workers, thereby reducing the profitability of our industrial tenants and the demand for and profitability of our industrial properties.

Any investments we make in real properties located outside of the U.S. will be subject to currency rate exposure and certain other risks associated with the uncertainty of foreign laws and markets.

We may invest in real properties located outside of the U.S. to the extent that such international investments help us meet our investment objectives. To the extent that we invest in real properties located outside of the U.S., in addition to risks inherent in the investment in real estate generally, we will also be subject to fluctuations in foreign currency exchange rates and the uncertainty of foreign laws and markets including, but not limited to, unexpected changes in regulatory requirements, political and economic instability in certain geographic locations, difficulties in managing international operations, currency exchange controls, potentially adverse tax consequences, additional accounting and control expenses and the administrative burden associated with complying with foreign laws. Changes in foreign currency exchange rates may adversely impact the fair values and earnings streams of our international investments and therefore the returns on our non-dollar denominated investments. Although we may hedge our foreign currency risk subject to the REIT income qualification tests, we may not be able to do so successfully and may incur losses on our international investments as a result of exchange rate fluctuations.

Actions of joint venture partners could negatively impact our performance.

We may enter into joint ventures with third parties, including with entities that are affiliated with our Advisor. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements with the sellers of the properties, affiliates of the sellers, developers or other persons. Such investments may involve risks not otherwise present with a direct investment in real estate, including, for example:

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the possibility that our venture partner or co-tenant in an investment might become bankrupt;

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that the venture partner or co-tenant may at any time have economic or business interests or goals which are, or which become, inconsistent with our business interests or goals;

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that such venture partner or co-tenant may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives;

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the possibility that we may incur liabilities as a result of an action taken by such venture partner;

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that disputes between us and a venture partner may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business;

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the possibility that if we have a right of first refusal or buy/sell right to buy out a co-venturer, co-owner or partner, we may be unable to finance such a buy-out if it becomes exercisable or we may be required to purchase such interest at a time when it would not otherwise be in our best interest to do so; or

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the possibility that we may not be able to sell our interest in the joint venture if we desire to exit the joint venture.

Under certain joint venture arrangements, neither venture partner may have the power to control the venture and an impasse may be reached, which might have a negative influence on the joint venture and decrease potential returns to our stockholders. In addition, to the extent that our venture partner or co-tenant is an affiliate of our Advisor, certain conflicts of interest will exist.

Our real properties will be subject to property taxes that may increase in the future, which could adversely affect our cash flow.

Our real properties will be subject to real and personal property taxes that may increase as tax rates change and as the real properties are assessed or reassessed by taxing authorities. Generally, property taxes increase as property values or assessment rates change, or for other reasons deemed relevant by property tax assessors.

We anticipate that certain of our leases will generally provide that the property taxes, or increases therein, are charged to the lessees as an expense related to the real properties that they occupy, while other leases will generally provide that we are responsible for such taxes. In any case, as the owner of the properties, we will ultimately be responsible for payment of the taxes to the applicable government authorities. If real property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes even if otherwise stated under the terms of the lease. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the real property and the real property may be subject to a tax sale. In addition, we will generally be responsible for real property taxes related to any vacant space.

Uninsured losses or premiums for insurance coverage relating to real property may adversely affect our stockholders’ returns.

We expect that each of the tenants at our properties will be responsible for insuring its goods and premises and, in some circumstances, may be required to reimburse us for a share of the cost of acquiring comprehensive insurance for the property, including casualty, liability, fire and extended coverage customarily obtained for similar properties in amounts that our Advisor determines are sufficient to cover reasonably foreseeable losses. For instance, tenants of single-user properties leased on a triple-net basis typically are required to pay all insurance costs associated with those properties. However, there are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Mortgage lenders sometimes require commercial property owners to purchase specific coverage against acts of terrorism as a condition for providing mortgage loans. These policies may not be available at a reasonable cost, if at all, which could inhibit our ability to finance or refinance our real properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. Changes in the cost or availability of insurance could expose us to uninsured casualty losses. In the event that any of our real properties incurs a casualty loss which is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, we cannot make assurances that funding will be available to us for repair or reconstruction of damaged real property in the future.

Costs of complying with governmental laws and regulations related to environmental protection and human health and safety may be high.

All real property investments and the operations conducted in connection with such investments are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liability on customers, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal.

Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such real property. These environmental laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such real property as collateral for future borrowings. Environmental laws also may impose restrictions on the manner in which real property may be used or businesses may be operated. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our real properties, such as the presence of underground storage tanks, or activities of unrelated third parties, may affect our real properties. There are also various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply and which may subject us to liability in the form of fines or damages for noncompliance. In connection with the acquisition and ownership of our real properties, we may be exposed to these costs in connection with such regulations. The cost of defending against environmental claims, any damages or fines we must pay, compliance with environmental regulatory requirements or remediating any contaminated real property could materially and adversely affect our business and results of operations, lower the value of our assets and, consequently, lower the amounts available for distribution to our stockholders. Further, the potential liability as a result of violations of, and the costs associated with compliance with, environmental laws and regulations may be greater in connection with industrial properties than with other classes of real property. For instance, properties historically used for industrial or manufacturing purposes may be more likely to contain, or to have contained, underground storage tanks for the storage of petroleum products or other hazardous or toxic substances, which may expose us to potential liability.

The costs associated with complying with the Americans with Disabilities Act may reduce the amount of cash available for distribution to our stockholders.

Investment in real properties may also be subject to the Americans with Disabilities Act of 1990, as amended, or the ADA. Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. We are committed to complying with the ADA to the extent to which it applies. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. With respect to the properties we acquire, the ADA’s requirements could require us to remove access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages.

We will attempt to acquire properties that comply with the ADA or place the burden on the seller or other third party, such as a tenant, to ensure compliance with the ADA. We cannot make assurances that we will be able to acquire properties or allocate responsibilities in this manner. Any monies we use to comply with the ADA will reduce the amount of cash available for distribution to our stockholders.

Risks Associated with Investments in Real Estate-Related Assets

Disruptions in the financial markets and deteriorating economic conditions could adversely impact the commercial mortgage market as well as the market for real estate-related assets and debt-related investments generally, which could hinder our ability to implement our business strategy and generate returns to our stockholders.

We may allocate a portion of our portfolio to real estate-related assets. The returns available to stockholders in these investments are determined by: (1) the supply and demand for such investments and (2) the existence of a market for such investments, which includes the ability to sell or finance such investments. During periods of volatility, the number of stockholders participating in the market may change at an accelerated pace. As liquidity or “demand” increases, the returns available to stockholders will decrease. Conversely, a lack of liquidity will cause the returns available to our stockholders to increase. Recently, concerns pertaining to the deterioration of credit in the residential mortgage market have adversely impacted almost all areas of the debt capital markets including corporate bonds, asset-backed securities and commercial real estate bonds and loans. Only recently have these markets begun to stabilize. Future instability in the financial markets or weakened economic conditions may interfere with the successful implementation of our business strategy.

If we make or invest in mortgage loans, our mortgage loans may be affected by unfavorable real estate market conditions and other factors that impact the commercial real estate underlying the mortgage loans, which could decrease the value of those loans and the return on our stockholders’ investment.

If we make or invest in mortgage loans, we will be at risk of defaults by the borrowers on those mortgage loans. These defaults may be caused by many conditions beyond our control, including interest rate levels, economic conditions affecting real estate values and other factors that impact the value of the underlying real estate, including those associated with the financial condition of the tenants leasing the underlying real properties and expenditures associated with the early termination or nonrenewal of a lease, such as tenant improvement costs and leasing commissions. The borrower may also be subject to tenant roll concentration, in which there are significant leases that terminate in a given year and increase the uncertainty of the future cash flow of the property to the borrower and ultimately to us as the holder of the mortgage in the event the borrower defaults. See above “– Risks Related to Investments in Real Estate.” We will not know whether the values of the properties securing our mortgage loans will remain at the levels existing on the dates of origination of those mortgage loans. If the values of the underlying properties drop, our risk will increase because of the lower value of the security associated with such loans.

Commercial real estate loans, in which we may invest, are subject to risks of delinquency and foreclosure. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income-producing property can be affected by, among other things: tenant mix, success of tenant businesses, property management decisions, property location and condition, competition from comparable types of properties, changes in laws that increase operating expenses or limit rents that may be charged, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions and/or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, changes in governmental rules, regulations and fiscal policies, including environmental legislation, natural disasters, terrorism, social unrest and civil disturbances.

If we make or invest in mortgage loans, our mortgage loans will be subject to interest rate fluctuations that could reduce our returns as compared to market interest rates and reduce the value of the mortgage loans in the event we sell them.

If we invest in fixed-rate, long-term mortgage loans and interest rates rise, the mortgage loans could yield a return that is lower than then-current market rates and the value of the loan may decline. If interest rates decrease, we will be adversely affected to the extent that mortgage loans are prepaid because we may not be able to make new loans at the higher interest rate. If we invest in variable-rate loans and interest rates decrease, our revenues and the value of the loan will also decrease. For these reasons, if we invest in mortgage loans, our returns on those loans and the value of our stockholders’ investment will be subject to fluctuations in interest rates.

Many of our investments in real estate-related assets may be illiquid, and we may not be able to vary our portfolio in response to changes in economic and other conditions.

Certain of the real estate-related assets that we may purchase in connection with privately negotiated transactions will not be registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short life, their unsuitability for securitization and the greater difficulty of recoupment in the event of a borrower’s default. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited.

The CMBS in which we may invest are subject to several types of risks.

Commercial mortgage backed securities, or CMBS, are bonds which evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Accordingly, the CMBS in which we invest in are subject to all the risks of the underlying mortgage loans. In a rising interest rate environment, the value of CMBS may be adversely affected when payments on underlying mortgages do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument. The value of CMBS may also change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities markets as a whole. In addition, CMBS are subject to the credit risk associated with the performance of the underlying mortgage properties. In certain instances, third party guarantees or other forms of credit support can reduce the credit risk.

CMBS are also subject to several risks created through the securitization process. Subordinate CMBS are paid interest only to the extent that there are funds available to make payments. To the extent the collateral pool includes a large percentage of delinquent loans, there is a risk that interest payment on subordinate CMBS will not be fully paid. Subordinate securities of CMBS are also subject to greater credit risk than those CMBS that are more highly rated.

The mezzanine loans in which we may invest would involve greater risks of loss than senior loans secured by income-producing real properties.

We may invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real property or loans secured by a pledge of the ownership interests of the entity owning the real property, the entity that owns the interest in the entity owning the real property or other assets. These types of investments involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our mezzanine loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans will have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the real property and increasing the risk of loss of principal and interest.

Bridge loans may involve a greater risk of loss than conventional mortgage loans.

We may provide bridge loans secured by first-lien mortgages on properties to borrowers who are typically seeking short-term capital to be used in an acquisition, development or refinancing of real estate. The borrower may have identified an undervalued asset that has been undermanaged or is located in a recovering market. If the market in which the asset is located fails to recover according to the borrower’s projections, or if the borrower fails to improve the quality of the asset’s management or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the bridge loan, and we may not recover some or all of our investment.

In addition, owners usually borrow funds under a conventional mortgage loan to repay a bridge loan. We may, therefore, be dependent on a borrower’s ability to obtain permanent financing to repay our bridge loan, which could depend on market conditions and other factors. Bridge loans are also subject to risks of borrower defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance. In the event of any default under bridge loans held by us, we bear the risk of loss of principal and nonpayment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount of the bridge loan. To the extent we suffer such losses with respect to our investments in bridge loans, the value of our company and of our common stock may be adversely affected.

Our strategies to hedge interest rate risks may not be effective.

We may use various investment strategies to hedge interest rate risks with respect to our portfolio of real estate-related assets. The use of interest rate hedging transactions involves certain risks. These risks include: (1) the possibility that the market will move in a manner or direction that would have resulted in gain for us had an interest rate hedging transaction not been utilized, in which case our performance would have been better had we not engaged in the interest rate hedging transaction; (2) the risk of imperfect correlation between the risk sought to be hedged and the interest rate hedging transaction used; (3) potential illiquidity for the hedging instrument used, which may make it difficult for us to close-out or unwind an interest rate hedging transaction; and (4) the possibility that the counterparty fails to honor its obligation. In addition, because we intend to qualify as a REIT, for federal income tax purposes we will have limitations on our income sources, and the hedging strategies available to us will be more limited than those available to companies that are not REITs. To the extent that we do not hedge our interest rate exposure, our profitability may be negatively impacted by changes in long-term interest rates.

Declines in the market values of the real estate-related assets in which we invest may adversely affect our periodic reported results of operations and credit availability, which may reduce earnings and, in turn, cash available for distribution to our stockholders.

A portion of the real estate-related assets in which we invest may be classified for accounting purposes as “available-for-sale.” These investments are carried at estimated fair value and temporary changes in the market values of those assets will be directly charged or credited to stockholders’ equity without impacting net income on our income statement.

Moreover, if we determine that a decline in the estimated fair value of an available-for-sale security below its amortized value is other-than-temporary, we will recognize a loss on that security in our income statement, which will reduce our earnings in the period recognized.

A decline in the market value of our real estate-related assets may adversely affect us particularly in instances where we have borrowed money based on the market value of those assets. If the market value of those assets declines, the lender may require us to post additional collateral to support the loan. If we were unable to post the additional collateral, we may have to sell assets at a time when we might not otherwise choose to do so. A reduction in credit available may reduce our earnings and, in turn, cash available for distribution to stockholders.

Further, credit facility providers may require us to maintain a certain amount of cash reserves or to set aside unlevered assets sufficient to maintain a specified liquidity position. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on equity. In the event that we are unable to meet these contractual obligations, our financial condition could deteriorate rapidly.

Market values of our investments may decline for a number of reasons, such as market illiquidity, changes in prevailing market rates, increases in defaults, increases in voluntary prepayments for those of our investments that are subject to prepayment risk, widening of credit spreads and downgrades of ratings of the securities by ratings agencies.

Some of the real estate-related assets in which we invest will be carried at estimated fair value as determined by us and, as a result, there may be uncertainty as to the value of these investments.

Some of the real-estate-related assets in which we invest will be in the form of securities that are recorded at fair value but that have limited liquidity or are not publicly traded. The fair value of securities and other investments that have limited liquidity or are not publicly traded may not be readily determinable. We estimate the fair value of these investments on a quarterly basis. Because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on numerous estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. The value of our common stock could be adversely affected if our determinations regarding the fair value of these investments are materially higher than the values that we ultimately realize upon their disposal.

Risks Associated With Debt Financing

Disruptions in the financial markets and deteriorating economic conditions could adversely affect our ability to secure debt financing on attractive terms, or at all, and the values of investments we make.

The capital and credit markets have recently experienced extreme volatility and disruption. Liquidity in the global credit market has been severely contracted by these market disruptions, making it costly to obtain new lines of credit or refinance existing debt. We expect to finance our investments in part with debt. As a result of the recent credit market turmoil, we may not be able to obtain debt financing on attractive terms, if at all. For example, lenders are currently providing debt with shorter terms than were previously available and there is no current market for new issuances of CMBS. As such, we may be forced to use a greater proportion of our offering proceeds to finance our acquisitions and originations, reducing the number of investments we would otherwise make. If the current debt market environment persists we may modify our investment strategy in order to optimize our portfolio performance. Our options would include limiting or eliminating the use of debt and focusing on those investments that do not require the use of leverage to meet our portfolio goals.

Future disruptions in the financial markets and deteriorating economic conditions could adversely affect the values of any investments we make. The recent turmoil in the capital markets has constrained equity and debt capital available for investment in the commercial real estate market, resulting in fewer buyers seeking to acquire commercial properties and increases in capitalization rates and lower property values. All of these factors could impair our ability to make distributions to our stockholders and decrease the value of an investment in us.

We will incur mortgage indebtedness and other borrowings, which may increase our business risks and could hinder our ability to make distributions and decrease the value of our stockholders’ investment.

We intend to finance a portion of the purchase price of real properties by borrowing funds. Under our charter, we have a limitation on borrowing which precludes us from borrowing in excess of 300% of the value of our net assets. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation and amortization, allowances for bad debt or other allowances, less total liabilities. Generally speaking, the preceding calculation is expected to approximate 75% of the aggregate cost of our investments before depreciation and amortization. We may borrow in excess of these amounts if such excess is approved by a majority of the independent directors and is disclosed to stockholders in our next quarterly report, along with the justification for such excess. In addition, we may incur mortgage debt and pledge some or all of our investments as security for that debt to obtain funds to acquire additional investments or for working capital. We may also borrow funds as necessary or advisable to ensure we qualify for and maintain our REIT tax qualification, including the requirement that we distribute at least 90% of our annual REIT taxable income to our stockholders (computed without regard to the distribution paid deduction and excluding net capital gains). Furthermore, we may borrow in excess of the borrowing limitations in our charter if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes.

High debt levels would cause us to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on that property, then the amount available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of our stockholders’ investment. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. If any mortgage contains cross collateralization or cross default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected.

Instability in the debt markets and our inability to find financing on attractive terms, or at all, may make it more difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make to our stockholders.

If mortgage debt is unavailable on reasonable terms as a result of increased interest rates, underwriting standards, capital market instability or other factors, we may not be able to finance the initial purchase of properties. In addition, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance debt, our income could be reduced. We may be unable to refinance debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us, or could result in the foreclosure of such properties. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital by issuing securities or by borrowing more money.

Increases in interest rates could increase the amount of our debt payments and negatively impact our operating results.

Interest we pay on our debt obligations will reduce our cash available for distributions. If we incur variable rate debt, increases in interest rates would increase our interest costs, which would reduce our cash flows and our ability to make distributions to our stockholders. If we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments at times which may not permit realization of the maximum return on such investments.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.

When providing us financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage a property, discontinue insurance coverage, or replace our advisor. In addition, loan documents may limit our ability to replace a property’s property manager or terminate certain operating or lease agreements related to a property. These or other limitations may adversely affect our flexibility and our ability to achieve our investment objectives.

The derivative financial instruments that we may use to hedge against interest rate fluctuations may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on our stockholders’ investment.

We may use derivative financial instruments, such as interest rate cap or collar agreements and interest rate swap agreements, to hedge exposures to changes in interest rates on loans secured by our assets, but no hedging strategy can protect us completely. These agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements and that these arrangements may not be effective in reducing our exposure to interest rate changes. We cannot make assurances that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging transactions will not result in losses. In addition, the use of such instruments may reduce the overall return on our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income tests.

Federal Income Tax Risks

Failure to qualify and maintain our qualification as a REIT could adversely affect our operations and our ability to make distributions.

We operate in a manner designed to permit us to, and believe we do, qualify, and intend to elect to be treated, as a REIT for federal income tax purposes during the taxable year ended December 31, 2012. Although we do not intend to request a ruling from the Internal Revenue Service as to our REIT status, we have received the opinion of counsel that, commencing with the taxable year in which we satisfy the minimum offering requirement, we will be organized in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code, and our proposed method of operations will enable us to meet the requirements for qualification and taxation as a REIT.

However, opinions of counsel are not binding on the Internal Revenue Service or on any court and do not guarantee that we will qualify as a REIT or that we will maintain our qualification as a REIT. The opinion of counsel represents only the view of counsel based counsel’s review and analysis of existing law and on certain representations as to factual matters and covenants made by us, including representations relating to the values of our assets and the sources of our income. Legal counsel has no obligation to advise us or the holders of our common stock of any subsequent change in the matters stated, represented or assumed in its opinion or of any subsequent change in applicable law. Furthermore, both the validity of the opinion of counsel and our qualification as a REIT will depend on our satisfaction of numerous ongoing requirements established under highly technical and complex provisions of the Internal Revenue Code, for which there are only limited judicial or administrative interpretations. The complexity of these provisions and of the applicable income tax regulations that have been promulgated under the Internal Revenue Code is greater in the case of a REIT that holds its assets through a partnership, as we will. Moreover, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as a REIT or the federal income tax consequences of that qualification.

If we were to fail to qualify as a REIT for any taxable year, we would be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year in which we lose our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer be deductible in computing our taxable income and we would no longer be required to make distributions. To the extent that distributions had been made in anticipation of our qualifying as a REIT, we might be required to borrow funds or liquidate some investments to pay the applicable corporate income tax. In addition, although we intend to operate in a manner intended to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our board of directors to recommend that we revoke our REIT election.

To qualify for and maintain our REIT status, we may have to borrow funds on a short-term basis during unfavorable market conditions.

To qualify as a REIT, we generally must distribute annually to our stockholders a minimum of 90% of our net taxable income, excluding capital gains. We will be subject to regular corporate income taxes to the extent that we distribute less than 100% of our REIT taxable income each year. Additionally, we will be subject to a 4% nondeductible excise tax on any amount by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from previous years. Payments we make to our stockholders under our redemption plan will not be taken into account for purposes of these distribution requirements. If we do not have sufficient cash to make distributions necessary to preserve our REIT status for any year or to avoid taxation, we may be forced to borrow funds or sell assets even if the market conditions at that time are not favorable for these borrowings or sales.

To qualify and maintain our qualification as a REIT, we must meet annual distribution requirements which may result in us distributing amounts that may otherwise be used for our operations.

To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for distributions paid and by excluding net capital gains. We will be subject to federal income tax on our undistributed taxable income (including net capital gain) and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be invested in real estate assets and it is possible that we might be required to borrow funds or sell assets to fund these distributions. If we fund distributions through borrowings, then we will have to repay debt using money we could have otherwise used to acquire properties, resulting in our ownership of fewer real estate assets. If we sell assets or use offering proceeds to pay distributions, we also will have fewer investments. Fewer investments may impact our ability to generate future cash flows from operations and, therefore, reduce our stockholders’ overall return. Although we intend to make distributions sufficient to meet the annual distribution requirements and to avoid REIT-level taxation of our income, it is possible that we might not always be able to do so.

Re-characterization of sale-leaseback transactions may cause us to lose our REIT status.

We may purchase real properties and lease them back to the sellers of such properties. We cannot make assurances that the Internal Revenue Service will not challenge any characterization of such a lease as a “true lease,” thereby allowing us to be treated as the owner of the property for federal income tax purposes. In the event that any such sale-leaseback transaction is challenged and re-characterized as a financing transaction or loan for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction were so re-characterized, we might fail to satisfy the REIT qualification “asset tests” or the “income tests” and, consequently, lose our REIT status. Alternatively, the amount of our REIT taxable income could be recalculated, which might also cause us to fail to meet the distribution requirement for a taxable year.

Our stockholders may have current tax liability on distributions if they elect to reinvest in shares of our common stock.

If our stockholders participate in our DRP, they will be deemed to have received a cash distribution equal to the fair market value of the stock received pursuant to the plan. For federal income tax purposes, such stockholders will be taxed on this amount in the same manner as if they have received cash; namely, to the extent that we have current or accumulated earnings and profits, stockholders will have ordinary taxable income. To the extent that we make a distribution in excess of such earnings and profits, the distribution will be treated first as a tax-free return of capital, which will reduce the tax basis in our stockholders’ stock, and the amount of the distribution in excess of such basis will be taxable as a gain realized from the sale of such stockholders’ common stock. As a result, unless our stockholders are tax-exempt entities, they may have to use funds from other sources to pay their respective tax liability on the value of the common stock received.

Distributions payable by REITs do not qualify for the reduced tax rates that apply to other corporate distributions.

Tax legislation enacted in 2003, as amended, generally reduces the maximum tax rate for distributions payable by corporations to individuals to 15% through 2012. Distributions payable by REITs, however, generally continue to be taxed at the normal ordinary income rate applicable to the individual recipient.

Our gains from sales of our assets are potentially subject to the prohibited transaction tax, which could reduce the return on our stockholders’ investment.

Our ability to dispose of property is restricted to a substantial extent as a result of our intention to qualify for REIT status. We will be subject to a 100% tax on any gain realized on the sale or other disposition of any property (other than foreclosure property) we own, directly or through any subsidiary entity, including our operating partnership, but excluding our taxable REIT subsidiaries, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. We intend to avoid the 100% prohibited transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a taxable REIT subsidiary, (2) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary other than a taxable REIT subsidiary, will be treated as a prohibited transaction or (3) structuring certain dispositions of our properties to comply with certain safe harbors available under the Internal Revenue Code for properties held at least two years. However, no assurance can be given that any particular property we own, directly or through any subsidiary entity, including our Operating Partnership, but excluding our taxable REIT subsidiaries, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.

In certain circumstances, we may be subject to federal and state income taxes as a REIT, which would reduce our cash available for distribution to our stockholders.

Even if we qualify and maintain our status as a REIT, we may be subject to federal and state income taxes. For example, net income from a “prohibited transaction” will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain capital gains we earn from the sale or other disposition of our real estate assets and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. We may also be subject to state and local taxes on our income or property, either directly or at the level of the companies through which we indirectly own our assets. Any federal or state taxes we pay will reduce our cash available for distribution to stockholders.

Complying with the REIT requirements may cause us to forego otherwise attractive investment opportunities.

To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of shares of our common stock. We may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

Complying with the REIT requirements may force us to liquidate otherwise attractive investments.

To qualify as a REIT, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including shares of stock in other REITs, certain mortgage loans and mortgage-backed securities. The remainder of our investment in securities (other than governmental securities and qualified real estate assets) generally cannot represent more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total securities can be represented by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we will lose our REIT status and suffer adverse tax consequences unless we correct such failure within 30 days after the end of the calendar quarter. As a result, we may be required to liquidate otherwise attractive investments.

Liquidation of assets may jeopardize our REIT status.

To continue to qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to satisfy our obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our status as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.

Legislative or regulatory action could adversely affect our stockholders.

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure our stockholders that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. Our stockholders are urged to consult with their own tax advisor with respect to the impact of recent legislation on their investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. Our stockholders also should note that our counsel’s tax opinion was based upon existing law, applicable as of the date of its opinion, all of which may be subject to change, either prospectively or retroactively.

The tax rate changes contained in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 are currently scheduled to expire at the end of 2012. It is widely anticipated that this expiration will provoke a legislative response from Congress for tax years beginning after December 31, 2012; however, it is impossible to anticipate the effects of any such legislation at this time.

Although REITs continue to receive substantially better tax treatment than entities taxed as corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be taxed for U.S. federal income tax purposes as a corporation. As a result, our charter provides our board of directors with the power, in the event that our board of directors determines that it is no longer in our best interest to continue to be qualified as a REIT, to revoke or otherwise terminate our REIT election and cause us to be taxed as a corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.

The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.

We may acquire mezzanine loans. The Internal Revenue Service has provided a safe harbor in Revenue Procedure 2003-65 for structuring mezzanine loans so that they will be treated by the Internal Revenue Service as a real estate asset for purposes of the REIT asset tests, and interest derived therefrom will be treated as qualifying mortgage interest for purposes of the 75% gross income test, discussed below. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. We may acquire mezzanine loans that do not meet all of the requirements of the safe harbor. In the event we own a mezzanine loan that does not meet the safe harbor, the Internal Revenue Service could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and income tests and, if such a challenge were sustained, we could fail to qualify as a REIT.

Our taxable REIT subsidiaries will be taxable on their income, and we may be required to pay some taxes due to actions of a taxable REIT subsidiary we may form, which would reduce our cash available for distribution to our stockholders.

Any net taxable income earned directly by one or more taxable REIT subsidiaries we may form, or through entities that are disregarded for federal income tax purposes as entities separate from our taxable REIT subsidiaries, will be subject to federal and possibly state corporate income tax. In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct certain interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by a taxable REIT subsidiary if the economic arrangements between the REIT, the REIT’s customers and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to our stockholders.

Foreign investors may be subject to FIRPTA on the sale of shares of our common stock if we are unable to qualify as a “domestically controlled qualified investment entity.”

A foreign person disposing of a U.S. real property interest, including shares of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to a tax, known as FIRPTA, on the gain recognized on the disposition. FIRPTA does not apply, however, to the disposition of stock in a REIT if the REIT is a “domestically controlled qualified investment entity.” A REIT is a domestically controlled qualified investment entity if, at all times during a specified testing period (the continuous five year period ending on the date of disposition or, if shorter, the entire period of the REIT’s existence), less than 50% in value of its shares is held directly or indirectly by non-U.S. holders. We cannot make assurances that we will qualify as a domestically controlled qualified investment entity. If we were to fail to so qualify, gain realized by a foreign investor on a sale of our common stock would be subject to FIRPTA unless our common stock was traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 5% of the value of our outstanding common stock.

Retirement Plan Risks

If our stockholders fail to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock, they could be subject to criminal and civil penalties.

There are special considerations that apply to employee benefit plans subject to the Employee Retirement Income Security Act of 1974, or ERISA, (such as pension, profit-sharing or 401(k) plans) and other retirement plans or accounts subject to Section 4975 of the Internal Revenue Code (such as an IRA or Keogh plan) whose assets are being invested in our common stock.

In general, individuals making investment decisions with respect to such plans and IRAs should, at a minimum, consider whether:

•

their investment is consistent with their fiduciary obligations under ERISA and the Internal Revenue Code;

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their investment is made in accordance with the documents and instruments governing the stockholders’ respective plan or IRA, including their plan or account’s investment policy;

•

their investment satisfies the prudence and diversification requirements of Section 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and/or the Internal Revenue Code;

•

their investment will not impair the liquidity of the plan or IRA;

•

their investment will not produce unrelated business taxable income, referred to as UBTI, for the plan or IRA;

•

the stockholders will be able to value the assets of the plan annually in accordance with ERISA requirements and applicable provisions of the plan or IRA; and

•

their investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.

Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Internal Revenue Code may result in the imposition of civil and criminal penalties and could subject the fiduciary to equitable remedies. In addition, if an investment in our common stock constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary that authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

As of December 31, 2012, we owned, through separate wholly-owned limited liability companies, two single-tenant, net leased properties, located in two states comprising approximately 96,000 rentable square feet of commercial space. As of December 31, 2012, 100% or our rentable square feet was leased, with an average remaining lease term of 12.5 years. As of December 31, 2012, we had outstanding debt of approximately $3.9 million, secured by certain of our properties and the related tenant leases. For a discussion of the properties owned, see Note 3 to our consolidated financial statements included in this Annual Report on Form 10-K.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we could be party to legal proceedings that arise in the ordinary cause of business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect or our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by government agencies.

ITEM 4. MINE SAFETY PROCEDURES

Not applicable.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

As of March 29, 2013, we had 284,335 shares of common stock outstanding, held by a total of 13 stockholders of record, including our Advisor, which owns 237,742 shares of our common stock. We also had 1,000 shares of convertible stock issued and outstanding, which were held by our Advisor, as of such date.

There is no established trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder, or at all. Pursuant to the Offering, we are selling shares of our common stock to the public at a price of $10.00 per share and at a price of $9.50 per share pursuant to the DRP. Additionally, we provide discounts in our Offering for certain categories of purchasers, including volume discounts. Pursuant to the terms of our charter, certain restrictions are imposed on the ownership and transfer of shares.

Unless and until our shares are listed on a national securities exchange, we do not expect that a public market for the shares will develop. To assist fiduciaries of tax-qualified pension, stock bonus or profit-sharing plans, employee benefit plans and annuities described in Section 403(a) or (b) of the Internal Revenue Code or an individual retirement account or annuity described in Section 408 of the Internal Revenue Code subject to the annual reporting requirements of ERISA and IRA trustees or custodians in preparation of reports relating to an investment in the shares, we intend to provide reports of the per share estimated value of our common stock to those fiduciaries who request such reports. In addition, in order for FINRA members and their associated persons to participate in the offering and sale of our shares of common stock, we are required pursuant to FINRA Rule 5110(f)(2)(m) to disclose in each annual report distributed to investors a per share estimated value of the shares, the method by which it was developed and the date of the data used to develop the estimated value. For these purposes, the deemed value of our common stock is $10.00 per share as of December 31, 2012. However, as set forth above, there is no public trading market for the shares at this time and stockholders may not receive $10.00 per share if a market did exist. Until the later of 18 months after the termination of our Offering or the termination of any subsequent offering of our shares, we intend to use the offering price of shares in the most recent offering as the per share estimated value. Beginning 18 months after the last offering of shares, the value of the properties and other assets will be based on valuations of either our properties or us as a whole, whichever valuation method our board of directors determines to be appropriate, which may include independent valuations of our properties or of our enterprise as a whole.

Share Repurchase Program

We have adopted a share repurchase program that may provide an opportunity for our stockholders to have their shares repurchased by us, subject to certain restrictions and limitations. No shares can be repurchased under our share repurchase program until after the first anniversary of the date of purchase of such shares; provided, however, that the one year holding period requirement may be waived in certain circumstances, as described below. Until we begin to disclose an estimated per share value of our common stock that is not based on the price to acquire a share of our common stock in the Offering or any follow-on public offering, the purchase price for shares repurchased pursuant to our share repurchase program will be as follows (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock):

•

92.5% of the price paid to acquire the shares from us for stockholders who have continuously held their shares for at least one year;

•

95.0% of the price paid to acquire the shares from us for stockholders who have continuously held their shares for at least two years;

•

97.5% of the price paid to acquire the shares from us for stockholders who have continuously held their shares for at least three years; and

•

100.0% of the price paid to acquire the shares from us for stockholders who have continuously held their shares for at least four years.

The purchase price per share for all shares repurchased pursuant to our share repurchase program will be further reduced by the aggregate amount of net proceeds per share, if any, distributed to our stockholders prior to the repurchase date as a result of the sale or refinancing of one or more of our assets that constitutes a return of capital distribution as a result of such sale or refinancing.

Notwithstanding the foregoing, shares repurchased pursuant to our share repurchase program after we begin disclosing an estimated per share value of our common stock that is not based on the price to acquire a share of our common stock in the Offering or any follow-on public offering will be repurchased for the lesser of (1) the price paid for the shares by the redeeming stockholder and (2) 95% of our most recent estimated per share value, subject to the exception described below for repurchases in the case of a stockholder’s death or disability.

We expect our Advisor, or another firm chosen for that purpose, to determine an estimated per share value of our common stock that is not based on the price to acquire a share of our common stock in the Offering or any follow-on public offering beginning no later than 18 months after the completion of our offering stage, and that our board of directors will approve each such determination of an estimated per share value of our common stock. We currently expect to update the estimated per share value of our common stock no less frequently than every 12 months thereafter. We will consider our offering stage complete on the first date that we are no longer publicly offering equity securities that are not listed on a national securities exchange, whether through our Offering or a follow-on public offering, provided we have not filed a registration statement for a follow-on public offering as of such date (for purposes of this definition, we do not consider “public offerings” to include offerings on behalf of selling stockholders or offerings related to a distribution reinvestment plan, employee benefit plan or the redemption of interests in our operating partnership). We do not currently anticipate obtaining independent appraisals or valuations of our properties or other assets in connection with determining the estimated per share value of our common stock and, accordingly, the estimated per share values should not be viewed as an accurate reflection of the fair market value of our assets or the amount of net proceeds that would result from an immediate sale of our assets.

We will treat requests for the repurchase of shares sought upon a stockholder’s death, disability, bankruptcy or other exigent circumstances differently than other repurchases in several respects. Upon request, we may waive the one-year holding period requirement for repurchases sought upon a stockholder’s death, disability or bankruptcy or other exigent circumstances as determined by our Advisor. Until we begin to disclose an estimated per share value of our common stock that is not based on the price to acquire a share of our common stock in the Offering or a follow-on public offering, shares repurchased in connection with a stockholder’s death or disability will be repurchased at a price per share equal to 100% of the amount actually paid for the shares. After we begin disclosing an estimated per share value of our common stock that is not based on the price to acquire a share of our common stock in the Offering or a follow-on public offering, shares repurchased in connection with a stockholder’s death or disability will be repurchased at a purchase price per share equal to 100% of our most recent estimated per share value. In the event that we waive the one year holding requirement in connection with the repurchase of shares upon a stockholder’s bankruptcy or other exigent circumstance as determined by our Advisor, such shares will be repurchased at a price per share equal to the price per share we would pay had the stockholder held the shares for at least one year from the purchase date.

We intend to limit the number of shares that may be repurchased pursuant to our share repurchase program during any calendar year to 5.0% of the number of shares of our common stock outstanding on December 31st of the previous calendar year. In addition, we are only authorized to repurchase shares using the proceeds received from our DRP during the prior calendar year. Either of the foregoing limits might prevent us from accommodating all repurchase requests made in any quarter, in which case quarterly repurchases will be made on a pro rata basis as described below. In addition, repurchases may be limited by restrictions under Maryland law that prohibit repurchases if as a result of a repurchase we would violate certain statutory tests of solvency.

Repurchases of shares of our common stock pursuant to our share repurchase program will be made on the last business day of the month following the end of each fiscal quarter. Requests for the repurchase of shares must be received at least five days prior to the end of a fiscal quarter in order for us to repurchase the shares as of the end of the month following the end of such fiscal quarter. Stockholders may withdraw their request to have shares repurchased at any time prior to the last business day of the applicable fiscal quarter.

We cannot guarantee that the funds set aside for the share repurchase program will be sufficient to accommodate all repurchase requests made in any fiscal quarter. We will determine whether we have sufficient funds available to accommodate all repurchase requests made in any fiscal quarter as soon as practicable after the end of each fiscal quarter, but in any event prior to the applicable repurchase date. In the event that we cannot repurchase all of the shares of our common stock for which repurchase requests have been presented in any fiscal quarter, based upon a lack of sufficient available funds and/or the limits on the number of shares we may repurchase during any year, we will attempt to honor repurchase requests on a pro rata basis; provided, however, that we may give priority to repurchase requests in the case of the death or disability of a stockholder. In the event that we repurchase less than all of the shares subject to a repurchase request in any fiscal quarter, stockholders requesting a repurchase must submit a new repurchase request for any shares which were not repurchased. Unfulfilled requests for the repurchase of shares will not be carried over automatically to subsequent fiscal quarters.

Our board of directors may, in its sole discretion, amend, suspend, or terminate the share repurchase program at any time upon 30 days’ notice to our stockholders if it determines that the funds available to fund the share repurchase program are needed for other business or operational purposes or that amendment, suspension or termination of the share repurchase program is in our best interests. Therefore, our stockholders may not have the opportunity to make a repurchase request prior to any potential termination of our share repurchase program. There is no fee in connection with a repurchase of shares of our common stock pursuant to our share repurchase program. Our affiliates will not be eligible to participate in our share repurchase program.

For the year ended December 31, 2012, we did not repurchase any shares of our common stock under the share repurchase program.

Distributions

We intend to accrue distributions on a daily basis and make distributions on a monthly basis. We expect to continue paying monthly distributions unless our results of operations, our general financial condition, general economic conditions or other factors prohibit us from doing so. The timing and amount of distributions, if any, will be determined by our board of directors in its discretion.

Generally, our policy will be to pay distributions from cash flow from operations. However, we expect to have little, if any, cash flow from operations available for distribution until we make substantial investments. Further, because we may receive income from interest or rents at various times during our fiscal year and because we may need cash flow from operations during a particular period to fund capital expenditures and other expenses, we expect that at least during the early stages of our development and from time to time during our operational stage, we will declare distributions in anticipation of cash flow that we expect to receive during a later period, and we expect to pay these distributions in advance of our actual receipt of these funds. In these instances, our board of directors has the authority under our organizational documents, to the extent permitted by Maryland law, to fund distributions from sources such as borrowings, offering proceeds or advances and the deferral of fees and expense reimbursements by our Advisor in its sole discretion. We have not established a limit on the amount of proceeds we may use from the Offering to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (1) cause us to be unable to pay our debts as they become due in the usual course of business; (2) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences, if any; or (3) jeopardize our ability to qualify as a REIT.

We operate in a manner designed to permit us to, and believe we do, qualify, and intend to elect to be treated, as a REIT for federal income tax purposes during the taxable year ended December 31, 2012. To qualify as a REIT, we are required to distribute 90% of our annual REIT taxable income, determined without regard to the dividends paid deduction and by excluding net capital gains, to our stockholders. If the aggregate amount of cash distributions in any given year exceeds the amount of our “REIT taxable income” generated during the year, the excess amount will either be (1) a return on capital or (2) gain from the sale or exchange of property to the extent that a stockholder’s basis in our common stock equals or is reduced to zero as the result of our current or prior year distributions.

For the period from September 2, 2010 (Date of Inception) to December 31, 2011, we had not paid any distributions to our stockholders.

On November 8, 2012, our board of directors authorized and declared a daily distribution to our stockholders of record as of the close of business on each day of the period commencing on December 1, 2012 and ending on February 28, 2013. The distributions for the period commencing on December 1, 2012 and ending on December 31, 2012 will be calculated based on 366 days in the calendar year and equal to $0.001775956 per share of common stock. The distributions for the period commencing on January 1, 2013 and ending on February 28, 2013 will be calculated based on 365 days in the calendar year and equal to $0.001780822 per share of common stock, which is equal to an annualized distribution rate of 6.50%, assuming a purchase price of $10.00 per share. The distributions declared for each record date in the December 2012, January 2013 and February 2013 periods were paid in January 2013, February 2013 and March 2013, respectively. The distribution declared for each record date in the March 2013, April 2013 and May 2013 periods will be paid in April 2013, May 2013 and June 2013, respectively. The distributions will be payable to stockholders from legally available funds therefor.

Use of Public Offering Proceeds

On August 15, 2011, pursuant to a Registration Statement on Form S-11 (File No. 333-170173) under the Securities Act, we commenced our initial public offering of an aggregate of 110,526,316 shares of common stock. Of these shares, we are offering up to 100,000,000 shares of common stock at an initial purchase price of $10.00 per share (the “Offering”), and up to 10,526,316 shares of common stock pursuant to our distribution reinvestment plan at an initial purchase price of $9.50 per share, for a maximum offering of up to $1,100,000,000. We may reallocate the shares between the Offering and the distribution reinvestment plan.

As of December 31, 2012, we had issued 284,335 shares, of which 237,742 shares were issued to our Advisor, in the Offering for gross proceeds of approximately $2,371,000, out of which we paid approximately $22,000 in selling commissions and dealer manager fees. As of December 31, 2012, our Advisor had incurred organization and offering expenses of approximately $2,940,000. We have received net offering proceeds of approximately $2,350,000, which we used to acquire real estate and real estate related assets. As of December 31, 2012 and 2011, we had not reimbursed the Advisor for organization and offering costs, as the terms of the Advisory Agreement provides that the reimbursement of expense is not an obligation to us until a minimum of $2,000,000 of gross offering proceeds have been raised by us from unaffiliated parties.

Securities Authorized for Issuance Under Equity Compensation Plans.

We adopted our long-term incentive plan, pursuant to which our board of directors has the authority to grant restricted stock, stock options, stock appreciation rights, restricted or deferred stock units, performance awards, dividend equivalents, other stock-based awards and cash-based awards to directors, employees and consultants of our company. The maximum number of shares of our common stock that may be issued pursuant to our long-term incentive plan is 300,000, subject to adjustment under specified circumstances. For a further discussion of our long-term incentive plan, see Note 9 to our consolidated financial statements included in this Annual Report on Form 10-K.


	Equity Compensation Plan Information
Plan Category	Number of Securities to Be Issued upon Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance

Equity compensation plans approved by security holders (1)		24,000		—		276,000

Equity compensation plans not approved by security holders		—		—		—


Total		24,000		—		276,000

(1)	Shares issued to our independent directors were issued under the company’s independent directors’ compensation plan, which operates as a sub-plan to our long-term incentive plan.

Unregistered Sales of Equity Securities

On July 6, 2012, we issued to each one of our independent directors 3,000 shares of restricted stock in connection with such independent director’s re-election to the Company’s board of directors, for a total of 12,000 shares of common stock. The shares were not registered under the Securities Act of 1933, as amended (the “Securities Act”), and were issued in reliance on Section 4(2) of the Securities Act.

ITEM 6.

SELECTED FINANCIAL DATA

The following data should be read in conjunction with our consolidated financial statements and the notes thereto and “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K. The selected financial data presented below was derived from our consolidated financial statements.


	Year Ended December 31,						For the period From September 2, 2010 (Date of Inception) Through December 31, 2010
	2012			2011
Balance Sheet Data:
Total investment in real estate assets, net	$	6,264,753		$	—		$	—
Cash and cash equivalents	$	165,694		$	136,216		$	202,000
Total assets	$	6,495,735		$	202,000		$	202,000
Notes payable	$	3,899,000		$	—		$	—
Due to affiliates	$	322,881		$	—		$	—
Acquired below market lease intangibles, net	$	125,727		$	—		$	—
Stockholders’ equity	$	2,097,876		$	201,000		$	201,000
Operating Data:
Total revenue	$	9,586		$	—		$	—
General and administrative expenses	$	101,855		$	—		$	—
Acquisition related expenses	$	160,602		$	—		$	—
Depreciation and amortization	$	5,073		$	—		$	—
Operating loss	$	(257,944	)	$	—		$	—
Interest and other income	$	1,896		$	—		$	—
Interest expense	$	(3,019	)	$	—		$	—
Net loss	$	(259,067	)	$	—		$	—
Modified funds from operations (1)	$	(93,392	)	$	—		$	—
Cash Flow Data:
Net cash used in operating activities	$	(74,835	)	$	—		$	—
Net cash used in investing activities	$	(6,078,284	)	$	(67,784	)	$	—
Net cash provided by financing activities	$	6,182,597		$	—		$	202,000
Per Share Data:
Net loss per common share—basic and diluted	$	(2.22	)	$	—		$	—
Distributions declared	$	0.05		$	—		$	—
Weighted average shares outstanding—basic and diluted		116,880			—			—

(1)

See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Funds from Operations and Modified Funds from Operations” for information regarding why we present modified funds from operations and for a reconciliation of this non-GAAP financial measure to net loss. As we commenced our principal operations on August 8, 2012, this non-GAAP financial measure is not applicable for the year ended December 31, 2011 and for the period from September 2, 2010 to December 31, 2010.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Consolidated Financial Data,” and our consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under “Risk Factors” and “Forward-Looking Statements.” All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements.

Overview

We are a newly formed company and have limited operating history. We were incorporated on September 2, 2010 under the laws of the state of Maryland and intend to acquire and manage a diversified portfolio of income-producing industrial real estate assets, comprised primarily of warehouse properties leased to creditworthy tenants. In addition to our primary focus on industrial properties, we may also selectively invest in other types of commercial properties. Further, we may invest in mortgage, mezzanine, bridge and other real estate loan, provided that the underlying real estate meets our criteria for direct investment, as well as securities of REITs and other real estate companies, which we collectively refer to as “real estate-related assets.” We operate in a manner designed to permit us to, and believe we do, qualify, and intend to elect to be treated, as a REIT for federal income tax purposes during the taxable year ended December 31, 2012.

We are dependent upon proceeds received from the Offering to conduct our proposed activities. The capital required to purchase our investments will be obtained from the Offering and from any indebtedness that we may incur in connection with an investment or thereafter. We were initially capitalized with $202,000, $200,000 of which was contributed by our Advisor on October 11, 2010 in exchange for 22,222 shares of our common stock, and $1,000 of which was contributed by our Advisor on October 11, 2010 in exchange for 1,000 shares of our convertible stock. In addition, our Advisor invested $1,000 in our Operating Partnership in exchange for its limited partnership interests.

O’Donnell Strategic Industrial Advisors, LLC (the “Advisor”) will manage our day-to-day operations and our portfolio of properties and real estate-related assets. Our Advisor also will source and present investment opportunities to our board of directors and provide investment management, marketing, investor relations and other administrative services on our behalf.

Substantially all of our business will be conducted through O’Donnell Strategic Industrial REIT Operating Partnership, LP, (the “Operating Partnership”). We are the sole general partner of our Operating Partnership. The initial limited partner of our Operating Partnership is our Advisor. As we accept subscriptions for shares in the Offering, we will transfer substantially all of the net proceeds of the Offering to our Operating Partnership as a capital contribution. The limited partnership agreement of our Operating Partnership provides that our Operating Partnership will be operated in a manner that will enable us to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that our operating partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code, which classification could result in our operating partnership being taxed as a corporation, rather than as a partnership. In addition to the administrative and operating costs and expenses incurred by our operating partnership in acquiring and operating real properties, our operating partnership will pay all of our administrative costs and expenses, and such expenses will be treated as expenses of our operating partnership.

We believe our financial condition and results of operations will depend in significant part on our ability to identify and acquire properties and other real estate-related assets on favorable terms and, as discussed below, on our ability to lease the properties we acquire. We will seek to identify opportunities to acquire existing properties on favorable terms, and may also selectively seek to identify opportunities to acquire and develop new properties on favorable terms. Our acquisition and development of properties will be impacted by a number of conditions which are beyond our control, including property and market specific conditions and general economic conditions. Our acquisition and development of properties will also entail certain risks and uncertainties, including that our investments may not sustain or achieve the occupancy and rental rate levels we anticipate or will otherwise fail to perform as anticipated. In addition, we will face significant competition for attractive acquisition opportunities from other real estate investors, many of whom may have greater financial resources than we do. Further, we may be unable to finance the acquisition or development of investment opportunities which we identify. In the event that we are unable to identify and make sufficient investments on favorable terms, or if the investments we make do not perform as we anticipate, our financial condition, results of operations and ability to pay distributions to our stockholders would be adversely affected.

We anticipate that we will generate revenue primarily from rental income from relatively long-term operating leases at the properties we acquire, although we may acquire properties leased to tenants with shorter lease terms if the property is in an attractive location or has other favorable attributes. Revenues generated from rental income, in addition to income generated from the sale of our investments, will be a significant source of funds for our liquidity. Our ability to successfully lease our properties and the occupancy rates and rental rates at our properties will be impacted by a number of conditions which are beyond our control, including property and market specific conditions and general economic conditions.

Our leasing of properties will also entail a variety of risks and uncertainties, including tenant defaults. If we are unable to rent the properties we acquire on favorable terms, are unable to maintain or increase occupancy and rental rates at the properties we acquire, or if a significant number of our tenants are unable to meet their rent payment obligations, our financial condition, results of operations and ability to pay distributions to our stockholders would be adversely affected.

Our Advisor may, but is not required to, establish working capital reserves from offering proceeds out of cash flow generated by our investments or out of proceeds from the sale of our investments. We do not anticipate establishing a general working capital reserve; however, we may establish capital reserves with respect to particular investments. We also may, but are not required to, establish reserves out of cash flow generated by investments or out of net sale proceeds in non-liquidating sale transactions. Working capital reserves are typically utilized to fund tenant improvements, leasing commissions and major capital expenditures. Our lenders also may require working capital reserves.

To the extent that the working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from cash generated from operations or through short-term borrowing. In addition, subject to the limitations described herein, we may incur indebtedness in connection with the acquisition of any real property or other real estate-related asset, refinance the debt thereon, arrange for the leveraging of any previously unfinanced property or reinvest the proceeds of financing or refinancing in additional properties or real estate-related assets.

If we qualify as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year after the taxable year in which we initially elect to be taxed as a REIT, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which qualification is denied. Failing to qualify as a REIT could materially and adversely affect our net income.

Recent Market Conditions

The recent recession and general economic downturn have led to high unemployment rates and a decline in consumer spending. These economic trends have contributed to an overall decline in the commercial real estate market, historically high vacancy rates, declining rental rates and declining property values. Increased vacancy rates generally result in lowered rental rates, increased expenses from tenant improvements and concessions, reduced revenues from properties and an increase in the number of properties facing foreclosure. Although the economy has recently shown certain signs of improvement, occupancy and rental rates in the commercial real estate market continue to be below those experienced before the recent recession and general economic downturn. If the current economic uncertainty persists or if general economic conditions worsen, we may experience vacancy rates which are substantially higher than we had anticipated and may be forced to offer lower rental rates and more favorable lease terms and tenant improvements or concessions than expected in order to attract or retain tenants. Although measures such as reduced rental rates and favorable lease terms may help us to attract and retain tenants, they may also reduce our revenues and impair our ability to repay financing associated with our properties and pay distributions to our stockholders. Our revenues will also be negatively impacted during any periods in which any properties we acquire are vacant or experience decreased occupancy, and increased vacancy rates could also cause the value of our investments to decrease below the amount we paid for such investments. An increase in vacancy rates may have a more significant impact on us, as compared to other investment vehicles, as our investment strategy will rely on relatively long-term leases with a relatively limited number of tenants in order to provide a stable stream of income to our stockholders.

The recent economic downturn and significant disruptions in domestic and international financial markets have adversely impacted the availability of credit and contributed to rising costs associated with obtaining credit, and the volume of mortgage lending for commercial real estate remains significantly lower than previous levels. As a result, we may experience more stringent lending criteria, which may affect our ability to finance our acquisitions or refinance any indebtedness we incur. Additionally, with respect to acquisitions for which we are able to obtain financing, the interest rates and other terms on such loans may be unacceptable. Our ability to access financing on favorable terms, or at all, will depend upon various factors, including general market conditions, interest rates and credit ratings. If we are unable to obtain suitable financing for our acquisitions or we are unable to identify suitable investment opportunities at attractive prices in the current credit environment, our financial condition, results of operations and ability to pay distributions to our stockholders would be adversely affected.

We expect that the properties in our portfolio will be located in markets throughout the United States. Negative trends in regional or local economic or other conditions, adverse weather conditions, natural disasters and other events beyond our control in the markets and sub-markets in which the properties that we acquire are located may adversely affect our financial condition, results of operations and ability to pay distributions to our stockholders.

Critical Accounting Policies

General

Our accounting policies have been established to conform to generally accepted accounting principles in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions is different, it is possible that different accounting policies will be applied or different amounts of assets, liabilities, revenues and expenses will be recorded, resulting in a different presentation of the financial statements or different amounts reported in the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. Below is a discussion of the accounting policies that management considers to be most critical once we commence significant operations. These policies require complex judgment in their application or estimates about matters that are inherently uncertain.

Real Estate Assets

Depreciation

Real estate costs related to the acquisition, development, construction, and improvement of properties will be capitalized. Repair and maintenance costs will be charged to expense as incurred and significant replacements and betterments will be capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. We consider the period of future benefit of an asset to determine its appropriate useful life. We anticipate the estimated useful lives of our assets by class to be generally as follows:


Buildings		25-40 years
Building improvements		10-25 years
Tenant improvements		Shorter of lease term or expected useful life
Tenant origination and absorption costs		Remaining term of related lease
Furniture, fixtures, and equipment		7-10 years

Real Estate Purchase Price Allocation

Upon the acquisition of real properties, we allocate the purchase price of such properties to acquired tangible assets, consisting of land, buildings and improvements, and identified intangible assets and liabilities, consisting of the value of above market and below market leases and the value of in-place leases, based in each case on their fair values. Acquisition related expenses will be expensed as incurred. We utilize independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and building). We obtain an independent appraisal for each real property acquisition. The information in the appraisal, along with any additional information available to our management, is used by our management in estimating the amount of the purchase price that is allocated to land. Other information in the appraisal, such as building value and market rents, may be used by our management in estimating the allocation of purchase price to the building and to intangible lease assets and liabilities. The appraisal firm has no involvement in management’s allocation decisions other than providing this market information.

In accordance with Accounting Standards Codification, or ASC, Topic 805, Business Combinations, we record above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. We amortize any capitalized above-market or below-market lease values as an increase or reduction to rental income over the remaining non-cancelable terms of the respective leases, which we expect will range from one month to ten years.

We measure the aggregate value of other intangible assets acquired based on the difference between (1) the property valued with existing in-place leases adjusted to market rental rates and (2) the property valued as if vacant. Management’s estimates of value are expected to be made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors to be considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases.

We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, management also includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. Management also estimates costs to execute similar leases including leasing commissions and legal and other related expenses to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction.

The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship intangible values based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics to be considered by management in allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

We amortize the value of in-place leases to expense over the initial term of the respective leases. The value of customer relationship intangibles will be amortized to expense over the initial term and any renewal periods in the respective leases, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to expense in that period.

Estimates of the fair values of the tangible and intangible assets require us to estimate market lease rates, property operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate estimates would result in an incorrect assessment of our purchase price allocation, which would impact the amount of our net income.

Impairment of Real Estate Assets

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related assets may not be recoverable. Impairment indicators that we consider include, but are not limited to, bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, rental concessions and other factors, a significant decrease in a property’s revenues due to lease terminations, vacancies, co-tenancy clauses, reduced lease rates or other circumstances. When indicators of potential impairment are present, we assess the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted cash flows do not exceed the carrying value, we will adjust the real estate and related assets and liabilities to their respective fair values and recognize an impairment loss. Generally fair value is determined using a discounted cash flow analysis and recent comparable sales transactions.

When developing estimates of expected future cash flows, we make certain assumptions regarding future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, terminal capitalization and discount rates, the expected number of months it takes to re-lease the property, required tenant improvements and the number of years the property will be held for investment. The use of alternative assumptions in the future cash flow analysis could result in a different determination of the property’s future cash flows and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the carrying value of our real estate and related assets.

Rents and Other Receivables

We will periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. We maintain an allowance for deferred rent receivable that arises from the straight-lining of rents in accordance with ASC Topic 840, Leases. We exercise judgment in establishing these allowances and consider payment history and current credit status of our tenants in developing these estimates.

Revenue Recognition

We recognize minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured and will record amounts expected to be received in later years as deferred rent. If the lease provides for tenant improvements, we determine whether the tenant improvements, for accounting purposes, are owned by the tenant or us. When we are the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term.

We record property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred.

We make estimates of the collectability of our tenant receivables related to base rents, including straight line rentals, expense reimbursements and other revenue or income. We specifically analyze accounts receivable and historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, we will make estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, we will record a bad debt reserve for the tenant’s receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments.

Income Taxes

We operate in a manner designed to permit us to, and believe we do, qualify, and intend to elect to be treated, as a REIT for federal income tax purposes during the taxable year ended December 31, 2012. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP) to our stockholders. As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we intend to organize and operate in such a manner as to qualify for treatment as a REIT.

Results of Operations

As of December 31, 2012, we had not commenced any material operations as we are currently in the start-up phase of raising proceeds in our Offering and identifying real estate properties and real estate-related assets for acquisition. Our most significant transaction impacting the results of operations related to $160,602 of acquisition costs and fees during the year ended December 31, 2012, associated with our 2012 acquisitions. We expect that in future periods, as we continue to raise proceeds in the Offering and invest in income producing properties, our revenue and operating expenses will increase accordingly. We reimburse our advisor for all expenses it paid or incurred in connection with the services provided to us, subject to the limitation that we will not reimburse the advisor for any amount by which its operating expenses at the end of the four preceding fiscal quarters exceeds the greater of (i) 2.00% of average invested assets, or (ii) 25.00% of net income for that period, unless our independent directors find that, based on such unusual and non-recurring factors that they deem sufficient, a higher level of expenses is justified. We will also not reimburse the advisor for employee cost in connection with services for which the advisor receives acquisition fees or disposition fees or for personnel costs the advisor pays with respect to persons who serve as our executive officers. As of December 31, 2012 and 2011, our operating expenses exceeded this limitation by a total of approximately $661,000 and $132,000, respectively. These excess costs as of December 31, 2012 and 2011 were not included in the consolidated financial statements of the Company in accordance with the terms of the Advisory Agreement, which provide that the reimbursement is not an obligation to the Company until a minimum of $2,000,000 of gross offering proceeds have been raised by the Company from unaffiliated parties, which condition has not yet been satisfied.

Liquidity and Capital Resources

General

If we are unable to raise substantially more funds in the Offering than the minimum offering requirement amount, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make and the value of an investment in us will fluctuate with the performance of the specific assets we acquire. Further, we will have certain fixed operating expenses, including certain expenses as a public REIT, regardless of whether we are able to raise substantial funds in the Offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and limiting our ability to make distributions.

As of December 31, 2012, we had cash and cash equivalents of $165,694.

Through March 2013, the amount of proceeds raised from the Offering, as described previously in Item 1. Business, Formation, was insufficient to allow us to reimburse the Advisor for organization, offering and operating expenses, accordingly, we are reliant upon the Advisor for financial support. We intend to continue to seek capital through the Offering to invest in real estate and real estate related assets and to reimburse the Advisor in accordance with the terms of the Advisor Agreement. The principal owner of the Advisor has informed us that he, directly or through the Advisor or affiliated entities, will provide financial support, if necessary, through April 1, 2014, to sustain our financial viability. If we are not able to raise sufficient capital in the future, our ability to achieve our intended business objectives would be adversely impacted.

We are dependent on the Advisor and the Dealer Manager for certain services that essential to the us, including the sale of our shares of common and preferred stock available for issue; the identification, evaluation, negotiation, purchase and disposition of properties and other investments; management of the daily operations of the our real estate portfolio; and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, we will be required to obtain such services from other sources.

We currently have outstanding debt in the aggregate principal amount of $3,899,000, which is approximately 65% of the cost of our current investments. Once we have fully invested the proceeds of the Offering, we expect that our overall borrowings will be 50% or less of the cost of our investments, although we expect to exceed this level during our offering stage in order to enable us to quickly build a diversified portfolio. Under our charter, we have a limitation on borrowing which precludes us from borrowing in excess of 300% of the value of our net assets, which generally approximates to 75% of the aggregate cost of our assets, though we may exceed this limit only under certain circumstances. We will experience a relative increase in liquidity as additional subscriptions for shares of our common stock are received and a relative decrease in liquidity as offering proceeds are used to acquire and operate our assets.

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to our Advisor and our Dealer Manager. During our organization and offering stage, these payments will include payments to our Dealer Manager for selling commissions and the dealer manager fee and payments to our Advisor for reimbursement of certain other organization and offering expenses. However, we will only reimburse our Advisor for organization and offering expenses it may incur on our behalf to the extent that the reimbursement would not cause the total selling commissions, dealer manager fees and other organization and offering expenses borne by us to exceed 15.0% of gross offering proceeds as of the date of the reimbursement. During our operating stage, we expect to make payments to our Advisor in connection with the acquisition of investments, the management of our assets and costs incurred by our Advisor in providing services to us. For a discussion of the compensation to be paid to our Advisor and our Dealer Manager, see Note 8 to our consolidated financial statements included in this Annual Report on Form 10-K.

Our principal demand for funds will be to acquire properties and real estate-related assets, to pay operating expenses and interest on our outstanding indebtedness and to make distributions to our stockholders. Over time, we intend to generally fund our cash needs for items, other than asset acquisitions, from operations. Otherwise, management expects that our principal sources of working capital will include:

•

current cash balances;

•

public offerings;

•

various forms of secured financing;

•

equity capital from joint venture partners;

•

proceeds from our operating partnership’s private placements, if any;

•

proceeds from our distribution reinvestment plan; and

•

cash from operations.

Short-term Liquidity and Capital Resources

Over the short term, we believe that our sources of capital, specifically our cash balances, cash flow from operations, our ability to raise equity capital from joint venture partners, our ability to obtain various forms of secured financing and proceeds from our Operating Partnership’s private placement, if any, will be adequate to meet our liquidity requirements and capital commitments.

Long-term Liquidity and Capital Resources

Over the longer term, in addition to the same sources of capital we will rely on to meet our short term liquidity requirements, we may also utilize additional secured and unsecured financings and equity capital from joint venture partners. We may also conduct additional public offerings. We expect these resources will be adequate to fund our operating activities, debt service and distributions, which we presently anticipate will grow over time, and will be sufficient to fund our ongoing acquisition activities as well as providing capital for investment in future development and other joint ventures along with potential forward purchase commitments.

Historical Cash Flow Summary

We had minimal cash flow activity during the year ended December 31, 2011 and for the period from September 2, 2010 (date of inception) through December 31, 2010, given we were in the start-up phase of the Offering. During the year ended December 31, 2012, we had investing outflows of $6.1 million primarily attributable to our acquisition activity. We had $6.2 million of financing in flows primarily attributed to capital raised and notes payable issued in connection with our real estate acquisitions during the year ended December 31, 2012.

Modification of Loan Agreements

Loan in Connection with Winston-Salem Property

In connection with the acquisition of the Winston-Salem Property, on December 27, 2012, we, through a wholly-owned indirect subsidiary, entered into a loan agreement with Fifth Third Bank in the principal amount of $2,899,000 (the “Winston-Salem Loan”). Pursuant to its terms, we were required to reduce the Winston-Salem Loan to a principal amount equal to $2,300,000 by March 21, 2013. We were unable to make such payment on the due date and as of March 21, 2013 we had $2,899,000 outstanding under the Winston-Salem Loan. In anticipation of our inability to reduce the outstanding principal on the Winston-Salem Loan, on March 20, 2013, we and Fifth Third Bank entered into a loan modification agreement, pursuant to which Fifth Third Bank required us to make a one-time principal re-payment of $40,000 on the Winston-Salem Loan, and, beginning on April 1, 2013, principal monthly re-payments of $4,560 until the principal balance on the Winston-Salem Loan is reduced to $2,230,000 or less. Thereafter, payments on the Winston-Salem Loan will be applied to the required interest thereunder. Further, Fifth Third Bank will collect all cash flow received from the Winston-Salem Property and will apply such payments towards reducing the principal and interest balance on the loan to $2,230,000. Any remaining cash on deposit in in the deposit accounts with Fifth Third Bank in excess of $3,000 will also be applied on account of the principal balance of the Winston-Salem Loan (collectively, the “Loan Modification”).

In connection with the Loan Modification, on March 20, 2013, Fifth Third Bank also entered into a guaranty of payment agreement (each a “Guaranty Agreement”) with Douglas D. O’Donnell, our chief executive officer and president, personally and as trustee for the DOD Trust Established August 29, 2002 (the “Trust”). Pursuant to the Guaranty Agreements, Mr. O’Donnell and the Trust each guaranteed the obligations under the Winston-Salem Loan for an amount of up to $629,000, subject to certain reductions as the principal amount outstanding under the Winston-Salem Loan is reduced. When the principal amount outstanding under the Winston-Salem Loan is reduced to $2,230,000, the Guaranty Agreements will no longer be enforceable, provided no event of default exists.

As of March 29, 2013, we had $2,859,000 outstanding under the Winston-Salem Loan.

Loan in Connection with Florida Property

As previously disclosed, in connection with the acquisition of the Florida Property, we, through a wholly-owned indirect subsidiary, entered into a loan agreement with USAmeriBank in the principal amount of $1,000,000 (the “Florida Loan”). Pursuant to its terms, we were required to reduce the Florida Loan to $842,000 by March 24, 2013. We were unable to make such payment on the due date and as of March 24, 2013 we had $994,444 outstanding under the Florida Loan. In connection with the inability to reduce the outstanding principal on the Florida Loan, and as required thereby, we opened a lockbox account with USAmeriBank to deposit and hold all rents and other revenue received from the Florida Property, which will be applied to the principal amount outstanding under the Florida Loan until it is reduced to $842,000.

As of March 29, 2013, we had $991,667 outstanding under the Florida Loan.

Factors That May Influence Results of Operations

We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally and those risks listed in Part I. Item 1A. Risk Factors, of this Annual Report on Form 10-K, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of properties.

Offering Proceeds

Our ability to invest in properties and other real estate-related assets will depend upon the net proceeds raised in the Offering and our ability to finance the acquisition of such assets. If we are unable to raise substantially more than the minimum offering amount, we will make fewer investments resulting in less diversification in terms of the number of investments owned resulting in fewer sources of income. In such event, the likelihood of our profitability being affected by the performance of any one of our investments will increase. In addition, if we are unable to raise substantial funds, our fixed operating expenses, as a percentage of gross income, would be higher which could affect our net income and results of operations.

Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, and related laws, regulations and standards relating to corporate governance and disclosure requirements applicable to public companies, have increased the costs of compliance with corporate governance, reporting and disclosure practices which are now required of us. These costs may have a material impact on our results of operations and could impact our ability to pay distributions to our stockholders. Furthermore, we expect that these costs will increase in the future due to our continuing implementation of compliance programs mandated by these requirements. Any increased costs may affect our ability to distribute funds to our stockholders.

In addition, these laws, rules and regulations create new legal grounds and theories for potential administrative enforcement, civil and criminal proceedings against us in case of non-compliance, thereby increasing the risks of liability and potential sanctions against us. We expect that our efforts to comply with these laws and regulations will continue to involve significant and potentially increasing costs, and our failure to comply could result in fees, fines, penalties or administrative remedies against us.

Inflation

Inflation might have both positive and negative impacts upon us. Inflation might cause the value of our real estate to increase. Inflation might also cause our costs of equity and debt capital and operating costs to increase. An increase in our capital costs or in our operating costs will result in decreased earnings unless it is offset by increased revenues. We anticipate that the leases at properties we acquire will generally provide for annual rent increases based on the consumer price index or similar adjustments, which we believe will help offset any increased costs as a result of inflation.

To mitigate the adverse impact of any increased cost of debt capital in the event of material inflation, we may enter into interest rate hedge arrangements in the future, but we have no present intention to do so. The decision to enter into these agreements will be based on the amount of our floating rate debt outstanding, our belief that material interest rate increases are likely to occur and requirements of our borrowing arrangements.

Funds From Operations and Modified Funds From Operations

Funds From Operations (“FFO”) is a non-GAAP financial performance measure defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and widely recognized by investors and analysts as one measure of operating performance of a real estate company. The FFO calculation excludes items such as real estate depreciation and amortization, gains and losses on the sale of real estate assets and impairments of depreciable property. Depreciation and amortization as applied in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, it is management’s view, and we believe the view of many industry investors and analysts, that the presentation of operating results for real estate companies by using the cost accounting method alone is insufficient. In addition, FFO excludes gains and losses from the sale of real estate and real estate impairment charges on depreciable real estate, which we believe provides management and investors with a helpful additional measure of the performance of our real estate portfolio, as it allows for comparisons, year to year, that reflect the impact on operations from trends in items such as occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs. We compute FFO in accordance with NAREIT’s definition.

In addition to FFO, we use Modified Funds From Operations (“MFFO”) as a non-GAAP supplemental financial performance measure to evaluate the operating performance of our real estate portfolio. MFFO, as defined by our company, excludes from FFO acquisition related costs, which are required to be expensed in accordance with GAAP. In evaluating the performance of our portfolio over time, management employs business models and analyses that differentiate the costs to acquire investments from the investments’ revenues and expenses. Management believes that excluding acquisition costs from MFFO provides investors with supplemental performance information that is consistent with the performance models and analysis used by management, and provides investors a view of the performance of our portfolio over time, including after the Company ceases to acquire properties on a frequent and regular basis. MFFO also allows for a comparison of the performance of our portfolio with other REITs that are not currently engaging in acquisitions, as well as a comparison of our performance with that of other non-traded REITs, as MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes.

For all of these reasons, we believe FFO and MFFO, in addition to net income and cash flows from operating activities, as defined by GAAP, are helpful supplemental performance measures and useful in understanding the various ways in which our management evaluates the performance of our real estate portfolio over time. However, not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. FFO and MFFO should not be considered as alternatives to net income or to cash flows from operating activities, and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs.

MFFO may provide investors with a useful indication of our future performance, particularly after our acquisition stage, and of the sustainability of our current distribution policy. However, because MFFO excludes acquisition expenses, which are an important component in an analysis of the historical performance of a property, MFFO should not be construed as a historic performance measure. Neither the SEC, NAREIT, nor any other regulatory body has evaluated the acceptability of the exclusions contemplated to adjust FFO in order to calculate MFFO and its use as a non-GAAP financial performance measure.

Our calculation of FFO and MFFO, and reconciliation to net income (loss), which is the most directly comparable GAAP financial measure, is presented in the table below for the years ended December 31, 2012, 2011 and 2010. FFO and MFFO are influenced by the timing of acquisitions and the operating performance of our real estate investments.


	Year Ended December 31,
	2012			2011		2010
NET LOSS	$	(259,067	)	$	—	$	—
Depreciation and amortization		5,073			—		—

Funds from operations (FFO)		(253,994	)		—		—
Acquisition related expenses		160,602			—		—

Modified funds from operations (MFFO)	$	(93,392	)	$	—	$	—

Distributions

The amount of the distributions to our stockholders will be determined quarterly by our board of directors and is dependent on a number of factors, including funds available for payment of distributions, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Code. We have not established any limit on the amount of proceeds from our Offering that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (1) cause us to be unable to pay our debts as they become due in the usual course of business; (2) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences; or (3) jeopardize our ability to maintain our qualification as a REIT.

On November 8, 2012, our board of directors authorized and declared a daily distribution to our stockholders of record as of the close of business on each day of the period commencing on December 1, 2012 and ending on February 28, 2013. The distributions for the period commencing on December 1, 2012 and ending on December 31, 2012 will be calculated based on 366 days in the calendar year and equal to $0.001775956 per share of common stock. The distributions for the period commencing on January 1, 2013 and ending on February 28, 2013 will be calculated based on 365 days in the calendar year and equal to $0.001780822 per share of common stock. The distributions declared for each record date in the December 2012, January 2013 and February 2013 periods were paid in January 2013, February 2013 and March 2013, respectively. The distribution declared for each record date in the March 2013, April 2013 and May 2013 periods will be paid in April 2013, May 2013 and June 2013, respectively. The distributions will be payable to stockholders from legally available funds therefor.

Share Repurchases

We intend to limit the number of shares that may be repurchased pursuant to our share repurchase program during any calendar year to 5.0% of the number of shares of common stock outstanding on December 31st of the previous calendar year. In addition, we are only authorized to repurchase shares using the proceeds received from our DRP during the prior calendar year. During the year ended December 31, 2012, we did not receive any requests to, and did not repurchase any shares under, our share purchase program.

See Note 7 to our consolidated financial statements included in this Annual Report on Form 10-K for terms of the share redemption program.

REIT Compliance

In order to qualify and maintain our qualification as a REIT for federal income tax purposes, we are required to make distributions to our stockholders of at least 90.0% of our REIT taxable income. In the event that there is a shortfall in net cash available due to factors including, without limitation, the timing of such distributions or the timing of the collections of receivables, we may seek to obtain capital to pay distributions by means of secured debt financing through one or more third parties. We may also pay distributions from cash from capital transactions including, without limitation, the sale of one or more of our properties or from the proceeds of our offering.

If we fail to qualify as a REIT for any reason in a taxable year and applicable relief provisions do not apply, we will be subject to tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. We will not be able to deduct distributions paid to our stockholders in any year in which we fail to qualify as a REIT. We also will be disqualified for the four taxable years following the year during which qualification was lost unless we are entitled to relief under specific statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders.

Commitments and Contingencies

We may be subject to certain contingencies and commitments with regard to certain transactions. See Note 11 to our consolidated financial statements in this Annual Report on Form 10-K for further explanations.

Related-Party Transactions and Agreements

For a discussion of related party transactions and arrangements, see Item 13. Certain Relationships and Related Transactions and Director Independence and Note 8 to our consolidated financial statements that are a part of this Annual Report on Form 10-K.

Recently Issued Accounting Pronouncements

For a discussion of recently issued accounting pronouncements, see Note 2 to our consolidated financial statements that are a part of this Annual Report on Form 10-K.

Off Balance Sheet Arrangements

As of December 31, 2012, we had no material off-balance sheet arrangements that had or are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity or capital resources.

Contractual Obligations

For a discussion of our contractual obligations, see Note 5 to our consolidated financial statements that are a part of this Annual Report on Form 10-K.

Subsequent Events

For a discussion of subsequent events, see Note 15 to our consolidated financial statements that are a part of this Annual Report on Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.

We may be exposed to the effects of interest rate changes primarily as a result of long-term debt used to acquire properties and make loans and other permitted investments. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes. As of December 31, 2012, we had $1.0 of fixed rate debt and $2.9 million of variable rate debt and therefore we are exposed to interest rate changes in LIBOR, however, because we had obtained the variable rate debt at the end of the period and therefore, had not commenced material real estate operations as of December 31, 2012, we had limited exposure to financial market risks.

In addition to changes in interest rates, the value of our future investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt if necessary.

We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data filed as part of this report are set forth beginning on page F-1 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes in or disagreements with our independent registered public accountants during the year ended December 31, 2012.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of December 31, 2012, were effective in all material respects to ensure that information required to be disclosed by us in this Annual Report on Form 10-K is recorded, processed, summarized and reported within the time periods specified by the rules and forms promulgated under the Exchange Act, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision, and with the participation, of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.

Based on our evaluation under the Internal Control-Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2012.

Changes in Internal Control over Financial Reporting

No change occurred in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) in connection with the foregoing evaluations that occurred during the three months ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

General

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 2013 annual meeting of stockholders.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 2013 annual meeting of stockholders.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 2013 annual meeting of stockholders.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 2013 annual meeting of stockholders.

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 2013 annual meeting of stockholders.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) List of Documents Filed.

1. The list of the financial statements contained herein is set forth on page F-1 hereof.

2. Financial Statement Schedule –

Schedule III – Real Estate Assets and Accumulated Depreciation is set forth beginning on page S-1 hereof.

3. The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.

(b) See (a) 3 above.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Financial Statements	Page

Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets as of December 31, 2012 and 2011		F-3

Consolidated Statements of Operations for the Year Ended December 31, 2012 and 2011 and for the period from September 2, 2010 (date of inception) to December 31, 2010		F-4

Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, 2012 and 2011 and for the period from September 2, 2010 (date of inception) to December 31, 2010		F-5

Consolidated Statements of Cash Flows for the Year Ended December 31, 2012 and 2011 and for the period from September 2, 2010 (date of inception) to December 31, 2010		F-6

Notes to Consolidated Financial Statements		F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

O’Donnell Strategic Industrial REIT, Inc.

Newport Beach, California

We have audited the accompanying consolidated balance sheets of O’Donnell Strategic Industrial REIT, Inc. and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2012 and 2011 and for the period from September 2, 2010 (date of inception) to December 31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and its operations and cash flows for the years ended December 31, 2012 and 2011 and for the period from September 2, 2010 (date of inception) to December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California

April 1, 2013

F-2

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

CONSOLIDATED BALANCE SHEETS


	December 31, 2012			December 31, 2011
ASSETS

Investment in real estate assets:
Land	$	1,264,081		$	—
Buildings and improvements, less accumulated depreciation of $4,969 and $0, respectively		4,388,412			—
Acquired intangible lease assets, less accumulated amortization of $111 and $0, respectively		612,260			—

Total investment in real estate assets, net		6,264,753			—
Cash and cash equivalents		165,694			136,216
Due from affiliates		500			65,784
Deferred financing costs, less accumulated amortization of $587 and $0, respectively		64,788			—

Total assets	$	6,495,735		$	202,000


LIABILITIES AND EQUITY

Notes payable	$	3,899,000		$	—
Accounts payable and accrued expenses		20,650			—
Due to affiliates		322,881			—
Acquired below market lease intangibles, less accumulated amortization of $38 and $0, respectively		125,727			—
Distributions payable		7,883			—
Deferred rent and other liabilities		20,718			—

Total liabilities	$	4,396,859		$	—

Commitments and contingencies
Stockholders’ equity:
Preferred Stock, $0.01 par value per share; 100,000,000 shares authorized, no shares issued and outstanding		—			—
Convertible stock, $0.01 par value per share; 1,000 shares authorized, 1,000 shares issued and outstanding, respectively		10			10
Common stock, $0.01 par value per share; 999,999,000 shares authorized, 284,335 and 34,222 shares issued, respectively		2,843			342
Capital in excess of par value		2,361,973			200,648
Accumulated deficit		(266,950	)		—

Total stockholders’ equity		2,097,876			201,000
Noncontrolling interests		1,000			1,000

Total equity		2,098,876			202,000

Total liabilities and equity	$	6,495,735		$	202,000

The accompanying notes are an integral part of these consolidated financial statements.

F-3

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended December 31,
	2012			2011		For the period From September 2, 2010 (Date of Inception) Through December 31, 2010
Revenues:
Rental and other property income	$	9,586		$	—	$	—

Total revenue		9,586			—		—

Expenses:
General and administrative expenses		101,855			—		—
Acquisition related expenses		160,602			—		—
Depreciation and amortization		5,073			—		—

Total operating expenses		267,530			—		—




Operating loss		(257,944	)		—		—


Other income (expense):
Interest and other income		1,896			—		—
Interest expense		(3,019	)		—		—

Total other expenses		(1,123	)		—		—

Net loss		(259,067	)		—		—


Weighted average number of common shares outstanding:
Basic and diluted		116,880			—		—


Net loss per common share:
Basic and diluted	$	(2.22	)	$	—	$	—

The accompanying notes are an integral part of these consolidated financial statements.

F-4

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Convertible Stock				Common Stock				Capital in Excess Of Par			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Value			Deficit			Equity
Balance, September 2, 2010		—	$	—		—	$	—	$	—		$	—		$	—

(Date of Inception) Issuance of common stock		1,000		10		22,222		222		200,768			—			201,000


Balance, December 31, 2010		1,000		10		22,222		222		200,768			—			201,000

Issuance of independent directors’ restricted common stock		—		—		12,000		120		(120	)		—			—


Balance, December 31, 2011		1,000		10		34,222		342		200,648			—			201,000

Issuance of common stock		—		—		238,113		2,381		2,168,619			—			2,171,000

Distributions declared		—		—		—		—		—			(7,883	)		(7,883	)
Issuance of independent directors’ restricted common stock		—		—		12,000		120		(120	)		—			—

Noncash amortization of share-based compensation		—		—		—		—		14,854			—			14,854

Commissions on stock sales and related dealer manager fees		—		—		—		—		(22,028	)		—			(22,028	)
Net loss		—		—		—		—		—			(259,067	)		(259,067	)

Balance, December 31, 2012		1,000	$	10		284,335	$	2,843	$	2,361,973		$	(266,950	)	$	2,097,876

The accompanying notes are an integral part of these consolidated financial statements.

F-5

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Year Ended December 31, 2012			For the Year Ended December 31, 2011			For the Period From September 2, 2010 (Date of Inception) Through December 31, 2010

Cash flows from operating activities:
Net loss	$	(259,067	)	$	—		$	—
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		4,969			—			—
Amortization of intangible lease assets and below market lease intangibles, net		73			—			—
Amortization of share-based compensation awards		14,854			—			—
Amortization of deferred financing costs		587			—			—
Changes in assets and liabilities:
Accounts receivable		(500	)		—			—
Accounts payable and accrued expenses		20,650			—			—
Deferred rent and other liabilities		20,718			—			—
Due to affiliates		122,881			—			—

Net cash used in operating activities		(74,835	)		—			—

Cash flows from investing activities:
Investment in real estate		(6,144,068	)		—			—
Advance to affiliates		—			(65,784	)
Repayment of advance to affiliates		65,784			—

Net cash used in investing activities		(6,078,284	)		(65,784	)		—

Cash flows from financing activities:
Proceeds from issuance of common stock		2,171,000			—			201,000
Contributions from noncontrolling interest in operating partnership		—			—			1,000
Offering costs on issuance of common stock		(22,028	)		—			—
Proceeds from notes payable		3,899,000			—			—
Advance from affiliates		200,000			—			—
Deferred financing cost paid		(65,375	)		—			—

Net cash provided by financing activities		6,182,597			—			202,000

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		29,478			(65,784	)		202,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		136,216			202,000			—

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	165,694		$	136,216		$	202,000

Non-cash financing activity:
Distributions payable	$	7,883		$	—		$	—

The accompanying notes are an integral part of these consolidated financial statements.

F-6

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND BUSINESS

O’Donnell Strategic Industrial REIT, Inc. (the “Company”) was formed on September 2, 2010 as a Maryland corporation that qualified to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), for federal income tax purposes beginning with our taxable year ended December 31, 2012 and we intend to continue to be taxed as a REIT. Substantially all of the Company’s business is expected to be conducted through the Company’s operating partnership, O’Donnell Strategic Industrial REIT Operating Partnership, LP (the “Operating Partnership”), formed on September 9, 2010. The Company is the sole general partner of the Operating Partnership. O’Donnell Strategic Industrial Advisors, LLC, a Delaware limited liability company (the “Advisor”) formed on August 5, 2010, is the Operating Partnership’s sole limited partner and owner of an insignificant noncontrolling partnership interest of less than 0.01% of the Operating Partnership. The Advisor has invested $1,000 in the Operating Partnership in exchange for limited partnership interests. Pursuant to the Limited Partnership Agreement of the Operating Partnership (the “Partnership Agreement”), the Company will contribute funds as necessary to the Operating Partnership. Thereafter, the Operating Partnership will allocate income and distribute cash to each partner in proportion to their respective ownership interests.

The Company acquires and manages a portfolio of income-producing industrial real estate assets comprised primarily of warehouse properties, including bulk distribution and general purpose warehouses leased to creditworthy tenants. In addition, the Company may also selectively invest in light manufacturing properties and other types of industrial properties. Further, the Company may invest in mezzanine, bridge, commercial real estate and other real estate loans, provided that the underlying real estate meets the Company’s criteria for direct investment, as well as real estate debt securities and equity securities of REITs and other real estate companies.

Subject to certain restrictions and limitations, the business of the Company is externally managed by the Advisor pursuant to an advisory agreement (the “Advisory Agreement”), which has a term of one year and is reconsidered on an annual basis by the board of directors of the Company. The Advisor will also source and present investment opportunities to the Company’s board of directors and provide investment management, marketing, investor relations and other administrative services on the Company’s behalf.

On October 11, 2010, the Company issued 22,222 shares of common stock to the Advisor at a purchase price of $9.00 per share, for an aggregate purchase price of $200,000. On October 11, 2010, the Advisor invested $1,000 in the Company in exchange for 1,000 shares of convertible stock of the Company, as described in Note 7. On April 12, 2011 and July 6, 2012, under the independent directors’ compensation plan and subject to such plan’s conditions and restrictions, each of the Company’s independent directors received 3,000 shares of restricted common stock, for a total of 24,000 shares of common stock as described in Note 7. As of December 31, 2012 and 2011, there were 284,335 and 34,222 shares, respectively, of common stock issued and outstanding, and 1,000 shares of convertible stock issued and outstanding at both dates.

Pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933, as amended (the “Securities Act”), the Company is offering for sale to the public on a “best efforts” basis a minimum of $2,000,000 in shares of the Company’s common stock (the “Minimum Offering Amount”) and a maximum of $1,000,000,000 in shares of the Company’s common stock, at an initial price of $10.00 per share (the “Offering”). The Company is also offering up to $100,000,000 in shares of the Company’s common stock pursuant to a distribution reinvestment plan (the “DRP”), under which the Company’s stockholders may elect to have distributions reinvested in additional shares of the Company’s common stock at an initial price of $9.50 per share. The registration statement of the Offering was first declared effective by the SEC on August 15, 2011. The Company may reallocate the shares between the Offering and the DRP.

The Company has retained SC Distributors, LLC (the “Dealer Manager”) to serve as the dealer manager of the Offering. The Dealer Manager is responsible for marketing the Company’s shares of common stock being offered pursuant to the Offering. The Company intends to use substantially all of the net proceeds from the Offering to invest in a diverse portfolio of real estate and real estate-related assets as described above.

On August 8, 2012, the Company issued the initial 221,013 shares of common stock in the Offering, of which 221,013 shares were issued to the Advisor and 5,493 shares were issued to other unaffiliated subscribers, meeting the Minimum Offering Amount, and commenced its principal operations. As of December 31, 2012, the Company had issued 284,335 shares of its common stock in the Offering, for gross proceeds of approximately $2,371,000 before selling commissions and dealer manager fees of approximately $22,000, of which $2,145,069 was proceeds from the Advisor. Subscription payments received from residents of Pennsylvania and Tennessee will be held in an escrow account until the Company raises an aggregate of $50,000,000 and $20,000,000, respectively, in gross offering proceeds. The conditions of that special escrow account were not satisfied for Pennsylvania or Tennessee residents as of December 31, 2012. As of March 29, 2013, the Company had 110,241,981 shares of common stock remaining in the Offering.

F-7

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2012, the Company, through a separate wholly owned subsidiary of the Operating Partnership, had purchased two commercial industrial properties, as described in Note 3.

As the Company accepts subscriptions for shares of its common stock, it will transfer substantially all of the net proceeds of the Offering to the Operating Partnership as a capital contribution. The Partnership Agreement provides that the Operating Partnership will be operated in a manner that will enable the Company to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability, and (3) ensure that the Operating Partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Code, which classification could result in the Operating Partnership being taxed as a corporation, rather than as a partnership. In addition to the administrative and operating costs and expenses incurred by the Operating Partnership in acquiring and operating real properties for the Company, the Operating Partnership will pay all of the Company’s administrative costs and expenses, and such expenses will be treated as expenses of the Operating Partnership.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).

The consolidated financial statements include the accounts of the Company, the Operating Partnership and its wholly-owned subsidiaries. Intercompany balances and transactions are eliminated in consolidation. The financial statements of the Company’s subsidiaries are prepared using accounting policies consistent with those of the Company. The Company will consider future majority owned and controlled joint ventures for consolidation in accordance with GAAP, including ASC Topic 810, Consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents represent current bank accounts and other bank deposits free of encumbrances and having maturity dates of three months or less from the respective dates of deposit. Short-term investments with remaining maturities of three months or less when acquired are considered cash equivalents.

Concentration of Credit Risk

As of December 31, 2012, the Company had cash on deposit at one financial institution, which is 100% within federally insured limits. The Company limits significant cash holdings to accounts held by financial institutions with high credit standing; therefore, the Company believes it is not exposed to any significant credit risk on cash.

For the year ended December 31, 2012, two tenants accounted for 100% of the Company’s 2012 gross annualized rental revenues.

Real Estate Assets

Depreciation

Real estate costs related to the acquisition, development, construction, and improvement of properties will be capitalized. Repair and maintenance costs will be charged to expense as incurred and significant replacements and betterments will be capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset to determine its appropriate useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:


Buildings		25-40 years
Building improvements		10-25 years
Tenant improvements		Shorter of lease term or expected useful life
Tenant origination and absorption costs		Remaining term of related lease
Furniture, fixtures, and equipment		7-10 years

F-8

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Real Estate Purchase Price Allocation

Upon the acquisition of real properties, the Company allocates the purchase price of such properties to acquired tangible assets, consisting of land, buildings and improvements, and identified intangible assets and liabilities, consisting of the value of above market and below market leases and the value of in-place leases, based in each case on their fair values. Acquisition related expenses are expensed as incurred. The Company uses independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and building). The Company obtains an independent appraisal for each real property acquisition. The information in the appraisal, along with any additional information available to the Company’s management, is used by its management in estimating the amount of the purchase price that is allocated to land. Other information in the appraisal, such as building value and market rents, may be used by the Company’s management in estimating the allocation of purchase price to the building and to intangible lease assets and liabilities. The appraisal firm has no involvement in management’s allocation decisions other than providing this market information.

In accordance with ASC Topic 805, Business Combinations, the Company records above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) the Company’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The Company amortizes any capitalized above-market or below-market lease values as an increase or reduction to rental income over the remaining non-cancelable terms of the respective leases.

The Company measures the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant. The Company’s estimates of value are expected to be made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors to be considered by the Company in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods, considering current market conditions and costs to execute similar leases.

The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, the Company also includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. The Company also estimates costs to execute similar leases including leasing commissions and legal and other related expenses to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction.

The total amount of other intangible assets acquired is further allocated to in-place lease values based on the Company’s evaluation of the specific characteristics of each tenant’s lease with that respective tenant. Characteristics considered by the Company in allocating these values include the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

The Company amortizes the value of in-place leases to expense over the initial term of the respective leases. The value of customer relationship intangibles amortizes to expense over the initial term and any renewal periods in the respective leases, but in no event will the amortization period for the intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value would be charged to expense in that period.

Estimates of the fair values of tangible and intangible assets requires the Company to estimate market lease rates, property operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate estimates would result in an incorrect assessment of the Company’s purchase price allocation, which would impact the amount of the Company’s net income.

F-9

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Impairment of Real Estate Assets

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited to, bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, rental concessions and other factors, a significant decrease in a property’s revenues due to lease terminations, vacancies, co-tenancy clauses, reduced lease rates or other circumstances. When indicators of potential impairment are present, the Company assesses the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted cash flows do not exceed the carrying value, the Company will adjust the real estate and related assets and liabilities to their respective fair values and recognize an impairment loss. Generally fair value is determined using a discounted cash flow analysis and recent comparable sales transactions. No impairment losses were recorded during the periods presented.

When developing estimates of expected future cash flows, the Company makes certain assumptions regarding future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, terminal capitalization and discount rates, the expected number of months it takes to re-lease the property, required tenant improvements and the number of years the property will be held for investment. The use of alternative assumptions in the future cash flow analysis could result in a different determination of the property’s future cash flows and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the carrying value of the real estate and related assets.

Real Estate Loans Receivable and Loan Loss Reserves

Real estate loans will be classified as held for investment based on the Company’s intent and ability to hold the loans for the foreseeable future. Real estate loans held for investment will be recorded at amortized cost and evaluated for impairment at each balance sheet date. The amortized cost of a loan is the outstanding unpaid principal balance, net of unamortized acquisition premiums or discounts and unamortized costs and fees directly associated with the origination or acquisition of the loan. The real estate loans receivable will be reviewed for potential impairment at each balance sheet date. A loan receivable is considered impaired when it becomes probable, based on current information, that the Company will be unable to collect all amounts due according to the loan’s contractual terms. The amount of impairment, if any, is measured by comparing the recorded amount of the loan receivable to the present value of the expected cash flows or the fair value of the collateral. If a loan was deemed to be impaired, the Company would record a reserve for loan losses through a charge to income for any shortfall.

The Company will record real estate loans held for sale at the lower of amortized cost or fair value. The Company will determine fair value for loans held for sale by using current secondary market information for loans with similar terms and credit quality. If current secondary market information is not available, the Company will consider other factors in estimating fair value, including modeled valuations using assumptions the Company believes a reasonable market participant would use in valuing similar assets (assumptions may include loss rates, prepayment rates, interest rates and credit spreads). If fair value is lower than the amortized cost basis of the loan, the Company will record a valuation allowance to write the loan down to fair value.

Failure to recognize impairment would result in the overstatement of earnings and the carrying value of the real estate loans held for investment. Actual losses, if any, could differ from estimated amounts.

Rents and Other Receivables

The Company will periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. The Company will maintain an allowance for deferred rent receivable that arises from the straight-lining of rents in accordance with ASC Topic 840, Leases. The Company will exercise judgment in establishing these allowances and consider payment history and current credit status of its tenants in developing these estimates.

Marketable Real Estate-Related Assets

The Company will classify certain real estate-related assets in accordance with ASC Topic 320, Investments – Debt and Equity Securities. The Company will record available-for-sale investments at fair value with unrealized gains and losses, net of deferred taxes, recorded to accumulated other comprehensive income (loss) within stockholders’ equity. Estimated fair values will generally be based on quoted market prices, when available, or on estimates provided by independent pricing sources or dealers who make markets in such investments. If the Company is unable to obtain prices for its investments from third parties, or conclude that prices obtained from third parties are influenced by distressed market activity, the Company will perform internal valuations to arrive at a fair value measurement that is consistent with ASC Topic 820, Fair Value Measurements and Disclosures.

F-10

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Generally, changes in the fair value of available-for-sale investments will not affect reported earnings or cash flows, but will impact stockholders’ equity and, accordingly, book value per share. Upon the sale of an investment, the Company will reverse the unrealized gain (loss) from accumulated comprehensive income and record the realized gain (loss) to earnings. Investments classified as held-to-maturity will be recorded at amortized cost with acquisition premiums and discounts amortized to interest income over the life of the security using the effective interest method.

The Company will monitor available-for-sale and held-to-maturity investments for impairment on a quarterly basis. The Company will recognize an impairment loss when the Company determines that a decline in the estimated fair value of an investment below its amortized cost is other-than-temporary. The Company will consider many factors in determining whether the impairment of an investment is deemed to be other-than-temporary, including, but not limited to, the length of time the investment has had a decline in estimated fair value below its amortized cost, the amount of the unrealized loss, the intent and ability to hold the investment for a period of time sufficient for a recovery in value, recent events specific to the issuer or industry, external credit ratings, and recent changes in such ratings. Determining whether impairment of an investment is other-than-temporary involves a significant amount of judgment by the Company.

The Company will account for certain purchased real estate-related assets that are beneficial interests in securitized financial assets that are rated below “AA” in accordance with ASC Topic 325, Investments – Other (“ASC 325”). Under ASC 325, the Company will review on a quarterly basis, the projected future cash flows of these investments for changes in assumptions due to prepayments, credit loss experience and other factors. When significant changes in estimated cash flows from the cash flows previously estimated occur due to actual prepayment and credit loss experience, the Company will calculate a revised yield based upon the current reference amount of the investment, including any other than temporary impairments recognized to date, and the revised estimate of cash flows. The Company will apply the revised yield prospectively to recognize interest income. If, based on the Company’s quarterly estimate of cash flows, there has been an adverse change in the estimated cash flows from the cash flows previously estimated and the present value of the revised cash flow is less than the present value previously estimated, an other-than-temporary impairment will be deemed to have occurred. When the Company deems an investment to be other-than temporarily impaired, the Company is required to distinguish between other-than temporary impairments related to credit and other-than-temporary impairments related to other factors (e.g., market fluctuations) on its securities that it does not intend to sell and where it is not likely that the Company will be required to sell the security prior to the anticipated recovery of its amortized cost basis. The Company calculates the credit component of the other-than-temporary impairment as the difference between the amortized cost basis of the security and the present value of its estimated cash flows discounted at the yield used to recognize interest income. The credit component will be charged to earnings and the component related to other factors will be recorded to other comprehensive income (loss).

Estimating cash flows and determining whether there is other-than-temporary impairment requires the Company to exercise judgment and make significant assumptions, including, but not limited to, assumptions regarding estimated payments, loss assumptions, and assumptions with respect to changes in interest rates. As a result, actual impairment losses and the timing of income recognized on these securities could materially differ from reported amounts.

Fair Value Measurements

Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

•

Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

•

Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

•

Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

F-11

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and will classify such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company will use several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and will establish a fair value by assigning weights to the various valuation sources.

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

The Company considers the following factors to be indicators of an inactive market: (i) there are few recent transactions, (ii) price quotations are not based on current information, (iii) price quotations vary substantially either over time or among market makers (for example, some brokered markets), (iv) indexes that previously were highly correlated with the fair values of the asset or liability are demonstrably uncorrelated with recent indications of fair value for that asset or liability, (v) there is a significant increase in implied liquidity risk premiums, yields, or performance indicators (such as delinquency rates or loss severities) for observed transactions or quoted prices when compared with the Company’s estimate of expected cash flows, considering all available market data about credit and other nonperformance risk for the asset or liability, (vi) there is a wide bid-ask spread or significant increase in the bid-ask spread, (vii) there is a significant decline or absence of a market for new issuances (that is, a primary market) for the asset or liability or similar assets or liabilities, and (viii) little information is released publicly (for example, a principal-to-principal market).

The Company considers the following factors to be indicators of non-orderly transactions: (i) there was not adequate exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities under current market conditions, (ii) there was a usual and customary marketing period, but the seller marketed the asset or liability to a single market participant, (iii) the seller is in or near bankruptcy or receivership (that is, distressed), or the seller was required to sell to meet regulatory or legal requirements (that is, forced), and (iv) the transaction price is an outlier when compared with other recent transactions for the same or similar assets or liabilities.

The Company’s consolidated balance sheets include the following financial instruments: cash and cash equivalents, accounts payable and accrued expenses, and notes payable. The Company considers the carrying values of cash and cash equivalents and accounts payable and accrued expenses to approximate fair value for these financial instruments because of the short period of time between origination of the instruments and their expected payment. The Company also considers the carrying value of notes payable to approximate fair value as the notes were originated very close to the balance sheet date, December 31, 2012. There were no notes payable outstanding as of December 31, 2011. Fair value estimates were based on Level 3 of the fair value hierarchy.

Revenue Recognition

The Company recognizes minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured, and records amounts expected to be received in later years as deferred rent. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term.

The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred.

F-12

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company will make estimates of the collectability of its tenant receivables related to base rents, including straight line rentals, expense reimbursements and other revenue or income. Management will specifically analyze accounts receivable and historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, management will make estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, the Company will record a bad debt reserve for the tenant’s receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments.

Interest income from any real estate loans receivable the Company may purchase or originate will be recognized on an accrual basis over the life of the investment using the effective interest method. Direct loan origination fees and origination or acquisition costs, as well as acquisition premiums or discounts, will be amortized over the term of the loan as an adjustment to interest income. The Company will place loans on nonaccrual status when any portion of principal or interest is 90 days past due, or earlier when concern exists as to the ultimate collection of principal or interest. When a loan is placed on nonaccrual status, the Company will reverse the accrual for unpaid interest and generally will not recognize subsequent interest income until the cash is received, or the loan returns to accrual status.

The Company will recognize interest income on real estate securities that are rated “AA” and above on an accrual basis according to the contractual terms of the securities. Discounts or premiums will be amortized to interest income over the life of the investment using the interest method.

The Company will recognize interest income on real estate securities that are beneficial interests in securitized financial assets that are rated below “AA” using the effective yield method, which requires the Company to periodically project estimated cash flows related to these securities and recognize interest income at an interest rate equivalent to the estimated yield on the security, as calculated using the security’s estimated cash flows and amortized cost basis, or reference amount. Changes in the estimated cash flows will be recognized through an adjustment to the yield on the security on a prospective basis. Projecting cash flows for these types of securities will require the use of a significant amount of assumptions and judgment, which may have a significant impact on the timing of revenue recognized on these investments.

The Company recognizes interest income on its cash and cash equivalents as it is earned and records such amounts as other interest income.

Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). ASC 718 established a fair value based method of accounting for stock-based compensation. Accounting for stock-based compensation under ASC 718 requires the fair value of stock-based compensation awards to be amortized as an expense over the vesting period and requires any dividend equivalents earned to be treated as dividends for financial reporting purposes. Stock-based compensation awards are valued at the fair value on the date of grant and amortized as an expense over the vesting period.

Total cost for the stock-based compensation awards was approximately $15,000 for the year-ended December 31, 2012, which is included in general and administrative expenses in the consolidated statements of operations. No stock-based compensation costs were recognized for the year-ended December 31, 2011 and the period from September 2, 2010 (date of inception) through December 31, 2010.

Distribution Policy

The Company intends to elect to be taxed as a REIT and to operate as a REIT beginning with the taxable year ended December 31, 2012. To maintain its qualification as a REIT, the Company intends to make distributions each taxable year equal to at least 90% of its REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). The Company’s board of directors expects to authorize and the Company intends to declare daily distributions that will be paid on a monthly basis beginning no later than the first calendar month after the month in which the Company makes its first real estate investment.

F-13

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Distributions to stockholders will be determined by the board of directors of the Company and will be dependent upon a number of factors relating to the Company, including funds available for the payment of distributions, financial condition, the timing of property acquisitions, capital expenditure requirements, and annual distribution requirements in order to maintain the Company’s status as a REIT under the Code.

Organization and Offering Costs

Organization and offering expenses (other than selling commissions and dealer manager fees) are initially being paid by the Advisor, the Dealer Manager and their affiliates on the Company’s behalf. These other organization and offering expenses include all expenses to be paid by the Company in connection with the Offering, including legal, accounting, printing, mailing and filing fees, charges of the Company’s escrow holder and transfer agent, expenses of organizing the Company, data processing fees, advertising and sales literature costs, transfer agent costs, bona fide out-of-pocket due diligence costs of broker-dealers, and amounts to reimburse the Advisor or its affiliates for the salaries of its employees and other costs in connection with preparing supplemental sales materials and providing other administrative services. In addition, the Company may also reimburse costs of bona fide training and education meetings held by the Company (primarily the travel, meal and lodging costs of registered representatives of broker-dealers), attendance and sponsorship fees and costs of employees of the Company’s affiliates to attend seminars conducted by broker-dealers and, in special cases, technology costs of participating broker-dealers associated with the Offering, costs and expenses related to such technology costs, and costs and expenses associated with the facilitation of the marketing of the Company’s shares and the ownership of the Company’s shares by such broker-dealers’ customers; provided, however, that the Company will not pay or reimburse any of the foregoing costs to the extent that such payment would cause total underwriting compensation to exceed 10% of the gross proceeds of the Offering, as required by the rules of the Financial Industry Regulatory Authority, Inc. After the termination of the Offering, the Advisor will reimburse the Company to the extent total organization and offering expenses, including selling commissions and the dealer manager fee, borne by the Company exceed 15% of the gross proceeds raised in the Offering.

As of December 31, 2012 and 2011, the Advisor had incurred on behalf of the Company organization and offering costs of approximately $2,940,000 and $2,560,000, respectively. As of December 31, 2012 and 2011, the Company had not reimbursed the Advisor for organization and offering costs as the terms of the Advisory Agreement state that the reimbursement is not an obligation of the Company until a minimum of $2,000,000 of gross proceeds have been raised by the Company from unaffiliated parties. The Company expects that organization and offering expenses (other than selling commissions and dealer manager fees) will be approximately 1.25% of the gross offering proceeds. When recorded by the Company, organization costs will be expensed as incurred, and offering costs, which include selling commissions and dealer manager fees, will be deferred and charged to stockholders’ equity as such amounts are reimbursed to the Advisor, the Dealer Manager or their affiliates from the gross proceeds.

Income Taxes

The Company operates in a manner designed to permit it, and believes it does, qualify, and intends to elect to be treated, as a REIT for federal income tax purposes during the taxable year ended December 31, 2012. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP) to stockholders. As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company intends to organize and operate in such a manner as to qualify for treatment as a REIT.

Segment Disclosure

ASC 280, “Segment Reporting,” establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company’s current business consists of acquiring and operating of real estate assets. Management evaluates operating performance on an individual property level. However, as each of our properties has similar economic characteristics, the properties have been aggregated into one reportable segment.

F-14

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 3 — REAL ESTATE ACQUISITIONS

2012 Property Acquisitions

During the year ended December 31, 2012, the Company acquired two commercial properties for an aggregate purchase price of $6.1 million (the “2012 Acquisitions”). The Company purchased the 2012 Acquisitions with net proceeds from the Offering and through the issuance of mortgage notes. The Company allocated the purchase price of these properties to the fair value of the assets acquired and liabilities assumed. The following table summarizes the purchase price allocation of each acquisition during the year ended December 31, 2012:


Acquisition	Land		Buildings and Improvements		Intangible Lease Assets (1)		Intangible Lease Liabilities (1)			Total Investment in Properties
Flowers Foods Distribution Center	$	215,776	$	1,418,776	$	175,281	$	(125,765	)	$	1,684,068
Waste Management Recycle Center		1,048,305		2,974,606		437,090		—			4,460,000


Total investment	$	1,264,081	$	4,393,382	$	612,371	$	(125,765	)	$	6,144,068

(1)	The recorded fair value of the intangible lease assets and liabilities represents the value associated with lease in place, leasing commissions, above- and below-market leases, legal and other costs, and are amortized over the lease term.

The Company recorded revenue and earnings for the year ended December 31, 2012 of $9,586 and $4,513, respectively, related to the 2012 Acquisitions. The Company expensed $160,602 of acquisition costs for the year ended December 31, 2012, resulting in an operating loss of $151,016.

The following is a description of the Company’s 2012 acquisitions:

Flowers Foods Distribution Center – On December 13, 2012 the Company, through OD Flowers Tampa, LLC, a wholly owned subsidiary of the Company’s Operating Partnership, completed the acquisition of 100% of the interest in a 12,160 square foot build-to-suit industrial facility, located in Tampa, Florida (the “Florida Property”), for a purchase price of $1,684,068, plus closing costs. The seller of the Florida Property, Flowbake Tampa East, LLC, is not affiliated with the Company, Advisor or its respective affiliates. In accordance with the terms of the Advisory Agreement, the Company accrued an acquisition fee of $33,681 to the Advisor equal to 2.0% of the purchase price.

The Florida Property was constructed in 2012 and is 100% leased to Flowers Baking Co. of Bradenton, LLC (“Flowers”), which is wholly-owned by Flowers Foods, Inc. The Company believes Flowers is creditworthy based on its historical revenue and cash flow streams. All of the operations at the Florida Property and the principal nature of business of Flowers are related to the baked goods industry. The Flowers lease commenced on December 1, 2012, and will expire on November 30, 2027. The lease provides for the rent to escalate 5% every five years with average annual lease payments (cash basis) of approximately $130,513 during the primary lease term.

The lease described above is a triple-net lease, which limits the property operating expenses that the Company will be required to pay.

Waste Management Recycle Center – On December 27, 2012, the Company, through OD WM North Carolina, LLC, a wholly-owned subsidiary of the Company’s Operating Partnership, completed the acquisition of 100% of the interest in a 84,119 square foot industrial facility, located in Winston-Salem, North Carolina (the “Winston-Salem Property”), for a purchase price of $4,460,000, plus closing costs. The seller of the Winston-Salem Property, 280 Business Park Realty, Ltd, is not affiliated with the Company, Advisor or its respective affiliates. In accordance with the terms of the Advisory Agreement, the Company accrued an acquisition fee of $89,200 to the Advisor equal to 2.0% of the purchase price.

The Winston-Salem Property was constructed in 2001 and is 100% leased to WM Recycle America, LLC (“WM Recycle”), which is a wholly-owned subsidiary of Waste Management, Inc., which guaranties the lease. We believe WM Recycle is creditworthy based on its historical revenue and cash flow streams. All of the operations at the Winston-Salem Property and the principal nature of business of WM Recycle are related to recycling services. The WM Recycle lease commenced on January 1, 2012, and will expire on December 31, 2022. The lease provides for the rent to escalate an average of 2.75% each year with average annual lease payments (cash basis) of approximately $350,440 during the primary lease term.

F-15

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The lease described above is a triple-net lease, which limits the property operating expenses that the Company will be required to pay.

Pro forma Results (unaudited) – The Florida Property was newly built in 2012, therefore, prior period financial statements for the Florida Property as a rental property are not available and pro forma financial statement information regarding the property’s operations is not presented. Prior to the WM Recycle lease commencing on January 1, 2012, it was leased to a different tenant, and WM Recycle was not a prior tenant. Because 2011 financial statement for the Winston-Salem Property are not available, the preparation of proforma information for 2011 is impracticable The following information summarizes selected financial information of the Company, as if the Winston-Salem Property acquisition was completed on January 1, 2012. The table below presents the Company’s estimated revenue and net income, on a pro forma basis, for the years ended December 31, 2012 and 2011:


	2012			2011
Pro forma basis (unaudited):
Revenue	$	342,430		$	—
Net loss	$	(81,016	)	$	(118,916	)

The unaudited pro forma information for the year ended December 31, 2011 includes $118,916 of acquisition costs for the Winston-Salem Property. The unaudited pro forma information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transactions occurred on January 1, 2012, nor does it purport to represent the results of future operations.

NOTE 4 — ACQUIRED INTANGIBLE LEASE ASSETS

Acquired intangible lease assets consisted of the following:


	As of December 31,
	2012		2011
Acquired in place leases, leasing commissions, legal and other costs, net of accumulated amortization of $104 and $0, respectively (with a weighted average life of 12.5 and 0 years, respectively).	$	557,543	$	—
Acquired above market leases, net of accumulated amortization of $7 and $0, respectively (with a weighted average life of 15.0 and 0 years, respectively).		54,717		—

	$	612,260	$	—

Amortization expense related to the intangible assets for the years ended December 31, 2012 was $111.

Estimated amortization expense related to the intangible lease assets as of December 31, 2012 for each of the five succeeding fiscal years is as follows:


	Amortization
Year	Leases In-Place		Above Market Leases
2013	$	4,171	$	456
2014	$	4,171	$	456
2015	$	4,171	$	456
2016	$	4,171	$	456
2017	$	4,171	$	456

NOTE 5 — NOTES PAYABLE

As of December 31, 2012, the Company had $3.9 million of debt outstanding, with a weighted average years to maturity of 2.5 years and weighted average interest rate of 4.15%. The aggregate balance of gross real estate and related assets, net of gross intangible lease liabilities, securing the total debt outstanding was $6.1 million as of December 31, 2012. Each of the mortgage notes payable is secured by the respective properties on which the debt was placed.

F-16

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Notes payable consisted of the following as of December 31, 2012:


Property	Interest Rate			Maturity Date		Payment Terms		Balance December 31, 2012
Flowers Foods Distribution Center – Note Payable		4.15	%		12/24/17		Principal & Interest	$	1,000,000
Waste Management Recycle Center – Note Payable		LIBOR + 4.25	%		12/31/14		Interest Only		2,899,000

								$	3,899,000

The principal payments due on the notes payable as of December 31, 2012, for each of the next five years ending December 31 and thereafter, is as follows:


For the year ending December 31,	Principal Payments
2013	$	848,194
2014		2,258,304
2015		28,304
2016		28,304
2017		735,894
Thereafter		—

	$	3,899,000

NOTE 6 — ACQUIRED BELOW MARKET LEASE INTANGIBLES

Acquired below market lease intangibles consisted of the following:


	As of December 31,
	2012		2011
Acquired below-market leases, net of accumulated amortization of $38 and $0, respectively (with a weighted average life of 15 and 0 years, respectively)	$	125,727	$	—

The increase in net income resulting from the amortization of the intangible lease liability for the year ended December 31, 2012 was $38.

Estimated amortization of the intangible lease liability as of December 31, 2012 for each of the five succeeding fiscal years is as follows:


Year	Amortization of Below Market Leases
2013	$	707
2014	$	707
2015	$	707
2016	$	707
2017	$	707

NOTE 7 — STOCKHOLDERS’ EQUITY

General

Under the Company’s charter, the total number of shares of capital stock authorized for issuance is 1,100,000,000 shares, consisting of 999,999,000 shares of common stock with a par value of $0.01 per share, 1,000 shares of convertible stock with a par value of $0.01 per share, and 100,000,000 shares of preferred stock with a par value of $0.01 per share, each as defined by the charter. The Company’s board of directors is authorized to amend the charter from time to time, without the approval of the stockholders, to increase or decrease the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue.

F-17

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The shares of common stock entitle the holders to one vote per share on all matters upon which stockholders are entitled to vote, to receive dividends and other distributions as authorized by the board of directors in accordance with the Maryland General Corporation Law and to all rights of a stockholder pursuant to the Maryland General Corporation Law. The common stock has no preferences or preemptive, conversion or exchange rights. As of each of December 31, 2012 and 2011, the Company had issued 284,335 and 34,222 shares, respectively, of common stock, 237,742 and 22,22, respectively, of those shares have been issued to the Advisor.

As of December 31, 2012, the Company had issued 1,000 shares of convertible stock to the Advisor. The convertible stock will convert to shares of common stock of the Company if and when: (A) the Company has made total distributions on the then outstanding shares of common stock equal to the original issue price of those shares plus a 7.0% cumulative, non-compounded, annual return on the original issue price of those shares, (B) subject to specified conditions, the Company lists the common stock for trading on a national securities exchange or (C) the Advisory Agreement is terminated or not renewed by the Company (other than for “cause” as defined in the Advisory Agreement). A “listing” will be deemed to have occurred on the effective date of any merger of the Company in which the consideration received by the holders of common stock is the securities of another issuer that are listed on a national securities exchange. Upon conversion, each share of convertible stock will convert into a number of shares of common stock equal to 1/1000 of the quotient of (A) 15% of the amount, if any, by which (1) the Company’s “enterprise value” (as defined in the charter) plus the aggregate value of distributions paid to date on the outstanding shares of common stock exceeds the (2) aggregate purchase price paid by the stockholders for those shares plus a 7.0% cumulative, non-compounded, annual return on the original issue price of those shares, divided by (B) the Company’s enterprise value divided by the number of outstanding shares of common stock, in each case calculated as of the date of the conversion. In the event of a termination or non-renewal of the Advisory Agreement by the Company for cause, all of the shares of convertible stock will be redeemed by the Company for the aggregate sum of $1.00.

As of December 31, 2012 and 2011, no shares of the Company’s preferred stock were issued and outstanding.

Distribution Reinvestment Plan

The Company’s board of directors has approved the DRP, through which the Company’s stockholders may elect to reinvest an amount equal to the distributions declared on their shares of common stock in additional shares of the Company’s common stock in lieu of receiving cash distributions. The initial purchase price per share under the DRP will be $9.50; provided, however, that after the Company begins disclosing an estimated per share value that is not based on the price to acquire a share of the Company’s common stock in the Offering or a follow-on public offering, cash distributions will be reinvested in shares of the Company’s common stock at a price per share equal to 95% of the Company’s most recently calculated estimated per share value. No selling commissions or dealer manager fees are payable on shares sold through the DRP.

The Company’s board of directors may terminate the DRP at its discretion at any time upon ten days’ notice to the Company’s stockholders. Following any termination of the DRP, all subsequent distributions to stockholders will be made in cash. The Company reserves the right to reallocate the shares of the Company’s common stock the Company is offering between the Offering and the DRP.

Share Repurchase Program

As the Company’s common stock is currently not listed on a national exchange, there is no market for the Company’s common stock. As a result, there is risk that a stockholder may not be able to sell the Company’s stock at a time or a price acceptable to the stockholder. The Company’s board of directors has approved a share repurchase program (the “SRP”) that would enable its stockholders to sell their shares to the Company in limited circumstances.

There are numerous restrictions on a stockholder’s ability to sell its shares to the Company under the SRP. The Company may not repurchase shares until they have been outstanding for one year; provided, however, that the Company may waive the one year holding requirement in certain circumstances, as described below. In addition, the Company has limited the number of shares repurchased pursuant to the SRP as follows: (1) during any calendar year, the Company would not repurchase in excess of 5% of the weighted-average number of shares outstanding during the prior calendar year and (2) funding for the repurchase of shares would come exclusively from the net proceeds the Company received from the sale of shares under the DRP during the prior calendar year plus such additional funds as may be reserved for that purpose by the Company’s board of directors.

F-18

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Under the SRP, prior to the Company beginning to disclose an estimated net asset value per share following the completion of the Company’s offering stage, the purchase price for shares repurchased by the Company under the SRP will be as follows (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to the Company’s common stock):

•

92.5% of the price paid to acquire the shares from the Company for stockholders who have continuously held their shares for at least one year;

•

95.0% of the price paid to acquire the shares from the Company for stockholders who have continuously held their shares for at least two years;

•

97.5% of the price paid to acquire the shares from the Company for stockholders who have continuously held their shares for at least three years; and

•

100.0% of the price paid to acquire the shares from the Company for stockholders who have continuously held their shares for at least four years.

The purchase price per share for all shares repurchased pursuant to the SRP will be reduced by the aggregate amount of net proceeds per share, if any, distributed to the Company’s stockholders prior to the repurchase date as a result of the sale or refinancing of one or more of the Company’s assets that constitutes a return of capital distribution as a result of such sale or refinancing.

Notwithstanding the foregoing, after the Company begins disclosing an estimated per share value of the Company’s common stock that is not based upon the price to acquire a share of the Company’s common stock in the Offering or a follow-on public offering, shares repurchased under the SRP will be repurchased for the lesser of the price paid for the shares by the redeeming stockholder or 95% of the Company’s most recent estimated per share value. The Company will disclose to investors the Company’s estimated per share value, as determined by the Advisor or other firm chosen for that purpose, within 18 months after the completion of the offering stage. The Company currently expects to update its estimated net asset value per share no less frequently than every 12 months thereafter. The Company will consider its offering stage complete on the first date that the Company is no longer publicly offering equity securities that are not listed on a national securities exchange, whether through the Offering or follow-on public offerings, provided that the Company has not filed a registration statement for a follow-on public offering as of such date (for purposes of this definition, the Company does not consider “public offerings” to include offerings on behalf of selling stockholders or offerings related to a distribution reinvestment plan, employee benefit plan or the redemption of interests in the Operating Partnership).

The Company will treat share redemptions sought upon a stockholder’s death, disability, bankruptcy or other exigent circumstances differently than other redemptions in several respects. Upon request, the Company may waive the one-year holding period requirement for repurchases sought upon a stockholder’s death, disability, bankruptcy or other exigent circumstances as determined by the Advisor. Until the Company begins to disclose an estimated per share value of the Company’s common stock that is not based upon the price to acquire a share of the Company’s common stock in the primary offering or a follow-on public offering, shares repurchased in connection with a stockholder’s death or disability will be repurchased at a price per share equal to 100% of the amount actually paid for the shares. After the Company begins disclosing an estimated per share value of the Company’s common stock that is not based upon the price to acquire a share of the Company’s common stock in the Offering or a follow-on public offering, shares repurchased in connection with a stockholder’s death or disability will be repurchased at a purchase price per share equal to 100% of the Company’s most recent estimated per share value. In the event that the Company waives the one year holding requirement in connection with the repurchase of shares upon a stockholder’s bankruptcy or other exigent circumstance, such shares will be repurchased at a price per share equal to the price per share the Company would pay had the stockholder held the shares for at least one year from the purchase date.

The Company’s board of directors may, in its sole discretion, amend, suspend or terminate the SRP at any time upon a 30 days’ written notice to the Company’s stockholders if the Company determines that the funds available to fund the SRP are needed for other business or operational purposes or that amendment, suspension or termination of the SRP is in the best interest of the Company’s stockholders. The SRP will terminate if the shares of the Company’s common stock are listed on a national securities exchange. The Company did not repurchase any shares under the SRP for the years ended December 31, 2012 and 2011.

F-19

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Distributions

The Company intends to accrue distributions on a daily basis and make distributions on a monthly basis beginning no later than the first calendar month after the month in which the Company makes its first real estate investment. On November 8, 2012, the board of directors of the Company authorized and declared a daily distribution to the Company’s stockholders of record as of the close of business on each day of the period commencing on December 1, 2012 and ending on February 28, 2013. The distributions for the period commencing on December 1, 2012 and ending on December 31, 2012 will be calculated based on 366 days in the calendar year and equal to $0.001775956 per share of common stock. The distributions for the period commencing on January 1, 2013 and ending on February 28, 2013 will be calculated based on 365 days in the calendar year and equal to $0.001780822 per share of common stock. The distributions declared for each record date in the December 2012, January 2013 and February 2013 periods were paid in January 2013, February 2013 and March 2013, respectively. The distribution declared for each record date in the March 2013, April 2013 and May 2013 periods will be paid in April 2013, May 2013 and June 2013, respectively. The distributions will be payable to stockholders from legally available funds therefor.

Generally, the Company’s policy will be to pay distributions from cash flow from operations. However, the Company expects to have little, if any, cash flow from operations available for distribution until the Company makes substantial investments. Further, because the Company may receive income from interest or rents at various times during the Company’s fiscal year and because the Company may need cash flow from operations during a particular period to fund capital expenditures and other expenses, the Company expects that at least during the early stages of the Company’s development and from time to time during the Company’s operational stage, the Company will declare distributions in anticipation of cash flow that the Company expects to receive during a later period, and the Company expects to pay these distributions in advance of the Company’s actual receipt of these funds. In these instances, the Company’s board of directors has the authority under the Company’s organizational documents, to the extent permitted by Maryland law, to fund distributions from sources such as borrowings, offering proceeds or advances and the deferral of fees and expense reimbursements by the Advisor in its sole discretion. The Company has not established a limit on the amount of proceeds from the Offering the Company may use to fund distributions.

NOTE 8 — RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS

The Advisory Agreement and the Dealer Manager Agreement entitle the Advisor, or certain of its affiliates, and the Dealer Manager, respectively, to specified fees upon the provision of certain services with regard to the Offering and the investment of funds in real estate assets, among other services, as well as reimbursement of organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company (as discussed in Note 2 herein) and certain costs incurred by the Advisor in providing services to the Company. The fees and reimbursement obligations are as follows:


Type of Compensation		Determination of Amount

		*Organizational and Offering Stage*

Selling Commission		The Company will pay the Dealer Manager 7.0% of gross proceeds from the Offering (all of which will be reallowed to participating broker-dealers), subject to reductions based on volume and for certain categories of purchasers. No selling commissions will be paid for sales pursuant to the DRP. As of December 31, 2012 and 2011, the Company had paid $15,815 and $0, respectively, to the Dealer Manager for selling commissions.

Dealer Manager Fee		The Company will pay the Dealer Manager 2.75% of gross proceeds from the Offering (all or a portion of which may be reallowed to participating broker-dealers). No dealer manager fee will be paid for sales pursuant to the DRP. As of December 31, 2012 and 2011, the Company had paid $6,213 and $0, respectively, to the Dealer Manager for dealer manager fees.

F-20

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Type of Compensation		Determination of Amount

		*Organizational and Offering Stage*

Organization and Offering Expenses		As of December 31, 2012 and 2011, the Advisor had incurred approximately $2,940,000 and $2,560,000, respectively, in organization and offering expenses on the Company’s behalf. As of December 31, 2012 and 2011, the Company had not reimbursed the Advisor for organization and offering costs, as the terms of the Advisory Agreement provides that the reimbursement of expense is not an obligation to the Company until a minimum of $2,000,000 of gross offering proceeds have been raised by the Company from unaffiliated parties. The Company expects that organization and offering expenses (other than selling commissions and dealer manager fees) will be approximately 1.25% of the gross offering proceeds. When recorded by the Company, organization costs will be expensed as incurred, and offering costs, which include selling commissions and dealer manager fees, will be deferred and charged to stockholders’ equity, as such amounts are reimbursed to the Advisor, the Dealer Manager or their affiliates from the gross offering proceeds.

		*Operational Stage*

Acquisition Fees		The Company will pay the Advisor 2.0% of (1) the purchase price in connection with the acquisition or origination of any type of real property or real estate-related asset acquired or originated directly or (2) the Company’s allocable portion of the purchase price in connection with the acquisition or origination of any type of real property or real estate-related asset acquired or originated through a joint venture, including any acquisition and origination expenses and any debt attributable to such investments. Total acquisition fees and expenses relating to the purchase of an investment may not exceed 6% of the contract purchase price unless such excess is approved by the Company’s board of directors, including a majority of the independent directors. As of December 31, 2012 and 2011, the Company had incurred but not yet paid approximately $123,000 and $0 in acquisition fees to the Advisor. These amounts are included in due to affiliates on the consolidated balance sheets.

Acquisition Expenses		The Company will reimburse the Advisor for amounts it pays to third parties in connection with the selection, acquisition or development of a property or acquisition of real estate-related assets (including expenses relating to potential investments that the Company does not close). Total acquisition fees and expenses relating to the purchase of an investment may not exceed 6% of the contract purchase price unless such excess is approved by the Company’s board of directors, including a majority of the independent directors. The Company estimates that its acquisition expenses will be approximately 0.5% of the purchase price of the Company’s investments. As of December 31, 2012 and 2011, the Company had not incurred acquisition expenses to the Advisor.

Asset Management Fees		The Company will pay the Advisor a monthly fee equal to one-twelfth of 1.0% of the cost of the real properties and real estate-related assets it acquires. Such fee will be calculated by including acquisition expenses and any debt attributable to such investments, or the Company’s proportionate share thereof in the case of investments made through joint ventures. This fee will be payable monthly in arrears, based on assets held by the Company on the last day of such prior month. The Advisor has agreed to waive some or all of the asset management fees when the Company’s distribution payout ratio, which is its distribution rate per share divided by its modified funds from operations, or MFFO, per share, is 100% or greater. The amount of the asset management fees deferred in a particular period will be equal to the amount by which distributions exceed MFFO. If the Company’s distribution payout ratio is less than 100%, the excess MFFO will be used to repay any previously deferred asset management fees. The Company defines MFFO, a non-GAAP measure, consistent with the IPA’s Practice Guideline. However, if a trade or industry group promulgates a different definition of MFFO applicable to listed or non-listed REITs that the Company adopts in the Company’s periodic reports filed with the SEC, MFFO may have the meaning of such different definition. As of December 31, 2012 and 2011, the Company had not incurred asset management fees to the Advisor.

F-21

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Type of Compensation		Determination of Amount

		*Organizational and Offering Stage*

Operating Expenses		Reimbursement of expenses incurred in providing services to the Company, including the Company’s allocable share of the Advisor’s overhead, such as rent, employee costs, utilities and IT costs. The Company will not reimburse for employee costs in connection with services for which the Advisor receives acquisition fees or disposition fees or for the personnel costs the Advisor pays with respect to persons who serve as the Company’s executive officers. Further, the Company will not reimburse the Advisor for any amount by which its operating expenses at the end of the four preceding fiscal quarters exceeds the greater of (i) 2.00% of average invested assets, or (ii) 25.00% of net income for that period, unless the independent directors of the Company find that, based on such unusual and non-recurring factors that they deem sufficient, a higher level of expenses is justified. As of December 31, 2012 and 2011, the Advisor had incurred approximately $661,000 and $132,000, respectively, of operating expenses on behalf of the Company. For the year ended December 31, 2012, the Company’s operating expenses exceeded the limitation by a total of $661,000. The costs as of December 31, 2012 were not included in the consolidated financial statements of the Company as the terms of the Advisory Agreement provides that the reimbursement of expense is not an obligation to the Company until a minimum of $2,000,000 of gross offering proceeds have been raised by the Company from unaffiliated parties.
Property Management and Leasing Fees		The Company will pay the Company’s property manager a percentage of the annual gross revenues of each property owned by the Company for property management services. The property management fee payable with respect to each property will be equal to the percentage of annual gross revenues of the property that is usual and customary for comparable property management services rendered to similar properties in the geographic market of the property, as determined by the Advisor and approved by a majority of the Company’s board of directors, including a majority of the independent directors; provided, however, that in no event will the property management fee exceed 5.0% of the property’s annual gross revenues. The Company’s property manager may subcontract with third party property managers and will be responsible for supervising and compensating those third party property managers. As of December 31, 2012 and 2011, the Company had not incurred property management and leasing fees to the property manager. In addition to property management fees, the Company may also pay its property manager a separate fee for services rendered, whether directly or indirectly, in leasing real properties to a third party lessee. The amount of such leasing fee will be usual and customary for comparable services rendered for similar real properties in the geographic market of the property leased as determined by the Advisor and approved by a majority of the Company’s board of directors, including a majority of the Company’s independent directors; provided, however, that in no event will the leasing fee exceed 2% of the total lease consideration with respect to a new lease or 5% of the total lease consideration with respect to a renewal of an existing lease. Where market norms dictate, the Company may also reimburse its property manager for the salaries and wages of property-level employees, other employee-related expenses of on-site employees of its property manager or its subcontractors which are engaged in the operation, leasing, management or maintenance of the Company’s properties and other expenses directly related to the management of specific properties.

F-22

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Type of Compensation		Determination of Amount

		*Organizational and Offering Stage*

		*Liquidity Stage*

Disposition Fees		If the Advisor, or its affiliates, provides a substantial amount of services, as determined by the Company’s independent directors, in connection with the sale of a real property or real estate-related asset sold, the Advisor will earn a disposition fee equal to 2.0% of the contract sales price of the real property or real estate-related asset sold. As of December 31, 2012 and 2011, the Company had not incurred disposition fees to the Advisor.

Convertible Stock		The Company has issued 1,000 shares of convertible stock to the Advisor, for which the Advisor contributed $1,000. See Note 7 herein for more information on the terms of the Company’s convertible stock.

As of December 31, 2012, the Company had received an advancement of $200,000 from an affiliate. Such advance was non-interest bearing and will be remitted to the affiliate upon the Company receiving net proceeds raised in the Offering.

NOTE 9 — LONG-TERM INCENTIVE PLAN AND INDEPENDENT DIRECTOR COMPENSATION

The Company adopted an incentive plan that provides for the grant of equity awards to its employees, directors and consultants and those of the Company’s affiliates. The long-term incentive plan authorizes the grant of non-qualified and incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and other stock-based awards or cash-based awards. Stock options granted under the long-term incentive plan will not exceed an amount equal to 10% of the outstanding shares of the Company’s common stock on the date of grant of any such stock options. Any stock options and stock appreciation rights granted under the long-term incentive plan will have an exercise price or base price that is not less than fair market value of the Company’s common stock on the date of grant.

The Company’s board of directors administers the long-term incentive plan, with sole authority to determine all of the terms and conditions of the awards, including whether the grant, vesting or settlement of awards may be subject to the attainment of one or more performance goals. The Company’s board of directors has approved and adopted an independent directors’ compensation plan, which operates as a sub-plan of the long-term incentive plan.

No awards will be granted under either plan if the grant or vesting of the awards would jeopardize the Company’ status as a REIT under the Internal Revenue Code or otherwise violate the ownership and transfer restrictions imposed under the Company’s charter. Unless otherwise determined by the board of directors, no award granted under the long-term incentive plan will be transferable except through the laws of descent and distribution.

The Company has authorized and reserved 300,000 shares for issuance under the long-term incentive plan. In the event of a transaction between the Company and its stockholders that causes the per-share value of the Company’s common stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering or large nonrecurring cash dividend), the share authorization limits under the long-term incentive plan will be adjusted proportionately, and the Company’s board of directors must make such adjustments to the long-term incentive plan and awards as it deems necessary, in its sole discretion, to prevent dilution or enlargement of rights immediately resulting from such transaction. In the event of a stock split, a stock dividend or a combination or consolidation of the outstanding shares of common stock into a lesser number of shares, the authorization limits under the long-term incentive plan will automatically be adjusted proportionately and the shares then subject to each award will automatically be adjusted proportionately without any change in the aggregate purchase price.

F-23

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Unless otherwise provided in an award certificate or any special plan document governing an award, upon the termination of a participant’s service due to death or disability, or upon the occurrence of a change in control, all outstanding options and stock appreciation rights granted under the long-term incentive plan will become fully exercisable and all time-based vesting restrictions on outstanding awards will lapse as of the date of termination or change in control. Unless otherwise provided in an award certificate or any special plan document governing an award, with respect to outstanding performance-based awards granted under the long-term incentive plan, (1) upon the termination of a participant’s service due to death or disability, the payout opportunities attainable under such awards will vest based on target or actual performance (depending on the time during the performance period in which the date of termination occurs); (2) upon the occurrence of a change in control, the payout opportunities under such awards will vest based on target performance; and (3) in either case, the awards will payout on a pro rata basis, based on the time elapsed prior to the termination or change in control, as the case may be. In addition, the Company’s board of directors may in its sole discretion at any time determine that all or a portion of a participant’s awards will become fully vested. The board of directors may discriminate among participants or among awards in exercising such discretion.

The long-term incentive plan will automatically expire on the tenth anniversary of the date on which it is approved by the Company’s board of directors and stockholders, unless extended or earlier terminated by the board of directors. The Company’s board of directors may terminate the long-term incentive plan at any time, including upon a liquidity event. The expiration or other termination of the long-term incentive plan will have no adverse impact on any award previously granted under the long-term incentive plan.

The Company’s board of directors may amend the long-term incentive plan at any time, but no amendment will adversely affect any award previously granted and no amendment to the long-term incentive plan will be effective without the approval of the Company’s stockholders if such approval is required by any law, regulation or rule applicable to the long-term incentive plan.

Under the independent directors’ compensation plan and subject to such plan’s conditions and restrictions, each of the Company’s independent directors received 3,000 shares of restricted common stock in connection with the initial meeting of the Company’s board of directors on April 12, 2011. Each new independent director that joins the Company’s board of directors will receive 3,000 shares of restricted common stock upon election to the board of directors. In addition, on July 6, 2012, the date following each independent director’s re-election to the Company’s board of directors, each of the Company’s independent directors received 3,000 shares of restricted common stock. The shares of restricted common stock will generally vest in four equal annual installments beginning on the first anniversary of the date of grant and ending on the fourth anniversary of the date of grant. The independent director compensation plan contains provisions concerning the treatment of awards granted under the plan in the event of an independent directors’ termination of service for any reason, including his or her death or disability, or upon the occurrence of a change in control of the Company.

The grant date fair value of the shares are being expensed over the vesting period of four years. Compensation expense related to restricted stock was approximately $14,900 for the year ended December 31, 2012. As of December 31, 2012, there was approximately $112,600 of total unrecognized compensation cost related to these unvested shares that is expected to be recognized over a weighted-average period of 3.50 years.

The following table reflects restricted share award activity for the year ended December 31, 2012:


Restricted Stock	Number of Shares			Weighted Average Grant-Date Fair Value
Unvested, December 31, 2011		12,000		$	—
Granted		12,000			10.00
Vested		(3,000	)		—

Unvested, December 31, 2012		21,000		$	5.71

F-24

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In addition, the Company will pay each of its independent directors an annual retainer, pro-rated for a partial term, of $30,000. The independent directors will also be paid for attending meetings as follows: (i) $2,000 for each in-person board meeting attended, (ii) $2,000 for each in-person committee meeting attended ($2,500 for attendance by the chairperson of the audit committee at each meeting of the audit committee), and (iii) $250 for each teleconference board or committee meeting attended. The Company’s independent directors may elect to receive the meeting fees and annual retainer in shares of the Company’s common stock at a price of $9.025 per share until the Company has commenced disclosing its estimated net asset value per share and thereafter at a price based upon the Company’s net asset value per share. All directors also receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors. If a director is also one of the Company’s officers, the Company will not pay any compensation to such person for services rendered as a director. Director compensation is an operating expense of the Company that is subject to the operating expense reimbursement obligation of the Advisor discussed in Note 8.

NOTE 10 — ECONOMIC DEPENDENCY

Through March 2013, the amount of proceeds raised from the Offering, as described in Note 1, was insufficient to allow the Company to reimburse the Advisor for organization, offering and operating expenses, accordingly, the Company is reliant upon the Advisor for financial support. The Company intends to continue to seek capital through the Offering to invest in real estate and real estate related assets and to reimburse the Advisor in accordance with the terms of the Advisor Agreement. The principal owner of the Advisor has informed the Company that he, directly or through the Advisor or affiliated entities, will provide financial support, if necessary, through April 1, 2014, to sustain the financial viability of the Company. If the Company is not able to raise sufficient capital in the future, its ability to achieve its intended business objectives would be adversely impacted.

The Company is also dependent on the Advisor and the Dealer Manager for certain services that are essential to the Company, including the sale of the Company’s shares of common and preferred stock available for issue; the identification, evaluation, negotiation, purchase and disposition of properties and other investments; management of the daily operations of the Company’s real estate portfolio; and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, the Company will be required to obtain such services from other sources.

NOTE 11 — COMMITMENTS AND CONTINGENCIES

Litigation

In the ordinary course of business, the Company may become subject to litigation or claims. As of December 31, 2012, there were, and currently there are, no material pending legal proceedings to which the Company is a party.

NOTE 12 — EARNINGS PER SHARE

Basic earnings (loss) per share attributable for all periods presented are computed by dividing net income (loss) attributable to the Company by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share are computed based on the weighted average number of shares outstanding and all potentially dilutive securities, if any. Shares of convertible stock and unvested restricted common stock give rise to potentially dilutive shares of common stock. As of December 31, 2012 there were 21,000 shares of non-vested shares of restricted common stock and 1,000 shares of convertible stock, but such shares were excluded from the computation of diluted earnings per share because such shares were anti-dilutive during this period.

NOTE 13 — OPERATING LEASES

The Company’s properties are leased to tenants under triple-net operating leases for which the terms and expirations vary. The leases frequently have provisions to extend the lease agreement and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. As of December 31, 2012, the weighted average remaining lease term was 12.5 years.

F-25

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The future minimum rental income from the Company’s investment in real estate assets under non-cancelable operating leases, as of December 31, 2012, is as follows:


Year ending December 31,	Amount
2013	$	432,076
2014		441,329
2015		450,582
2016		460,676
2017		476,139
Thereafter		3,077,097

Total	$	5,337,898

NOTE 14 — QUARTERLY RESULTS (UNAUDITED)

Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 2012 and 2011. In the opinion of management, the information for the interim periods presented includes all adjustments which are of a normal and recurring nature, necessary to present a fair presentation of the results for each period.


	2012
	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
Revenues	$	—	$	—	$	—		$	9,586

Operating (loss) income		—		—		(483,449	)		225,505

Net (loss) income		—		—		(483,087	)		224,020
Basic and diluted net loss per common share⁽¹⁾		—		—		(3.10	)		0.86
Distributions declared per common share		—		—		—			0.05

(1)	Based on the weighted average number of shares outstanding as of December 31, 2012.

2011

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Revenues

—

Operating income

—

Net loss

—

Basic and diluted net loss per common share⁽¹⁾

—

Distributions declared per common share

—

(1)	Based on the weighted average number of shares outstanding as of December 31, 2011.

NOTE 15 — SUBSEQUENT EVENTS

Status of the Offering

As of March 29, 2013, the Company had accepted investors’ subscriptions for and issued 284,335 shares of our common stock in the offering, resulting in our receipt of gross proceeds of approximately $2,371,000. As of March 29, 2013, the Company had approximately 110,241,981 shares of common stock remaining in the Offering.

F-26

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Modification of Loan Agreements

Loan in Connection with Waste Management Recycle Center

In connection with the acquisition of the Waste Management Recycle Center, on December 27, 2012, the Company, through a wholly-owned indirect subsidiary, entered into a loan agreement with Fifth Third Bank in the principal amount of $2,899,000 (the “Waste Management Loan”). Pursuant to its terms, the Company was required to reduce the Waste Management Loan to a principal amount equal to $2,300,000 by March 21, 2013. The Company was unable to make such payment on the due date and as of March 21, 2013 the Company had $2,899,000 outstanding under the Waste Management Loan. In anticipation of the Company’s inability to reduce the outstanding principal on the Waste Management Loan, on March 20, 2013, the Company and Fifth Third Bank entered into a loan modification agreement, pursuant to which Fifth Third Bank required the Company to make a one-time principal re-payment of $40,000 on the Waste Management Loan, and, beginning on April 1, 2013, principal monthly re-payments of $4,560 until the principal balance on the Waste Management Loan is reduced to $2,230,000 or less. Thereafter, payments on the Waste Management Loan will be applied to the required interest thereunder. Further, Fifth Third Bank will collect all cash flow received from the Winston-Salem Property and will apply such payments towards reducing the principal and interest balance on the loan to $2,230,000. Any remaining cash on deposit in in the deposit accounts with Fifth Third Bank in excess of $3,000 will also be applied on account of the principal balance of the Winston-Salem Loan (collectively, the “Loan Modification”).

In connection with the Loan Modification, on March 20, 2013, Fifth Third Bank also entered into a guaranty of payment agreement (each, a “Guaranty Agreement”) with Douglas D. O’Donnell, the Company’s chief executive officer and president, personally and as trustee for the DOD Trust Established August 29, 2002 (the “Trust”). Pursuant to the Guaranty Agreements, the Mr. O’Donnell and the Trust each guaranteed the obligations under the Waste Management Loan for an amount of up to $629,000, subject to certain reductions as the principal amount outstanding under the Waste Management Loan is reduced. When the principal amount outstanding under the Waste Management Loan is reduced to $2,230,000, the Guaranty Agreements will no longer be enforceable, provided no event of default exists.

As of March 29, 2013, the Company had $2,859,000 outstanding under the Waste Management Loan.

Loan in Connection with Flowers Foods Distribution Center

In connection with the acquisition of the Florida Property, the Company, through a wholly-owned indirect subsidiary, entered into a loan agreement with USAmeriBank in the principal amount of $1,000,000 (the “Flowers Foods Loan”). Pursuant to its terms, the Company was required to reduce the Flowers Foods Loan to $842,000 by March 24, 2013. The Company was unable to make such payment on the due date and as of March 24, 2013, the Company had $994,444 outstanding under the Flowers Foods Loan. In connection with the inability to reduce the outstanding principal on the Flowers Foods Loan, and as required thereby, the Company opened a lockbox account with USAmeriBank to deposit and hold all rents and other revenue received from the Florida Property, which will be applied to the principal amount outstanding under the Flowers Foods Loan until it is reduced to $842,000.

As of March 29, 2013, the Company had $991,667 outstanding under the Flowers Foods Loan.

F-27

O’DONNELL STRATEGIC INDUSTRIAL REIT, INC.

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2012


							Total		Gross Amount at
			Initial Costs to Company				Adjustments		Which Carried at		Accumulated		Date		Date
Description	Encumbrances		Land		Improvements(1)		to Basis		December 31, 2012		Depreciation		Acquired		Constructed
Industrial Properties:
Flowers Foods Industrial Building in Tampa, FL	$	1,000,000	$	215,776	$	1,468,292	$	—	$	1,684,068	$	3,101		12/24/2012		2012
Waste Mgmt. Industrial Building in Winston-Salem, NC		2,899,000		1,048,305		3,411,695		—		4,460,000		1,972		12/27/2012		2001

	$	3,899,000	$	1,264,081	$	4,879,987	$	—	$	6,144,068	$	5,073

(1)	Includes gross intangible lease assets of $612,371 and gross intangible lease liabilities of $125,765.

(2)	A summary of activity for investment in properties is as follows:


	2012		2011		2010
Balance, beginning of period	$	—	$	—	$	—
Additions
Acquisitions		6,144,068		—		—
Improvements		—		—		—
Adjustment to basis		—		—		—

Total additions		6,144,068		—		—
Deductions
Cost of real estate sold		—		—		—
Other (including provisions for impairment of real estate assets)		—		—		—
Total deductions		—		—		—

Balance, end of period	$	6,144,068	$	—	$	—

(3)	The following is a reconciliation of accumulated depreciation for the years ended December 31:


	2012		2011		2010
Balance, beginning of period	$	—	$	—	$	—
Additions
Acquisitions – Depreciation Expense for Building		2,373		—		—

Improvements – Depreciation Expense for Tenant and Site Improvement and amortization from lease intangibles		2,700		—		—

Total additions		5,073		—		—
Deductions
Cost of real estate sold		—		—		—
Other (including provisions for impairment of real estate assets)		—		—		—
Total deductions		—		—		—

Balance, end of period	$	5,073	$	—	$	—

(4)	The Company’s assets are depreciated or amortized using the straight-lined method over the useful lives of the assets by class. Generally, tenant improvements and lease intangibles are amortized over the respective lease term and buildings are depreciated over 40 years.

F-28

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 1st day of April, 2013.


O’Donnell Strategic Industrial REIT, Inc.

By:		/s/ DOUGLAS D. O’DONNELL

Name:		Douglas D. O’Donnell

Title:		Chief Executive Officer and President

		(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.


Signature	Title	Date

/s/ DOUGLAS D. O’DONNELL	Chief Executive Officer and President	April 1, 2013
Douglas D. O’Donnell	(Principal Executive Officer)

/s/ CHRISTOPHER S. CAMERON	Chief Financial Officer, Treasurer and	April 1, 2013
Christopher S. Cameron	Secretary (Principal Financial Officer)

/s/ JOHN D. O’DONNELL	Director	April 1, 2013
John D. O’Donnell

/s/ ARTHUR J. HILL	Director	April 1, 2013
Arthur J. Hill

/s/ JOHN R. HOUTEN	Director	April 1, 2013
John R. Houten

/s/ ARIA MEHRABI	Director	April 1, 2013
Aria Mehrabi

/s/ GARY A. PICKETT	Director	April 1, 2013
Gary A. Pickett

/s/ JOHN L. PRIVETT	Director	April 1, 2013
John L. Privett

EXHIBIT

The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the year ended December 31, 2012 (and are numbered in accordance with Item 601 of Regulation S-K).


Exhibit No.		Description

1.1		Dealer Manager Agreement by and among O’Donnell Strategic Industrial REIT, Inc., O’Donnell Strategic Industrial REIT Operating Partnership, LP, and SC Distributors, LLC (included as Exhibit 1.1 to the Pre-Effective Amendment to the Registration Statement on Form S-11 (File No. 333-170173), filed on June 15, 2011, and incorporated herein by reference).

1.2		Form of Participating Dealer Agreement (included as Exhibit A to Exhibit 1.1).

3.1		Articles of Incorporation (included as Exhibit 3.1 to the Registration Statement on Form S-11 filed on June 15, 2011, and incorporated herein by reference).

3.2		Bylaws of O’Donnell Strategic Industrial REIT, Inc. (included as Exhibit 3.2 to the Registration Statement on Form S-11 filed on October 27, 2010, and incorporated herein by reference).

4.1		Form of Subscription Agreement (included as Appendix A in the Registration Statement on Form S-11 filed on August 5, 2011, and incorporated herein by reference).

4.2		Form of Distribution Reinvestment Plan (included as Appendix B in the Registration Statement on Form S-11 filed on August 5, 2011, and incorporated herein by reference).

4.3		Form of Multi-Product Subscription Agreement (included as Appendix D to the prospectus).

10.1		Escrow Agreement by and among O’Donnell Strategic Industrial REIT, Inc., SC Distributors, LLC and UMB Bank, N.A. (included as Exhibit 10.1 to the Registration Statement on Form S-11 filed on June 15, 2011, and incorporated herein by reference).

10.2		Advisory Agreement among O’Donnell Strategic Industrial REIT, Inc., O’Donnell Strategic Industrial REIT Operating Partnership, LP, O’Donnell Strategic Industrial Advisors, LLC and O’Donnell REIT Advisors, LLC (included as Exhibit 10.2 to the Registration Statement on Form S-11 filed on June 15, 2011, and incorporated herein by reference).

10.3		Limited Partnership Agreement of O’Donnell Strategic Industrial REIT Operating Partnership, LP (included as Exhibit 10.3 to the Registration Statement on Form S-11 filed on June 15, 2011, and incorporated herein by reference).

10.4		O’Donnell Strategic Industrial REIT, Inc. Independent Directors Compensation Plan (included as Exhibit 10.5 to the Pre-Effective Amendment to the Registration Statement on Form S-11 (File No. 333-170173), filed on May 3, 2011, and incorporated herein by reference).

10.5		Form Of Indemnification Agreement (included as Exhibit 10.6 to the Pre-Effective Amendment to the Registration Statement on Form S-11 (File No. 333-170173), filed on January 4, 2011, and incorporated herein by reference).

10.6		Agreement of Purchase and Sale and Joint Escrow Instructions by and between O’Donnell Acquisitions, LLC and Cajun FXF, L.L.C., dated November 21, 2011 (included as Exhibit 10.5 to the Annual Report on Form 10-K filed on March 30, 2012, and incorporated herein by reference).

10.7		Agreement of Purchase and Sale and Joint Escrow Instructions by and between O’Donnell Acquisitions, LLC and Hillside FXF, LLC, dated November 21, 2011 (included as Exhibit 10.6 to the Annual Report on Form 10-K filed on March 30, 2012 and incorporated herein by reference).

10.8		Promissory Note (Louisiana Property) made by O’Donnell Acquisitions, LLC, dated November 21, 2011 (included as Exhibit 10.7 to the Annual Report on Form 10-K filed on March 30, 2012, and incorporated herein by reference).

10.9		Promissory Note (Massachusetts Property) made by O’Donnell Acquisitions, dated November 21, 2011 (included as Exhibit 10.8 to the Annual Report on Form 10-K filed on March 30, 2012, and incorporated herein by reference).

10.10		First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions by and between O’Donnell Acquisitions, LLC and Cajun FXF, L.L.C., dated as of January 12, 2011, (included as Exhibit 10.9 to the Annual Report on Form 10-K filed on March 30, 2012, and incorporated herein by reference).

10.11		First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of January 12, 2011, by and between O’Donnell Acquisitions, LLC and Hillside FXF, LLC (included as Exhibit 10.10 to the Annual Report on Form 10-K filed on March 30, 2012, and incorporated herein by reference).



10.12		Assignment of Agreement for Purchase and Sale by and between O’Donnell Acquisitions, LLC and OD FDX Massachusetts, LLC, dated February 23, 2012 (included as Exhibit 10.11 to the Annual Report on Form 10-K filed on March 30, 2012, and incorporated herein by reference).

10.13		Assignment of Agreement for Purchase and Sale by and between O’Donnell Acquisitions, LLC and OD FDX Louisiana, LLC, dated February 23, 2012 (included as Exhibit 10.12 to the Annual Report on Form 10-K filed on March 30, 2012, and incorporated herein by reference).

10.14		Assignment and Assumption of LA Property Note by and among O’Donnell Acquisitions, LLC, OD FDX Louisiana, LLC and JDO Family Limited Partnership, dated February 23, 2012 (included as Exhibit 10.13 to the Annual Report on Form 10-K filed on March 30, 2012, and incorporated herein by reference).

10.15		Assignment and Assumption of MA Property Note by and among O’Donnell Acquisitions, LLC, OD FDX Massachusetts, LLC and JDO Family Limited Partnership, dated February 23, 2012 (included as Exhibit 10.14 to the Annual Report on Form 10-K filed on March 30, 2012, and incorporated herein by reference).

10.16		Agreement of Purchase and Sale and Joint Escrow Instructions, dated September 10, 2012, by and between O’Donnell Acquisitions, LLC and Flowbake Tampa East, LLC (included as Exhibit 10.2 to our Current Report on Form 10-Q filed on November 11, 2012, and incorporated herein by reference).


10.17		Assignment of Agreement for Purchase and Sale dated September 10, 2012, by and between O’Donnell Acquisitions, LLC and OD Flowers Tampa, LLC (included as Exhibit 10.3 to our Current Report on Form 10-Q filed on November 11, 2012, and incorporated herein by reference).

10.18		Loan Agreement by and between OD Flowers Tampa, LLC and USAMERIBANK, dated December 24, 2012 (included as Exhibit 10.20 to our post-effective amendment no. 2 filed on March 13, 2012, and incorporated herein by reference).

10.19		Assignment of Agreement for Purchase and Sale and Joint Escrow Instructions, dated December 27, 2012, by and between O’Donnell Acquisitions, LLC and OD WM North Carolina, LLC (included as Exhibit 10.21 to our post-effective amendment no. 2 filed on March 13, 2012, and incorporated herein by reference).

10.20		Agreement of Purchase and Sale and Joint Escrow Instructions, dated October 17, 2012, by and between O’Donnell Acquisitions, LLC and 280 Business Park Realty, Ltd. (included as Exhibit 10.22 to our post-effective amendment no. 2 filed on March 13, 2012, and incorporated herein by reference).

10.21		First Amendment to Purchase Agreement, dated November 19, 2012, between O’Donnell Acquisitions, LLC and 280 Business Park Realty, Ltd. (included as Exhibit 10.23 to our post-effective amendment no. 2 filed on March 13, 2012, and incorporated herein by reference).

10.22		Second Amendment to Purchase Agreement, dated November 21, 2012, between O’Donnell Acquisitions, LLC and 280 Business Park Realty, Ltd. (included as Exhibit 10.24 to our post-effective amendment no. 2 filed on March 13, 2012, and incorporated herein by reference).

10.23		Loan Agreement by and between OD WM North Carolina, LLC and Fifth Third Bank, dated December 27, 2012 (included as Exhibit 10.25 to our post-effective amendment no. 2 filed on March 13, 2012, and incorporated herein by reference).

10.24*		Modification of Loan Documents by and between OD WM North Carolina, LLC and Fifth Third Bank, dated March 20, 2013.

21.1		Subsidiaries of the Company (included as Exhibit 10.5 to the Pre-Effective Amendment to the Registration Statement on Form S-11 (File No. 333-170173), filed on August 15, 2011, and incorporated herein by reference).

31.1*		Certification of the Chief Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of the Chief Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of the Chief Executive Officer and Chief Financial Officer of the Company pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS***		XBRL Instance Document

101.SCH***		XBRL Taxonomy Extension Schema Document

101.CAL***		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF***		XBRL Taxonomy Extension Definition Linkbase Document



101.LAB***		XBRL Taxonomy Extension Label Linkbase Document

101.PRE***		XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith

In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

***

XBRL (Extensible Business Reporting Language) information is deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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O'Donnell Strategic Industrial REIT, Inc. 10-K