UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2014

¨ 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: 000-53945

Inland Diversified Real Estate Trust, Inc.

(Exact name of registrant as specified in its charter)

Maryland	26-2875286
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2901 Butterfield Road, Oak Brook, Illinois	60523
(Address of principal executive offices)	(Zip Code)

630-218-8000

(Registrant’s telephone number, including area code)

______________________________________________________

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 the 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 (§232.405 of this chapter) 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 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.

Large accelerated filer ¨Accelerated filer ¨Non-accelerated filer xSmaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of May 2, 2014, there were 117,809,586 shares of the registrant’s common stock outstanding.

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.
TABLE OF CONTENTS

	Part I - Financial Information	Page
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013	1
	Consolidated Statements of Operations and Other Comprehensive Income for the three months ended March 31, 2014 and 2013 (unaudited)	2
	Consolidated Statement of Equity for the three months ended March 31, 2014 (unaudited)	3
	Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013 (unaudited)	4
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
	Part II – Other Information
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	40
	Signatures	41

Item 1. Financial Statements

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)

	March 31, 2014			December 31, 2013
Assets	(unaudited)
Investment properties:
Land	$	306,539		$	304,971
Building and improvements	1,367,490			1,353,212
Construction in progress	10,877			9,322
Total	1,684,906			1,667,505
Less accumulated depreciation	(106,812		)	(94,544		)
Net investment properties	1,578,094			1,572,961
Cash and cash equivalents	63,120			32,233
Restricted cash and escrows	32,199			5,616
Investment in marketable securities	35,604			34,070
Investment in unconsolidated entities	554			485
Accounts and rents receivable (net of allowance of $2,782 and $2,285, respectively)	17,741			17,023
Acquired lease intangibles, net	190,590			194,759
Deferred costs, net	6,419			6,677
Other assets	6,880			9,476
Assets held for sale, net	209,328			454,298
Total assets	$	2,140,529		$	2,327,598
Liabilities and Equity
Mortgages, credit facility and securities margin payable	$	942,133		$	1,005,593
Accounts payable and accrued expenses	12,772			7,873
Distributions payable	6,003			6,009
Accrued real estate taxes payable	4,742			4,699
Deferred investment property acquisition obligations	20,483			29,203
Other liabilities	8,344			9,930
Acquired below market lease intangibles, net	45,371			45,732
Due to related parties	1,759			2,074
Liabilities held for sale, net	125,545			252,665
Total liabilities	1,167,152			1,363,778
Commitments and contingencies
Redeemable noncontrolling interests	67,983			67,950
Equity:
Preferred stock, $.001 par value, 40,000,000 shares authorized, none outstanding	—			—
Common stock, $.001 par value, 2,460,000,000 shares authorized, 117,809,586 shares issued and outstanding as of March 31, 2014 and December 31, 2013	118			118
Additional paid in capital, net of offering costs of $118,182 as of March 31, 2014 and December 31, 2013	1,053,472			1,053,472
Accumulated distributions and net income	(151,704		)	(160,423		)
Accumulated other comprehensive income	3,508			2,703
Total equity	905,394			895,870
Total liabilities and equity	$	2,140,529		$	2,327,598

See accompanying notes to consolidated financial statements.

1

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

Consolidated Statements of Operations and Other Comprehensive Income

(Dollars in thousands, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2014			2013
Income:
Rental income	$	36,196		$	34,597
Tenant recovery income	9,134			8,791
Other property income	1,261			3,499
Total income	46,591			46,887
Expenses:
General and administrative expenses	1,950			1,804
Acquisition related costs	91			218
Liquidity event costs	2,841			—
Property operating expenses	9,069			8,733
Real estate taxes	5,533			5,102
Depreciation and amortization	17,851			19,451
Business management fee-related party	3,446			3,500
Total expenses	40,781			38,808
Operating income	5,810			8,079
Interest, dividend and other income	711			819
Realized gain on sale of marketable securities	24			26
Interest expense	(10,578		)	(10,240		)
Equity in income of unconsolidated entities	70			155
Loss from continuing operations	(3,963		)	(1,161		)
Income from discontinued operations	30,808			1,867
Net income	26,845			706
Net income attributable to redeemable noncontrolling interests	(697		)	(501		)
Net income attributable to common stockholders	$	26,148		$	205
Basic and diluted earnings per common share:
Continuing operations attributable to common stockholders	$	(0.04	)	$	(0.02	)
Discontinued operations attributable to common stockholders	0.26			0.02
Net income attributable to common stockholders	$	0.22		$	0.00
Weighted average number of common shares outstanding, basic and diluted	117,809,586			115,380,042
Comprehensive income:
Net income	$	26,845		$	706
Other comprehensive income:
Unrealized gain on marketable securities	1,821			2,705
Unrealized (loss) gain on derivatives	(1,016		)	165
Comprehensive income	27,650			3,576
Redeemable noncontrolling interests	(697		)	(501		)
Comprehensive income attributable to common stockholders	$	26,953		$	3,075

See accompanying notes to consolidated financial statements.

2

Inland Diversified Real Estate Trust, Inc.

Consolidated Statements of Equity

For the three months ended March 31, 2014

(Dollars in thousands)

(unaudited)

	Number of Shares	Common Stock		Additional Paid-in Capital, Net of Offering Costs		Accumulated Distributions and Net Income			Accumulated Other Comprehensive Income			Total
Balance at January 1, 2014	117,809,586	$	118	$	1,053,472	$	(160,423	)	$	2,703		$	895,870
Distributions declared	—	—		—		(17,429		)	—			(17,429		)
Unrealized gain on marketable securities	—	—		—		—			1,821			1,821
Unrealized loss on derivatives	—	—		—		—			(1,016		)	(1,016		)
Net income (excluding income attributable to redeemable noncontrolling interests of $697)	—	—		—		26,148			—			26,148
Balance at March 31, 2014	117,809,586	$	118	$	1,053,472	$	(151,704	)	$	3,508		$	905,394

See accompanying notes to consolidated financial statements.

3

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(unaudited)

	Three Months Ended March 31,
	2014			2013
Cash flows from operations:
Net income	$	26,845		$	706
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	17,851			23,353
Amortization of debt premium and financing costs	307			333
Amortization of acquired above market leases	1,266			2,097
Amortization of acquired below market leases	(706		)	(1,177		)
Gain on sales of investment properties, net	(26,916		)	—
Fair value adjustment of deferred investment property acquisition obligations	(298		)	(188		)
Straight-line rental income	(1,130		)	(1,728		)
Equity in income of unconsolidated entities	(70		)	(155		)
Payment of leasing fees	(103		)	(98		)
Realized gain on sale of marketable securities	(24		)	(26		)
Changes in assets and liabilities:
Restricted escrows	9			(65		)
Accounts and rents receivable, net	1,590			(3,259		)
Other assets	(1,036		)	42
Accounts payable and accrued expenses	2,730			1,525
Accrued real estate taxes payable	(638		)	1,233
Other liabilities	(397		)	(2,553		)
Due to related parties	(311		)	224
Net cash flows provided by operating activities	18,969			20,264
Cash flows from investing activities:
Purchase of investment properties	(23,371		)	(5,378		)
Construction in progress, capital expenditures and tenant improvements	(2,520		)	(725		)
Purchase of marketable securities	(36		)	(125		)
Sale of marketable securities	347			725
Proceeds from sales of investment properties	202,161			—
Restricted escrows	(2,480		)	(1,477		)
Repayment of notes receivable	5			—
Investment in notes receivable	(1,517		)	—
Net cash flows provided by (used in) investing activities	172,589			(6,980		)
Cash flows from financing activities:
Proceeds from the distribution reinvestment plan	—			10,294
Shares repurchased	—			(1,841		)
Proceeds from mortgages payable	—			14,750
Principal payments on mortgages payable	(88,436		)	(3,173		)
Principal payments on credit facility	(52,500		)	—
Proceeds from securities margin debt	49			149
Principal payments on securities margin debt	(987		)	(1,342		)
Payment of loan fees and deposits	(698		)	(109		)
Distributions paid	(17,435		)	(17,008		)
Payment of preferred return to redeemable noncontrolling interests	(664		)	(417		)
Net cash flows (used in) provided by financing activities	(160,671		)	1,303
Net increase in cash and cash equivalents	30,887			14,587
Cash and cash equivalents, at beginning of period	32,233			36,299
Cash and cash equivalents, at end of period	$	63,120		$	50,886

See accompanying notes to consolidated financial statements.

4

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(continued)

(unaudited)

	Three Months Ended March 31,
	2014			2013
Supplemental disclosure of cash flow information:
In conjunction with the purchase of investment properties, the Company acquired assets and assumed liabilities as follows:
Land	$	1,568		$	269
Building and improvements	14,069			1,069
Acquired in-place lease intangibles	2,324			178
Acquired above market lease intangibles	70			—
Acquired below market lease intangibles	(327		)	—
Settlement of deferred investment property acquisition obligations	8,497			3,865
Other liabilities	(95		)	(3		)
Other assets	22			—
Accrued real estate taxes payable	(34		)	—
Repayment of note payable	1,333			—
Partial settlement of note receivable	(4,056		)	—
Purchase of investment properties	$	23,371		$	5,378
Cash paid for interest	$	12,820		$	12,366
Supplemental schedule of non-cash investing and financing activities:
Distributions payable	$	6,003		$	5,894
Assumption of mortgages payable related to sales of investment properties	$	45,869		$	—

See accompanying notes to consolidated financial statements.

5

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Readers of this Quarterly Report on Form 10-Q should refer to the audited consolidated financial statements of Inland Diversified Real Estate Trust, Inc. (which may be referred to as the “Company,” “we,” “us,” or “our”) for the year ended December 31, 2013, which are included in the Company’s 2013 Annual Report as certain footnote disclosures contained in such audited consolidated financial statements have been omitted from this Quarterly Report on Form 10-Q. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for the fair presentation have been included in this Quarterly Report on

Form 10-Q.

(1) Organization

Inland Diversified Real Estate Trust, Inc. (which may be referred to herein as the “Company,” “we,” “us,” or “our”) was formed on June 30, 2008 (inception) to acquire and develop a diversified portfolio of commercial real estate investments located in the United States and Canada. The Company has entered into a Business Management Agreement (the “Agreement”) with Inland Diversified Business Manager & Advisor, Inc. (the “Business Manager”), to be the Business Manager to the Company. The Business Manager is a related party to our sponsor, Inland Real Estate Investment Corporation (the “Sponsor”). In addition, Inland Diversified Real Estate Services LLC, Inland Diversified Asset Services LLC, Inland Diversified Leasing Services LLC and Inland Diversified Development Services LLC, which are indirectly controlled by the four principals of The Inland Group, Inc. (collectively, the “Real Estate Managers”), serve as the Company’s real estate managers. The Company was authorized to sell up to 500,000,000 shares of common stock (“Shares”) at $10.00 each in its “best efforts” offering which commenced on August 24, 2009 and up to 50,000,000 shares at $9.50 each pursuant to the Company’s distribution reinvestment plan (“DRP”). The “best efforts” portion of the offering was completed on August 23, 2012. On November 13, 2013, the Company's board of directors voted to suspend the DRP until further notice, effective immediately. On November 13, 2013, the Company’s board of directors also voted to suspend the share repurchase program, as amended (“SRP”), until further notice, effective December 13, 2013.

At March 31, 2014, the Company owned 83 retail properties, three office properties and one industrial property collectively totaling 11.5 million square feet, including 24 multi-family units, and two multi-family properties totaling 420 units. As of March 31, 2014, the portfolio had a weighted average physical occupancy and economic occupancy of 95.6% and 96.7%, respectively. Economic occupancy excludes square footage associated with an earnout component. At the time that we acquired certain properties, the purchase agreement contained an earnout component to the purchase price, meaning the Company did not pay a portion of the purchase price at closing related to certain vacant spaces, although it owns the entire property. The Company is not obligated to settle this contingent purchase price unless the seller obtains leases for the vacant space within the time limits and parameters set forth in the applicable acquisition agreement (see note 16).

Proposed Merger

On February 9, 2014, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with Kite Realty Group Trust, a publicly traded (NYSE: KRG) Maryland real estate investment trust (“Kite”), and KRG Magellan, LLC, a Maryland limited liability company and a direct wholly owned subsidiary of Kite (“Merger Sub”). The Merger Agreement provides for, upon the terms and conditions of the Merger Agreement, the merger of the Company with and into Merger Sub, with Merger Sub surviving the Merger as a direct wholly owned subsidiary of Kite (the “Merger”). Pursuant to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each outstanding share of the Company’s common stock will be converted into the right to receive shares of beneficial interest of Kite, par value $0.01 per share (“Kite Common Shares”), based on:

• an exchange ratio of 1.707 Kite Common Shares for each share of our common stock if the volume-weighted average trading price of Kite Common Shares for the ten consecutive trading days ending on the third trading day preceding the meeting of our stockholders to approve the Merger (the “Reference Price”) is equal to or less than $6.36;

• a floating exchange ratio if the Reference Price is more than $6.36 or less than $6.58 (with such floating exchange ratio being determined by dividing $10.85 by the Reference Price); and

• an exchange ratio of 1.650 Kite Common Shares for each share of our common stock if the Reference Price is $6.58 or greater.

Pursuant to the Merger Agreement, upon the effective time of the merger, the board of trustees of Kite will consist of nine members, six of whom will be current trustees of Kite and three of whom will be designated by us.

The completion of the Merger is subject to a number of closing conditions, including, among others: (i) approval by Kite’s stockholders and the Company’s stockholders, including the approval of Kite’s stockholders of an amendment to Kite’s declaration of trust to increase the number of Kite Common Shares that Kite is authorized to issue; (ii) the absence of a material adverse effect on

6

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

either the Company or Kite; (iii) the receipt of tax opinions relating to the REIT status of Kite and the Company and the tax-free nature of the transaction; (iv) the completion of the Net Lease Sale Transactions (as defined below); and (v) the completion of the redeployment of certain proceeds from the Net Lease Sale Transactions to acquire replacement properties for purposes of Section 1031 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). As a result of the closing conditions to which the Merger is subject, there are no assurances that the proposed Merger will be consummated on the expected timetable, or at all. If the closing conditions are satisfied, it is anticipated that the Merger will close during the second or third quarter of 2014.

The Merger Agreement may be terminated under certain circumstances, including by either the Company or Kite if the Merger has not been consummated on or before the outside date of August 31, 2014, subject to extension under certain circumstances. The Merger Agreement provides that, in connection with the termination of the Merger Agreement under specified circumstances, the Company may be required to pay to Kite a termination fee of $43,000 and/or reimburse Kite’s transaction expenses up to an amount equal to $8,000. Where termination is in connection with a failure to close the Net Lease Sale Transactions, the Company may be required to (i) reimburse Kite for its transaction expenses up to an amount equal to $8,000 and (ii) pay Kite a termination fee of $3,000. The Merger Agreement also provides that, under specified circumstances, Kite may be required to pay the Company a termination fee of $30,000 and/or reimburse the Company’s transaction expenses up to an amount equal to $8,000. Under certain circumstances, including upon payment of the applicable termination fee, either party is permitted to terminate the Merger Agreement to enter into a definitive agreement with a third party with respect to a superior acquisition proposal.

If the Merger is consummated, it is expected to significantly change the scope of the Company’s business and as a result the Company’s 2013 results of operations may not necessarily be representative of the Company’s future results of operations. Unless otherwise stated, all disclosures and discussion in this Quarterly Report on Form 10-Q do not include the expected effects of the Merger.

On February 19, 2014, solely to assist broker-dealers in meeting their customer account statement reporting obligations, the Company’s board of directors established an estimated per share value of the Company common stock as of February 18, 2014 of $10.70. This estimated per share value was determined based upon the final closing price of the Kite Common Shares on February 18, 2014 and the exchange ratio for Kite Common Shares under the Merger Agreement that would apply if the Reference Price was equal to the final closing price of the Kite Common Shares on February 18, 2014.

In connection with the execution of Merger Agreement, the Company entered into a Master Liquidity Event Agreement (the “Master Agreement”) with the Business Manager, the Real Estate Managers, and certain other affiliates of the Business Manager. The Master Agreement sets forth the terms of the consideration due to the Business Manager and the Real Estate Managers in connection with the Merger, provides for the automatic termination upon the closing of the Merger of the Company’s agreements with the Business Manager and the Real Estate Managers and certain other agreements between the Company and affiliates of the Business Manager and includes certain other agreements in order to facilitate the Merger. Pursuant to the Master Agreement, the Company agreed that the liquidity event fee payable by the Company to the Business Manager upon the consummation of the Merger pursuant to the terms of Business Management Agreement will be $10,235; provided, however, that the total amount of the liquidity event fee will be increased to not more than $12,000 in the event that the Business Manager achieves certain cost savings for the Company prior to the closing of the Merger.

Net Lease Sale Transactions

On December 16, 2013, the Company, Inland Diversified Cumming Market Place, L.L.C., a Delaware limited liability company and the Company’s subsidiary (“Market Place”), and Bulwark Corporation, a Delaware corporation and the Company’s subsidiary(“Bulwark”), entered into two Purchase and Sale Agreements with Realty Income Corporation, a Maryland corporation and unaffiliated third party purchaser (“Realty Income”), which collectively provide for the sale of a total of 84 of the Company’s single tenant, net leased properties (the “Net Lease Properties”) to Realty Income in a series of transactions which the Company refers to collectively as the “Net Lease Sale Transactions.” (see note 4)

The Purchase and Sale Agreement by and among Bulwark, the Company and Realty Income provides for the sale by Bulwark to Realty Income of 100% of the limited liability company membership interests in certain Delaware limited liability companies owned by Bulwark which own, directly or indirectly, a portfolio of nine net-leased commercial real estate properties (collectively, the “Bulwark Properties”). On March 31, 2014, the Company closed the sale of the Bulwark Properties to Realty Income (“Bulwark Closing”) for an aggregate cash purchase price of approximately $72,304, resulting in net proceeds to the Company from the sale of $22,172 after repayment of mortgages payable.

The Purchase and Sale Agreement by and among the Company, Market Place, and Realty Income (as amended, the “Net-Lease Purchase Agreement”) provides for (1) the sale by the Company to Realty Income of 100% of the limited liability company membership interests in certain Delaware limited liability companies which own, directly or indirectly, a portfolio of 74 net-leased commercial real estate properties (collectively, the “Net-Lease Properties”), and (2) the sale by Market Place to Realty Income of fee

7

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

simple title to a single net-leased commercial real estate property (the “Market Place Property”). The Net-Lease Purchase Agreement provides that the Net Lease Properties and the Market Place Property will be sold to Realty Income in two separate tranches. The closing of the sale of first tranche (“Tranche I”) of Net-Lease Properties pursuant to the Net-Lease Purchase Agreement occurred on January 31, 2014, resulting in the sale by the Company to Realty Income of 46 of the Net Lease Properties for an aggregate cash purchase price of approximately $201,955 and net proceeds to the Company from the sale of $126,312 after repayment or assumptions of mortgages payable. The sale of the second tranche (“Tranche II”) of Net-Lease Properties pursuant to the Net-Lease Purchase Agreement will be completed at four separate closings. The first closing of the sale of the Tranche II properties (“Tranche II(a)”) occurred on April 1, 2014, resulting in the sale by the Company to Realty Income of 13 of the Net-Lease Properties and the Market Place Property for an aggregate cash purchase price of approximately $93,605 and net proceeds to the Company from the sale of $41,773 after repayment or assumption of mortgages payable. The second closing of the sale of the Tranche II properties (“Tranche II(b)”) occurred on April 30, 2014, resulting in the sale by the Company to Realty Income of 12 of the Net-Lease Properties for an aggregate cash purchase price of approximately $63,434 and net proceeds to the Company from the sale of $30,534 after repayment or assumption of mortgages payable. The third closing of the sale of the Tranche II properties (“Tranche II(c)”) occurred on May 9, 2014, resulting in the sale by the Company to Realty Income of three of the Net-Lease Properties for an aggregate cash purchase price of approximately $44,422 and net proceeds to the Company from the sale of $14,140 after repayment or assumption of mortgages payable. The fourth closing of the sale of the Tranche II properties (“Tranche II(d)”), at which the final Net-Lease Property will be sold to Realty Income, will occur by June 15, 2014, subject to the satisfaction of all closing conditions.

The sale of the Net Lease Properties during the three months ended March 31, 2014 is summarized in the following table.

Transaction	Sale Date	Number of Properties Sold	Aggregate Purchase Price		Net Proceeds (1)
Tranche I	January 31, 2014	46	$	201,955	$	126,312
Bulwark	March 31, 2014	9	72,304		22,172
	Total	55	$	274,259	$	148,484

(1) After repayment or assumption of mortgages payable.

The sale of the Net Lease Properties subsequent to March 31, 2014 is summarized in the following table.

Transaction	Sale Date	Number of Properties Sold	Aggregate Purchase Price		Net Proceeds (1)
Tranche II (a)	April 1, 2014	13	$	93,605	$	41,773
Tranche II (b)	April 30, 2014	12	63,434		30,534
Tranche II (c)	May 9, 2014	3	44,422		14,140
	Total	28	$	201,461	$	86,447

(1)    After repayment or assumption of mortgages payable.

As of May 14, 2014, the Company's portfolio consisted of 59 retail properties collectively totaling 10.6 million square feet, including 24 multi-family units, and two multi-family properties totaling 420 units, which does not include one property, which is under contract to sell under the Net Lease Sale Transactions.

(2) Summary of Significant Accounting Policies

General

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Certain amounts in the prior period consolidated financial statements have been reclassified to conform with the current year presentation. The reclasses primarily represent reclassifications of assets and liabilities to assets and liabilities held for sale as well as revenue and expenses to discontinued operations.

Consolidation

The accompanying consolidated financial statements include the accounts of the Company, as well as all wholly owned subsidiaries and entities in which the Company has a controlling financial interest. Interests of third parties in these consolidated entities are reflected as noncontrolling interests in the accompanying consolidated financial statements. Wholly owned subsidiaries generally consist of limited liability companies (LLCs). All intercompany balances and transactions have been eliminated in consolidation.

8

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

Each property is owned by a separate legal entity which maintains its own books and financial records and each entity’s assets are not available to satisfy the liabilities of other affiliated entities, except for certain properties which have cross-collateralized first mortgages as previously disclosed.

The Company consolidates the operations of a joint venture if it determines that it's either the primary beneficiary of a variable interest entity (“VIE”) or has substantial influence and control of the entity. The primary beneficiary is the party that has the ability to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. There are significant judgments and estimates involved in determining the primary beneficiary of a variable interest entity or the determination of who has control and influence of the entity. When the Company consolidates an entity, the assets, liabilities and results of operations will be included in the consolidated financial statements.

In instances where the Company is not the primary beneficiary of a variable interest entity or it does not control the joint venture, the Company uses the equity method of accounting. Under the equity method, the operations of a joint venture are not consolidated with the Company's operations but instead its share of operations would be reflected as equity in income of unconsolidated entities on the consolidated statements of operations and other comprehensive income. Additionally, the Company's investment in the entities is reflected as investment in unconsolidated entities on the consolidated balance sheets.

Recently Issued Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends GAAP to require reporting of discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This pronouncement will be effective for the first annual reporting period beginning after December 15, 2015 with early adoption permitted. The Company adopted this accounting pronouncement effective January 1, 2014. This pronouncement does not have any effect on investment properties held for sale as of December 31, 2013.

Cash and Cash Equivalents

The Company considers all demand deposits and money market accounts and all short-term investments with a maturity of three months or less, at the date of purchase, to be cash equivalents. The Company maintains its cash and cash equivalents at financial institutions. The combined account balances at one or more institutions periodically exceed the Federal Depository Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes that the risk is not significant, as the Company does not anticipate the financial institutions’ non-performance.

Restricted Cash and Escrows

The Company had restricted escrows of $27,699 and $5,616, excluding amounts related to investment properties held for sale, as of March 31, 2014 and December 31, 2013, respectively, which consist of cash held in escrow relating to the sale of the Bulwark Properties and based on lender requirements for collateral or funds to be used for the payment of insurance, real estate taxes, tenant improvements and leasing commissions. Additionally, the Company had restricted cash of $4,500 and $0 as of March 31, 2014 and December 31, 2013, respectively, which consist of cash held as collateral on an interest rate swap.

Revenue Recognition

The Company commences revenue recognition on its leases based on a number of factors. In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset. Generally, this occurs on the lease commencement date. The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins. If the Company is the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete. If the Company concludes it is not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded by the Company under the lease are treated as lease incentives which reduces revenue recognized over the term of the lease. In these circumstances, the Company begins revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements. The Company considers a number of different factors to evaluate whether it or the lessee is the owner of the tenant improvements for accounting purposes. The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment.

9

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

Rental income is recognized on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable in the consolidated balance sheets. Due to the impact of the straight-line basis, rental income generally will be greater than the cash collected in the early years and decrease in the later years of a lease. The Company periodically reviews the collectability of outstanding receivables. Allowances are taken for those balances that the Company deems to be uncollectible, including any amounts relating to straight-line rent receivables.

Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period the applicable expenses are incurred. The Company makes certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. The Company does not expect the actual results to materially differ from the estimated reimbursement.

The Company records lease termination income if there is a signed termination agreement, all of the conditions of the agreement have been met, the tenant is no longer occupying the property and amounts due are considered collectible. Upon early lease termination, the Company provides for gains or losses related to unrecovered intangibles and other assets.

As a lessor, the Company defers the recognition of contingent rental income, such as percentage rent, until the specified target that triggered the contingent rental income is achieved.

Capitalization and Depreciation

Real estate acquisitions are recorded at cost less accumulated depreciation. Improvement and betterment costs are capitalized, and ordinary repairs and maintenance are expensed as incurred.

Transactional costs in connection with the acquisition of real estate properties and businesses are expensed as incurred.

Depreciation expense is computed using the straight-line method. Building and improvements are depreciated based upon estimated useful lives of 30 years and 5-15 years for furniture, fixtures and equipment and site improvements.

Tenant improvements are amortized on a straight-line basis over the shorter of the life of the asset or the term of the related lease as a component of depreciation and amortization expense. Leasing fees are amortized on a straight-line basis over the term of the related lease as a component of depreciation and amortization expense. Loan fees are amortized on a straight-line basis, which approximates the effective interest method, over the term of the related loans as a component of interest expense.

Cost capitalization and the estimate of useful lives require judgment and include significant estimates that can and do change.

Depreciation expense was $12,268 and $12,069, excluding amounts related to discontinued operations, for the three months ended March 31, 2014 and 2013, respectively.

Fair Value Measurements

The Company has estimated fair value using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that would be realized upon disposition.

The Company defines fair value based on the price that it believes would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

• Level 1—Quoted prices in active markets for identical assets or liabilities.

• Level 2—Quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations whose inputs are observable.

• Level 3—model-derived valuations with unobservable inputs that are supported by little or no market activity.

Acquisition of Investment Properties

Upon acquisition, the Company determines the total purchase price of each property (see note 3), which includes the estimated contingent consideration to be paid or received in future periods (see note 16). The Company allocates the total purchase price of properties and businesses based on the fair value of the tangible and intangible assets acquired and liabilities assumed based on Level 3 inputs, such as comparable sales values, discount rates, capitalization rates, revenue and expense growth rates and lease-up assumptions, from a third party appraisal or other market sources.

Certain of the Company’s properties included earnout components to the purchase price, meaning the Company did not pay a portion of the purchase price of the property at closing, although the Company owns the entire property. The Company is not obligated to

10

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

settle the contingent portion of the purchase prices unless space which was vacant at the time of acquisition is later leased by the seller within the time limits and parameters set forth in the related acquisition agreements. The earnout payments are based on a predetermined formula applied to rental income received. The earnout agreements have a limited obligation period ranging from one to three years from the date of acquisition. If at the end of the time period certain space has not been leased, occupied and rent producing, the Company will have no further obligation to pay additional purchase price consideration and will retain ownership of that entire property. Based on its best estimate, the Company has recorded a liability for the potential future earnout payments using estimated fair value at the date of acquisition using Level 3 inputs including lease-up periods ranging from one to three years, market rents ranging from $9.60 to $45.00, probability of occupancy ranging from 90% to 100% based on leasing activity and discount rates, generally 10%. The Company has recorded these earnout amounts as additional purchase price of the related properties and as a liability included in deferred investment property acquisition obligations on the consolidated balance sheets. The liability increases as the anticipated payment date draws near based on a present value; such increases in the liability are recorded as amortization expense on the consolidated statements of operations and other comprehensive income. The Company records changes in the underlying liability assumptions to other property income on the consolidated statements of operations and other comprehensive income.

The portion of the purchase price allocated to acquired above market lease value and acquired below market lease value are amortized on a straight-line basis over the term of the related lease as an adjustment to rental income. For below-market lease values, the amortization period includes bargain renewal option periods at a fixed rate. Amortization pertaining to the above market lease value of $1,086 and $1,891, excluding amounts related to discontinued operations, was recorded as a reduction to rental income for the three months ended March 31, 2014 and 2013, respectively. Amortization pertaining to the below market lease value of $688 and $1,158, excluding amounts related to discontinued operations, was recorded as an increase to rental income for the three months ended March 31, 2014 and 2013, respectively.

The portion of the purchase price allocated to acquired in-place lease value is amortized on a straight-line basis over the acquired leases’ weighted-average remaining term. The Company incurred amortization expense pertaining to acquired in-place lease intangibles of $5,477 and $6,164, excluding amounts related to discontinued operations, for the three months ended March 31, 2014 and 2013, respectively. The portion of the purchase price allocated to customer relationship value is amortized on a straight-line basis over the weighted-average remaining lease term. As of March 31, 2014, no amount has been allocated to customer relationship value.

The following table summarizes the Company’s identified intangible assets and liabilities, excluding amounts related to investment properties held for sale, as of March 31, 2014 and December 31, 2013.

	March 31,			December 31,
	2014			2013
Intangible assets:
Acquired in-place lease value	$	218,165		$	215,913
Acquired above market lease value	35,149			35,079
Accumulated amortization	(62,724		)	(56,234		)
Acquired lease intangibles, net	$	190,590		$	194,758
Intangible liabilities:
Acquired below market lease value	$	51,495		$	51,168
Accumulated amortization	(6,124		)	(5,436		)
Acquired below market lease intangibles, net	$	45,371		$	45,732

As of March 31, 2014, the weighted average amortization periods for acquired in-place lease, above market lease and below market lease intangibles, excluding amounts related to investment properties held for sale, are 12, 9 and 23 years, respectively.

Estimated amortization of the respective intangible lease assets and liabilities, excluding amounts related to investment properties held for sale, as of March 31, 2014 for each of the five succeeding years and thereafter is as follows:

	In-place Leases		Above Market Leases		Below Market Leases
2014 (remainder of year)	$	16,362	$	3,079	$	2,073
2015	21,542		3,862		2,667
2016	21,020		3,532		2,549
2017	20,073		3,245		2,514
2018	17,321		2,365		2,428
Thereafter	71,210		6,979		33,140
Total	$	167,528	$	23,062	$	45,371

11

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

Investment Properties Held For Sale

The Company will classify an investment property as held for sale in the period in which it has committed to a plan to dispose of the property, the Company’s Board of Directors has approved the sale of the property, are in the process of finding or have found a buyer, the property is available for immediate sale and subject only to sales terms that are usual and customary, and the sale of the property is probable and is expected to be completed within one year without significant changes. The Company suspends depreciation on the investment properties held for sale, including depreciation for tenant improvements and additions, as well as on the amortization of acquired in-place leases. The Company will classify the assets and related liabilities as held for sale in its consolidated balance sheets in the period the held for sale criteria is met and reclassify for presentation purposes the related results of operations for all prior periods presented. The Company does not allocate any general and administrative expenses to discontinued operations and only interest expense to the extent the held for sale property is secured by specific mortgage debt and the mortgage debt will not be assigned to another property owned by the Company after the disposition. During December 2013, the Net Lease Properties met the criteria to be held for sale and were classified as held for sale. Assets and liabilities related to the Merger Agreement were not classified as held for sale.

Disposition of Real Estate

The Company accounts for dispositions in accordance with U.S. GAAP. The Company recognizes a gain or loss in full when a property is sold. A sale is considered complete when the profit is determinable, the collectability of the sales price is reasonably assured or can be estimated, and when the earnings process is virtually complete, and the Company is not obliged to perform significant activities after the sale to earn the profit. The Company records the transaction as discontinued operations for all periods presented in accordance with U.S. GAAP.

Impairment of Investment Properties

The Company assesses the carrying values of its respective long-lived assets classified as held and used whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. Recoverability of the assets is measured by comparison of the carrying amount of the asset to the estimated future undiscounted cash flows. In order to review its assets for recoverability, the Company considers current market conditions, as well as its intent with respect to holding or disposing of the asset. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third party appraisals, where considered necessary (Level 3 inputs). If the Company’s analysis indicates that the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, the Company recognizes an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the real estate property.

The Company estimates the future undiscounted cash flows based on the estimated future net rental income from operating the property and termination value.

The use of projected future cash flows is based on assumptions that are consistent with our estimates of future expectations and the strategic plan the Company uses to manage its underlying business. However, assumptions and estimates about future cash flows, including comparable sales values, discount rates, capitalization rates, revenue and expense growth rates and lease-up assumptions which impact the discounted cash flow approach to determining value are complex and subjective. Changes in economic and operating conditions and the Company’s ultimate investment intent that occur subsequent to the impairment analysis could impact these assumptions and result in future impairment charges of the real estate properties.

The Company assesses the carrying value for all properties classified as held for sale for possible impairment. If the fair value less selling costs is less than the current carrying value, the Company recognizes an impairment charge for the amount by which the carrying value exceeds the fair value less selling costs.

During the three months ended March 31, 2014 and 2013, the Company incurred no impairment charges for any investment property classified as held and used or held for sale.

Impairment of Marketable Securities

The Company assesses its investments in marketable securities for impairment. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed to be other-than-temporary will result in an impairment to reduce the carrying amount to fair value using Level 1 and 2 inputs (see note 7). The impairment will be charged to earnings and a new cost basis for the security will be established. To determine whether impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year-end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in. The Company considers the

12

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

following factors in evaluating our securities for impairments that are other than temporary:

• declines in the REIT and overall stock market relative to our security positions;

• the estimated net asset value (“NAV”) of the companies it invests in relative to their current market prices; and

• future growth prospects and outlook for companies using analyst reports and company guidance, including dividend coverage, NAV estimates and growth in “funds from operations,” or “FFO,” and duration of the decline in the value of the securities.

During the three months ended March 31, 2014 and 2013, the Company incurred no other-than-temporary impairment charges.

Redeemable Noncontrolling Interests

Certain of the Company's consolidated joint ventures have issued units to noncontrolling interest holders that are redeemable at the noncontrolling interest holder's option for cash or for shares of the Company's common stock at the Company's option. If the noncontrolling interest holder seeks redemption of its units for the Company's shares, the joint ventures may redeem the units through issuance of common shares by the Company on a one-for-one basis or through cash settlement at the redemption price. The redemption is at the option of the holder after passage of time or upon the occurrence of an event that is not solely within the control of the joint ventures. Because redemption of the noncontrolling interests is outside of the applicable joint venture's control, the interests are presented on the consolidated balance sheets outside of permanent equity as redeemable noncontrolling interests. None of the noncontrolling interests are currently redeemable, but it is probable that the noncontrolling interests will become redeemable. Based on such probability, the Company measures and records the noncontrolling interests at their maximum redemption amount at each balance sheet date. Any adjustments to the carrying amount of the redeemable noncontrolling interests for changes in the maximum redemption amount are recorded to additional paid in capital in the period of the change (see note 11).

REIT Status

The Company has qualified and has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended, for federal income tax purposes commencing with the tax year ended December 31, 2009. Because the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal income tax on taxable income that is distributed to stockholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distributes at least 90% of its taxable income (subject to certain adjustments) to its stockholders. The Company will monitor the business and transactions that may potentially impact our REIT status. If the Company fails to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, the Company will be subject to federal (including any applicable alternative minimum tax) and state income tax on its taxable income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and federal income and excise taxes on its undistributed income.

Derivatives

The Company uses derivative instruments, such as interest rate swaps, primarily to manage exposure to interest rate risks inherent in variable rate debt. The Company may also enter into forward starting swaps or treasury lock agreements to set the effective interest rate on a planned fixed-rate financing. The Company’s interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In a forward starting swap or treasury lock agreement that the Company cash settles in anticipation of a fixed rate financing or refinancing, the Company will receive or pay an amount equal to the present value of future cash flow payments based on the difference between the contract rate and market rate on the settlement date. The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging.

(3) Acquisition

On March 21, 2014, the Company acquired a fee simple interest in a 111,271 square foot retail property known as Memorial Commons located in Goldsboro, North Carolina. The Company purchased this property from an unaffiliated third party for $17,810.

Memorial Commons is the first replacement property to be acquired to satisfy the Company's Merger closing conditions related to the completion of certain Net Lease Sale Transactions for the purpose of Section 1031 of the Internal Revenue Code.

13

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

The following table presents certain additional information regarding the Company’s acquisition during the three months ended March 31, 2014. The amounts recognized for major assets acquired and liabilities assumed as of the acquisition date:

Property Name	Land		Building and Improvements		Acquired Lease Intangibles
Memorial Commons	$	1,568	$	14,069	$	2,067

For the property acquired during the three months ended March 31, 2014, the Company recorded revenue of $33 and property net income of $29 not including expensed acquisition related costs.

(4) Discontinued Operations and Investment Properties Held for Sale

On December 16, 2013, the Company entered into the Purchase and Sale Agreement, providing for the sale of the Net Lease Properties in an all-cash transaction with a gross sales price of approximately $503,013. The transaction is expected to close in three tranches during the first and second quarters of 2014. The Tranche I closing and Bulwark Closing were competed on January 31, 2014 and March 31, 2104, respectively. The Tranche II closings were competed in April and May 2014 in multiple closings. The Net Lease Properties qualified for held for sale accounting treatment upon meeting all applicable GAAP criteria on December 16, 2013, at which time depreciation and amortization was suspended. The assets and liabilities associated with these properties are separately classified as held for sale in the consolidated balance sheets as of March 31, 2014 and December 31, 2013. All periods presented on the consolidated balance sheets and consolidated statements of operations and other comprehensive income have been adjusted to conform to the current period presentation. Properties relating to the Merger Agreement were classified as held and used as of March 31, 2014 and as of December 31, 2013.

The following table presents the assets and liabilities associated with the held for sale properties:

	March 31,			December 31,
Assets	2014			2013
Investment properties:
Land	$	29,395		$	89,365
Building and improvements	153,198			315,958
Total	182,593			405,323
Less accumulated depreciation	(10,766		)	(20,555		)
Net investment properties	171,827			384,768
Restricted cash and escrows	—			1,939
Accounts and rents receivable, net	3,020			4,199
Acquired lease intangibles, net	32,296			60,504
Deferred costs, net	1,621			2,570
Other assets	564			318
Total assets held for sale	$	209,328		$	454,298
Liabilities
Mortgages payable	$	118,325		$	242,680
Accounts payable and accrued expenses	473			1,012
Accrued real estate taxes payable	166			813
Other liabilities	6,209			6,802
Acquired below market lease intangibles, net	372			1,358
Total liabilities held for sale	$	125,545		$	252,665

The Company will have no continuing involvement with any of its disposed properties subsequent to their disposal. The Company recorded a gain on sale of $26,916 relating to the Tranche I closing and Bulwark Closing that were completed during the three months ended March 31, 2014. Any additional gain will be recorded once each additional tranche is closed.

14

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

The results of operations for the investment properties that are accounted for as discontinued operations are presented for each of the three months ended March 31, 2014 and 2013 in the table below:

	Three Months Ended March 31,
	2014			2013
Income:
Rental income	$	6,448		$	9,062
Tenant recovery income	250			694
Other property income	22			32
Total income	6,720			9,788
Expenses:
General and administrative expenses	—			153
Property operating expenses	340			479
Real estate taxes	281			554
Depreciation and amortization	—			3,902
Total expenses	621			5,088
Operating income	6,099			4,700
Gain on sale of investment properties, net	26,916			—
Interest expense	(2,207		)	(2,833		)
Income from discontinued operations	30,808			1,867
Redeemable noncontrolling interests associated with discontinued operations	(18		)	(18		)
Net income from discontinued operations attributable to common stockholders	$	30,790		$	1,849

(5) Operating Leases

Minimum lease payments to be received under operating leases, including ground leases and excluding leases relating to discontinued operations and multi-family units (lease terms of twelve-months or less), as of March 31, 2014 for the years indicated, assuming no expiring leases are renewed, are as follows:

	Minimum Lease Payments
2014 (remainder of year)	$	101,821
2015	131,762
2016	125,195
2017	113,979
2018	92,415
Thereafter	593,965
Total	$	1,159,137

The remaining lease terms range from less than one year to 72 years. Most of the revenue from the Company’s properties consists of rents received under long-term operating leases. Some leases require the tenant to pay fixed base rent paid monthly in advance, and to reimburse the Company for the tenant’s pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the Company and recoverable under the terms of the lease. Under these leases, the Company pays all expenses and is reimbursed by the tenant for the tenant’s pro rata share of recoverable expenses paid. Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed base rent as well as all costs and expenses associated with occupancy. Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included in the consolidated statements of operations and other comprehensive income. Under leases where all expenses are paid by the Company, subject to reimbursement by the tenant, the expenses are included within property operating expenses and reimbursements are included in tenant recovery income on the consolidated statements of operations and other comprehensive income.

(6) Unconsolidated Entities

The Company is a member of a limited liability company formed as an insurance association captive (the “Insurance Captive”), which is owned in equal proportions by the Company and three related parties, Inland Real Estate Corporation, Inland American Real Estate Trust, Inc. and Inland Real Estate Income Trust, Inc., and a third party, Retail Properties of America, Inc., and is serviced by an affiliate of the Business Manager, Inland Risk and Insurance Management Services Inc. The Insurance Captive was formed to initially insure/reimburse the members’ deductible obligations for the first $100 of property insurance and $100 of general liability insurance. The Company entered into the Insurance Captive to stabilize its insurance costs, manage its exposures and recoup expenses through

15

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

the functions of the captive program. This entity is considered to be a variable interest entity (VIE) as defined in U.S. GAAP and the Company is not considered to be the primary beneficiary. Therefore, this investment is accounted for utilizing the equity method of accounting. The Company's risk of loss is limited to its investment in the Insurance Captive and it is not required to fund additional capital to the entity.

		Ownership % at		Investment at
Joint Venture	Description	March 31, 2014	December 31, 2013	March 31, 2014		December 31, 2013
Oak Property & Casualty LLC	Insurance Captive	20%	20%	$	553	$	484

The Company’s share of net income from its investment in the unconsolidated entity is based on the ratio of each member’s premium contribution to the venture. The Company was allocated income of $70 and $155for the three months ended March 31, 2014 and 2013, respectively.

On May 28, 2009, the Company purchased 1,000 shares of common stock in the Inland Real Estate Group of Companies for $1, which are accounted for under the cost method and included in investment in unconsolidated entities on the consolidated balance sheets.

(7) Investment in Marketable Securities

Investment in marketable securities of $35,604 and $34,070 at March 31, 2014 and December 31, 2013, respectively, consists of primarily preferred and common stock and corporate bond investments in other publicly traded REITs which are classified as available-for-sale securities and recorded at fair value. The cost basis of the Company's investment in marketable securities was $33,205 and $33,492 at March 31, 2014 and December 31, 2013, respectively.

Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported as a separate component of comprehensive income until realized. The Company has recorded an accumulated net unrealized gain of $2,399 and $578 on the consolidated balance sheets as of March 31, 2014 and December 31, 2013, respectively. The Company had net unrealized gains of $1,821 and $2,705for the three months ended March 31, 2014 and 2013, respectively. These unrealized and gains have been recorded as other comprehensive income in the consolidated statements of operations and other comprehensive income.

Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis or first-in, first-out basis. The Company had realized gains of $24 and $26for the three months ended March 31, 2014 and 2013, respectively. These gains have been recorded as realized gain on sale of marketable securities in the consolidated statements of operations and other comprehensive income.

The Company’s policy for assessing recoverability of its available-for-sale securities is to record a charge against net earnings when the Company determines that a decline in the fair value of a security drops below the cost basis and believes that decline to be other-than-temporary, which includes determining whether for marketable securities: (1) the Company intends to sell the marketable security, and (2) it is more likely than not that the Company will be required to sell the marketable security before its anticipated recovery.

(8) Fair Value of Financial Instruments

The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, restricted cash and escrows, accounts and rents receivable, accounts payable and accrued expenses, accrued real estate taxes payable and due to related parties approximates their fair values at March 31, 2014 and December 31, 2013 due to the short maturity of these instruments.

All financial assets and liabilities are recognized or disclosed at fair value using a fair value hierarchy as described in note 2 – “Fair Value Measurements.”

16

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

The following table presents the Company’s assets and liabilities, measured at fair value on a recurring basis, and related valuation inputs within the fair value hierarchy utilized to measure fair value as of March 31, 2014 and December 31, 2013:

	Level 1		Level 2		Level 3		Total
March 31, 2014
Asset - investment in marketable securities	$	26,576	$	9,028	$	—	$	35,604
Asset - interest rate swap	$	—	$	819	$	—	$	819
Liability - interest rate swap	$	—	$	3,708	$	—	$	3,708
December 31, 2013
Asset - investment in marketable securities	$	24,871	$	9,199	$	—	$	34,070
Asset - interest rate swap	$	—	$	2,379	$	—	$	2,379
Liability - interest rate swap	$	—	$	4,127	$	—	$	4,127

The valuation techniques used to measure fair value of the investment in marketable securities above was quoted prices from national stock exchanges and quoted prices from third party brokers for similar assets (see note 7). The Company performs certain validation procedures such as verifying changes in security prices from one period to the next and verifying ending security prices on a test basis.

The valuation techniques used to measure the fair value of the interest rate swaps above in which the counterparties have high credit ratings, were derived from pricing models provided by a third party, such as discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data. The Company verifies the ending values provided by the third party to the values received on the counterparties' statements for reasonableness. The Company’s discounted cash flow techniques use observable market inputs, such as LIBOR-based yield curves.

The Company estimates the fair value of its total debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by the Company’s lenders using Level 3 inputs. The carrying value of the Company’s mortgage debt (including mortgage debt classified as held for sale) was $1,051,055 and $1,185,433 at March 31, 2014 and December 31, 2013, respectively, and its estimated fair value was $1,062,781 and $1,211,250 as of March 31, 2014 and December 31, 2013, respectively. The Company’s carrying amount of variable rate borrowings on the credit facility and securities margin payable approximates their fair values at March 31, 2014 and December 31, 2013.

(9) Transactions with Related Parties

The Company has an investment in Insurance Captive, an insurance captive entity with other REITs sponsored by our Sponsor and a third party. The Insurance Captive is included in the Company’s disclosure of Unconsolidated Entities (see note 6) and is included in investment in unconsolidated entities on the consolidated balance sheets.

As of March 31, 2014 and December 31, 2013, the Company owed a total of $1,759 and $2,074, respectively, to our Sponsor and its affiliates related to advances used to pay administrative and offering costs and certain accrued expenses which are included in due to related parties on the consolidated balance sheets. These amounts represent non-interest bearing advances by the Sponsor and its affiliates and accrued business management fees, which the Company intends to repay.

At March 31, 2014 and December 31, 2013, the Company held $791 and $789, respectively, in shares of common stock in Inland Real Estate Corporation, which are classified as available-for-sale securities and recorded at fair value.

The Company has 1,000 shares of common stock in the Inland Real Estate Group of Companies with a recorded value of $1 at March 31, 2014 and December 31, 2013, which are accounted for under the cost method and included in investment in unconsolidated entities on the consolidated balance sheets.

17

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

The following table summarizes the Company’s related party transactions for the three months ended March 31, 2014 and 2013.

		For the Three Months Ended March 31,				Unpaid Amounts as of
		2014		2013		March 31, 2014		December 31, 2013
General and administrative:
General and administrative reimbursement	(a)	$	450	$	409	$	291	$	292
Loan servicing	(b)	76		74		—		—
Investment advisor fee	(c)	68		80		23		25
Total general and administrative to related parties		$	594	$	563	$	314	$	317
Acquisition related costs	(d)	$	46	$	54	—		—
Real estate management fees	(e)	2,109		2,205		—		—
Business management fee	(f)	3,446		3,500		1,445		1,757
Loan placement fees	(g)	—		67		—		—
Cost reimbursement	(h)	5		—		—		—

(a) The Business Manager and its related parties are entitled to reimbursement for general and administrative expenses of the Business Manager and its related parties relating to the Company’s administration. Such costs are included in general and administrative expenses in the consolidated statements of operations and other comprehensive income.

(b) A related party of the Business Manager provides loan servicing to the Company for an annual fee equal to .03% of the first $1,000,000 of serviced loans and .01% for serviced loans over $1,000,000. These loan servicing fees are paid monthly and are included in general and administrative expenses in the consolidated statements of operations and other comprehensive income.

(c) The Company pays a related party of the Business Manager to purchase and monitor its investment in marketable securities.

(d) The Business Manager and its related parties are reimbursed for acquisition, dead deal and transaction related costs of the Business Manager and its related parties relating to the Company’s acquisition of real estate assets. These costs relate to both closed and potential transactions and include customary due diligence costs including time and travel expense reimbursements. Such costs are included in acquisition related costs in the consolidated statements of operations and other comprehensive income. The Company does not pay acquisition fees to its Business Manager or its affiliates.

(e) The real estate managers, entities owned principally by individuals who are related parties of the Business Manager, receive monthly real estate management fees up to 4.5% of gross operating income (as defined), for management and leasing services. Such costs are included in property operating expenses in the consolidated statements of operations and other comprehensive income. In addition to these fees, the real estate managers receive reimbursements of payroll costs for property level employees. The Company reimbursed or will reimburse the real estate managers and other affiliates $547 and $569for the three months ended March 31, 2014 and 2013, respectively.

(f) Subject to satisfying the criteria described below, the Company pays the Business Manager a quarterly business management fee equal to a percentage of the Company’s “average invested assets” (as defined in the business management agreement), calculated as follows:

(1) if the Company has declared distributions during the prior calendar quarter just ended, in an amount equal to or greater than an average 7% annualized distribution rate (assuming a share was purchased for $10.00), it will pay a fee equal to 0.1875% of its “average invested assets” for that prior calendar quarter;

(2) if the Company has declared distributions during the prior calendar quarter just ended, in an amount equal to or greater than an average 6% annualized distribution rate but less than 7% annualized distribution rate (assuming a share was purchased for $10.00), it will pay a fee equal to 0.1625% of its “average invested assets” for that prior calendar quarter;

(3) if the Company has declared distributions during the prior calendar quarter just ended, in an amount equal to or greater than an average 5% annualized distribution rate but less than 6% annualized distribution rate (assuming a share was purchased for $10.00), it will pay a fee equal to 0.125% of its “average invested assets” for that prior calendar quarter; or

(4) if the Company does not satisfy the criteria in (1), (2) or (3) above in a particular calendar quarter just ended, it will not, except as set forth below, pay a business management fee for that prior calendar quarter.

(5) Assuming that (1), (2) or (3) above is satisfied, the Business Manager may decide, in its sole discretion, to be paid an amount less than the total amount that may be paid. If the Business Manager decides to accept less in any particular quarter, the excess amount that is not paid may, in the Business Manager’s sole discretion, be waived permanently or deferred, without interest, to be paid at a later point in time. This obligation to pay the deferred fee terminates if the Company acquires the Business Manager. For the three months ended March 31, 2014 and 2013, the Business Manager was entitled to a business management fee in the amount equal to $3,446 and $3,664, respectively of which $0 and $164, respectively was permanently waived.

18

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

Separate and distinct from any business management fee, the Company will also reimburse the Business Manager, the Real Estate Managers and their affiliates for certain expenses that they, or any related party including the Sponsor, pay or incur on its behalf including the salaries and benefits of persons employed except that the Company will not reimburse either our Business Manager or Real Estate Managers for any compensation paid to individuals who also serve as the Company’s executive officers, or the executive officers of the Business Manager, the Real Estate Managers or their affiliates; provided that, for these purposes, the secretaries will not be considered “executive officers.” These costs were recorded in general and administrative expenses in the consolidated statements of operations and other comprehensive income.

(g) The Company pays a related party of the Business Manager 0.2% of the principal amount of each loan it places for the Company. Such costs are capitalized as loan fees and amortized over the respective loan term.

(h) The Company reimburses a related party of the Business Manager for costs incurred for construction oversight provided to the Company relating to its development project. These reimbursements are paid monthly during the development period. These costs are capitalized and are included in construction in progress on the consolidated balance sheet.

The Company may pay additional types of compensation to affiliates of the Sponsor in the future, including the Business Manager and the Real Estate Managers and their respective affiliates; however, we did not pay any other types of compensation for the three months ended March 31, 2014 and 2013.

(10) Mortgages, Credit Facility, and Securities Margins Payable

The following table shows the scheduled maturities and required principal payments of the Company’s mortgages payable and Credit Facility including liabilities related to investment properties held for sale as of March 31, 2014, for each of the next five years and thereafter, including the effects of interest rate swaps:

	2014 (remainder of year)			2015			2016			2017			2018			Thereafter			Total
Fixed rate debt:
Mortgages payable (a)	$	408		$	85,950		$	48,058		$	81,076		$	78,222		$	635,345		$	929,059
Total fixed rate debt	408			85,950			48,058			81,076			78,222			635,345			929,059
Variable rate debt:
Mortgages payable (a)	—			50,140			2,232			18,340			5,180			45,000			120,892
Total variable debt	—			50,140			2,232			18,340			5,180			45,000			120,892
Total debt (b)	$	408		$	136,090		$	50,290		$	99,416		$	83,402		$	680,345		$	1,049,951
Mortgages payable related to investment properties held for sale (c)	$	—		$	23		$	254		$	281		$	295		$	117,472		$	118,325
Weighted average interest rate on debt:
Fixed rate debt	5.59		%	5.29		%	4.84		%	4.44		%	5.27		%	4.49		%	4.64		%
Variable rate debt	—			1.90		%	2.65		%	2.63		%	2.51		%	1.55		%	1.92		%
Total	5.59		%	4.04		%	4.74		%	4.11		%	5.10		%	4.30		%	4.33		%
Weighted average interest rate on mortgages payable related to investment properties held for sale (c)	—			5.06		%	5.11		%	5.11		%	5.11		%	4.76		%	4.76		%

(a) Excludes net mortgage premiums of $1,104, associated with debt assumed at acquisition, net of accumulated amortization as of March 31, 2014.

(b) Excludes securities margin payable of $9,403 which is due upon the sale of marketable securities, and currently has an interest rate of 0.50% per annum, as of March 31, 2014.

(c) As part of the Tranche II closings of the Net Lease Properties which closed in April and May 2014, the Company assumptions of mortgage debt with a principal balance of $107,825 and a weighted average interest rate of 4.67% as of March 31, 2014.

The principal amount of our mortgage loans outstanding as of March 31, 2014 and December 31, 2013 (including mortgage debt classified as held for sale) was $1,049,951 and $1,184,256, respectively, and had a weighted average stated interest rate of 4.33% and 4.30% per annum, respectively, which includes effects of interest rate swaps. All of the Company’s mortgage loans are secured by first mortgages on the real estate assets.

19

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

The mortgage loans may require compliance with certain covenants, such as debt service ratios, investment restrictions and distribution limitations. As of March 31, 2014, all of the mortgages were current in payments and the Company was in compliance with such covenants.

On November 1, 2012, the Company entered into an amended and restated credit agreement (as amended the “Credit Facility”), under which the Company may borrow, on an unsecured basis, up to $105,000. The Company has the right, provided that no default has occurred and is continuing, to increase the facility amount up to $200,000 with approval from the lending group. The obligations under the Credit Facility will mature on October 31, 2015, which may be extended to October 31, 2016 subject to satisfaction of certain conditions. The Company has the right to terminate the facility at any time, upon one business day notice and the repayment of all of its obligations thereunder. Borrowings under the Credit Facility bear interest at a base rate applicable to any particular borrowing (e.g., LIBOR) plus a graduated spread that varies with the Company's leverage ratio. The Company generally will be required to make monthly interest-only payments, except that we may be required to make partial principal payments in order to comply with certain debt covenants set forth in the Credit Facility. The Company is also required to pay, on a quarterly basis, an amount up to 0.35% per annum on the average daily unused funds remaining under the Credit Facility. The Credit Facility requires compliance with certain covenants which may restrict the availability of funds under the Credit Facility. Our performance of the obligations under the Credit Facility, including the payment of any outstanding indebtedness thereunder, is secured by a guaranty by certain of our subsidiaries owning unencumbered properties. The amount outstanding on the Credit Facility was $0 and $52,500 as of March 31, 2014 and December 31, 2013, respectively.

The Company has purchased a portion of its marketable securities through margin accounts. As of March 31, 2014 and December 31, 2013, the Company had a payable of $9,403 and $10,341, respectively, for securities purchased on margin. The debt bears a variable interest rate. As of March 31, 2014 and December 31, 2013, the interest rate was 0.50% and 0.51% per annum, respectively. The securities margin payable is due upon the sale of any marketable securities.

Interest Rate Swap Agreements

The Company entered into interest rate swaps to fix the floating LIBOR based debt under certain variable rate loans to a fixed rate to manage the risk exposed to interest rate fluctuations. The Company will generally match the maturity of the underlying variable rate debt with the maturity date on the interest swap.

The following table summarizes the Company's interest rate swap contracts outstanding as of March 31, 2014:

Date Entered		Effective Date	Maturity Date	Pay Fixed Rate		Receive  Floating Rate Index	Notional Amount		Fair Value as of March 31, 2014			Fair Value as of December 31, 2013
March 11, 2011	(1)	April 5, 2011	November 5, 2015	5.01	%	1 month LIBOR	$	9,350	$	—		$	(322	)
June 22, 2011		June 24, 2011	June 22, 2016	4.47	%	1 month LIBOR	13,359		(413		)	(457		)
October 28, 2011		November 1, 2011	October 21, 2016	3.75	%	1 month LIBOR	10,837		(216		)	(240		)
May 9, 2012		May 9, 2012	May 9, 2017	3.38	%	1 month LIBOR	10,150		(52		)	(66		)
June 13, 2012	(2)	June 10, 2011	December 10, 2018	5.17	%	1 month LIBOR	49,391		(3,027		)	(3,041		)
July 24, 2012	(1)	July 26, 2012	July 20, 2017	3.09	%	1 month LIBOR	4,677		—			23
October 1, 2012		April 1, 2014	March 29, 2019	3.85	%	1 month LIBOR	45,000		622			977
October 2, 2012		October 4, 2012	October 1, 2017	3.73	%	1 month LIBOR	24,750		121			132
October 4, 2012	(1)	October 4, 2012	October 3, 2019	3.15	%	1 month LIBOR	10,808		—			402
December 20, 2012		December 20, 2012	December 20, 2017	3.36	%	1 month LIBOR	9,900		76			87
February 14, 2013	(1)	February 14, 2013	December 31, 2022	4.25	%	1 month LIBOR	14,900		—			757
						Total	$	203,122	$	(2,889	)	$	(1,748	)

(1) Interest rate swaps were settled as part of Tranche I Closing of the Net Lease Properties on January 31, 2014.

(2) Assumed at the time of acquisition of Walgreens NE Portfolio with a then fair value of ($5,219). The Company retained this interest rate swap subsequent to the sale of the Walgreens NE Portfolio in the Bulwark Closing of the Net Lease Sale Transaction.

The Company has documented and designated these interest rate swaps as cash flow hedges. Based on the assessment of effectiveness using statistical regression, the Company determined that the interest rate swaps are effective. Effectiveness testing of the hedge relationship and measurement to quantify ineffectiveness is performed each fiscal quarter using the hypothetical derivative method. As these interest rate swaps qualify as cash flow hedges, the Company adjusts the cash flow hedges on a quarterly basis to their fair values with corresponding offsets to accumulated other comprehensive income. The Company does not offset derivative liabilities with derivative assets relating to its cash flow hedges. The Company has recorded an accumulated net unrealized gain of $1,109 and

20

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

$2,125 on the consolidated balance sheet as of March 31, 2014 and December 31, 2013, respectively. The interest rate swaps have been and are expected to remain highly effective for the term of the hedge. Effective amounts are reclassified to interest expense as the related hedged expense is incurred. Any ineffectiveness on the hedges is reported in other income/expense. For the three months ended March 31, 2014 and 2013, the Company had $2 and $4, respectively of ineffectiveness on its cash flow hedges. Amounts related to the swaps expected to be reclassified from accumulated other comprehensive income to interest expense in the next twelve months total $1,832.

The table below presents the fair value of the Company’s cash flow hedges as well as their classification on the consolidated balance sheets as of March 31, 2014 and December 31, 2013.

	March 31, 2014				December 31, 2013
	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Derivatives designated as cash flow hedges:
Interest rate swaps	Other liabilities	$	(3,708	)	Other liabilities	$	(4,127	)
Interest rate swaps	Other assets	819			Other assets	2,379

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations and other comprehensive income for the three months ended March 31, 2014 and 2013:

Derivatives in Cash Flow Hedging Relationships	Amount of Loss Recognized in OCI on Derivative (Effective Portion)				Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income  (Effective Portion)				Location of Loss Recognized in Income on Derivative (Ineffective Portion)	Amount of Loss Recognized in Income on Derivative (Ineffective Portion)
	2014		2013			2014		2013			2014		2013
Interest rate swaps	$	1,325	$	160	Interest Expense	$	309	$	325	Other Expense	$	2	$	4

(11) Redeemable Noncontrolling Interests

Certain of the Company's consolidated joint ventures have issued units to noncontrolling interest holders that are redeemable at the noncontrolling interest holder's option for cash, or for shares of the Company's common stock at the Company's option. If the noncontrolling interest holder seeks redemption of its units for the Company's shares, the joint ventures may redeem the units through issuance of common stock by the Company on a one-for-one basis or through cash settlement at the redemption price. These redeemable noncontrolling interests will become redeemable at future dates generally no earlier than in 2015 and no later than 2022 based on certain redemption criteria. The redeemable noncontrolling interests are not mandatorily redeemable.

The following table summarizes the redeemable noncontrolling interests as of March 31, 2014.

Joint Venture	Number of Redeemable Noncontrolling Interests Units Outstanding (1)	Redeemable Noncontrolling Interests at Issuance		Carrying Value of Redeemable Noncontrolling Interests		Preferred Return per Annum		Notes
Kohl's Cumming	141,602	$	1,416	$	1,416	5.00	%	(2), (3)
City Center	2,656,450	26,565		26,758		4.00	%	(3), (4)
Crossing at Killingly	960,802	9,608		9,809		3.50	%	(3), (5)
Territory Portfolio	3,000,000	30,000		30,000		4.00	%	(6)
Total	6,758,854	$	67,589	$	67,983

(1) Redeemable noncontrolling interest units had a fair value of $10.00 each at the time of issuance.

(2) As part of the Tranche II(a) closing of the Net Lease Properties on April 1, 2014, the Company's ownership interest in the Kohl's Cumming joint venture, a consolidated subsidiary, was sold and the redeemable noncontrolling interests were derecognized.

(3) If the unit holder elects shares and the joint venture pays the redemption price in cash, the redemption value will be greater of (i) $10.00 per unit, plus any accumulated, accrued and unpaid distributions to and including the date of redemption or (ii) the Company's share price per share.

(4) Preferred return started on June 7, 2013, upon fulfillment of the deferred investment property acquisition obligations.

(5) Preferred return will increase to 5.50% per annum on October 3, 2015. The joint venture may issue up to an additional 298,121 redeemable noncontrolling interest units to settle its earnout liability included in the Company's investment property acquisition obligation on the consolidated balance sheet (see note 16).

(6) If the unit holder elects shares and the joint venture pays the redemption price in cash, the redemption value will be $10.00 per unit plus 50% of the excess of the Company's share price per share over $10.00 per unit.

21

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

Below is a table reflecting the activity of the consolidated redeemable noncontrolling interests as of and for the three months ended March 31, 2014 and 2013.

	Redeemable Noncontrolling Interests
	Three Months Ended March 31,
	2014			2013
Balance at beginning of period	$	67,950		$	47,215
Net income attributable to redeemable noncontrolling interests	697			501
Payment of preferred return	(664		)	(417		)
Balance at close of period	$	67,983		$	47,299

(12) Accumulated Other Comprehensive Income (Loss)

The following table indicates the changes and reclassifications affecting accumulated other comprehensive income (loss) by component for the three months ended March 31, 2014 and 2013.

	Gain (Loss) on Cash Flow Hedges							Unrealized Gains and (Losses) on Available-for-sale Securities							Total
	2014			2013				2014			2013				2014		2013
Accumulated other comprehensive income (loss) - January 1	$	2,125		$	(3,282	)		$	578		$	2,999			$	2,703	$	(283	)
Activity for current-period:
Other comprehensive (loss) income before reclassifications	(1,325		)	(160		)		1,845			2,731				520		2,571
Amounts reclassified from other comprehensive income (loss) into income	309			325			(1)	(24		)	(26		)	(2)	285		299
Net current-period other comprehensive (loss) income	(1,016		)	165				1,821			2,705				805		2,870
Accumulated other comprehensive income (loss) - March 31	$	1,109		$	(3,117	)		$	2,399		$	5,704			$	3,508	$	2,587

(1) Included in interest expense on the consolidated statements of operations and other comprehensive income.

(2) Included in realized gain on sale of marketable securities on the consolidated statements of operations and other comprehensive income.

(13) Income Taxes

The Company had no uncertain tax positions as of March 31, 2014 and December 31, 2013. The Company expects no significant increases or decreases in uncertain tax positions due to changes in tax positions within one year of March 31, 2014. The Company has no interest or penalties relating to income taxes recognized in the consolidated statements of operations and other comprehensive income for the three months ended March 31, 2014 and 2013. As of March 31, 2014, returns for the calendar years 2010, 2011, 2012 and 2013 remain subject to examination by the U.S. tax jurisdiction and various state and local tax returns remain subject to examination for the years 2009, 2010, 2011, 2012 and 2013 by the state and local tax jurisdictions.

(14) Distributions

The Company has paid distributions based on daily record dates, payable monthly in arrears. The distributions that the Company has paid are equal to a daily amount equal to $0.00164384, which if paid each day for a 365-day period, would equal $0.60 per share or a 6.0% annualized rate based on a purchase price of $10.00 per share. During for the three months ended March 31, 2014 and 2013, the Company declared cash distributions, totaling $17,429 and $17,071, respectively.

(15) Earnings (Loss) per Share

Basic earnings (loss) per share (“EPS”) are computed by dividing net (loss) income attributable to common stockholders by the weighted average number of common shares outstanding for the period (the “common shares”). Diluted EPS is computed by dividing net (loss) income attributable to common stockholders by the weighted average number of common shares outstanding plus potential common shares issuable upon exercising options or other contracts. As of March 31, 2014 and 2013, the Company's only potentially dilutive common share equivalents outstanding were the redeemable noncontrolling interests that could be converted to 6,758,854 and 4,711,553 common shares, respectively, at future dates. As of March 31, 2014, our consolidated joint venture may issue up to an additional 298,121 redeemable noncontrolling interest units to settle its earnout liability included in the Company's investment property acquisition obligation on the consolidated balance sheet (see note 16). For the three months ended March 31, 2014, the common share equivalents were excluded as they were antidilutive.

22

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014 (unaudited)

(Dollar amounts in thousands, except per share data)

(16) Commitments and Contingencies

Twelve of the Company’s properties have earnout components related to property acquisitions. The maximum potential earnout payment was $24,018 at March 31, 2014. The table below presents the change in the Company’s earnout liability for the three months ended March 31, 2014 and 2013.

	For the Three Months Ended March 31,
	2014			2013
Earnout liability – beginning of period, fair value	$	29,203		$	70,580
Increases:
Amortization expense	75			1,203
Decreases:
Payments to settle earnouts	(4,441		)	(3,865		)
Partial repayment of note receivable in settlement of earnout	(4,056		)	—
Other:
Fair value adjustment of earnout liability	(298		)	(188		)
Earnout liability – end of period, fair value	$	20,483		$	67,730

The Company has provided a partial guarantee on certain financial obligations of our subsidiaries with an outstanding principal balance of $263,386. As of March 31, 2014, these guarantees totaled to an aggregate recourse amount of $91,002.

As of March 31, 2014, our consolidated joint ventures had $67,983 in redeemable noncontrolling interests that will become redeemable at future dates generally no earlier than in 2015 and no later than 2022 based on certain redemption criteria. The Kohl's Cumming redeemable noncontrolling interest units were settled as part of Tranche II(a) closing of the Net Lease Properties on April 1, 2014. The redeemable noncontrolling interests are not mandatorily redeemable. At the noncontrolling interest holders’ option, the Company may be required to pay cash, but if the noncontrolling interest holder elects to redeem its interest for the Company’s stock, the Company at its option, may pay cash, issue common stock, or a mixture of both. See additional information relating to these redeemable noncontrolling interests in note 11.

The Company may be subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material adverse effect on the consolidated financial statements of the Company.

(17) Segment Reporting

The Company has one reportable segment as defined by U.S. GAAP for the three months ended March 31, 2014 and 2013.

(18) Subsequent Events

The Company has evaluated events and transactions that have occurred subsequent to March 31, 2014 for potential recognition and disclosure in these consolidated financial statements.

The Company's board of directors declared distributions payable to stockholders of record each day beginning on the close of business on April 1, 2014 through the close of business on May 31, 2014. Distributions were declared in a daily amount equal to $0.00164384 per share, which if paid each day for a 365-year period, would equate to $0.60 or a 6.0% annualized rate based on a purchase price of $10.00 per share. Distributions were and will continue to be paid monthly in arrears, as follows:

• In April 2014, total distributions declared for the month of March 2014 were paid cash in the amount equal to $6,003.

• In May 2014, total distributions declared for the month of April 2014 were paid cash in the amount equal to $5,810.

On April 1, 2014, the Company completed the Tranche II(a) closing, resulting in the sale to Realty Income of a total of 13 of the Net Lease Properties for an aggregate cash purchase price of approximately $93,605. See note 1 to these consolidated financial statements.

On April 25, 2014, the Company acquired a fee simple interest in a 252,370 square foot retail property known as Hitchcock Plaza located in Aiken, South Carolina. The Company purchased this property from an unaffiliated third party for $28,919. Hitchcock Plaza is the second property to be acquired to satisfy the Company's Merger closing conditions related to the completion of certain Net Lease Sale Transactions for the purpose of Section 1031 of the Internal Revenue Code.

On April 30, 2014, the Company completed the Tranche II(b) closing, resulting in the sale to Realty Income of a total of 12 of the Net Lease Properties for an aggregate cash purchase price of approximately $63,434. See note 1 to these consolidated financial statements.

On May 9, 2014, the Company completed the Tranche II(c) closing, resulting in the sale to Realty Income of a total of three of the Net Lease Properties for an aggregate cash purchase price of approximately $44,422. See note 1 to these consolidated financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Words such as “may,” “could,” “should,” “expect,” “intend,” “plan,” “goal,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “variables,” “potential,” “continue,” “expand,” “maintain,” “create,” “strategies,” “likely,” “will,” “would” and variations of these terms and similar expressions, or the negative of these terms or similar expressions, are intended to identify forward-looking statements.

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of the management of Inland Diversified Real Estate Trust, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission on March 13, 2014, and the factors described below:

• our investment policies and strategies are very broad and permit us to invest in numerous types of commercial real estate;

• if we cannot generate sufficient cash flow from operations to fully fund distributions, some or all of our distributions may be paid from other sources, including cash flow generated by investing activities, which will reduce the amount of money available to invest in assets;

• no established public trading market currently exists, and one may never exist, for our shares, and we are not required to liquidate;

• we may borrow up to 300% of our net assets, and principal and interest payments will reduce the funds available for distribution;

• we do not have employees and rely on our Business Manager and Real Estate Managers to manage our business and assets;

• employees of our Business Manager and three of our directors are also employed by our Sponsor or its affiliates and face competing demands for their time and service and may have conflicts in allocating their time to our business and assets;

• we do not have arm’s length agreements with our Business Manager, Real Estate Managers or any other affiliates of our Sponsor;

• we may pay significant fees to our Business Manager, Real Estate Managers and other affiliates of our Sponsor;

• our Business Manager could recommend investments in an attempt to increase its fees which are generally based on a percentage of our invested assets and, in certain cases, the purchase price for the assets;

• in connection with the pending Merger, some of our tenants or vendors may delay or defer decisions, which could negatively impact our revenues, earnings, cash flows and expenses regardless of whether the Merger is completed;

• the Merger may not be consummated on the terms described in the Merger Agreement or at all, which could adversely affect our ongoing business and expose us to a number of risks, including but not limited to significant transaction costs incurred by us related to the Merger and potential termination fee payable by us to Kite in certain circumstances; and

• we may fail to continue to qualify as a REIT.

Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report, and may ultimately prove to be incorrect or false. Except as may be required by applicable law, 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. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.

The following discussion and analysis relates to the three months ended March 31, 2014 and 2013 and as of March 31, 2014 and December 31, 2013. You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes included in this Quarterly Report. Unless otherwise noted, all dollar amounts are stated in thousands, except share data, per share amounts, rent per square foot, and rent per unit.

Overview

We are a Maryland corporation sponsored by Inland Real Estate Investment Corporation (“IREIC” or the “Sponsor”), formed to acquire and develop commercial real estate located in the United States and Canada. We also may invest in other real estate assets such as interests in real estate investment trusts, or REITs, or other “real estate operating companies” that own these assets, joint

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ventures and commercial mortgage debt. We may originate or invest in real estate-related loans made to third parties. Our primary investment objectives are to balance investing in real estate assets that produce attractive current yield and long-term risk-adjusted returns to our stockholders, with our desire to preserve stockholders’ capital and to pay sustainable and predictable distributions to our stockholders. We elected to be taxed as a REIT commencing with the tax year ended December 31, 2009 and intend to continue to qualify as a REIT for federal income tax purposes.

On August 24, 2009, we commenced our initial public offering of up to 500,000,000 shares of our common stock to the public at a price of $10.00 per share on a “best efforts” basis and up to 50,000,000 shares of our common stock at a price of $9.50 per share to our stockholders pursuant to our distribution reinvestment plan, or “DRP.” The dealer manager of our public offering was Inland Securities Corporation, a wholly owned subsidiary of our Sponsor. The “best efforts” portion of the offering was completed on August 23, 2012. As of the termination of our best efforts public offering on August 23, 2012, we sold a total of 110,485,936 shares, generating $1,099,311 in aggregate gross offering proceeds. Following the termination of the best efforts portion of the offering, we filed another registration statement to permit us to continue offering and selling shares of common stock to stockholders who choose to participate in the DRP. On November 13, 2013, our board of directors voted to suspend the DRP, effective immediately. In our initial public offering we sold 119,839,478 shares, including 9,353,542 shares pursuant to the DRP, generating $1,188,170 in aggregate gross offering proceeds.

At March 31, 2014, we owned 83 retail properties, three office properties, and one industrial property collectively totaling 11.5 million square feet, including 24 multi-family units, and two multi-family properties totaling 420 units. As of March 31, 2014, our combined portfolio had weighted average physical and economic occupancy of 95.6% and 96.7%, respectively. Economic occupancy excludes square footage associated with an earnout component. At the time of acquisition, certain properties have an earnout component to the purchase price, meaning we did not pay a portion of the purchase price at closing related to certain vacant spaces, although we own the entire property. We are not obligated to settle this contingent purchase price obligation unless the seller obtains leases for the vacant space within the time limits and parameters set forth in the applicable acquisition agreement.

As of March 31, 2014 and 2013, annualized base rent per square foot averaged $13.54 and $13.55, respectively, for all properties other than the multi-family properties and $12,525 and $12,495 per unit, respectively, for the multi-family properties. Annualized base rent is calculated by annualizing the current, in-place monthly base rent for leases, including any tenant concessions, such as rent abatement or allowances, which may have been granted.

Net Lease Sale Transactions

On December 16, 2013, we, Inland Diversified Cumming Market Place, L.L.C., a Delaware limited liability company and our subsidiary, and Bulwark, entered into the Purchase and Sale Agreements with Realty Income. The Purchase and Sale Agreements collectively provide for the sale of the Net Lease Properties to Realty Income in a series of transactions which we refer to collectively as the “Net Lease Sale Transactions.”

The Purchase and Sale Agreement by and among us, Bulwark and Realty Income provides for the sale by Bulwark to Realty Income of 100% of the limited liability company membership interests in certain Delaware limited liability companies owned by Bulwark which own the Bulwark Properties. On March 31, 2014, we closed the sale of the Bulwark Properties to Realty Income for an aggregate cash purchase price of approximately $72,304, resulting in net proceeds to us from the sale of $22,172.

The Net-Lease Purchase Agreement provides for (1) the sale by us to Realty Income of 100% of the limited liability company membership interests in certain Delaware limited liability companies which own, directly or indirectly, the Net-Lease Properties, and (2) the sale by Market Place to Realty Income of fee simple title to the Market Place Property. The Net-Lease Purchase Agreement provides that the Net Lease Properties and the Market Place Property will be sold to Realty Income in two separate tranches. The closing of Tranche I of Net-Lease Properties pursuant to the Net-Lease Purchase Agreement occurred on January 31, 2014, resulting in the sale by us to Realty Income of 46 of the Net-Lease Properties for an aggregate cash purchase price of approximately $201,995 and net proceeds to us from the sale of $126,312. The sale of Tranche II of Net-Lease Properties pursuant to the Net-Lease Purchase Agreement will be completed at four separate closings. The first closing of the sale of the Tranche II properties occurred on April 1, 2014, resulting in the sale by us to Realty Income of 12 of the Net-Lease Properties and the Market Place Property for an aggregate cash purchase price of approximately $93,605 million and net proceeds to us from the sale of $41,773. The second closing of the sale of the Tranche II properties occurred on April 30, 2014, resulting in the sale by us to Realty Income of 12 of the Net-Lease Properties for an aggregate cash purchase price of approximately $63,434 and net proceeds to us from the sale of $30,534 after repayment or assumptions of mortgages payable. The third closing of the sale of the Tranche II properties occurred on May 9, 2014, resulting in the sale by us to Realty Income of three of the Net-Lease Properties for an aggregate cash purchase price of approximately $44,422 and net proceeds to us from the sale of $14,140 after repayment or assumptions of mortgages payable. The fourth closing of the sale of the Tranche II properties, at which the final Net-Lease Property will be sold to Realty Income, will occur by June 15, 2014, subject to the satisfaction of all closing conditions.

Following the Net Lease Sale Transactions, as described above, our portfolio consisted of 59 retail properties collectively totaling 10.6 million square feet, including 24 multi-family units, and two multi-family properties totaling 420 units, which does not include one property, which is under contract to sell under the Net Lease Sale Transactions.

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Proposed Merger

On February 9, 2014, we entered into the Merger Agreement with Kite and Merger Sub. The Merger Agreement provides for, upon the terms and conditions of the Merger Agreement, the merger of the Company with and into Merger Sub, with Merger Sub surviving the Merger as a direct wholly owned subsidiary of Kite. Pursuant to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each outstanding share of our common stock will be converted into the right to receive Kite Common Shares, based on:

• an exchange ratio of 1.707 Kite Common Shares for each share of our common stock if the volume-weighted average trading price of Kite Common Shares for the ten consecutive trading days ending on the third trading day preceding the meeting of our stockholders to approve the Merger (the “Reference Price”) is equal to or less than $6.36;

• a floating exchange ratio if the Reference Price is more than $6.36 or less than $6.58 (with such floating exchange ratio being determined by dividing $10.85 by the Reference Price); and

• an exchange ratio of 1.650 Kite Common Shares for each share of our common stock if the Reference Price is $6.58 or greater.

Pursuant to the Merger Agreement, upon the effective time of the Merger, the board of trustees of Kite will consist of nine members, six of whom will be current trustees of Kite and three of whom will be designated by us.

The completion of the Merger is subject to a number of closing conditions, including, among others: (i) approval of the Merger by Kite’s stockholders and our stockholders, including the approval of Kite’s stockholders of an amendment to Kite’s declaration of trust to increase the number of Kite Common Shares that Kite is authorized to issue; (ii) the absence of a material adverse effect on either us or Kite; (iii) the receipt of tax opinions relating to the REIT status of Kite and the Company and the tax-free nature of the transaction; (iv) the completion of the Net Lease Sale Transactions; and (v) the completion of the redeployment of certain proceeds from the Net Lease Sale Transactions to acquire replacement properties for purposes of Section 1031 of the Internal Revenue Code. As a result of the closing conditions to which the Merger is subject, there are no assurances that the proposed Merger will be consummated on the expected timetable, or at all. If the closing conditions are satisfied, it is anticipated that the Merger may close during the second or third quarter of 2014.

The Merger Agreement may be terminated under certain circumstances, including by either us or Kite if the Merger has not been consummated on or before the outside date of August 31, 2014, subject to extension under certain circumstances. The Merger Agreement provides that, in connection with the termination of the Merger Agreement under specified circumstances, we may be required to pay to Kite a termination fee of $43,000 and/or reimburse Kite’s transaction expenses up to an amount equal to $8,000. Where termination is in connection with a failure to close the Net Lease Sale Transactions, we may be required to (i) reimburse Kite for its transaction expenses up to an amount equal to $8,000 and (ii) pay Kite a termination fee of $3,000. The Merger Agreement also provides that, under specified circumstances, Kite may be required to pay us a termination fee of $30,000 and/or reimburse our transaction expenses up to an amount equal to $8,000. Under certain circumstances, including upon payment of the applicable termination fee, either party is permitted to terminate the Merger Agreement to enter into a definitive agreement with a third party with respect to a superior acquisition proposal.

In connection with the execution of Merger Agreement, we entered into the Master Agreement with the Business Manager, the Real Estate Managers, and certain other affiliates of the Business Manager. The Master Agreement sets forth the terms of the consideration due to the Business Manager and the Real Estate Managers in connection with the Merger, provides for the automatic termination upon the closing of the Merger of our agreements with the Business Manager and the Real Estate Managers and certain other agreements between us and affiliates of the Business Manager and includes certain other agreements in order to facilitate the Merger. See Part III, Item 13 of our Annual Report on Form 10-K for the year ended December 31, 2013, “Certain Relationships and Related Transactions, and Director Independence,” for additional information.

Market Outlook

One aspect of our daily lives that has consistently been the subject of ubiquitous news coverage for the past several years is the state of the economy. The recession hit its low point in mid-2009 and since then the economy has gradually improved. The period of time that has elapsed since then has seen one of the longest economic recoveries in United States history and one of the least potent. Growth in the number and quality of jobs as well as the overall retail sector of the economy has underperformed when compared to any other period of growth in modern history.

Fundamentally, economic growth has been the result of government stimulus and businesses adapting to the recession and continuing many of the same practices into the recovery. For example, tight control over spending, retention of cash and an increase in productivity were at the center of strategic planning for most businesses. As the economy has improved, businesses have achieved significant success through continuing the same defensive practices. Most business leaders do not have enough confidence in the private sector to sustain the recovery or bring it to a higher level. Accordingly, job growth and investment activity have not kept pace with corporate profitability.

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Consumer spending is impacted by such things as optimism regarding the economy, the overall level of employment and pent up demand. We have seen these factors counter balance each other, so that the recovery has not benefitted from a sustained increase in the retail sector. We believe that until businesses consistently create new, higher quality jobs, this trend will likely continue.

Despite the lackluster performance of the economy in general, our industry as well as our company are in a somewhat enviable position. The recession caused long term corrections which, while initially disruptive, have resulted in stronger fundamentals. The breakneck pace of new development and retailer expansion of the 2003-2006 period has slowed dramatically. As a result, after dipping precipitously, occupancy rates in existing centers are up and rental rates have firmed and even increased slightly in the last year. At the same time, many alternative investment opportunities have underperformed or proven to be too volatile for some investors. Accordingly in the past several years, significant capital has been attracted to real estate investment, recognizing these circumstances.

Liquidity and Capital Resources

General

Our principal demands for funds are to acquire real estate and real estate-related assets, to pay capital expenditures including tenant improvements, to pay our operating expenses including property operating expenses, to pay principal and interest on our outstanding indebtedness, and to pay distributions to our stockholders. We seek to fund our cash needs for items other than asset acquisitions, capital expenditures and related financings from operations. Our cash needs for acquisitions (including any contingent earnout payments), capital improvements and related financings have been funded primarily from the sale of our shares, including through our DRP, as well as debt financings. For the three months ended March 31, 2014 and 2013, $0 and $10,294, respectively, have been provided by the DRP which have been used to fund redemptions and other capital needs. On November 13, 2013, our board of directors voted to suspend the DRP, effective immediately, and the SRP, effective December 13, 2013. We do not believe that the suspension of the DRP will have a material impact on our ability to fund capital needs. Our primary source to fund our future cash needs, including cash to fund earnout payments, are expected to come from our undistributed cash flow from operations as well as secured or unsecured financings, including proceeds from lines of credit. The maximum total earnout payments which are expected to be paid in cash, issuance of redeemable noncontrolling interests by our consolidated joint ventures or from proceeds from mortgages payable during the next two years related to our acquisitions was $24,018 at March 31, 2014 and will not materially affect our liquidity. During the three months ended March 31, 2014, we paid $2,520 related to construction in progress, capital expenditures and tenant improvements. We anticipate capital expenditures including tenant improvements to further increase in future years relating to signing new leases as our tenant's leases expire and as our properties age. These costs may be material.

As of March 31, 2014, no amounts were outstanding on our line of credit under which we may borrow, on an unsecured basis, up to $105,000. Our general strategy is to target borrowing 55% of the total value of our assets on a portfolio basis. As of March 31, 2014, our borrowings did not exceed our target of 55% of the total value of our assets. For these purposes, the value of each asset is equal to the purchase price paid for the asset or the value reported in the most recent appraisal of the asset, whichever is the later to occur. Our charter limits the amount we may borrow to 300% of our net assets (as defined in our charter) unless any excess borrowing is approved by the board of directors including a majority of the independent directors and is disclosed to our stockholders in our next quarterly report along with justification for the excess. As of March 31, 2014, our borrowings did not exceed 300% of our net assets and we had a principal balance outstanding on mortgage loans of $1,049,951 with a weighted average stated interest rate including interest rate swaps of 4.33% per annum. As of March 31, 2014, we had $130,295, or 12.3% of our total outstanding debt, that bore interest at variable rates, at a weighted average interest rate equal to 2.18% per annum, including the effect of interest rate swaps. This variable rate debt will begin to mature in 2015. As of March 31, 2014, we had $929,059, or 80.7% of our total outstanding debt, that bore interest at fixed rates at a weighted average interest rate equal to 4.60% per annum. As of March 31, 2014, we had $408 of fixed rate debt maturing by the end of 2014 with a weighted average interest rate equal to 5.59%. See “Quantitative and Qualitative Disclosures About Market Risk” below.

As of March 31, 2014, our consolidated joint ventures had issued $67,983 in noncontrolling interests that will become redeemable at future dates, generally no earlier than in 2015 and no later than 2022, based on certain redemption criteria. The redeemable noncontrolling interests are not mandatorily redeemable. At the noncontrolling interest holders’ option, we may be required to pay cash, but if the noncontrolling interest holder elects to redeem its interest for shares of our stock, we have the option to pay cash, issue common stock, or a mixture of both.

As of March 31, 2014, we had invested $35,604 in marketable securities, primarily in real estate-related equity securities issued by publicly traded companies and publicly traded corporate bonds, and had borrowed $9,403 on margin.

As of March 31, 2014 and December 31, 2013, we owed $1,759 and $2,074, respectively, to our Sponsor and its affiliates for business management fees not otherwise waived, advances from these parties used to pay administrative costs and certain accrued expenses which are included in due to related parties on the consolidated balance sheets. These amounts represent non-interest bearing advances by the Sponsor and its affiliates, which we have subsequently repaid.

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As of March 31, 2014, we had received net proceeds from the Net Lease Sale Transactions totaling approximately $148,484, after repayment or assumptions of mortgages payable, of which $22,172 was included in restricted cash. Some proceeds were used to repay mortgage debt of $6,749 and $52,500 on our credit facility.

Distributions

Some of the net proceeds from the Net Lease Sale Transactions were used to pay down the line of credit and mortgage debt secured by the remaining properties held by us and will not be distributed to stockholders as stated in the Merger Agreement. We generated sufficient cash flow from operations, determined in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), to fully fund distributions paid during the three months ended March 31, 2014.

We intend to fund cash distributions to our stockholders from cash generated by our operations. Cash generated by operations is not equivalent to our net income from continuing operations as determined under U.S. GAAP or our taxable income for federal income tax purposes. If we are unable to generate sufficient cash flow from operations, determined in accordance with U.S. GAAP, to fully fund distributions, some or all of our distributions may be paid from cash flow generated from investing activities, including the net proceeds from the sale of our assets. In addition, we may fund distributions from, among other things, advances or contributions from our Business Manager or IREIC or from the cash retained by us in the case that our Business Manager defers or waives all, or a portion, of its business management fee, or waives its right to be reimbursed for certain expenses. As noted above a deferral or waiverof any fee or reimbursement owed to our Business Manager has the effect of increasing cash flow from operations for the relevant period because we do not have to use cash to pay any fee or reimbursement which was deferred or waived during the relevant period. We will, however, use cash in the future if we pay any fee or reimbursement that was deferred. Neither our Business Manager nor IREIC has any obligation to provide us with advances or contributions, and our Business Manager is not obligated to defer or waive any portion of its business management fee or reimbursements. Further, there is no assurance that these other sources will be available to fund distributions.

We have not funded any distributions from the net proceeds from the sale of our shares but may need to if the Merger Agreement is delayed or does not close. In addition, we have not funded any distributions from the proceeds generated by borrowings, and do not intend to do so.

We intend to continue paying distributions for future periods in the amounts and at times as determined by our board of directors.

During the three months ended March 31, 2014 and 2013, we paid distributions in the amount of $17,435, and $17,008 respectively. These distributions were funded from cash flows from operations determined in accordance with U.S. GAAP.

One of our objectives is to provide cash distributions to our stockholders from cash generated by our operations determined under U.S. GAAP. Cash generated from operations is not equivalent to our net income from continuing operations as determined under U.S. GAAP.

A summary of the distributions declared, distributions paid and cash flows provided by operations for the three months ended March 31, 2014 and 2013 follows:

Distributions Paid
Three Months Ended March 31,	Distributions Declared		Distributions Declared Per Share (1)		Cash		Reinvested via DRP (2)		Total		Cash Flows From Operations		Funds From Operations (3)		Notes
2014	$	17,429	$	0.15	$	17,435	$	—	$	17,435	$	18,969	$	17,083	(4)
2013	$	17,071	$	0.15	$	6,714	$	10,294	$	17,008	$	20,264	$	23,558

(1) Assumes a share was issued and outstanding each day during the period.

(2) On November 13, 2013, our board of directors voted to suspend the DRP until further notice, effective immediately.

(3) Funds from operations is defined in the following section.

(4) Excluding liquidity event costs of $2,841, our funds from operations would have been higher.

Share Repurchase Program

We have a share repurchase program, or SRP, that provided limited liquidity to eligible stockholders. On November 13, 2013, our board of directors voted to suspend the SRP until further notice, effective December 13, 2013. Written notice of the suspension was provided to each stockholder pursuant to the terms of the SRP. During the three months ended March 31, 2014, no shares of our stock have been repurchased pursuant to the SRP.

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Cash Flow Analysis

	For the Three Months Ended March 31,
	2014			2013
Net cash flows provided by operating activities	$	18,969		$	20,264
Net cash flows provided by (used in) investing activities	$	172,589		$	(6,980	)
Net cash flows (used in) provided by financing activities	$	(160,671	)	$	1,303

Net cash provided by operating activities was $18,969 and $20,264 for the three months ended March 31, 2014 and 2013, respectively. The funds generated in 2014 and 2013 were primarily from property operations from our real estate portfolio. The decrease from 2013 to 2014 is due to a decrease in our investment properties related to the sale of our Net Lease Properties.

Net cash flows provided by (used in) investing activities was $172,589, and $(6,980) for the three months ended March 31, 2014 and 2013, respectively. We had $202,161 provided by the Net Lease Sale Transactions during the three months ended March 31, 2014. We used $23,371 and $5,378 during the three months ended March 31, 2014 and 2013, respectively, to purchase properties.

Net cash flows (used in) provided by financing activities was $(160,671) and $1,303 for the three months ended March 31, 2014 and 2013, respectively. Of these amounts, we used $88,436 of cash flows used by financing activities to repay loans secured by properties in our portfolio during the three months ended March 31, 2014. During the three months ended March 31, 2013, we received $11,577 from net loan proceeds from borrowings secured by properties in our portfolio. We used $17,435 and $17,008 during the three months ended March 31, 2014 and 2013, respectively, to pay distributions to our stockholders. During the year ended March 31, 2014 and 2013, we used $53,438 and $1,193, respectively to pay down our credit facility and securities margin payable. We received $10,294, from the sale of our common stock through our DRP during the three months ended March 31, 2013. Our DRP was suspended during the three months ended March 31, 2014.

Results of Operations

The following discussions are based on our consolidated financial statements for the three months ended March 31, 2014 and 2013.

We generate almost all of our net operating income from property operations. In order to evaluate our overall portfolio, management analyzes the net operating income of properties that we have owned and operated for both periods presented, in their entirety, referred to herein as “same store” properties. By evaluating the property net operating income of our “same store” properties, management isable to monitor the operations of our existing properties for comparable periods to measure the performance of our current portfolio and determine the effects of our new acquisitions on net income. Property net operating income, a non-U.S. GAAP measure, is also meaningful as an indicator of the effectiveness of our management of properties because property net operating income excludes certain items that are not reflective of the effectiveness of our management, such as depreciation and amortization and interest expense.

Comparison of the three months ended March 31, 2014 and 2013

A total of 58 of our investment properties are considered “same store” properties during the three months ended March 31, 2014 and 2013. These “same store” properties are properties classified as held and used that were acquired on or before January 1, 2013. Our “Other investment properties,” as reflected in the table below, include properties classified as held and used that were acquired after January 1, 2013. For the three months ended March 31, 2014 and 2013, 2 and 0 properties were included in “other investment properties,” respectively. The following table presents the property net operating income (reconciled to U.S. GAAP net income) broken out between “same store” and “other investment properties,” prior to straight-line rental income, amortization of lease intangibles, interest, depreciation, amortization and bad debt expense for the three months ended March 31, 2014 and 2013 along with a reconciliation to net income attributable to common stockholders, calculated in accordance with U.S. GAAP.

We had 84 Net Lease Properties sold or held for sale as of March 31, 2014, pursuant to the Purchase and Sale Agreements with Realty Income. These properties are excluded from the “same store” and “other investment properties,” and are included in income from discontinued operations.

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	Three Months Ended March 31,
	2014			2013
Property operating revenue:
“Same store” investment properties, 58 properties:
Rental income	$	35,448		$	34,242
Tenant recovery income	9,212			8,723
Other property income	972			3,311
Other investment properties:
Rental income	306			—
Tenant recovery income	5			—
Other property income	(9		)	—
Total property income	45,934			46,276
Property operating expenses:
“Same store” investment properties, 58 properties:
Property operating expenses	8,364			8,114
Real estate taxes	5,533			5,102
Other investment properties:
Property operating expenses	20			—
Real estate taxes	—			—
Total property operating expenses	13,917			13,216
Property net operating income:
“Same store” investment properties, 58 properties	31,735			33,060
Other investment properties	282			—
Total property net operating income	32,017			33,060
Other income:
Tenant recovery income related to prior periods	(83		)	68
Straight-line rents	840			1,088
Amortization of lease intangibles	(398		)	(733		)
Fair value adjustment of earnout liability	298			188
Interest, dividend and other income	711			819
Realized gain on sale of marketable securities	24			26
Equity in loss of unconsolidated entities	70			155
Total other income	1,462			1,611
Other expenses:
Bad debt expense	685			619
Depreciation and amortization	17,851			19,451
General and administrative expenses	1,950			1,804
Acquisition related costs	91			218
Liquidity event costs	2,841			—
Interest expense	10,578			10,240
Business management fee	3,446			3,500
Total other expenses	37,442			35,832
Loss from continuing operations	(3,963		)	(1,161		)
Income from discontinued operations	30,808			1,867
Net income	26,845			706
Net income attributable to noncontrolling interests	(697		)	(501		)
Net income attributable to common stockholders	$	26,148		$	205

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On a “same store” basis, comparing the results of operations of the investment properties owned during the three months ended March 31, 2014 with the results of the same investment properties during the three months ended March 31, 2013, property net operating income decreased $1,325, with total property income decreasing $644 and total property operating expenses, which includes real estate tax, increasing $681 for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013. These variances are explained by each component below.

Rental income increased $1,206 on a “same store” basis for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013, primarily due to the new tenants taking occupancy related to our earnout closings, increases in contractual rent for existing tenants as well as new tenants taking occupancy of previously vacant spaces. As of March 31, 2014 and 2013, our “same store” weighted average physical occupancy increased to 95.2% from 94.2%, respectively. On an aggregate portfolio basis, rental income increased $1,512, for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013, reflecting an increase in rental income from our other investment properties. The increase is a result of the 2 investment properties acquired after January 1, 2013.

Tenant recovery income increased $489 on a “same store” basis for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013, primarily due to increases in the recoverable property operating expenses and real estate taxes which resulted in us recognizing more recovery income. On an aggregate portfolio basis, tenant recovery income increased $494 for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013, reflecting an increase in tenant recovery income from other investment properties. The increase is a result of the 2 investment properties acquired after January 1, 2013.

Other property income decreased $2,339 on a “same store” basis for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013, primarily due to a decrease in termination fee income. On an aggregate portfolio basis, other property income decreased $2,348 for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013. The decrease is a result of the termination fee income of $2,205 received in the three months ended March 31, 2013.

Property operating expenses increased $250 on a “same store” basis for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013, primarily due to an increase in snow removal costs during the three months ended March 31, 2014. On an aggregate portfolio basis, total property operating expenses increased $270 for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013. The increase is a result of the 2 investment properties acquired after January 1, 2013.

Real estate tax expense increased $431 on a “same store” basis for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013. The increase can be attributed to increases in assessed values of our investment properties by the various taxing authorities.

Total other income decreased $149 for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 primarily due to a decrease in straight line rent, adjustments to tenant recovery income resulting from differences in estimated expense recoveries billed and actual expenses, along with a decrease in interest and dividend income and equity in income of unconsolidated entities. This decrease was offset by an increase related to fair value adjustments of our earnout liability and a decrease in amortization of lease intangibles.

Bad debt expense increased $66 for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013. The increase is primarily due to increased estimated tenant reserves for uncollectible accounts and write offs due to tenant failures, which were insignificant. We periodically review the collectability of outstanding receivables. Allowances are taken for those balances that we have reason to believe may be uncollectible, including any amounts relating to straight-line rent receivables. Amounts deemed to be uncollectible are written off.

Depreciation and amortization decreased $1,600 for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013. The decrease is primarily due to a reduction in earnout accretion expense and a decrease in write offs of certain acquired in-place lease intangibles, for tenants that terminated their lease before expiration.

General and administrative expenses increased $146 for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013. This increase is due to increases in professional fees.

Acquisition costs decreased $127 for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 primarily due to a decrease in the number of potential and actual acquisitions we pursued during the three months ended March 31, 2014 compared to the three months ended March 31, 2013.

Liquidity event costs increased by $2,841 for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013. This increase was due to the cost related to evaluating and completing certain liquidity options, which culminated in the Purchase and Sale Agreement signed on December 16, 2013, the Merger Agreement signed on February 9, 2014 and subsequent costs.

Interest expense increased $338 for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013. The increase in interest expense is primarily due to the settlement of interest rate swaps related to the Net Lease Sale Transactions.

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Business management fee was $3,446 and $3,500 for the three months ended March 31, 2014 and 2013, respectively. The Business Manager could have been paid a business management fee in the amount equal to $3,664 for the three months ended March 31, 2013, however the Business Manager permanently waived $164, respectively of potential fees it may have earned.

Income from discontinued operations increased $28,941 for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013. The increase in income from discontinued operations includes a $26,916 gain on sale on the disposition of 55 properties during three months ended March 31, 2014.

Funds from Operations and Modified Funds from Operations

The historical cost accounting rules used for real estate assets require, among other things, straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, the presentation of operating results for a REIT using historical cost accounting alone may be less informative and insufficient. Therefore, we utilize certain non-U.S. GAAP supplemental performance measures due to certain unique operating characteristics of real estate companies. One non-U.S. GAAP supplemental performance measure that we consider is known as funds from operations, or “FFO.” The National Association of Real Estate Investment Trusts, or “NAREIT,” an industry trade group, promulgated this measure which it believes more accurately reflects the operating performance of a REIT. As defined by NAREIT, FFO means net income or loss computed in accordance with U.S. GAAP, excluding gains or losses from sales of property, plus depreciation and amortization on real property, adding back real estate impairment charges and after adjustments for unconsolidated partnerships and joint ventures in which we hold an interest. While impairment charges are added back in the calculation of FFO, we caution that due to the fact that impairments to the value of any property are typically based on reductions in estimated future undiscounted cash flows compared to current carrying value, declines in the undiscounted cash flows which led to the impairment charges reflect declines in property operating performance which may be permanent. From inception through March 31, 2014, we have not had any impairment charges and, therefore, no adjustments to FFO have been necessary for impairment charges. We believe our FFO calculation complies with NAREIT's definition described above.

Changes in the accounting and reporting promulgations under U.S. GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and certain other changes to U.S. GAAP accounting for real estate intangible assets subsequent to the establishment of NAREIT's definition of FFO have impacted the reporting of operating income. Specifically, acquisition fees and expenses for all industries are accounted for as operating expenses and no longer capitalized as they were prior to 2009. We do not pay acquisition fees to our Business Manager or its affiliates, but we do incur acquisition related costs. Under U.S. GAAP, acquisition related costs are characterized as operating expenses in determining operating income. These expenses are paid in cash by us, and therefore reduce net income and cash available to be distributed to our stockholders. The acquisition of real estate assets, and the corresponding expenses associated with that process, was a key operational feature of our business plan enabling us to generate operating income and cash flow and make distributions to our stockholders. Publicly registered, non-listed REITs typically engage in a significant amount of acquisition activity, and thus incur significant acquisition related costs, during their initial years of investment and operation. Although other start up entities likewise may engage in significant acquisition activity during their initial years, REITs such as us that are not listed on an exchange are unique in that they typically have a limited timeframe during which they acquire a significant number of properties and thus incur significant acquisition related costs. More specifically, as disclosed elsewhere herein, we used the proceeds raised in our “best efforts” offering to acquire properties. Because the offering is completed, our acquisition activity is expected to decline, and acquisition related costs are likewise expected to decrease in future periods. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association, or “IPA,” an industry trade group, has standardized a measure known as modified funds from operations, or “MFFO”, which the IPA has promulgated as a supplemental measure for publicly registered non-listed REITs and which may be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT.

MFFO excludes costs that are more reflective of investing activities, some of which are acquisition related costs that affect our operations only in periods in which properties are acquired, and other non-operating items that are included in FFO. By excluding expensed acquisition related costs, the use of MFFO provides information consistent with the operating performance of the properties in our portfolio. Additionally, fair value adjustments including impairments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, may not be directly related or attributable to our current operating performance. By excluding such market changes that may reflect anticipated and unrealized gains or losses, we believe that MFFO may provide both investors and analysts, on a going forward basis, an indication of our operating performance. Because MFFO may be a recognized measure of operating performance within the non-listed REIT industry, MFFO and the adjustments used to calculate it may be useful in order to evaluate our performance against other non-listed REITs. MFFO is not equivalent to our net income or loss as determined under U.S. GAAP as detailed in the table below, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we continue to acquire a significant amount of properties. Our disclosure of MFFO and the adjustments used to calculate it presents our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, and that may be useful to investors. MFFO should only be used to compare our operating performance during our “best efforts” offering to our current operating performance, because it excludes acquisition costs that have a negative effect on our

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operating performance during the periods in which properties were acquired. We did not pay acquisition fees to our Business Manager or its affiliates which would be classified as acquisition related costs under U.S. GAAP.

We believe our definition of MFFO, a non-U.S. GAAP measure, is consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the “Practice Guideline,” issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of U.S. GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market lease assets and liabilities (which are adjusted in order to reflect such payments from a U.S. GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. Inasmuch as interest rate hedges are not a fundamental part of our operations, it is appropriate to exclude such nonrecurring gains and losses in calculating MFFO, as such gains and losses are not reflective of on-going operations.

However, the calculation of FFO and MFFO may vary from entity to entity since capitalization and expense policies tend to vary from entity to entity. Items that are capitalized do not impact FFO and MFFO whereas items that are expensed reduce FFO and MFFO. Consequently, our presentation of FFO and MFFO may not be comparable to other similarly titled measures presented by other REITs. Neither FFO nor MFFO represent cash flows from operations as defined by U.S. GAAP, are not indicative of cash available to fund all cash flow needs or liquidity, including our ability to pay distributions, and should not be considered as an alternative to net income, as determined in accordance with U.S. GAAP, for purposes of evaluating our operating performance. Management uses FFO and MFFO for several reasons. We use FFO and MFFO to compare our operating performance to that of other REITs, to assess our historical operating performance, and we compute FFO and MFFO as part of our acquisition process to determine whether a proposed investment will satisfy our investment objectives.

We believe that the use of FFO and MFFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our operating performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs. However, FFO and MFFO should not be construed to be equivalent to or a substitute for U.S. GAAP net income or in its applicability in evaluating our operating performance. U.S. GAAP measures should be construed as more relevant measures of financial performance and considered more prominently than the non-U.S. GAAP FFO and MFFO measures and the adjustments to U.S. GAAP in calculating FFO and MFFO. However, we believe that the U.S. GAAP measures and the non-U.S. GAAP FFO and MFFO measures taken together do provide a useful presentation of our operating performance.

Presentation of this information is intended to provide information which may be useful to investors as they compare the operating performance of different REITs and to give investors insight into our historical operations, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. The exclusion of impairments limits the usefulness of FFO and MFFO as a historical operating performance measure because an impairment charge indicates that the applicable property's operating performance may have been permanently affected.

Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments that the company uses to calculate FFO or MFFO. In the future, the SEC or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we might have to adjust the calculations and characterization of FFO or MFFO.

For the three months ended March 31, 2014 and 2013, we paid distributions of $17,435 and $17,008, respectively. For the three months ended March 31, 2014 and 2013, we generated FFO of $17,083 and $23,558, respectively, MFFO of $16,282 and $22,754, respectively and cash flow from operations of $18,969 and $20,264, respectively. During the three months ended March 31, 2014, we incurred $2,841 of costs related to the Merger Agreement which decreased our FFO and MFFO accordingly.

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The table below represents a reconciliation of our net income (loss) attributable to common stockholders to FFO and MFFO for three months ended March 31, 2014 and 2013 (dollars in thousands):

	Three Months Ended March 31,
	2014			2013
Net income attributable to common stockholders	$	26,148		$	205
Add:
Depreciation and amortization related to investment properties (including amounts in discontinued operations)	17,851			23,353
Less:
Gain on sale of investment properties	(26,916		)	—
Funds from operations (FFO)	$	17,083		$	23,558
Add:
Acquisition related costs (1)	91			218
Amortization of acquired above and below market leases, net (2)	560			920
Less:
Straight-line rental income (3)	(1,130		)	(1,728		)
Fair value adjustment of earnout liability (4)	(298		)	(188		)
Realized gain on sale of marketable securities (5)	(24		)	(26		)
Modified funds from operations (MFFO)	$	16,282		$	22,754

(1) Changes in the accounting and reporting promulgations under U.S. GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and certain other changes to U.S. GAAP accounting for real estate intangible assets subsequent to the establishment of NAREIT's definition of FFO have impacted the reporting of operating income. Specifically, acquisition fees and expenses for all industries are accounted for as operating expenses and no longer capitalized as they were prior to 2009.

The acquisition of real estate assets, and the corresponding expenses associated with that process, is an operational feature of our business plan in order to generate additional operating income and cash flow. By excluding expensed acquisition costs, MFFO may provide useful supplemental information for each type of real estate investment that is consistent with management's analysis of the investing and operating performance of our properties. Such information may be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. Acquisition related costs include payments to affiliates of our Business Manager or third parties; however, we do not pay acquisition fees to our Business Manager or its affiliates. Acquisition related costs under U.S. GAAP are considered operating expenses and are included in the determination of net (loss) income and income from continuing operations, both of which are performance measures under U.S. GAAP. These expenses are paid in cash by us, and therefore reduces the cash that will be available to distribute to our stockholders. All paid and accrued acquisition related costs will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us. Because our “best efforts” offering is completed, management believes that acquisition related costs will not be a significant cost to us going forward.

(2) Under U.S. GAAP, certain intangibles are accounted for at cost and are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, we believe by excluding charges relating to amortization of these intangibles, MFFO may provide useful supplemental information on the operating performance of the real estate.

(3) Under U.S. GAAP, our rental receipts are allocated to periods using a straight-line methodology. This may result in income recognition that is different than underlying contract terms. By adjusting for these items (to reflect such payments from a U.S. GAAP accrual basis to a cash basis of disclosing the rent and lease payments), we believe MFFO may provide useful supplemental information on the realized economic impact of lease terms, providing insight on the contractual cash flows of such lease terms.

(4) Fair value adjustments of earnout liability mainly relating to purchase price allocations determined at the time of acquisition and subsequently adjusted.

(5) We have adjusted for gains or losses included in net (loss) income from the sale of securities holdings where trading of such holdings is not a fundamental attribute of the business plan because they are items that may not be reflective of on-going operations.

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Select Property Information

The following table sets forth a summary, as of March 31, 2014, of lease expirations scheduled to occur during each of the calendar years from 2014 to 2018 and thereafter, assuming no exercise of renewal options or early termination rights for leases commenced on or prior to March 31, 2014 and excluding multi-family leases.

Lease Expiration Year	Number of Expiring Leases	Gross Leasable Area of  Expiring Leases - Square Footage	Percent of Total Gross Leasable Area of  Expiring Leases	Total Annualized Base Rent of Expiring Leases (a)		Percent of Total Annualized Base Rent of Expiring Leases	Annualized Base Rent per Leased Square Foot
2014 (remainder of year) (b)	72	187,196	1.7%	$	3,983	2.4%	$	21.28
2015	114	347,738	3.1%	6,720		4.1%	19.32
2016	149	562,559	5.1%	9,629		6.0%	17.12
2017	151	839,206	7.6%	14,809		9.1%	17.65
2018	209	1,564,059	14.2%	25,009		15.4%	15.99
Thereafter	375	7,545,169	68.3%	102,636		63.0%	13.60
Leased Total	1,070	11,045,927	100.0%	$	162,786	100.0%	$	14.74

(a) Represents the base rent in place at the time of lease expiration.

(b) Includes month-to-month leases.

The following table sets forth the top five tenants in our portfolio based on annualized base rent for leases in-place on March 31, 2014, excluding multi-family leases.

Tenant	Number of Leases	Gross Leasable Area - Square Footage	Percent of Portfolio Total Gross Leasable Area		Total Annualized Base Rent		Percent of Portfolio Total Annualized Base Rent		Annualized Base Rent per Square Foot
Kohl’s Department Stores Inc.	9	763,839	6.6	%	$	6,199	3.8	%	$	8.12
Office Depot	16	318,896	2.8	%	4,568		2.8	%	14.32
PetSmart	15	281,848	2.4	%	4,288		2.7	%	15.21
Ross Dress For Less	12	342,967	3.0	%	3,811		2.4	%	11.11
Publix	7	336,719	2.9	%	3,747		2.3	%	11.13
Top Five Tenants	59	2,044,269	17.7	%	$	22,613	14.0	%	$	11.06

We believe our properties are adequately covered by insurance and are generally suitable for their intended purposes. Our properties face competition in attracting new tenants and residents, as applicable, and in retaining current tenants and residents, as applicable, from other properties in and around their respective submarkets.

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The following table sets forth a summary of tenant diversity for our entire portfolio based on leases in-place on March 31, 2014.

Tenant Type	Square Footage Including Multi-family Units	Percent of Total Square Footage
Dollar stores and off price clothing	1,961,261	17.1	%
Lifestyle, health clubs, books and phones	1,290,508	11.3	%
Grocery	1,225,387	10.7	%
Department	1,069,365	9.3	%
Home Improvement	768,894	6.7	%
Restaurants and fast food	718,625	6.3	%
Clothing and accessories	715,411	6.2	%
Home goods	692,307	6.0	%
Sporting goods	607,968	5.3	%
Multi-family	445,241	3.9	%
Pet supplies	406,285	3.5	%
Consumer services, salons, cleaners and banks	402,118	3.5	%
Electronics	294,396	2.6	%
Commercial office	273,582	2.4	%
Health, doctors and health food	265,452	2.3	%
Other	166,327	1.5	%
Industrial	160,000	1.4	%
Total	11,463,127	100.0	%

Critical Accounting Policies

Disclosures discussing all critical accounting policies are set forth in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission on March 13, 2014, under the heading “Critical Accounting Policies.”

Contractual Obligations

We have entered into mortgage loans which may require compliance with certain covenants, such as debt service ratios, investment restrictions and distribution limitations. As of March 31, 2014, all of the mortgages were current in payments and we were in compliance with such covenants.

We have provided a partial guarantee on certain financial obligations of our subsidiaries with an outstanding principal balance of $263,386. As of March 31, 2014, these guarantees totaled to an aggregate recourse amount of $91,002.

From time to time, we acquire properties subject to the obligation to pay the seller additional monies depending on the future leasing and occupancy of the property. These earnout payments are based on a predetermined formula. Each earnout agreement has a time limit of generally one to three years and other parameters regarding the obligation to pay any additional monies. If at the end of the time period, certain space has not been leased and occupied, we will not have any further obligation. As of March 31, 2014 and December 31, 2013, we had liabilities of $20,483 and $29,203, respectively, recorded on the consolidated balance sheet as deferred investment property acquisition obligations. The maximum potential payment is $24,018 at March 31, 2014.

As of March 31, 2014, our consolidated joint ventures had $67,983 in redeemable noncontrolling interests that will become redeemable at future dates, generally no earlier than 2015 and no later than 2022, based on certain redemption criteria. The redeemable noncontrolling interests are not mandatorily redeemable. At the noncontrolling interest holders’ option, we may be required to pay cash, but if the noncontrolling interest holder elects to redeem its interest for shares of our common stock, we have the option to pay cash, issue common stock, or a mixture of both.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Selected Financial Data

The following table shows our selected financial data relating to our consolidated historical financial condition and results of operations. This selected data should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report (all amounts are in thousands, except share and per share amounts).

	March 31, 2014			December 31, 2103
Total assets	$	2,140,529		$	2,327,598
Mortgages, credit facility and securities margin payable including held for sale	$	1,060,458		$	1,248,273
	For the Three Months Ended March 31,
	2014			2013
Total income	$	46,591		$	46,887
Net income attributable to common stockholders	$	26,148		$	205
Net income attributable to common stockholders per common share, basic and diluted (a)	$	0.22		$	0.00
Distributions declared to common stockholders	$	17,429		$	17,071
Distributions per weighted average common share (a)	$	0.15		$	0.15
Cash flows provided by operating activities	$	18,969		$	20,264
Cash flows provided by (used in) investing activities	$	172,589		$	(6,980	)
Cash flows (used in) provided by financing activities	$	(160,671	)	$	1,303
Weighted average number of common shares outstanding, basic and diluted	117,809,586			115,380,042

(a) The net income attributable to common stockholders, per common share basic and diluted is based upon the weighted average number of common shares outstanding for the three months ended March 31, 2014 and 2013, respectively. The distributions per common share are based upon the weighted average number of common shares outstanding for the year or period ended.

Subsequent Events

Our board of directors declared distributions payable to stockholders of record each day beginning on the close of business on April 1, 2014 through the close of business on May 31, 2014. Distributions were declared in a daily amount equal to $0.00164384 per share, which if paid each day for a 365-year period, would equate to $0.60 or a 6.0% annualized rate based on a purchase price of $10.00 per share. Distributions were and will continue to be paid monthly in arrears, as follows:

• In April 2014, total distributions declared for the month of March 2013 were paid cash in the amount equal to $6,003.

• In May 2014, total distributions declared for the month of April 2014 were paid cash in the amount equal to $5,810.

On April 1, 2014, we completed the Tranche II(a) closing, resulting in the sale to Realty Income of a total of 13 of the Net Lease Properties for an aggregate cash purchase price of approximately $93,605. See "Net Lease Sale Transactions" above.

On April 25, 2014, we acquired a fee simple interest in a 252,370 square foot retail property known as Hitchcock Plaza located in Aiken, South Carolina. We purchased this property from an unaffiliated third party for $28,919. Hitchcock Plaza is the second property to be acquired to satisfy our Merger closing conditions related to the completion of certain Net Lease Sale Transactions for the purpose of Section 1031 of the Internal Revenue Code.

On April 30, 2014, we completed the Tranche II(b) closing, resulting in the sale to Realty Income of a total of 12 of the Net Lease Properties for an aggregate cash purchase price of approximately $63,434. See "Net Lease Sale Transactions" above.

On May 9, 2014, we completed the Tranche II(c) closing, resulting in the sale to Realty Income of a total of three of the Net Lease Properties for an aggregate cash purchase price of approximately $44,422. See "Net Lease Sale Transactions" above.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Dollar amounts are stated in thousands.

Interest Rate Risk

We may be exposed to interest rate changes primarily as a result of long-term debt used to purchase properties or other real estate assets, maintain liquidity and fund capital expenditures or operations. Including derivative financial instruments, we currently have limited exposure to financial market risks through fixing our interest rates on all long-term debt as of March 31, 2014 except some mortgages payable, the securities margin payable and the credit facility. As of March 31, 2014, we had outstanding debt, which is subject to fixed interest rates and variable rates of $929,059 and $130,295, respectively, bearing interest at weighted average interest rates equal to 4.60% per annum and 2.18% per annum, respectively, including the effect of interest rate swaps. As of March 31, 2014, we had $408 of fixed rate debt maturing by the end of 2014.

If market rates of interest on all non-hedged debt which is subject to variable rates as of March 31, 2014 permanently increased by 1% (100 basis points), the increase in interest expense on all debt would decrease future earnings and cash flows by approximately $1,303 annually. If market rates of interest on all non-hedged debt which is subject to variable rates as of March 31, 2014 permanently decreased by 1% (100 basis points), the decrease in interest expense on all debt would increase future earnings and cash flows by the same amount.

We use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets and investments in commercial mortgage-backed securities. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging decisions will be determined in light of the facts and circumstances existing at the time of the hedge and may differ from our currently anticipated hedging strategy. We are exposed to both credit risk and market risk with respect to the derivative financial instruments we have used to hedge against interest rate fluctuations. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us because the counterparty may not perform. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We will seek to manage the market risk associated with interest-rate contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. There is no assurance we will be successful.

Our board has established policies and procedures regarding our use of derivative financial instruments for purposes of fixing or capping floating interest rate debt if it qualifies as an effective hedge pursuant to U.S. GAAP for principal amounts up to $50,000 per transaction.

Derivatives

The following table summarizes our interest rate swap contracts outstanding as of March 31, 2014:

Date Entered		Effective Date	Maturity Date	Pay Fixed Rate		Receive Floating Rate Index	Notional Amount		Fair Value as of March 31, 2014
June 22, 2011		June 24, 2011	June 22, 2016	4.47	%	1 month LIBOR	13,359		(413		)
October 28, 2011		November 1, 2011	October 21, 2016	3.75	%	1 month LIBOR	10,837		(216		)
May 9, 2012		May 9, 2012	May 9, 2017	3.38	%	1 month LIBOR	10,150		(52		)
June 13, 2012	(1)	June 10, 2011	December 10, 2018	5.17	%	1 month LIBOR	49,391		(3,027		)
October 1, 2012		April 1, 2014	March 29, 2019	3.85	%	1 month LIBOR	45,000		622
October 2, 2012		October 4, 2012	October 1, 2017	3.73	%	1 month LIBOR	24,750		121
December 20, 2012		December 20, 2012	December 20, 2017	3.36	%	1 month LIBOR	9,900		76
						Total	$	163,387	$	(2,889	)

(1) Assumed at the time of acquisition of Walgreens NE Portfolio with a then fair value of ($5,219). We retained this swap subsequent to the sale of the Walgreens NE Portfolio in the Bulwark Closing of the Net Lease Sale Transaction.

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Securities Price Risk

Securities price risk is the risk that we will incur economic losses due to adverse changes in equity and debt security prices. Our exposure to changes in equity and debt security prices is a result of our investment in these types of securities. Market prices are subject to fluctuation and therefore, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market prices of a security may result from any number of factors, including perceived changes in the underlying fundamental characteristics of the issuer, the relative price of alternative investments, interest rates, default rates, and general market conditions. Additionally, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being sold. We do not currently engage in derivative or other hedging transactions to manage our security price risk.

While it is difficult to project what factors may affect the prices of equity and debt sectors and how much the effect might be, the table below illustrates the impact of a ten percent increase and a ten percent decrease in the price of the equity and debt securities held by us would have on the fair value of the securities as of March 31, 2014.

	Cost		Fair Value		Fair Value Assuming a Hypothetical 10% Increase		Fair Value Assuming a Hypothetical 10% Decrease
Equity securities	$	24,702	$	26,576	$	29,234	$	23,918
Debt securities	8,503		9,028		9,931		8,125
Total marketable securities	$	33,205	$	35,604	$	39,165	$	32,043

Item 4. Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our principal executive officer and our principal financial officer, evaluated as of March 31, 2014 the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures, as of March 31, 2014, were effective for the purpose of ensuring that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including our principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the three months ended March 31, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - Other Information

Dollar amounts are stated in thousands, except per share amounts.

Item 1. Legal Proceedings

We are not a party to, and none of our properties is subject to, any material pending legal proceedings.

Item 1A. Risk Factors

There have been no material changes to the risk factors contained in Part I, Item 1A set forth in our Annual Report on Form 10-K filed with the SEC on March 13, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Securities Authorized for Issuance under Equity Compensation Plans

None.

Use of Proceeds from Registered Securities

None.

Recent Shares of Unregistered Securities

None.

Share Repurchase Program

We adopted a share repurchase program (“SRP”), effective August 24, 2009. The SRP was amended and restated effective as of May 20, 2010. On November 13, 2013 our board of directors voted to suspend the amended and restated SRP until further notice, effective December 13, 2013. We do not anticipate that the board of directors will resume our SRP while the Merger is pending. In the event the Merger does not occur, our board of directors may consider reinstatement of the SRP.

As a result of the suspension of the SRP, all redemption requests received from stockholders during the fourth quarter of 2013 on or before December 13, 2013 and that were determined by us to be in good order on or before December 13, 2013 were honored in accordance with the terms, conditions and limitations of the SRP. We did not process or accept any requests for redemption received after December 13, 2013 and will not process or accept any future requests until such time as our board of directors may approve resumption of the SRP.

Due to the suspension of our SRP, we did not repurchase any shares of our stock during the three months ended March 31, 2014.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The representations, warranties and covenants made by us in any agreement filed as an exhibit to this Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties or covenants to, or with, you. Moreover, these representations, warranties and covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.

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

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SIGNATURES

Pursuant to the requirements 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.

INLAND DIVERSIFIED REAL ESTATE TRUST, INC.

	/s/ Barry L. Lazarus		/s/ Steven T. Hippel
By:	Barry L. Lazarus	By:	Steven T. Hippel
	President (principal executive officer)		Treasurer and chief financial officer (principal financial officer)
Date:	May 14, 2014	Date:	May 14, 2014

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Exhibit Index

Exhibit No.	Description
3.1	First Articles of Amendment and Restatement of Inland Diversified Real Estate Trust, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 5 to the Registrant’s Form S-11 Registration Statement, as filed by the Registrant with the Securities and Exchange Commission on August 19, 2009 (file number 333-153356))
3.2	Amended and Restated Bylaws of Inland Diversified Real Estate Trust, Inc., effective August 12, 2009 (incorporated by reference to Exhibit 3.2 to Amendment No. 5 to the Registrant’s Form S-11 Registration Statement, as filed by the Registrant with the Securities and Exchange Commission on August 19, 2009 (file number 333-153356))
4.1	Distribution Reinvestment Plan (incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Form S-3D Registration Statement, as filed by the Registrant with the Securities and Exchange Commission on August 3, 2012 (file number 333-182748))
4.2	Amended and Restated Share Repurchase Program (incorporated by reference to Exhibit 4.2 to Post-Effective Amendment No. 3 to the Registrant’s Form S-11 Registration Statement, as filed by the Registrant with the Securities and Exchange Commission on April 16, 2010 (file number 333-153356)), as amended by First Amendment to the Amended and Restated Share Repurchase Program of Inland Diversified Real Estate Trust, Inc., effective November 1, 2011 (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on September 14, 2011)
4.3	Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (incorporated by reference to Exhibit 4.3 to the Registrant’s Form S-11 Registration Statement, as filed by the Registrant with the Securities and Exchange Commission on September 5, 2008 (file number 333-153356))
10.1	Agreement and Plan of Merger, dated February 9, 2014, among Inland Diversified Real Estate Trust, Inc., Kite Realty Group Trust, and KRG Magellan, LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on February 12, 2014)
10.2	Master Liquidity Event Agreement, dated February 9, 2014, by and among Inland Diversified Real Estate Trust, Inc., Inland Diversified Business Manager & Advisor Inc., Inland Diversified Asset Services LLC, Inland Diversified Leasing Services LLC, Inland Diversified Development Services LLC, Inland Diversified Real Estate Services LLC, Inland Investment Advisors, Inc. and Inland Computer Services, Inc. (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on February 12, 2014)
31.1	Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification by Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* (1)
32.2	Certification by Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* (1)
101	The following financial information from our Quarterly Report on Form 10-Q for the period ended March 31, 2014, filed with the Securities and Exchange Commission on May 14, 2014, is formatted in Extensible Business Reporting Language (“XBRL”): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Other Comprehensive Income; (iii) Consolidated Statements of Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.

___________________________

*    Filed as part of this Quarterly Report on Form 10-Q.

(1) 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 certification 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.

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