Gramercy Property Trust - FORM 10-Q - November 3, 2014

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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 September 30, 2014
o
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: 001-35933
 
 
 
 
CHAMBERS STREET PROPERTIES
(Exact name of registrant as specified in its charter)
 
 
 
 

Maryland
56-2466617
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
47 Hulfish Street, Suite 210, Princeton, New Jersey 08542
(Address of principal executive offices) (Zip Code)
(609) 683-4900
(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 such filing requirements for the past 90 days.    YES  x   NO  o
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  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x
 
Accelerated filer  o
 
Non-accelerated filer  o
 
Smaller reporting company  o
 
 
 
 
(do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  o    NO  x
The number of shares outstanding of the registrant's common shares of beneficial ownership, $0.01 par value, was 236,924,176 as of October 31, 2014.



CHAMBERS STREET PROPERTIES
INDEX

 
 
Page
 
 
PART I. FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
Item 1.
 
 
Item 1A.
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
Item 5.
 
 
Item 6.
 
 
 
 
 
 
 
 



PART I.
FINANCIAL INFORMATION
ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CHAMBERS STREET PROPERTIES
Condensed Consolidated Balance Sheets
as of September 30, 2014 and December 31, 2013
(In Thousands, Except Share Data)
 
September 30,
 
December 31,
 
2014
 
2013
 
(unaudited)
 
 
ASSETS
 
 
 
Investments in Real Estate:
 
 
 
Land
$
641,720

 
$
639,382

Land Available for Expansion
25,701

 
24,631

Buildings and Improvements
1,633,625

 
1,606,209

 
2,301,046

 
2,270,222

Less: Accumulated Depreciation and Amortization
(243,073
)
 
(195,778
)
Net Investments in Real Estate
2,057,973

 
2,074,444

Investments in Unconsolidated Entities
460,211

 
514,802

Cash and Cash Equivalents
58,546

 
83,007

Restricted Cash
14,372

 
15,236

Tenant and Other Receivables, Net
14,147

 
10,394

Deferred Rent
40,123

 
35,499

Deferred Leasing Costs and Intangible Assets, Net
220,802

 
248,872

Deferred Financing Costs, Net
9,908

 
11,585

Prepaid Expenses and Other Assets
13,647

 
16,757

Total Assets
$
2,889,729

 
$
3,010,596

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
LIABILITIES
 
 
 
Secured Notes Payable, Net
$
632,361

 
$
681,200

Unsecured Term Loan Facilities
570,000

 
570,000

Unsecured Revolving Credit Facility
170,044

 
170,044

Accounts Payable, Accrued Expenses and Other Liabilities
57,587

 
50,053

Intangible Liabilities, Net
26,988

 
28,070

Prepaid Rent and Security Deposits
15,918

 
16,648

Distributions Payable
9,951

 
9,931

Total Liabilities
1,482,849

 
1,525,946

COMMITMENTS AND CONTINGENCIES (NOTE 13)


 


SHAREHOLDERS' EQUITY
 
 
 
Common Shares of Beneficial Interest, $0.01 par value, 990,000,000 shares authorized; 236,924,176 and 236,463,981 issued and outstanding as of September 30, 2014 and December 31, 2013, respectively
2,362

 
2,359

Additional Paid-in-Capital
2,069,710

 
2,067,008

Accumulated Deficit
(651,909
)
 
(589,313
)
Accumulated Other Comprehensive (Loss) Income
(13,283
)
 
4,596

Total Shareholders' Equity
1,406,880

 
1,484,650

Total Liabilities and Shareholders' Equity
$
2,889,729

 
$
3,010,596

See accompanying notes to condensed consolidated financial statements.

1

CHAMBERS STREET PROPERTIES
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)
(In Thousands, Except Share and per Share Data)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
REVENUES
 
 
 
 
 
 
 
Rental
$
52,391

 
$
50,670

 
$
156,300

 
$
144,841

Tenant Reimbursements
15,219

 
14,116

 
45,034

 
39,933

Other Property Income
537

 
—

 
1,606

 
—

Total Revenues
68,147

 
64,786

 
202,940

 
184,774

EXPENSES
 
 
 
 
 
 
 
Property Operating
9,113

 
8,489

 
27,058

 
22,491

Real Estate Taxes
9,927

 
9,891

 
30,193

 
28,595

General and Administrative
7,230

 
5,514

 
20,047

 
17,708

Investment Management Fee
—

 
—

 
—

 
489

Acquisition-Related
265

 
175

 
555

 
2,178

Depreciation and Amortization
27,208

 
26,435

 
81,572

 
74,802

Transition and Listing
—

 
1,447

 
—

 
12,681

Total Expenses
53,743

 
51,951

 
159,425

 
158,944

OTHER EXPENSES AND INCOME
 
 
 
 
 
 
 
Interest and Other Income
255

 
618

 
573

 
1,105

Interest Expense
(13,685
)
 
(12,902
)
 
(41,653
)
 
(32,456
)
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
68

 
163

 
80

 
582

Gain on Asset Disposition, Net
13,175

 
—

 
13,175

 
—

Loss on Early Extinguishment of Debt
—

 
(1,572
)
 
—

 
(1,572
)
(Loss) Gain on Conversion of Equity Interest to Controlling Interest 
—

 
(1,667
)
 
—

 
75,536

Total Other (Expenses) Income
(187
)
 
(15,360
)
 
(27,825
)
 
43,195

Income (Loss) Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities
14,217

 
(2,525
)
 
15,690

 
69,025

Provision For Income Taxes
(140
)
 
(54
)
 
(579
)
 
(274
)
Equity in Income of Unconsolidated Entities
4,391

 
3,324

 
11,829

 
10,263

INCOME FROM CONTINUING OPERATIONS
18,468

 
745

 
26,940

 
79,014

DISCONTINUED OPERATIONS
 
 
 
 
 
 
 
Income from Discontinued Operations
—

 
114

 
—

 
295

TOTAL INCOME FROM DISCONTINUED OPERATIONS
—

 
114

 
—

 
295

NET INCOME
18,468

 
859

 
26,940

 
79,309

Net Income Attributable to Non-Controlling Operating Partnership Units
—

 
(3
)
 
—

 
(82
)
NET INCOME ATTRIBUTABLE TO COMMON 
   SHAREHOLDERS
$
18,468

 
$
856

 
$
26,940

 
$
79,227

Basic and Diluted Net Income per Share from Continuing Operations Attributable to Common Shareholders
$
0.08

 
$
0.00

 
$
0.11

 
$
0.32

Basic and Diluted Net Income per Share Attributable to Common Shareholders
$
0.08

 
$
0.00

 
$
0.11

 
$
0.32

Weighted Average Common Shares Outstanding-Basic and Diluted
236,954,218

 
236,548,477

 
236,847,551

 
244,373,249

See accompanying notes to condensed consolidated financial statements.

2

CHAMBERS STREET PROPERTIES
Condensed Consolidated Statements of Comprehensive Income
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)
(In Thousands)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
NET INCOME
$
18,468

 
$
859

 
$
26,940

 
$
79,309

Foreign Currency Translation (Loss) Gain
(15,946
)
 
10,431

 
(13,793
)
 
2,955

Swap Fair Value Adjustments
3,805

 
(4,714
)
 
(4,086
)
 
(495
)
COMPREHENSIVE INCOME
6,327

 
6,576

 
9,061

 
81,769

Comprehensive Income Attributable to Non-Controlling Operating Partnership Units
—

 
(9
)
 
—

 
(85
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
$
6,327

 
$
6,567

 
$
9,061

 
$
81,684

See accompanying notes to condensed consolidated financial statements.

3

CHAMBERS STREET PROPERTIES
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2014 and 2013 (unaudited)
(In Thousands)
 
Nine Months Ended
 
September 30,
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net Income
$
26,940

 
$
79,309

Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities:
 
 
 
Equity in Income of Unconsolidated Entities
(11,829
)
 
(10,263
)
Distributions from Unconsolidated Entities
36,891

 
30,878

Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments

(80
)
 
(1,731
)
Loss on Early Extinguishment of Debt
—

 
1,572

Gain on Asset Disposition, Net
(13,175
)
 
—

Gain on Conversion of Equity Investment to Controlling Interest
—

 
(75,535
)
Depreciation and Amortization
81,572

 
75,409

Amortization of Non-Cash Interest Expense
(660
)
 
(461
)
Amortization of Above and Below Market Leases
4,056

 
5,028

Share-Based Compensation
3,452

 
5,354

Straight-Line Rent Adjustment
(4,641
)
 
(7,886
)
Changes in Assets and Liabilities:
 
 
 
Tenant and Other Receivables
(3,760
)
 
(3,978
)
Prepaid Expenses and Other Assets
(1,858
)
 
(10,142
)
Accounts Payable, Accrued Expenses and Other Liabilities
5,939

 
4,494

Net Cash Flows Provided by Operating Activities
122,847

 
92,048

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Acquisition of Real Property
(55,424
)
 
(114,457
)
Proceeds from Sale of Real Estate
61,100

 
—

Investments in Unconsolidated Entities
(7,624
)
 
(105,269
)
Distributions from Unconsolidated Entities
22,469

 
—

Acquisition Deposit
—

 
(2,750
)
Restricted Cash
864

 
(4,249
)
Lease Commissions
(3,210
)
 
(404
)
Improvements to Variable Interest Entity
—

 
(11,254
)
Improvements to Investments in Real Estate
(7,125
)
 
(6,646
)
Net Cash Flows Provided by (Used in) Investing Activities
11,050

 
(245,029
)

4

CHAMBERS STREET PROPERTIES
Condensed Consolidated Statements of Cash Flows (continued)
For the Nine Months Ended September 30, 2014 and 2013 (unaudited)
(In Thousands)
 
Nine Months Ended
 
September 30,
 
2014
 
2013
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Redemption of Common Shares
—

 
(47,429
)
Repurchase and Cancellation of Common Shares
—

 
(125,000
)
Repurchase and Cancellation of Vested Shares
(747
)
 
(1,585
)
Payment of Distributions
(89,516
)
 
(76,596
)
Distribution to Non-Controlling Interest Operating—Partnership Units
—

 
(2,390
)
Acquisition of Non-Controlling Interest—Variable Interest Entity
—

 
(3,431
)
Borrowings on Unsecured Revolving Credit Facility
10,000

 
364,044

Principal Payments on Unsecured Revolving Credit Facility
(10,000
)
 
(529,044
)
Proceeds from Unsecured Term Loan Facilities
—

 
570,000

Principal Payments on Secured Notes Payable
(67,329
)
 
(34,025
)
Payment of Financing Costs
(464
)
 
(6,633
)
Net Cash Flows (Used in) Provided by Financing Activities
(158,056
)
 
107,911

EFFECT OF FOREIGN CURRENCY TRANSLATION
(302
)
 
(35
)
Net Decrease in Cash and Cash Equivalents
(24,461
)
 
(45,105
)
Cash and Cash Equivalents, Beginning of the Period
83,007

 
107,355

Cash and Cash Equivalents, End of the Period
$
58,546

 
$
62,250

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
Cash Paid During the Period for Interest
$
42,203

 
$
31,085

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Distributions Declared and Payable
$
9,951

 
$
29,562

Accounts Payable and Accrued Expenses—Construction In Progress
$
487

 
$
838

JV Contribution/Distribution—Expansion
$
—

 
$
19

Notes Payable Assumed on Acquisitions of Real Estate
$
20,611

 
$
216,011

Proceeds from Dividend Reinvestment Program
$
—

 
$
33,580

Conversion of Duke JV Equity Investment to Controlling Interest
$
—

 
$
139,770

See accompanying notes to condensed consolidated financial statements.

5

CHAMBERS STREET PROPERTIES
Condensed Consolidated Statements of Equity
For the Nine Months Ended September 30, 2014 and 2013 (unaudited)
(In Thousands, Except Share Data)

 
Common Shares
 
Additional
Paid-in-
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders’
Equity
 
Shares
 
Amount
 
Balance at January 1, 2014
236,463,981

 
$
2,359

 
$
2,067,008

 
$
(589,313
)
 
$
4,596

 
$
1,484,650

Net Income Attributable to Common Shareholders
—

 
—

 
—

 
26,940

 
—

 
26,940

Other Comprehensive Loss
—

 
—

 
—

 
—

 
(17,879
)
 
(17,879
)
Share-Based Compensation
555,508

 
4

 
3,448

 
—

 
—

 
3,452

Repurchase and Cancellation of Vested Shares
(95,313
)
 
(1
)
 
(746
)
 
—

 
—

 
(747
)
Distributions Declared ($0.378 per share)
—

 
—

 
—

 
(89,536
)
 
—

 
(89,536
)
Balance at September 30, 2014
236,924,176

 
$
2,362

 
$
2,069,710

 
$
(651,909
)
 
$
(13,283
)
 
$
1,406,880


 
Common Shares
 
Additional
Paid-in-
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
Shares
 
Amount
 
Balance at January 1, 2013
249,664,156

 
$
2,494

 
$
2,203,888

 
$
(540,462
)
 
$
(8,587
)
 
$
1,657,333

Net Income Attributable to Common Shareholders
—

 
—

 
—

 
79,227

 
—

 
79,227

Other Comprehensive Income
—

 
—

 
—

 
—

 
2,460

 
2,460

Net Contributions From DRIP of Common Shares, $0.01 Par Value
3,534,649

 
36

 
33,544

 
—

 
—

 
33,580

Share-Based Compensation
816,425

 
5

 
5,349

 
—

 
—

 
5,354

Repurchase and Cancellation of Vested Shares
(178,078
)
 
(2
)
 
(1,583
)
 
—

 
—

 
(1,585
)
Redemption of Common Shares
(4,996,934
)
 
(50
)
 
(47,379
)
 
—

 
—

 
(47,429
)
Adjustment to Record Non-Controlling Interest at Redemption Value
—

 
—

 
154

 
—

 
—

 
154

Distribution to Non-Controlling Interest
—

 
—

 
(2,605
)
 
—

 
—

 
(2,605
)
Repurchase and Cancellation of Common Shares
(12,376,237
)
 
(124
)
 
(124,876
)
 
—

 
—

 
(125,000
)
Distributions Declared ($0.425 per share)
—

 
—

 
—

 
(102,320
)
 
—

 
(102,320
)
Balance at September 30, 2013
236,463,981

 
$
2,359

 
$
2,066,492

 
$
(563,555
)
 
$
(6,127
)
 
$
1,499,169

See accompanying notes to condensed consolidated financial statements.

6

CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)

1. Organization and Nature of Business
Chambers Street Properties (NYSE: CSG) is a self-administered real estate investment trust ("REIT") that focuses on acquiring, owning and managing net leased industrial and office properties leased to creditworthy tenants. We were formed under the laws of the state of Maryland on March 30, 2004, and have elected to be taxed as a REIT under sections 856 through 860 of the Internal Revenue Code of 1986 (the "Internal Revenue Code") beginning with the taxable period ended December 31, 2004.
We operate in an umbrella partnership REIT structure in which our operating partnership, CSP Operating Partnership, LP ("CSP OP"), indirectly owns substantially all of the properties acquired on our behalf. CSP OP was formed in Delaware on March 30, 2004, and we are the 100% owner and sole general partner. For each interest in our common shares of beneficial interest $0.01 par value (the "common shares"), that we issue, an equal interest in the limited partnership units of CSP OP is issued to us in exchange for the cash proceeds from the issuance of the interest in our common shares. As of September 30, 2014, we owned 100% of the limited partnership units of CSP OP directly or indirectly through a wholly-owned taxable REIT subsidiary.
On May 21, 2013, we listed our common shares on the New York Stock Exchange (the "NYSE") under the symbol "CSG" (our "Listing") and concurrently commenced a modified "Dutch Auction" tender offer to purchase up to $125.0 million in value of the common shares (the "Tender Offer") from our shareholders. As a result of the Tender Offer, on June 26, 2013, we accepted for purchase 12,376,237 common shares at a purchase price of $10.10 per share, for an aggregate cost of approximately $125.0 million, excluding fees and expenses relating to the Tender Offer. As of September 30, 2014, we had 236,924,176 common shares issued and outstanding.
As of September 30, 2014, we owned, on a consolidated basis, 100 industrial (primarily warehouse/distribution) and office properties located in 19 U.S. states (Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Texas and Virginia) and in the United Kingdom, encompassing approximately 23.5 million rentable square feet. Our consolidated properties were approximately 96.1% leased (based upon rentable square feet) as of September 30, 2014. As of September 30, 2014, 76 of our consolidated properties were net leased to single tenants, which encompassed approximately 19.2 million rentable square feet.
We had ownership interests in four unconsolidated entities that, as of September 30, 2014, owned interests in 32 properties. Excluding those properties owned through our investment in CB Richard Ellis Strategic Partners Asia II-A, L.P. ("CBRE Strategic Partners Asia"), we owned, on an unconsolidated basis, 29 industrial (primarily warehouse/distribution) and office properties located in eight U.S. states (Arizona, Florida, Illinois, Indiana, North Carolina, Ohio, Tennessee and Texas) and three countries in Europe (France, Germany and the United Kingdom), encompassing approximately 12.8 million rentable square feet. Our unconsolidated properties were approximately 99.5% leased (based upon rentable square feet) as of September 30, 2014. As of September 30, 2014, 20 of our unconsolidated properties were net leased to single tenants, which encompassed approximately 11.5 million rentable square feet.
Unless the context otherwise requires or indicates, references to the "Company," "we," "our" and "us" refer to the activities of and the assets and liabilities of the business and operations of Chambers Street Properties and its subsidiaries. References to unconsolidated properties include properties owned through unconsolidated joint ventures and do not include properties owned by CBRE Strategic Partners Asia. See Note 4 "Investments in Unconsolidated Entities."


7
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") and reflect the accounts of the Company, CSP OP and its consolidated subsidiaries. The Company consolidates its wholly-owned properties and joint ventures it controls through either 1) voting rights or similar rights or 2) by means other than voting rights if the Company is deemed to be the primary beneficiary of a variable interest entity. All intercompany accounts and transactions are eliminated in consolidation.
Certain information and footnotes required for annual financial statement presentation have been condensed or excluded pursuant to Securities and Exchange Commission (the "SEC") rules and regulations. Accordingly, our interim financial statements do not include all of the information and disclosures required under GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary in all material respects to present fairly our financial position, results of our operations and cash flows as of and for the three and nine months ended September 30, 2014 have been made. The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results of operations to be expected for the entire year. The condensed consolidated financial statements and notes thereto should be read in conjunction with our current Annual Report on Form 10-K, which contains the latest available audited consolidated financial statements and notes thereto, which are as of and for the year ended December 31, 2013.
Use of Estimates
The preparation of financial statements, in conformity with GAAP, requires us 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Segment Information
Our chief operating decision-makers internally evaluate the operating performance and financial results of our portfolio based on Net Operating Income. We define "Net Operating Income" as: rental income, tenant reimbursements, and other property income less property and related expenses (operating and maintenance and real estate taxes) and excludes other non-property income and expenses, interest expense, depreciation and amortization, and corporate general and administrative expenses. During the first quarter of 2014, we reassessed our segment reporting and determined that the proper aggregation of our properties was by property type, Industrial Properties and Office Properties. Both of these operating segments meet the 10% quantitative reporting thresholds to be considered a reportable segment under GAAP and reflect the core operations of our business. Beginning with the reporting period ended March 31, 2014, we view our consolidated property operations as two reportable segments: Industrial Properties and Office Properties. In addition, we had one non-reportable segment, which was Retail Properties. However, during the third quarter ended September 30, 2014 we sold our last remaining retail property, therefore, eliminating the non-reportable segment from future reportable presentations. We have reclassified the prior period segment financial results to conform to the current year presentation.
Revenue Recognition and Valuation of Receivables
All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is recorded as deferred rent. In connection with various leases, we have received irrevocable stand-by letters of credit totaling $14.8 million and $14.5 million as security for such leases at September 30, 2014 and December 31, 2013.
Reimbursements from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes, insurance and other recoverable costs, are recognized as revenue in the period the expenses are incurred. Tenant reimbursements are recognized and presented on a gross basis, when we are the primary obligor with respect to incurring expenses and with respect to having the credit risk.
Tenant receivables and deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and deferred rent. Management's determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, individual receivables, current economic conditions, and other relevant factors. The allowances are increased or decreased through the provision for bad debts. The allowance for uncollectible rent receivable was $57,000 and $24,000 as of September 30, 2014 and December 31, 2013, respectively.

8
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


Translation of Non-U.S. Currency Amounts
The financial statements and transactions of our United Kingdom real estate operation are recorded in their functional currency, namely the Great Britain Pound ("GBP") and are then translated into U.S. dollars ("USD").
Assets and liabilities of this operation are denominated in the functional currency and are then translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rate for the reporting period. Translation adjustments are reported in "Accumulated Other Comprehensive Income (Loss)," a component of Shareholders' Equity.
The carrying value of our United Kingdom assets and liabilities fluctuate due to changes in the exchange rate between the USD and the GBP. The exchange rate of the USD to the GBP was $1.6213 and $1.6573 at September 30, 2014 and December 31, 2013, respectively. The profit and loss weighted average exchange rate of the USD to the GBP was approximately $1.6862 and $1.5301 for the three months ended September 30, 2014 and 2013, respectively; and approximately $1.6737 and $1.5449 for the nine months ended September 30, 2014 and 2013, respectively.
The carrying value of our assets and liabilities held within our joint venture in Europe (the "European JV") fluctuate due to changes in the exchange rate between the USD and the Euro ("EUR"). The exchange rate of the USD to the EUR was $1.2631 and $1.3753 at September 30, 2014 and December 31, 2013. The profit and loss weighted average exchange rate of the USD to the EUR was approximately $1.3402 and $1.3175 for the three months ended September 30, 2014 and 2013, respectively; and approximately $1.3611 and $1.3146 for the nine months ended September 30, 2014 and 2013, respectively.
Transition and Listing Expenses
We incurred certain costs in connection with our transition from being an externally managed company to a self-managed company ("Transition Costs"). These Transition Costs consist of legal, consulting and other third-party service provider costs incurred by us in order to execute on our Board of Trustees' decision to become a self-managed company. The Transition Costs were primarily incurred during 2012, with the exception of $0.7 million incurred during 2013 as a final settlement of the Transition Services Agreement.
We incurred certain costs in connection with our Listing and our Tender Offer in 2013. These listing expenses consisted of legal, investment banking, share-based compensation, consulting and other third-party service provider costs incurred by us in order to complete our Listing and Tender Offer. Listing costs totaling $12.0 million were incurred during the year ended December 31, 2013. Of the listing expenses incurred through December 31, 2013, $3.8 million was attributable to share-based compensation.
Income Taxes
We elected to be taxed as a REIT under the Internal Revenue Code commencing with our taxable year ended December 31, 2004. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we generally distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding net capital gain). It is our current intention to adhere to these requirements and maintain our REIT qualification. As a REIT, we generally will not be subject to corporate level U.S. federal income tax on net income we distribute currently to our shareholders. If we fail to qualify as a REIT in any taxable year, then we will be subject to U.S. federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property and to U.S. federal income and excise taxes on our undistributed taxable income, if any.
ASC 740-10 Income Taxes requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We did not have a liability for any unrecognized benefits as of September 30, 2014. The tax years from 2010 through 2013 remain open to examination by the taxing jurisdictions to which the Company is subject.
Included as a component of our tax provision, we have incurred income and other taxes (franchise, local and state government and international) related to our continuing operations in the amount of $140,000 and $54,000 during the three months ended September 30, 2014 and 2013, respectively; and $579,000 and $274,000 during the nine months ended September 30, 2014 and 2013, respectively. The United Kingdom taxes real property operating results at a statutory rate of 20%. The United Kingdom taxable losses to date have generated a deferred tax

9
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


asset of approximately $0.6 million consisting of these net operating loss carryforwards. We have provided for a full valuation allowance of $0.6 million as of September 30, 2014 on deferred tax assets because it is not likely that future operating profits in the United Kingdom would be sufficient to absorb the net operating losses.
New Accounting Standards
In April 2014, the FASB issued ASU 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 requires only disposals representing a strategic shift in operations (i.e., a disposal of a major geographic area, a major line of business, or a major equity method investment) to be presented as discontinued operations. The standard also requires expanded disclosures about discontinued operations and is intended to provide financial statement users with information about the ongoing trends in a company's results from continuing operations. ASU No. 2014-08 is effective in the first quarter of 2015 for public entities with calendar year ends. However, companies are permitted to early adopt the standard, beginning in the first quarter of 2014, but only for disposals or classifications as held for sale that have not been reported in financial statements previously issued or available for issuance. We early adopted this standard in the first quarter of 2014 and the adoption did not have a material effect on our financial condition, results of operations, or disclosures.
In May 2014, the FASB and IASB issued their final standard on revenue from contracts with customers. The standard, issued by the FASB as ASU 2014-09, outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including the guidance on real estate derecognition for most transactions. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in ASU 2014-09. For public entities, the ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early application is not permitted. We are assessing the impact of this guidance on our consolidated financial statements and notes to our consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The ASU clarifies that entities should treat performance targets that can be met after the requisite service period of a share-based payment award as performance conditions that affect vesting. Therefore, an entity would not record compensation expense (measured as of the grant date without taking into account the effect of the performance target) related to an award for which transfer to the employee is contingent on the entity’s satisfaction of a performance target until it becomes probable that the performance target will be met. ASU No. 2014-12 will be effective for all entities for reporting periods (including interim periods) beginning after December 15, 2015, and early adoption is permitted. ASU 2014-12 may be adopted either prospectively for share-based payment awards granted or modified on or after the effective date, or retrospectively, using a modified retrospective approach. The modified retrospective approach would apply to share-based payment awards outstanding as of the beginning of the earliest annual period presented in the financial statements on adoption, and to all new or modified awards thereafter. The adoption of this guidance is not anticipated to have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The ASU provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption of this guidance is not anticipated to have a material impact on our consolidated financial statements or notes to our consolidated financial statements.

10
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


3. Investment in Real Estate Activity
Wholly-Owned Property Acquisitions
During the nine months ended September 30, 2014, we acquired the properties listed below. The acquisitions were funded with proceeds from our unsecured revolving credit facility and proceeds from the sale of properties during the fourth quarter of 2013 and third quarter of 2014.
Property
 
Market
 
Date of
Acquisition
 
Purchase
Price ('000s)
 
Net
Rentable
Square
Feet
 
% Leased at 9/30/14
 
 
 
 
 
 
 
 
Property Type
445 Airtech Parkway(1)
 
Indianapolis
 
IN
 
1/2/2014
 
$
30,200

 
622,440

 
100%
 
Industrial
1 Rocket Road(2)
 
Los Angeles - South Bay
 
CA
 
7/31/2014
 
46,650

 
514,753

 
100%
 
Industrial
Total 2014 Wholly-Owned Property Acquisitions
 
$
76,850

 
1,137,193

 
 
 
 
________
(1)
The purchase price includes a $2.8 million deposit paid during the fourth quarter of 2013.
(2)
In connection with this acquisition, we assumed secured debt with an outstanding principal balance of $18.7 million that was recorded at fair value on the acquisition date, resulting in a premium of approximately $1.9 million.
The following table summarizes the preliminary allocation of the fair value of amounts recognized for each major class of assets and liabilities for properties acquired during the nine months ended September 30, 2014 (in thousands):
 
 
445 Airtech Parkway
 
1 Rocket Road
 
Total
Assets
 
 
 
 
 
 
Land
 
$
5,666

 
$
15,672

 
$
21,338

Land Available for Expansion
 
1,070

 
—

 
1,070

Building and Improvements
 
19,443

 
30,355

 
49,798

Acquired In-Place Leases(1)
 
2,596

 
4,479

 
7,075

Deferred Leasing Costs(2)
 
—

 
934

 
934

Other Intangible Assets(3)
 
1,425

 
—

 
1,425

Total Assets Acquired
 
30,200

 
51,440

 
81,640

Liabilities
 
 
 
 
 
 
Acquired Below-Market Leases(4)
 
—

 
2,855

 
2,855

Secured Notes Payable, Net
 
—

 
20,611

 
20,611

Total Liabilities Assumed
 
—

 
23,466

 
23,466

Net Assets Acquired
 
$
30,200

 
$
27,974

 
$
58,174

__________
(1)
Represents acquired in-place leases with a weighted average amortization period of 9.02 years.
(2)
Represents deferred leasing costs with weighted average amortization period of 8.50 years.
(3)
Represents other intangible assets with a weighted average amortization period of 9.92 years.
(4)
Represents acquired below-market leases with a weighted average amortization period of 8.50 years.


11
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


The following table summarizes the combined results of operations for 445 Airtech Parkway and 1 Rocket Road, from January 2, 2014 and July 31, 2014, the respective dates of acquisition, through September 30, 2014 (in thousands):
Revenues
$
2,552

Net Income
$
501

Unaudited pro forma results, assuming the acquisitions of 445 Airtech Parkway and 1 Rocket Road had occurred as of January 1, 2013, are presented below. Non-recurring acquisition costs totaling $0.3 million and $0.6 million are excluded from the 2014 pro forma results and are included in the three and nine months ended September 30, 2013 results as an operating expense.
These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as increased depreciation and amortization expenses as a result of tangible and intangible assets acquired in the acquisitions. These unaudited pro forma results do not purport to be indicative of what operating results would have been had the acquisitions actually occurred on January 1, 2013 and may not be indicative of future operating results (in thousands, except share data).
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Revenues from Continuing Operations
$
68,545

 
$
66,631

 
$
205,726

 
$
188,665

Net Operating Income from Continuing Operations
49,423

 
47,952

 
147,898

 
136,837

Net Income Attributable to Common Shareholders


18,923

 
1,400

 
28,825

 
80,326

Basic and Diluted Net Income per Share Attributable to Common Shareholders
$
0.08

 
$
0.01

 
$
0.12

 
$
0.33

Weighted Average Common Shares Outstanding - Basic and Diluted
236,954,218

 
236,548,477

 
236,847,551

 
244,373,249

Dispositions
During the nine months ended September 30, 2014, we sold Maskew Retail Park, our last retail property. Maskew Retail Park, a 144,400 square foot shopping center located in the United Kingdom, was sold for a gross sales price of $63.0 million with a gain of $13.2 million. In connection with the sale, we paid off secured debt with an outstanding principal of $23.8 million and terminated the related swap prior to the maturity date.


12
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


4. Investments in Unconsolidated Entities
As of September 30, 2014 and December 31, 2013, we owned the following number of properties through unconsolidated entities:
 
Ownership %
 
Number of Properties
 
 
September 30,
 
December 31,
 
 
2014
 
2013
Duke JV
80.0%
 
17

 
18

European JV
80.0%
 
9

 
9

UK JV
80.0%
 
3

 
3

CBRE Strategic Partners Asia
5.07%
 
3

 
3

 
 
 
32

 
33

Investments in unconsolidated entities at September 30, 2014 and December 31, 2013 consist of the following (in thousands):
 
September 30,
 
December 31,
 
2014
 
2013
Duke JV
$
265,458

 
$
292,548

European JV
152,853

 
174,272

UK JV
34,838

 
36,794

Afton Ridge(1)
123

 
1,512

CBRE Strategic Partners Asia
6,939

 
9,676

 
$
460,211

 
$
514,802

__________
(1)
Amount at December 31, 2013 represents cash and an escrow holdback at the joint venture. The Afton Ridge Shopping Center was sold during December 2013.
The following is a summary of the investments in unconsolidated entities for the nine months ended September 30, 2014 and the year ended December 31, 2013 (in thousands):
 
September 30,
 
December 31,
 
2014
 
2013
Investment Balance, January 1
$
514,802

 
$
515,829

Contributions
7,624

 
210,745

Company's Equity in Net Income (including adjustments for basis differences)
11,829

 
12,111

Other Comprehensive (Loss) Income of Unconsolidated Entities
(14,684
)
 
7,293

Conversion of Duke JV Equity Investment to Controlling Interest
—

 
(139,558
)
Distributions
(59,360
)
 
(91,618
)
Investment Balance, End of Period
$
460,211

 
$
514,802


13
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


The combined balance sheets of our investments in unconsolidated entities at September 30, 2014 are as follows (in thousands):
 
Duke JV
 
European JV
 
Other
 
Total
 
 
 
 
Assets
 
 
 
 
 
 
 
Investments in Real Estate(1)
$
378,919

 
$
314,594

 
$
190,998

 
$
884,511

Other Assets
41,768

 
21,237

 
9,999

 
73,004

Total Assets
$
420,687

 
$
335,831

 
$
200,997

 
$
957,515

Liabilities and Equity
 
 
 
 
 
 
 
Secured Notes Payable, net
$
78,690

 
$
141,114

 
$
—

 
$
219,804

Other Liabilities
10,752

 
3,651

 
16,801

 
31,204

Total Liabilities
89,442

 
144,765

 
16,801

 
251,008

CSP Equity
265,458

 
152,853

 
41,900

 
460,211

Other Investors' Equity
65,787

 
38,213

 
142,296

 
246,296

Total Liabilities and Equity
$
420,687

 
$
335,831

 
$
200,997

 
$
957,515

The combined balance sheets of our investments in unconsolidated entities at December 31, 2013 are as follows (in thousands):
 
Duke JV
 
European JV
 
Other
 
Total
 
 
 
 
Assets
 
 
 
 
 
 
 
Investments in Real Estate(1)
$
403,818

 
$
343,642

 
$
243,370

 
$
990,830

Other Assets
52,086

 
35,872

 
15,713

 
103,671

Total Assets
$
455,904

 
$
379,514

 
$
259,083

 
$
1,094,501

Liabilities and Equity
 
 
 
 
 
 
 
Secured Notes Payable, net
$
79,761

 
$
153,651

 
$
—

 
$
233,412

Other Liabilities
11,055

 
8,023

 
17,146

 
36,224

Total Liabilities
90,816

 
161,674

 
17,146

 
269,636

CSP Equity
292,549

 
174,272

 
47,981

 
514,802

Other Investors' Equity
72,539

 
43,568

 
193,956

 
310,063

Total Liabilities and Equity
$
455,904

 
$
379,514

 
$
259,083

 
$
1,094,501

__________
(1)
Includes REIT Basis Adjustments for costs incurred by the Company outside of the Duke JV that are directly capitalizable to its investment in real estate assets acquired, including acquisition costs paid to our former investment advisor prior to January 1, 2009.

14
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


The combined statements of operations for our investments in unconsolidated entities for the three months ended September 30, 2014 and September 30, 2013 are as follows (in thousands):
 
Three Months Ended
 
September 30, 2014
 
September 30, 2013
 
Duke JV
 
European JV
 
Other
 
Total
 
Duke JV
 
European JV
 
Other
 
Total
Total Revenue
$
14,331

 
$
7,114

 
$
4,395

 
$
25,840

 
$
16,680

 
$
4,589

 
$
7,841

 
$
29,110

Operating Expenses
3,980

 
722

 
820

 
5,522

 
5,329

 
742

 
1,188

 
7,259

Net Operating Income
10,351

 
6,392

 
3,575

 
20,318

 
11,351

 
3,847

 
6,653

 
21,851

Depreciation and Amortization
6,611

 
3,061

 
532

 
10,204

 
7,714

 
1,839

 
903

 
10,456

Interest Expense
1,031

 
1,139

 
—

 
2,170

 
2,214

 
564

 
21

 
2,799

Net Income from Continuing
 Operations
2,709

 
2,192

 
3,043

 
7,944

 
1,423

 
1,444

 
5,729

 
8,596

Income from Discontinued
 Operations
—

 
—

 
—

 
—

 
12

 
—

 
—

 
12

Net Income
2,709

 
2,192

 
3,043

 
7,944

 
1,435

 
1,444

 
5,729

 
8,608

Company Share in Net Income
2,168

 
1,754

 
490

 
4,412

 
1,148

 
1,155

 
1,043

 
3,346

Adjustments for REIT basis
(21
)
 
—

 
—

 
(21
)
 
(18
)
 
—

 
(4
)
 
(22
)
CSP Equity in Net Income
$
2,147

 
$
1,754

 
$
490

 
$
4,391

 
$
1,130

 
$
1,155

 
$
1,039

 
$
3,324

The combined statements of operations for our investments in unconsolidated entities for the nine months ended September 30, 2014 and September 30, 2013 are as follows (in thousands):
 
Nine Months Ended
 
September 30, 2014
 
September 30, 2013
 
Duke JV
 
European JV
 
Other
 
Total
 
Duke JV
 
European JV
 
Other
 
Total
Total Revenue
$
43,684

 
$
22,233

 
$
5,258

 
$
71,175

 
$
52,119

 
$
14,216

 
$
36,651

 
$
102,986

Operating Expenses
13,302

 
2,714

 
2,307

 
18,323

 
16,104

 
2,654

 
4,670

 
23,428

Net Operating Income
30,382

 
19,519

 
2,951

 
52,852

 
36,015

 
11,562

 
31,981

 
79,558

Depreciation and Amortization
20,810

 
9,077

 
1,583

 
31,470

 
23,247

 
5,120

 
2,743

 
31,110

Interest Expense
3,106

 
3,437

 
—

 
6,543

 
9,250

 
1,672

 
773

 
11,695

Income from Continuing Operations
6,466

 
7,005

 
1,368

 
14,839

 
3,518

 
4,770

 
28,465

 
36,753

Loss from Discontinued Operations
—

 
—

 
—

 
—

 
(20
)
 
—

 
—

 
(20
)
Net Income
6,466

 
7,005

 
1,368

 
14,839

 
3,498

 
4,770

 
28,465

 
36,733

Company Share in Net Income
5,179

 
5,604

 
1,129

 
11,912

 
2,798

 
3,816

 
3,183

 
9,797

Adjustments for REIT basis
(83
)
 
—

 
—

 
(83
)
 
479

 
—

 
(13
)
 
466

CSP Equity in Net Income
$
5,096

 
$
5,604

 
$
1,129

 
$
11,829

 
$
3,277

 
$
3,816

 
$
3,170

 
$
10,263

Investments in Unconsolidated Entities Activity
On January 16, 2014, the Duke JV sold one multi-tenant office property located in Chicago, Illinois for approximately $13.1 million, of which our pro rata share was approximately $10.5 million.

15
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


On August 15, 2014, CBRE Strategic Partners Asia sold five floors at the Kowloon Commerce Center in Hong Kong for approximately $74.6 million, of which our pro rata share was approximately $1.9 million.
5. Deferred Leasing Costs and Intangible Assets and Liabilities
The following table summarizes our deferred leasing costs and intangible assets, including acquired above-market leases, acquired in-place leases and other intangible assets and intangible liabilities, including acquired below-market leases and acquired above-market ground lease obligations (in thousands):
 
September 30,
 
December 31,
 
2014
 
2013
Deferred Leasing Costs and Intangible Assets, Net:
 
 
 
Deferred Leasing Costs
$
15,459

 
$
11,243

Accumulated Amortization
(4,154
)
 
(3,016
)
Deferred Leasing Costs, Net
11,305

 
8,227

Above-Market Leases
77,180

 
77,180

Accumulated Amortization
(40,775
)
 
(33,577
)
Above-Market Leases, Net
36,405

 
43,603

In-Place Leases
322,387

 
321,776

Accumulated Amortization
(150,593
)
 
(124,734
)
In-Place Leases, Net
171,794

 
197,042

Other Intangible Assets
1,425

 
—

Accumulated Amortization

(127
)
 
—

Other Intangible Assets, Net
1,298

 
—

Total Deferred Leasing Costs and Intangible Assets, Net
$
220,802

 
$
248,872

 
 
 
 
Intangible Liabilities, Net:
 
 
 
Below-Market Leases
$
51,504

 
$
49,751

Accumulated Amortization
(25,804
)
 
(23,022
)
Below-Market Leases, Net
25,700

 
26,729

Above-Market Ground Lease Obligation
1,501

 
1,501

Accumulated Amortization
(213
)
 
(160
)
Above-Market Ground Lease Obligation, Net
1,288

 
1,341

Total Intangible Liabilities, Net
$
26,988

 
$
28,070


16
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


The following table sets forth amortization related to intangible assets and liabilities for the three and nine months ended September 30, 2014 and 2013 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Deferred Leasing Costs(1)
$
423

 
$
236

 
$
1,141

 
$
700

Above-Market Leases(2)
2,250

 
2,664

 
7,198

 
7,901

In-Place Leases(1)
9,162

 
9,210

 
27,915

 
26,712

Other Intangible Assets(1)
127

 
—

 
127

 
—

Below-Market Leases(2)
(1,077
)
 
(708
)
 
(3,142
)
 
(2,873
)
Above-Market Ground Lease Obligation(3)
(18
)
 
(18
)
 
(53
)
 
(53
)
__________
(1)
The amortization of deferred leasing costs, in-place leases and other intangible assets are recorded to depreciation and amortization expense in the condensed consolidated statements of operations for the periods presented.
(2)
The amortization of above-market leases and below-market leases are recorded as reductions and additions to rental income, respectively, in the condensed consolidated statements of operations for the periods presented.
(3)
The amortization of the above-market ground lease obligation is recorded as a decrease to property operating expense in the condensed consolidated statements of operations for the periods presented.
The following is a schedule of future amortization of deferred leasing costs, intangible assets and liabilities as of September 30, 2014 (in thousands):
 
Intangible Assets
 
Intangible Liabilities
 
Deferred Leasing Costs
 
Acquired
Above-Market
Leases
 
Acquired
In-Place
 Leases
 
Other Intangible Assets
 
Acquired
Below-Market
Leases
 
Above-Market
Ground Lease
Obligations
Remaining 2014
$
400

 
$
2,298

 
$
9,107

 
$
36

 
$
1,017

 
$
18

2015
1,539

 
9,082

 
34,806

 
144

 
3,897

 
71

2016
1,395

 
5,540

 
28,017

 
144

 
3,319

 
71

2017
1,255

 
4,399

 
23,580

 
144

 
2,826

 
71

2018
1,175

 
3,897

 
20,676

 
144

 
2,508

 
71

Thereafter
5,541

 
11,189

 
55,608

 
686

 
12,133

 
986

 
$
11,305

 
$
36,405

 
$
171,794

 
$
1,298

 
$
25,700

 
$
1,288


17
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


6. Debt
Secured Debt
Secured notes payable are summarized as follows (in thousands):
Property
 
Stated
Interest Rate
 
Effective Interest Rate(1)
 
Maturity Date
 
Outstanding Balance
 
 
 
 
September 30,
 
December 31,
 
 
 
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
Bolingbrook Point III
 
5.26%
 
5.26%
 
1/1/2015
 
$
7,900

 
$
7,900

One Wayside Road
 
5.66%
 
5.25%
 
8/1/2015
 
13,043

 
13,352

One Wayside Road
 
5.92%
 
5.25%
 
8/1/2015
 
10,935

 
11,169

Lakeside Office Center
 
6.03%
 
6.03%
 
9/1/2015
 
8,649

 
8,743

Celebration Office Center III(2)
 
4.25%
 
2.50%
 
12/1/2015
 
8,863

 
8,998

22535 Colonial Pkwy(2)
 
4.25%
 
2.50%
 
12/1/2015
 
7,930

 
8,051

Northpoint III(2)
 
4.25%
 
2.50%
 
12/1/2015
 
10,262

 
10,419

Goodyear Crossing II(2)
 
4.25%
 
2.50%
 
12/1/2015
 
19,591

 
19,891

3900 North Paramount Parkway(2)
 
4.25%
 
2.50%
 
12/1/2015
 
7,697

 
7,815

3900 South Paramount Parkway(2)
 
4.25%
 
2.50%
 
12/1/2015
 
7,697

 
7,815

1400 Perimeter Park Drive(2)
 
4.25%
 
2.50%
 
12/1/2015
 
2,332

 
2,368

Miramar I(2)
 
4.25%
 
2.50%
 
12/1/2015
 
9,143

 
9,283

Miramar II(2)
 
4.25%
 
2.50%
 
12/1/2015
 
12,315

 
12,503

Deerfield Commons I
 
5.23%
 
5.23%
 
12/1/2015
 
9,170

 
9,290

70 Hudson Street
 
5.65%
 
5.15%
 
4/11/2016
 
114,621

 
116,100

Point West I - Swapped to Fixed
 
3.41%
 
3.41%
 
12/6/2016
 
10,797

 
11,041

100 Tice Blvd
 
5.97%
 
4.38%
 
9/15/2017
 
19,109

 
19,544

100 Tice Blvd
 
5.97%
 
4.38%
 
9/15/2017
 
19,109

 
19,543

4701 Gold Spike Drive(3)
 
4.45%
 
4.45%
 
3/1/2018
 
10,008

 
10,154

1985 International Way(3)
 
4.45%
 
4.45%
 
3/1/2018
 
6,954

 
7,055

3770 Deerpark Boulevard(3)
 
4.45%
 
4.45%
 
3/1/2018
 
7,189

 
7,294

Tolleson Commerce Park II(3)
 
4.45%
 
4.45%
 
3/1/2018
 
4,323

 
4,386

20000 S. Diamond Lake Road(3)
 
4.45%
 
4.45%
 
3/1/2018
 
6,296

 
6,388

Atrium I - swapped to fixed
 
3.78%
 
3.78%
 
5/31/2018
 
21,814

 
22,516

McAuley Place
 
3.98%
 
3.50%
 
9/1/2018
 
12,958

 
13,230

Easton III - Swapped to Fixed
 
3.95%
 
3.95%
 
1/31/2019
 
6,327

 
6,466

90 Hudson Street
 
5.66%
 
5.26%
 
5/1/2019
 
103,854

 
104,928

Fairforest Bldg. 6
 
5.42%
 
6.50%
 
6/1/2019
 
1,836

 
2,086

North Rhett I
 
5.65%
 
6.50%
 
8/1/2019
 
2,072

 
2,405

Kings Mountain II
 
5.47%
 
6.50%
 
1/1/2020
 
3,614

 
4,043

1 Rocket Road
 
6.60%
 
4.50%
 
8/1/2020
 
18,615

 
—

North Rhett II
 
5.20%
 
6.50%
 
10/1/2020
 
1,476

 
1,628

Mount Holly Bldg.
 
5.20%
 
6.50%
 
10/1/2020
 
1,476

 
1,628

Orangeburg Park Bldg.
 
5.20%
 
6.50%
 
10/1/2020
 
1,502

 
1,656


18
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


Property
 
Stated
Interest Rate
 
Effective Interest Rate(1)
 
Maturity Date
 
Outstanding Balance
 
 
 
 
September 30,
 
December 31,
 
 
 
 
2014
 
2013
Kings Mountain I
 
5.27%
 
6.50%
 
10/1/2020
 
1,280

 
1,411

Ten Parkway North
 
4.75%
 
4.75%
 
1/1/2021
 
11,547

 
11,777

Union Cross Bldg. II
 
5.53%
 
6.50%
 
6/1/2021
 
5,938

 
6,471

Union Cross Bldg. I
 
5.50%
 
6.50%
 
7/1/2021
 
1,951

 
2,124

Norman Pointe I
 
5.24%
 
3.50%
 
10/1/2021
 
20,263

 
20,512

Norman Pointe II
 
5.24%
 
3.50%
 
10/1/2021
 
22,308

 
22,583

The Landings I
 
5.24%
 
3.50%
 
10/1/2021
 
15,249

 
15,437

The Landings II
 
5.24%
 
3.50%
 
10/1/2021
 
13,450

 
13,616

Fairforest Bldg. 5
 
6.33%
 
6.50%
 
2/1/2024
 
7,832

 
8,277

North Rhett IV
 
5.80%
 
6.50%
 
2/1/2025
 
8,003

 
8,414

Avion Midrise III & IV(4)
 
5.52%
 
7.00%
 
4/1/2014
 
—

 
19,979

Maskew Retail Park - Swapped to Fixed(5)
 
5.68%
 
5.68%
 
8/10/2014
 
—

 
23,161

12650 Ingenuity Drive(6)
 
5.62%
 
7.50%
 
10/1/2014
 
—

 
11,842

Total Secured Notes Payable
 
 
 
 
 
 
 
617,298

 
665,292

Plus Premium
 
 
 
 
 
 
 
16,015

 
17,294

Less Discount
 
 
 
 
 
 
 
(952
)
 
(1,386
)
Total Secured Notes Payable, Net
 
 
 
 
 
 
 
$
632,361

 
$
681,200

__________
(1)
Represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of any discounts/premiums, excluding debt issuance costs.
(2)
These nine loans are cross-collateralized.
(3)
These five loans are cross-collateralized.
(4)
This loan was paid off in full on January 2, 2014 prior to the maturity date.
(5)
The loan was paid off in full on July 23, 2014 prior to the maturity date.
(6)
This loan was paid off in full on July 1, 2014 prior to the maturity date.

Unsecured Term Loan Facilities
The terms of our unsecured term loan facilities and outstanding balances as of September 30, 2014 and December 31, 2013 are set forth in the table below (in thousands):
Term Loan Facility
 
Unswapped Interest Rate
 
Effective Interest Rate(1)
 
Maturity Date
 
Outstanding Balance
 
 
 
 
September 30,
 
December 31,
 
 
 
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
WF Term Loan #2(2)
 
LIBOR + 1.50%
 
2.49%
 
3/7/2018
 
$
200,000

 
$
200,000

WF Term Loan #3(2)
 
LIBOR + 1.50%
 
3.12%
 
1/15/2019
 
200,000

 
200,000

TD Term Loan(3)
 
LIBOR + 1.75%
 
3.28%
 
3/6/2020
 
50,000

 
50,000

Capital One Term Loan(2)
 
LIBOR + 1.75%
 
4.32%
 
1/31/2021
 
120,000

 
120,000

Total Unsecured Term Loan Facilities
 
 
 
 
 
 
 
$
570,000

 
$
570,000

__________
(1)
Represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the effect of the interest rate swaps, excluding debt issuance costs.
(2)
As of September 30, 2014 and December 31, 2013, the applicable LIBOR rate was 0.155% and 0.165%, respectively, for these loans.
(3)
As of September 30, 2014 and December 31, 2013, the applicable LIBOR rate was 0.155% and 0.16875%, respectively, for this loan.

19
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)



Unsecured Revolving Credit Facility
The terms of our unsecured revolving credit facility are set forth in the table below (in thousands):
 
September 30,
 
December 31,
 
2014
 
2013
Outstanding Borrowings
$
170,044


$
170,044

Remaining Borrowing Capacity
679,956


679,956

Total Borrowing Capacity
$
850,000


$
850,000

Interest Rate(1)
1.45
%

1.47
%
Facility Fee(2)
30 bps


30 bps

Maturity Date(3)
January 15, 2018


January 15, 2018

__________
(1)
Calculated based on one-month LIBOR plus 1.30% as of September 30, 2014 and December 31, 2013.
(2)
The facility fee is based on the unsecured revolving credit facility's total borrowing capacity.
(3)
We may exercise an option to extend the maturity date by one year.
Debt Covenants and Restrictions
Certain of our secured notes payable are subject to certain financial covenants (interest coverage and loan to value).
As of September 30, 2014, our unsecured term loan facilities and revolving credit facility were subject to certain financial covenants that require, among other things: the maintenance of (i) a leverage ratio of not more than 0.60; (ii) a fixed charge coverage ratio of at least 1.50; (iii) a secured leverage ratio of not more than (a) 0.45 prior to September 30, 2014 for the Capital One Term Loan, March 6, 2015 for WF Term Loan #2, WF Term Loan #3, and unsecured revolving credit facility, or September 26, 2015 for the TD Term Loan, or (b) 0.40 thereafter; (iv) an unencumbered leverage ratio of not more than 0.60; (v) an unencumbered interest-service coverage ratio of at least 1.75; (vi) minimum tangible net worth of $1.5 billion plus 85% of the net proceeds of certain future equity issuances; and (vii) unencumbered asset value of at least $400.0 million. In addition, our unsecured term loan facilities and revolving credit facility contain a number of customary non-financial covenants including those restricting liens, mergers, sales of assets, certain investments in unimproved land and mortgage receivables, intercompany transfers, transactions with affiliates and distributions. The Company and certain of its subsidiaries have provided guarantees in connection with our unsecured term loan facilities and revolving credit facility. As of September 30, 2014, we were in compliance with all financial debt covenants.
The minimum principal payments due for our secured notes payable, unsecured term loan facilities and unsecured revolving credit facility are as follows as of September 30, 2014 (in thousands):
Remaining 2014
$
4,121

2015
148,885

2016
134,612

2017
46,822

2018
442,613

Thereafter
580,289

 
$
1,357,342


20
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


7. Risk Management and Use of Financial Instruments
Risk Management
In the course of our ongoing business operations, we encounter economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. We are subject to interest rate risk on our interest-bearing liabilities. Credit risk is primarily the risk of inability or unwillingness of tenants to make contractually required payments and of counterparties on derivatives contracts to fulfill their obligations. Market risk is the risk of declines in the value of our properties due to changes in rental rates, interest rates, supply and demand of similar products and other market factors affecting the valuation of properties.
Derivative Financial Instruments
We utilize interest rate swaps to mitigate the effects of interest rate fluctuations on our variable-rate loans. Our strategy is to use a swap to convert the floating-rate borrowing (usually a secured note payable or an unsecured term loan facility) where LIBOR is consistently applied into a fixed-rate obligation with the only variable piece remaining is the spread between different reset dates when/if the swap and debt are not lined up. We generally enter into an interest rate swap agreement concurrently with the origination of the variable-rate loan for an equivalent principal amount for a period covering the term of the loan, which effectively converts our variable-rate debt to a fixed-rate loan. Our use of derivative instruments, including swaps, is limited by policy to hedging or mitigating commercial risk and we do not use derivative instruments for speculative, trading or investment purposes.
The following table sets forth the terms of our interest rate swaps at September 30, 2014 and December 31, 2013 (amounts in thousands):
 
Notional Amount
 
Fair Value
 
Rate
 
 
 
 
Type of Instrument
September 30,
 
December 31,
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
Index
 
Maturity 
Date
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
 
Interest Rate Swap(1)
$
10,797

 
$
11,041

 
$
(139
)
 
$
(205
)
 
1.3
%
 
1.2
%
 
LIBOR
 
12/6/2016
Interest Rate Swap(2)
200,000

 
200,000

 
2,465

 
2,854

 
0.8
%
 
0.8
%
 
LIBOR
 
3/7/2018
Interest Rate Swap(1)
21,814

 
22,516

 
(290
)
 
(361
)
 
1.6
%
 
1.6
%
 
LIBOR
 
5/31/2018
Interest Rate Swap
200,000

 
200,000

 
(235
)
 
667

 
1.5
%
 
1.4
%
 
LIBOR
 
1/15/2019
Interest Rate Swap(1)
6,327

 
6,466

 
(95
)
 
(86
)
 
1.8
%
 
1.8
%
 
LIBOR
 
1/31/2019
Interest Rate Swap(2)
50,000

 
50,000

 
870

 
1,690

 
1.4
%
 
1.3
%
 
LIBOR
 
3/6/2020
Interest Rate Swap
120,000

 
120,000

 
(3,935
)
 
(1,515
)
 
2.4
%
 
2.4
%
 
LIBOR
 
1/31/2021
Interest Rate Swap(3)
—

 
23,161

 
—

 
(398
)
 
—
%
 
2.9
%
 
GBP LIBOR
 
8/10/2014
__________
(1)
We assumed this swap in connection with the purchase of the Duke Portfolio on March 1, 2013. This swap is considered a hedging instrument under ASC 815-20 as of September 30, 2014. The swap was not considered a hedging instrument under ASC 815-20 during the period from March 1, 2013 to March 31, 2013.
(2)
We entered into these swaps in connection with the origination of the TD Term Loan and WF Term Loan #1 in March 2013. These swaps are considered hedging instruments under ASC 815-20 as of September 30, 2014. These swaps were not considered hedging instruments under ASC 815-20 during the period from March 11, 2013 and March 12, 2013, respectively, to May 29, 2013.
(3)
In connection with the Maskew Retail Park sale we paid off the secured debt with an outstanding principal of $23.8 million and terminated the related swap prior to the maturity date.


21
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


We record all derivative instruments on a gross basis in the condensed consolidated balance sheets. Accordingly, there are no offsetting amounts that net assets against liabilities. The asset and liability balances presented in the table below reflect the gross amounts of derivatives recorded in the consolidated balance sheets (in thousands):
 
Asset Derivatives
 
Liability Derivatives
 
 
 
Fair Value
 
 
 
Fair Value
 
 
 
September 30,
 
December 31,
 
 
 
September 30,
 
December 31,
Type of Instrument
Balance Sheet Location
 
2014
 
2013
 
Balance Sheet Location
 
2014
 
2013
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
Interest Rate Swaps
Prepaid Expenses and Other Assets
 
$
3,335

 
$
5,211

 
Accounts Payable, Accrued Expenses and Other Liabilities
 
$
4,694

 
$
2,565

The table below presents the effect of our derivative instruments on our consolidated statement of operations and consolidated statement of comprehensive income for the three and nine months ended September 30, 2014 and 2013 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Derivatives Designated as Cash Flow Hedges:
 
 
 
 
 
 
 
Gain (Loss) Recognized in Other Comprehensive Income (OCI) (Effective Portion)
$
1,545

 
$
(7,042
)
 
$
(11,041
)
 
$
(3,595
)
Loss Reclassified from AOCI into Interest Expense (Effective Portion)
(2,260
)
 
(910
)
 
(6,955
)
 
(1,686
)
Net Change in Fair Value of Derivative Financial Instruments (Ineffective Portion and Amount Excluded from Effectiveness Testing)
68

 
32

 
80

 
38

Derivatives Not Designated as Cash Flow Hedges:
 
 
 
 
 
 
 
Realized and Unrealized Gain Recognized in Net Change in Fair Value of Non-Qualifying Interest Rate Swaps
$
—

 
$
265

 
$
—

 
$
1,731

Net Settlement Payments from Non-Qualifying Interest Rate Swaps
—

 
(102
)
 
—

 
(1,149
)
Loss Reclassified from AOCI into Gain on Conversion of Equity Interest to Controlling Interest
—

 
(1,414
)
 
—

 
(1,414
)
At September 30, 2014, the Company expects that the hedged forecasted transactions, for each of the outstanding qualifying cash flow hedging relationships, remains probable of occurring. During the next twelve months we anticipate reclassifying $8.0 million of amounts currently recorded in accumulated other comprehensive income to earnings.
Concentration of Credit Risk
Our credit risk relates primarily to cash, restricted cash, and interest rate swap agreements. Cash accounts at each U.S. institution are insured by the Federal Deposit Insurance Corporation up to $250,000 through December 31, 2014.
We have not experienced any losses to date on our invested cash and restricted cash. The interest rate swap agreements create credit risk. Credit risk arises from the potential failure of counterparties to perform in accordance with the terms of their contracts. Our risk management policies define parameters of acceptable market risk and limit exposure to credit risk. Credit exposure resulting from derivative financial instruments is represented by their fair value amounts, increased by an estimate of potential adverse position exposure arising from changes over time in interest rates, maturities, and other relevant factors. We do not anticipate nonperformance by any of our counterparties.

22
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


Our consolidated properties are located throughout the United States and in the United Kingdom. The ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory, and social factors affecting the communities in which the tenants operate. In addition, we do not have any tenant whose rents exceeds 10% of our total rental revenue.
8. Future Minimum Rents
The following is a schedule of future minimum rents to be received on non-cancelable operating leases from consolidated properties as of September 30, 2014 (in thousands):
Remaining 2014
$
51,977

2015
210,548

2016
190,899

2017
173,794

2018
159,108

Thereafter
536,770

 
$
1,323,096

9. Related Party Transactions
Prior to July 1, 2012, all of our business activities were managed by the former investment advisor pursuant to the fourth amended and restated advisory agreement ("Fourth Amended Advisory Agreement"), which terminated according to its terms on June 30, 2012. Effective July 1, 2012, we entered into the Transitional Services Agreement with the former investment advisor pursuant to which the former investment advisor would provide certain consulting related services to us at the direction of our officers and other personnel for a term which ended on April 30, 2013. As part of the Transitional Services Agreement, we paid $2.5 million on the effective date of the agreement to reimburse the former investment advisor for expenses incurred related to personnel costs. In addition, during 2013, we paid $0.7 million to the former investment advisor as a final settlement of the Transitional Services Agreement.
Pursuant to the Transitional Services Agreement, for services provided to us in connection with the investment management of our assets, the former investment advisor was paid an investment management consulting fee payable in cash consisting of (i) a monthly fee equal to one-twelfth of 0.5% of the aggregate cost (before non-cash reserves and depreciation) of all real estate investments within our portfolio and (ii) a monthly fee equal to 5.0% of the aggregate monthly net operating income derived from all real estate investments within our portfolio, subject to certain adjustments. For services provided to us in connection with the acquisition of assets, the former investment advisor or its affiliates was paid acquisition fees up to 1.5% of (i) the contract purchase price of real estate investments acquired by us, or (ii) when we make an investment indirectly through another entity, such investment's pro rata share of the gross asset value of real estate investments held by that entity. The total of all acquisition consulting fees payable with respect to real estate investments did not exceed an amount equal to 6% of the contract purchase price (or 6% of funds advanced with respect to mortgages) provided, however, that a majority of the uninterested members of the Board of Trustees could approve amounts in excess of this limit.
As required by the Transitional Services Agreement, we and the former investment advisor have agreed on a list of unacquired real estate investments for which the former investment advisor has performed certain acquisition related consulting services prior to the termination of the Transitional Service Agreement (a "Qualifying Property"). If any Qualifying Property is acquired by us within the nine months following the termination of the Transitional Services Agreement then we shall pay an acquisition consulting fee equal to 0.75% of (i) the contract purchase price of the real estate investments (including debt), or (ii) when we make an investment indirectly through another entity, such investment's pro rata share of the gross asset value of real estate investments held by that entity to the former investment advisor.
During the nine months ended September 30, 2014, we acquired one Qualifying Property and paid the former investment advisor $0.2 million in acquisition consulting fees. There are no further Qualifying Properties under the Transitional Services Agreement and we do not anticipate paying the former investment advisor any further acquisition consulting fees.

23
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


Previously, pursuant to the Fourth Amended Advisory Agreement and the Transitional Services Agreement, the former investment advisor and its affiliates performed services relating to property management, leasing, construction supervision and management, and brokerage services. The various fees paid to the former investment advisor are summarized in the table below for the three and nine months ended September 30, 2013 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2013
Investment Management Fees
$
—

 
$
489

Transition Services Agreement Fees
—

 
686

Acquisition-Related Fees
—

 
1,472

Property Management Fees(1)
288

 
808

Leasing Commissions(1)
154

 
693

Construction Supervision and Management Fees
—

 
871

Total
$
442

 
$
5,019

__________
(1)
Such fees for each service ranged from 2.0% to 5.0% of gross revenues received from a property that we owned.
10. Equity Incentive Plan and Performance Bonus Plan
Equity Incentive Plan
At our annual shareholders' meeting held on May 31, 2013, our shareholders approved the 2013 equity incentive plan. A description of the material terms of the 2013 equity incentive plan, as well as a copy of the 2013 equity incentive plan, were included in our definitive proxy statement on Schedule 14A filed with the SEC on April 12, 2013. Our key employees, directors, trustees, officers, advisors, consultants or other personnel of ours and our subsidiaries or other persons expected to provide significant services to us or our subsidiaries would be eligible to be granted incentive share options, non-qualified share options, share appreciation rights, restricted shares, restricted share units, dividend equivalent rights and other equity-based awards as contemplated in the 2013 equity incentive plan. As of September 30, 2014, there were 4,041,992 common shares available for grant under the 2013 equity incentive plan.
On January 29, 2014, our Board's independent trustees, Messrs. Charles Black, Mark Brugger, James Francis, James Orphanides and Louis Salvatore, were awarded equity grants under the 2013 equity incentive plan on the following terms: (i) (x) Mr. Black's award was for 20,000 common shares, (y) Messrs. Orphanides and Salvatore each were awarded 5,000 common shares and (z) Messrs. Brugger and Francis each were awarded 1,550 common shares for a total of 33,100 and (ii) each award vested in its entirety, upon issuance.
On February 26, 2014, the Company and Operating Partnership entered into an amendment to Martin A. Reid's employment agreement, effective as of January 1, 2013, increasing Mr. Reid's annual target Long Term Incentive Award to 90,000 restricted common shares of the Company.
On March 15, 2014, a total of 401,875 restricted common shares were granted to our named executive officers (Messrs. Cuneo, Kianka and Reid) based on each executive's achievement of performance objectives during 2013, as determined at the discretion of our Compensation Committee. Additionally, 25 of our employees were granted 143,450 restricted common shares, in the aggregate, on March 15, 2014. One-third of the restricted shares granted to our named executive officers and employees will vest on each of the first three anniversaries of grant if the grantee is employed by the Company on such anniversary. Compensation expense is recognized on a straight-line basis over the service vesting period of three years. We recognized share-based compensation expense of $563,000 and $968,000 during the three and nine months ended September 30, 2014 as a result of granting the awards to our named executive officers and our employees.
On July 31, 2014, the Compensation Committee of the Board of Trustees (the “Compensation Committee”) of the Company adopted and approved an incentive bonus plan, a form of restricted share award agreement, and a form of restricted share unit award agreement that may

24
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


be used in connection with awards made pursuant to the 2013 equity incentive plan from time to time to the Company’s trustees, executive officers and other employees.
The incentive bonus plan is intended to provide additional incentive for key employees of the Company to perform to the best of our abilities, to further the growth, development and financial success of the Company, and to enable us to attract and retain qualified and talented individuals. Restricted shares are awarded to grantees based on a time-based vesting formula. Restricted share units represent a contingent commitment of the Company to issue shares to a grantee based on certain performance-based goals determined by the Compensation Committee.
Summary of Time-Based Restricted Common Shares
A summary of our Time-Based Restricted Common Shares from January 1, 2014 through September 30, 2014 is presented below:
 
Nonvested
 
 
 
Common
Shares
 
Weighted-Average
Grant Date
Fair Value
per Share
 
Vested
Outstanding at January 1, 2014
598,925

 
$
10.00

 
—

Granted
545,325

 
7.74

 
—

Vested 
(317,133
)
 
7.77

 
317,133

Forfeited
(22,917
)
 
8.40

 


Canceled(1)
—

 


 
(95,313
)
Outstanding at September 30, 2014
804,200

 
$
8.68

 
221,820

__________
(1)
47,206 and 48,107 common shares were tendered in accordance with the terms of the 2013 and 2012 equity incentive plan, respectively, to satisfy minimum state tax withholding requirements related to the restricted common shares that have vested. We accept the return of shares at the current quoted closing share price of the Company's common shares on the NYSE to satisfy tax obligations.
 
2014
 
2013
 
(in thousands, except share data)
Compensation Expense Recorded During the Nine Months ended September 30
$
3,452

 
$
5,354

Unamortized Compensation Costs
$
5,823

 
$
4,998

Shares Available for the Future Awards(1)
4,041,992

 
4,597,500

__________
(1)
Shares available for the future awards includes units under the 2013 equity incentive plan.
11. Shareholders' Equity
Common Shares
Under our current declaration of trust, we have the authority to issue a total of 1,000,000,000 shares of beneficial interest. Of the total shares authorized, 990,000,000 shares are designated as common shares, with a par value of $0.01 per share, and 10,000,000 shares are designated as preferred shares, with a par value of $0.01 per share.
At-The-Market Offering
On November 6, 2013, we and CSP OP entered into four separate Equity Distribution Agreements with certain sales agents, pursuant to which we may sell, from time to time, our common shares having an aggregate offering price of up to $250.0 million. Sales of our common shares may be made in ordinary brokers' transactions on the NYSE, in negotiated transactions or transactions that are deemed to be "at the

25
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


market" ("ATM") offerings, including sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices. We may use these proceeds and proceeds from the sale of its debt securities to repay debt, including borrowings under our unsecured revolving credit facility, to make acquisitions of properties or portfolios of properties, or for general corporate purposes. As of September 30, 2014, there have been no sales of common shares under the ATM program.
Accumulated Other Comprehensive Income (Loss)
The following presents the changes in the balances of each component of accumulated other comprehensive income (loss) for the nine months ended September 30, 2014 and 2013 (in thousands):
 
Foreign Currency
Translation Gain (Loss)
 
Swap Fair Value
Adjustment
 
Accumulated
Other Comprehensive
Income (Loss)
Balance at January 1, 2014
$
1,670

 
$
2,926

 
$
4,596

Other Comprehensive Loss Before Reclassifications
(13,793
)
 
(11,041
)
 
(24,834
)
Amounts Reclassified from Accumulated Other Comprehensive Income
—

 
6,955

 
6,955

Balance at September 30, 2014
$
(12,123
)
 
$
(1,160
)
 
$
(13,283
)
 
Foreign Currency
Translation Loss
 
Swap Fair Value
Adjustment
 
Accumulated
Other Comprehensive
Income (Loss)
Balance at January 1, 2013
$
(6,164
)
 
$
(2,423
)
 
$
(8,587
)
Other Comprehensive Income (Loss) Before Reclassifications
2,955

 
(2,181
)
 
774

Amounts reclassified from Accumulated Other Comprehensive Income
—

 
1,686

 
1,686

Balance at September 30, 2013
$
(3,209
)
 
$
(2,918
)
 
$
(6,127
)
12. Fair Value of Financial Instruments and Investments
We apply the three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical financial instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as instruments that have little to no pricing observability as of the reported date. These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
As of September 30, 2014 and December 31, 2013, we held certain items that were required to be measured at fair value on a recurring basis. These included cash equivalents, interest rate swap derivative contracts and our equity method investment in CBRE Strategic Partners Asia. Cash equivalents consist of short-term, highly liquid, income-producing investments, all of which have original maturities of 90 days or less, including money market funds and U.S. Government obligations. Derivative instruments are related to our economic hedging activities with respect to interest rates.
The fair values of the interest rate swap derivative agreements are estimated with the assistance of a third-party valuation specialist using the market standard methodology of discounting the future expected cash payments and receipts on the pay and receive legs of the interest rate swap agreements that swap the estimated variable rate mortgage note payment stream for a fixed rate receive payment stream over the period of the loan. The variable interest rates used in the calculation of projected receipts on the interest rate swap agreements are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements (where appropriate). Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of September 30, 2014 and

26
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


December 31, 2013, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. We have consistently applied these valuation techniques in all periods presented and believe we have obtained the most accurate information available for the types of derivative contracts we hold.
Our investment in CBRE Strategic Partners Asia is based on the Level 3 valuation inputs applied by the Investment Manager of this investment company utilizing a mix of different approaches for valuing the underlying real estate related investments within the investment company. The approaches include the income approach, direct market comparison approach and the replacement cost approach for newer properties. For investments owned more than one year, except for investments under construction or incurring significant renovation, it is CBRE Strategic Partners Asia’s policy to obtain a third-party appraisal. For investments in real estate under construction or incurring significant renovation, the valuation analysis is prepared by the Investment Manager. On a quarterly basis, the Company obtains the financial results of CBRE Strategic Partners Asia and on an annual basis the Company receives audited financial statements.
The following items are measured at fair value on a recurring basis at September 30, 2014 and December 31, 2013 (in thousands):
 
As of September 30, 2014
 
Fair Value Measurements Using:
 
 
 
Quoted
Markets
Prices
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Fair Value
Financial Assets (Liabilities)
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
3,573

 
$
—

 
$
—

 
$
3,573

Interest Rate Swaps Designated as Cash Flow Hedges - Assets
—

 
3,335

 
—

 
3,335

Interest Rate Swaps Designated as Cash Flow Hedges - Liabilities
—

 
(4,694
)
 
—

 
(4,694
)
Investment in CBRE Strategic Partners Asia
—

 
—

 
6,939

 
6,939

 
 
As of December 31, 2013
 
Fair Value Measurements Using:
 
 
 
Quoted
Markets
Prices
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Fair Value
Financial Assets (Liabilities)
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
1,069

 
$
—

 
$
—

 
$
1,069

Interest Rate Swaps Designated as Cash Flow Hedges - Assets
—

 
5,211

 
—

 
5,211

Interest Rate Swaps Designated as Cash Flow Hedges - Liabilities
—

 
(2,565
)
 
—

 
(2,565
)
Investment in CBRE Strategic Partners Asia
—

 
—

 
9,676

 
9,676


27
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


The following table presents our activity for our investment in CBRE Strategic Partners Asia and for the variable rate note payable measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2014 and 2013, respectively (in thousands):
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
Investment in
CBRE Strategic
Partners Asia
Balance at January 1, 2014
 
$
9,676

Distributions
 
(2,724
)
Total Loss on Fair Value Adjustment
 
(13
)
Balance at September 30, 2014
 
$
6,939


Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
Investment in
CBRE Strategic
Partners Asia
 
Secured notes payable - Albion Mills(1)
Balance at January 1, 2013
 
$
8,098

 
$
(9,288
)
Total Income (Loss) on Fair Value Adjustment
 
1,327

 
(78
)
Translation Adjustment in Other Comprehensive Income
 
—

 
28

Balance at September 30, 2013
 
$
9,425

 
$
(9,338
)
__________
(1)
We repaid the debt secured by Albion Mills Retail Park in October 2013.
Gains and losses (realized and unrealized) included in earnings related to Albion Mills note payable for the three and nine months ended September 30, 2013, are reported as components of "Other Income and Expense" on the consolidated statements of operations.
Disclosure of Fair Value Financial Instruments
For disclosure purposes only, the following table summarizes our notes payable and their estimated fair value at September 30, 2014 and December 31, 2013 (in thousands):
 
 
Carrying Value
 
Fair Value
Financial Instrument
 
September 30, 2014
 
December 31, 2013
 
September 30, 2014
 
December 31, 2013
Secured Notes Payable(1)
 
$
632,361

 
$
681,200

 
$
707,460

 
$
721,728

Unsecured Term Loan Facilities(1)
 
$
570,000

 
$
570,000

 
$
574,160

 
$
570,272

Unsecured Revolving Credit Facility(2)
 
$
170,044

 
$
170,044

 
$
170,044

 
$
170,044

__________
(1)
Items are measured using Level 2 inputs.
(2)
Item is measured using Level 1 inputs.
These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

28
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


13. Commitments and Contingencies
Ground Leases - We own a property that is subject to a long-term noncancellable ground lease obligation that contractually expires on November 30, 2032. We have three ten-year renewal options that will allow us to extend the expiration of the ground lease through November 30, 2062. The minimum commitment under the ground lease as of September 30, 2014 and thereafter is as follows (in thousands):
Remaining 2014
$
68

2015
273

2016
273

2017
273

2018
276

Thereafter
4,782

 
$
5,945

Litigation—From time to time, we and our properties may be subject to legal proceedings, which arise in the ordinary course of our business. Currently, neither our Company nor any of our properties are subject to, or threatened with, any legal proceedings for which the outcome is reasonably likely to have a material adverse effect on our financial statements.
Environmental Matters—We are not aware of any material environmental liability or any unasserted claim or assessment with respect to a material environmental liability that we believe would require additional disclosure or the recording of a loss contingency.
14. Segment Disclosure
As a result of the reassessment of our reportable segments during the period ended March 31, 2014, we view our consolidated property operations as two reportable segments: Industrial Properties and Office Properties. In addition, we had one non-reportable segment, which was Retail Properties. However, during the third quarter ended September 30, 2014 we sold our last remaining retail property, therefore, eliminating the non-reportable segment from future reportable presentations. We reclassified the prior period segment financial results to conform to the current year presentation. Management internally evaluates the operating performance and financial results of our segments based on net operating income. We also have certain general and administrative level activities including legal, accounting, tax preparation and shareholder servicing costs that are not considered separate operating segments.
We evaluate the performance of our segments based on net operating income, defined as: rental income, tenant reimbursements and other property income less property and related expenses (operating and maintenance and real estate taxes) and excludes other non-property income and expenses, interest expense, depreciation and amortization, and corporate general and administrative expenses.

29
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


The following table compares the net operating income for the three and nine months ended September 30, 2014 and 2013 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Industrial Properties
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Rental
$
15,116

 
$
13,548

 
$
43,241

 
$
40,259

Tenant Reimbursements
3,997

 
3,426

 
11,967

 
12,223

Other Property Income
537

 
—

 
537

 
—

Total Revenues
19,650

 
16,974

 
55,745

 
52,482

Property and Related Expenses:
 
 
 
 
 
 
 
Property Operating
1,490

 
1,015

 
4,196

 
2,894

Real Estate Taxes
3,235

 
3,414

 
9,965

 
10,976

Total Property and Related Expenses
4,725

 
4,429

 
14,161

 
13,870

Net Operating Income
$
14,925

 
$
12,545

 
$
41,584

 
$
38,612

Office Properties
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Rental
$
37,022

 
$
36,171

 
$
110,737

 
$
101,713

Tenant Reimbursements
11,243

 
10,638

 
33,019

 
27,593

Other Property Income
—

 
—

 
1,069

 
—

Total Revenues
48,265

 
46,809

 
144,825

 
129,306

Property and Related Expenses:
 
 
 
 
 
 
 
Property Operating
7,615

 
7,409

 
22,714

 
19,445

Real Estate Taxes
6,692

 
6,477

 
20,228

 
17,619

Total Property and Related Expenses
14,307

 
13,886

 
42,942

 
37,064

Net Operating Income
$
33,958

 
$
32,923

 
$
101,883

 
$
92,242

Other Properties
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Rental
$
253

 
$
951

 
$
2,322

 
$
2,869

Tenant Reimbursements
(21
)
 
52

 
48

 
117

Total Revenues
232

 
1,003

 
2,370

 
2,986

Property and Related Expenses:
 
 
 
 
 
 
 
Property Operating
8

 
65

 
148

 
152

Real Estate Taxes
—

 
—

 
—

 
—

Total Property and Related Expenses
8

 
65

 
148

 
152

Net Operating Income
$
224

 
$
938

 
$
2,222

 
$
2,834


30
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Reconciliation to Consolidated Net Income
 
 
 
 
 
 
 
Total Segment Net Operating Income
$
49,107

 
$
46,406

 
$
145,689

 
$
133,688

Expenses:
 
 
 
 
 
 
 
General and Administrative
7,230

 
5,514

 
20,047

 
17,708

Investment Management Fee
—

 
—

 
—

 
489

Acquisition-Related
265

 
175

 
555

 
2,178

Depreciation and Amortization
27,208

 
26,435

 
81,572

 
74,802

Transition and Listing Expenses
—

 
1,447

 
—

 
12,681

 
14,404

 
12,835

 
43,515

 
25,830

Other Expenses and Income
 
 
 
 
 
 
 
Interest and Other Income
255

 
618

 
573

 
1,105

Interest Expense
(13,685
)
 
(12,902
)
 
(41,653
)
 
(32,456
)
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
68

 
163

 
80

 
582

Gain on Asset Disposition, Net
13,175

 
—

 
13,175

 
—

Loss on Early Extinguishment of Debt
—

 
(1,572
)
 
—

 
(1,572
)
(Loss) Gain on Conversion of Equity Interest to Controlling Interest
—

 
(1,667
)
 
—

 
75,536

Income (Loss) Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities

14,217

 
(2,525
)
 
15,690

 
69,025

Provision for Income Taxes
(140
)
 
(54
)
 
(579
)
 
(274
)
Equity in Income of Unconsolidated Entities
4,391

 
3,324

 
11,829

 
10,263

Income from Continuing Operations
18,468

 
745

 
26,940

 
79,014

Discontinued Operations
 
 
 
 
 
 
 
Income from Discontinued Operations
—

 
114

 
—

 
295

Total Income From Discontinued Operations
—

 
114

 
—

 
295

Net Income
$
18,468

 
$
859

 
$
26,940

 
$
79,309

 
September 30,
 
December 31
Condensed Assets
2014
 
2013
Industrial Properties
$
793,982

 
$
725,566

Office Properties
1,587,977

 
1,639,875

Other Properties
—

 
50,209

Non-Segment Assets(1)
507,770

 
594,946

Total Assets
$
2,889,729

 
$
3,010,596

_________
(1)
Non-segment assets primarily include our investments in unconsolidated entities.

31
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


15. Earnings per Share Attributable to Common Shareholders
The following table reconciles the numerator and denominator in computing the Company's basic and diluted per-share computations for net income attributable to common shareholders for the three and nine months ended September 30, 2014 and 2013 is as follows (in thousands except share data):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Income from Continuing Operations
$
18,468

 
$
745

 
$
26,940

 
$
79,014

Income from Continuing Operations Attributable to
     Noncontrolling Interests
—

 
(3
)
 
—

 
(82
)
Allocation to Participating Securities (Nonvested Time-Based Shares)
(101
)
 
(75
)
 
(353
)
 
(285
)
Numerator for Basic and Diluted Income from Continuing Operations
18,367

 
667

 
26,587

 
78,647

Income from Discontinued Operations
—

 
114

 
—

 
295

Numerator for Basic and Diluted Net Income Attributable to Common Shareholders
$
18,367

 
$
781

 
$
26,587

 
$
78,942

Denominator:
 
 


 
 
 
 
Basic Weighted Average Vested Shares Outstanding
236,954,218

 
236,548,477

 
236,847,551

 
244,373,249

Effect of Dilutive Securities - Performance-Based Shares
—

 
—

 
—

 
—

Diluted Weighted Average Vested Shares Outstanding
236,954,218

 
236,548,477

 
236,847,551

 
244,373,249

Basic and Diluted Earnings Per Share:
 
 
 
 
 
 
 
Income from Continuing Operations Attributable to Common Shareholders per Share
$
0.08

 
$
0.00

 
$
0.11

 
$
0.32

Income from Discontinued Operations Attributable to Common Shareholders per Share
$
0.00

 
$
0.00

 
$
0.00

 
$
0.00

Net Income Attributable to Common Shareholders per Share
$
0.08

 
$
0.00

 
$
0.11

 
$
0.32

16. Subsequent Events
On October 24, 2014, the Company completed the acquisition of 1659 Sauget, an industrial property of approximately 502,500 square feet in Sauget, Illinois, for $21.1 million. The property is 100% net leased to two tenants through 2019 and 2020.
On October 27, 2014, our Board of Trustees approved a monthly distribution of $0.0425 per common share for each of the months of January, February and March of 2015. The January dividend will be paid on February 6, 2015 to all shareholders of record on January 30, 2015, the February dividend will be paid on March 6, 2015 to all shareholders of record on February 27, 2015, and the March dividend will be paid on April 8, 2015 to all shareholders of record on March 31, 2015.
On November 3, 2014, we entered into amended and restated indemnification agreements (the "Amended Indemnification Agreements") with each of the Company’s trustees and executive officers. The Amended Indemnification Agreements generally contain the same terms and conditions as the original indemnification agreements entered into by and between us and each trustee and executive officer, except for the following changes: (i) requiring a final adjudication, not subject to appeal, of exceptions to indemnification coverage; (ii) providing enhanced protection for attorney-client privilege and prohibiting our ability to raise arguments regarding validity of the indemnification agreement; (iii) eliminating our option to assume the defense of an indemnitee; (iv) enhancing an indemnitee's ability to obtain reimbursement of defense

32
CHAMBERS STREET PROPERTIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)


costs; (v) prohibiting the cancellation of trustee and officer insurance coverage without notice to an indemnitee; (vi) creating primacy in our obligations to indemnify the indemnitee; and (vii) requiring us to provide information to an indemnitee to assist in such indemnitee's defense.
The above description of the Amended Indemnification Agreements does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the form of amended and restated indemnification agreement, which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated by reference into this Item 5 "Other Information."




33

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Explanatory Note
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements, the notes thereto, and the other financial data included elsewhere in this Form 10-Q.
Cautionary Note Regarding Forward-Looking Statements
This document contains various "forward-looking statements." You can identify forward-looking statements by the use of forward-looking terminology such as "believes," "expects," "may," "will," "would," "could," "should," "seeks," "approximately," "intends," "plans," "projects," "estimates" or "anticipates" or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Statements regarding the following subjects may be impacted by a number of risks and uncertainties:
•
our business strategy;
•
our ability to obtain future financing arrangements;
•
estimates relating to our future distributions;
•
our understanding of our competition;
•
market trends;
•
projected capital expenditures;
•
the impact of technology on our assets, operations and business; and
•
the use of the proceeds of any offerings of securities.
The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our common shares of beneficial interest $0.01 par value (the "common shares"), along with the following factors that could cause actual results to vary from our forward-looking statements:
•
general volatility of the securities markets in which we participate;
•
national, regional and local economic climates;
•
changes in supply and demand for industrial and office properties;
•
adverse changes in the real estate markets, including increasing vacancy, increasing competition and decreasing rental revenue;
•
availability and credit worthiness of prospective tenants;
•
our ability to maintain rental rates and maximize occupancy;
•
our ability to identify and secure acquisitions;
•
our failure to successfully manage growth or operate acquired properties;
•
our pace of acquisitions and/or dispositions of properties;
•
risks related to development projects (including construction delay, cost overruns or our inability to obtain necessary permits);
•
payment of distributions from sources other than cash flows and operating activities;
•
receiving and maintaining corporate debt ratings and changes in the general interest rate environment;
•
availability of capital (debt and equity);
•
our ability to refinance existing indebtedness or incur additional indebtedness;
•
failure to comply with our debt covenants;

34

•
unanticipated increases in financing and other costs, including a rise in interest rates;
•
the actual outcome of the resolution of any conflict;
•
material adverse actions or omissions by any of our joint venture partners;
•
our ability to operate as a self-managed company;
•
availability of and ability to retain our executive officers and other qualified personnel;
•
future terrorist attacks or epidemics in the United States or abroad;
•
the ability of CSP Operating Partnership, LP ("CSP OP") to qualify as a partnership for U.S. federal income tax purposes;
•
our ability to qualify as a self-administered real estate investment trust ("REIT") for U.S. federal income tax purposes;
•
foreign currency fluctuations;
•
changes to accounting principles and policies and guidelines applicable to REITs;
•
legislative or regulatory changes adversely affecting REITs and the real estate business;
•
environmental, regulatory and/or safety requirements; and
•
other factors discussed under Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2013 and those factors that may be contained in any filing we make with the Securities and Exchange Commission (the "SEC"), including Part II, Item 1A of Form 10-Qs.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise. For a further discussion of these and other factors that could impact our future results, performance or transactions, see Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2013, and Item 1A,"Risk Factors" in this quarterly report on Form 10-Q.
Overview
We are a self-administered REIT focused on acquiring, owning and managing net leased industrial and office properties leased to creditworthy tenants. Our experienced management team manages our day-to-day operations, with certain services provided by third parties. All of our real estate investments are held directly by, or indirectly through wholly-owned subsidiaries of CSP OP of which we are the 100% owner and sole general partner. We have elected to be taxed as a REIT for U.S. federal income tax purposes.
We were formed in Maryland on March 30, 2004 and commenced operations in July 2004 following an initial private placement of our common shares. Jack A. Cuneo, our founder, President and Chief Executive Officer, developed the initial business plan to establish our Company. Since that time, we have raised equity capital of approximately $2.5 billion in gross proceeds through two public offerings of our common shares to finance our real estate investment activities.
On May 21, 2013, we listed our common shares on the New York Stock Exchange (the "NYSE") under the symbol "CSG" and concurrently commenced a modified "Dutch Auction" tender offer to purchase up to $125.0 million in value of the common shares (the "Tender Offer") from our shareholders, which was completed on June 26, 2013.
As of September 30, 2014, we owned, on a consolidated basis, 100 industrial (primarily warehouse/distribution) and office properties located in 19 U.S. states (Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Texas and Virginia) and in the United Kingdom, encompassing approximately 23.5 million rentable square feet. Our consolidated properties were approximately 96.1% leased (based upon rentable square feet) as of September 30, 2014. As of September 30, 2014, 76 of our consolidated properties were net leased to single tenants, which encompassed approximately 19.2 million rentable square feet.
In addition, we owned, on an unconsolidated basis, 29 industrial (primarily warehouse/distribution) and office properties located in eight U.S. states (Arizona, Florida, Illinois, Indiana, North Carolina, Ohio, Tennessee and Texas) and in three European countries (France, Germany and the United Kingdom) encompassing approximately 12.8 million rentable square feet. Our unconsolidated properties were approximately 99.5% leased (based upon rentable square feet) as of September 30, 2014. As of September 30, 2014, 20 of our unconsolidated properties were net leased to single tenants, which encompassed approximately 11.5 million rentable square feet.

35

Unless the context otherwise requires or indicates, references to the "Company," "we," "our" and "us" refer to the activities of and the assets and liabilities of the business and operations of Chambers Street Properties and its subsidiaries. References to unconsolidated properties include properties owned through unconsolidated joint ventures and do not include properties owned by CB Richard Ellis Strategic Partners Asia II-A, L.P. ("CBRE Strategic Partners Asia").
Business Strategy
We focus on investing in industrial and office properties that are primarily net leased to investment grade or creditworthy tenants on long-term leases through acquisitions of existing properties or build-to-suit projects. We believe the credit quality of many of our tenants, the length of our leases, the relatively modest capital expense requirements of our industrial properties and our single-tenant focus help us to enhance shareholder value. We monitor the credit of our tenants to stay abreast of any material changes in credit quality. We monitor tenant credit by (1) reviewing the credit ratings of tenants (or their parent companies) that are rated by nationally recognized rating agencies, (2) reviewing financial statements that are publicly available or that are required to be delivered to us under the applicable lease, (3) monitoring news reports regarding our tenants and their underlying businesses and (4) monitoring the timeliness of rent collections. We also believe that our senior management team's extensive experience will allow us to identify and consummate the acquisition and development of high-quality net leased properties. Our strategy is to grow our portfolio with properties targeted to provide steady income, sustaining tenant relationships and enhancing the value of our existing properties. We continue to execute our strategy and expand our portfolio through the following:
Acquisitions. We believe high-quality industrial and office properties, which are net leased to tenants with strong credit profiles, represent attractive investments. We target acquisitions in markets with above-average projected rental growth, strong tenant demand and significant barriers to new construction. During the nine months ended September 30, 2014, we continued to expand our portfolio with the purchase of two wholly-owned properties for $76.9 million, each of which is fully leased to a creditworthy tenant.
Build-to-Suit Opportunities. We also intend to pursue build-to-suit opportunities that have attractive development yields and tenants with strong credit profiles, under long-term triple net leases.
Maximize Cash Flow Through Internal Growth. We seek investments with fixed rent escalations over long term leases that provide stable, increasing cash flow. We have typically structured our property acquisitions to achieve a positive spread between our cost of capital and the yields achieved on our investments. Our existing leases typically have embedded rental rate growth as the majority of them provide for periodic increases in rent.
Capital Recycling. We intend to pursue a disciplined capital allocation strategy by selectively disposing of properties that are no longer consistent with our investment strategy or whose returns appear to have been maximized. To the extent that we dispose of properties, we intend to redeploy the capital into investment opportunities that we believe are more attractive, or to reduce debt. During the nine months ended September 30, 2014, consistent with our investment strategy to focus on single-tenant industrial and office properties, we sold one multi-tenant office property held in the Duke JV for approximately $13.1 million, of which our pro rata share was approximately $10.5 million. We also sold our last retail property located in the United Kingdom for approximately $63.0 million at a gain of $13.2 million. The sale of this asset represents the completion of our exit from retail properties.
Actively Manage a Strong and Flexible Capital Structure. We expect to maintain a prudent capital structure with access to multiple sources of equity and debt financing. We continue to stagger our debt maturities and utilize a balance of secured and unsecured borrowings. We continue to have a mix of fixed and floating-rate debt and intend to maintain modest total leverage. As a means to reduce our exposure to foreign currency fluctuations, we endeavor to retain debt in the local currency of our international properties.
During the nine months ended September 30, 2014, we completed the following activities in order to maintain a prudent capital structure:
•
On January 2, 2014, we paid off the notes payable secured by Avion III and IV in the amount of $20.0 million.

36

•
On January 7, 2014, we received a BBB- corporate rating from Standard and Poor's Rating Services ("S&P"). S&P also gave us a stable outlook, reflecting our high-quality real estate portfolio and selective acquisition strategy, which S&P believes will support solid revenue and earnings growth in the near future.
•
On July 1, 2014, we repaid a $11.6 million note payable prior to its maturity date of October 1, 2014.
•
On July 23, 2014, in connection with the Maskew Retail Park sale we paid off the secured notes payable of $23.8 million and terminated the related swap agreement.
•
On July 31, 2014, in connection with the 1 Rocket Road acquisition we assumed secured debt with an outstanding principal balance of $18.7 million and a premium balance of $1.9 million.
Factors that May Influence the Results of Operations
Economic conditions, leasing activity and real estate capital availability all improved throughout 2013 and this trend has continued into 2014.
Whereas industrial and office leasing activity in the immediately preceding years was substantially weighted toward large corporate tenants, starting in 2013 activity trended towards normalization in the market for smaller tenants.  Much of this activity has been driven by increasing activity in the single-family home market. Brokers, title companies, developers, contractors and material providers all require office and/or warehouse space for their businesses. However, growth in demand for space was by no means exclusive to these industries, and activity remains relatively stable for the large, corporate user as well.
In concert with this leasing activity, market rent trends remain positive in most major markets. Driven by market rent growth and investor demand, construction and development activity has continued to increase, including both single-tenant build-to-suit and speculative projects. Beginning in 2013 we observed speculative construction activity expanding to a wider selection of markets, although development still remains below long-term averages.
Debt and equity capital availability for commercial real estate investment continued to improve during 2013 and into 2014, resulting in increasing competition to acquire properties. Even with this increased competition, we remain well positioned to acquire properties that fit our investment parameters, due to our strong liquidity position, modest near-term capital needs and excellent portfolio. We intend to continue to focus our strategy on enhancing the value of our existing properties, sustaining our tenant relationships, and growing our portfolio by continuing to selectively acquire high-quality and well-leased properties.

37

Leasing Activity

Our ability to maintain high occupancy rates is a principal driver of maintaining and increasing rental revenue. Our leasing activity for the three months ended September 30, 2014 is presented in the table below:
 
 
 
Prior Lease (1)
New Lease (1)
 
 
 
Square Feet
 
Annualized Base Rent(2)
 
Annualized Base Rent(2)
 
Tenant
Improve-
ments
& Leasing
Commis-
sions(4)
 
Average Lease Term (in years)(5)
 
 
Cash
 
GAAP(3)
 
Cash
 
GAAP(3)
 
 
Industrial Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
586,328

 
$
2,494

 
$
2,440

 
$
2,572

 
$
3,027

 
$
539

 
5.22

New Tenants - Previously Leased Space(6)
363,872

 
1,721

 
1,668

 
1,458

 
1,525

 
1,391

 
4.74

New Tenants - Not Previously Leased Space(7)
342,783

 
—

 
—

 
1,068

 
1,163

 
3,122

 
8.61

Total Consolidated
1,292,983

 
4,215

 
4,108

 
5,098

 
5,715

 
5,052

 
5.79

Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
225,106

 
1,542

 
1,607

 
1,556

 
1,556

 
337

 
3.96

Total Unconsolidated
225,106

 
1,542

 
1,607

 
1,556

 
1,556

 
337

 
3.96

Consolidated & Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
811,434

 
4,037

 
4,047

 
4,128

 
4,583

 
876

 
4.74

New Tenants - Previously Leased Space(6)
363,872

 
1,721

 
1,668

 
1,458

 
1,525

 
1,391

 
4.75

New Tenants - Not Previously Leased Space(7)
342,783

 
—

 
—

 
1,068

 
1,163

 
3,122

 
8.61

Total Consolidated & Unconsolidated
1,518,089

 
5,758

 
5,715

 
6,654

 
7,271

 
5,389

 
5.36

Office Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
20,886

 
283

 
241

 
270

 
259

 
116

 
4.00

New Tenants - Not Previously Leased Space(7)
33,919

 
—

 
—

 
857

 
856

 
155

 
1.38

Total Consolidated
54,805

 
283

 
241

 
1,127

 
1,115

 
271

 
2.01

Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
8,779

 
99

 
90

 
92

 
95

 
90

 
5.50

New Tenants - Previously Leased Space(6)
2,070

 
19

 
19

 
22

 
24

 
—

 
5.00

Total Unconsolidated
10,849

 
118

 
109

 
114

 
119

 
90

 
5.40

Consolidated & Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
29,665

 
382

 
331

 
362

 
354

 
206

 
4.38

New Tenants - Previously Leased Space(6)
2,070

 
19

 
19

 
22

 
24

 
—

 
5.00

New Tenants - Not Previously Leased Space(7)
33,919

 
—

 
—

 
857

 
856

 
155

 
1.38

Total Consolidated & Unconsolidated
65,654

 
401

 
350

 
1,241

 
1,234

 
361

 
2.32

Total Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
607,214

 
2,777

 
2,681

 
2,842

 
3,286

 
655

 
5.10

New Tenants - Previously Leased Space(6)
363,872

 
1,721

 
1,668

 
1,458

 
1,525

 
1,391

 
4.75

New Tenants - Not Previously Leased Space(7)
376,702

 
—

 
—

 
1,925

 
2,019

 
3,277

 
5.39

Total Consolidated
1,347,788

 
4,498

 
4,349

 
6,225

 
6,830

 
5,323

 
5.11

Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
233,885

 
1,641

 
1,697

 
1,648

 
1,651

 
427

 
4.04

New Tenants - Previously Leased Space(6)
2,070

 
19

 
19

 
22

 
24

 
—

 
5.00

Total Unconsolidated
235,955

 
1,660

 
1,716

 
1,670

 
1,675

 
427

 
4.06

Consolidated & Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
841,099

 
4,418

 
4,378

 
4,490

 
4,937

 
1,082

 
4.71

New Tenants - Previously Leased Space(6)
365,942

 
1,740

 
1,687

 
1,480

 
1,549

 
1,391

 
4.75

New Tenants - Not Previously Leased Space(7)
376,702

 
—

 
—

 
1,925

 
2,019

 
3,277

 
5.39

Total Consolidated & Unconsolidated
1,583,743

 
$
6,158

 
$
6,065

 
$
7,895

 
$
8,505

 
$
5,750

 
4.88

__________
(1)
Prior lease amounts represent rents in place at the time of expiration or termination. New lease amounts represent rents in place at the time of lease commencement.
(2)
Cash Annualized Base Rent for each lease equals (i) 12 times the monthly cash base rent due as of September 30, 2014, or (ii) for any lease still in an initial free or reduced rent period as of September 30, 2014, 12 times the monthly cash base rent due upon expiration of the initial free or reduced rent period. U.S. Generally

38

Accepted Accounting Principles ("GAAP") Annualized Base Rent includes the effect of straight-line rent. Cash and GAAP annualized base rent amounts for unconsolidated properties are included at pro rata share.
(3)
GAAP amounts for prior leases include above/below market rents if applicable.
(4)
Includes tenant improvement costs and lease commissions incurred to execute the lease and not necessarily paid in the current quarter.
(5)
Weighted average initial lease term (in years) weighted by annualized cash base rent.
(6)
Represents leases signed to new tenants for space that was previously leased since the later of (i) twelve months ago or (ii) the date we acquired the property.
(7)
Represents leases signed to new tenants for space that was not previously leased since the later of (i) twelve months ago or (ii) the date we acquired the property.
The following table sets forth percentage leased and average annual net effective rent information regarding our total portfolio of consolidated properties and unconsolidated properties as of September 30, 2014 and 2013. Percentage leased information is presented at 100% and average annual net effective rent information is presented at our pro-rata share for our unconsolidated properties (in thousands, except percentage and per square foot data):
 
Total Square Feet
 
% of Total Square Feet
 
% Leased
 
Average Annual
Net Effective Rent(1)
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
Consolidated Properties:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
7,559

 
7,559

 
32.2
%
 
33.1
%
 
96.8
%
 
97.2
%
 
$
148,491

 
$
149,214

 
Industrial
15,894

 
15,032

 
67.8
%
 
66.0
%
 
95.8
%
 
93.0
%
 
62,893

 
55,909

 
Other
—

 
200

 
—
%
 
0.9
%
 
—%

 
100.0
%
 
—

 
4,818

 
Total
23,453

 
22,791

 
100.0
%
 
100.0
%
 
96.1
%
 
94.4
%
 
$
211,384

 
$
209,941

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated Properties:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
1,202

 
1,559

 
9.4
%
 
13.3
%
 
94.3
%
 
93.3
%
 
$
20,164

 
$
25,299

 
Industrial
11,627

 
9,893

 
90.6
%
 
84.2
%
 
100.0
%
 
100.0
%
 
54,624

 
43,338

 
Other
—

 
296

 
—
%
 
2.5
%
 
—%

 
97.9
%
 
—

 
3,711

 
Total
12,829

 
11,748

 
100.0
%
 
100.0
%
 
99.5
%
 
99.1
%
 
$
74,788

 
$
72,348

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated and Unconsolidated Properties:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
8,761

 
9,118

 
24.1
%
 
26.4
%
 
96.4
%
 
96.5
%
 
$
168,655

 
$
174,513

 
Industrial
27,521

 
24,925

 
75.9
%
 
72.2
%
 
97.6
%
 
95.8
%
 
117,517

 
99,247

 
Other
—

 
496

 
—
%
 
1.4
%
 
—%

 
98.8
%
 
—

 
8,529

 
Total
36,282

 
34,539

 
100.0
%
 
100.0
%
 
97.3
%
 
96.0
%
 
$
286,172

 
$
282,289

 
__________
(1)
Average Annual Net Effective Rent is calculated as the total average annual cash base rental payments, adjusted for free rent periods. There is no effect given to other landlord concessions and excludes payments received from tenants for reimbursement of real estate taxes and operating expenses.

39

Tenant Lease Expirations
Our ability to maintain occupancy rates, and net effective rents, primarily depends upon our continuing ability to re-lease expiring space. We have limited near term lease expirations with an average remaining lease term of 6.41 years as of September 30, 2014. In addition, approximately 96.2% of our base rent is scheduled to expire after 2015. The following table sets forth a schedule of expiring leases for our consolidated and unconsolidated properties as of September 30, 2014 (Expiring Net Rentable Square Feet and Expiring Base Rent in thousands):
 
Consolidated Properties
 
Unconsolidated
Properties(1)
 
Consolidated &
Unconsolidated
Properties(1)
 
Expiring
Net Rentable
Square Feet
 
Expiring
Base Rent
 
Expiring
Net Rentable
Square Feet
 
Expiring
Base Rent
 
Number Of
Expiring
Leases
 
Expiring
Net Rentable
Square Feet
 
Expiring
Base Rent
 
Percentage
of Expiring
Base Rent
Remaining 2014
412

 
$
2,185

 
6

 
$
95

 
11

 
418

 
$
2,280

 
0.8
%
2015
912

 
5,186

 
540

 
3,598

 
31

 
1,452

 
8,784

 
3.0
%
2016
1,740

 
31,114

 
235

 
2,058

 
28

 
1,975

 
33,172

 
11.3
%
2017
737

 
11,018

 
1,016

 
6,718

 
27

 
1,753

 
17,736

 
6.1
%
2018
1,748

 
20,589

 
2,222

 
11,870

 
37

 
3,970

 
32,459

 
11.1
%
2019
3,420

 
25,227

 
2,878

 
11,981

 
31

 
6,298

 
37,208

 
12.7
%
2020
1,871

 
18,605

 
29

 
312

 
17

 
1,900

 
18,917

 
6.5
%
2021
4,871

 
40,505

 
2,167

 
9,431

 
23

 
7,038

 
49,936

 
17.0
%
2022
663

 
7,908

 
1,360

 
6,478

 
6

 
2,023

 
14,386

 
4.9
%
2023
2,820

 
27,590

 
1,188

 
5,366

 
15

 
4,008

 
32,956

 
11.2
%
Thereafter
3,353

 
39,746

 
1,119

 
5,363

 
22

 
4,472

 
45,109

 
15.4
%
Total
22,547

 
$
229,673

 
12,760

 
$
63,270

 
248

 
35,307

 
$
292,943

 
100.0
%
Weighted Average Remaining Term (Years) (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Triple Net Single-Tenant Properties(3)
 
 
6.81

 
 
 
6.42

 
 
 
 
 
6.73

 
 
Multi-Tenant Properties
 
 
6.29

 
 
 
4.60

 
 
 
 
 
5.85

 
 
Other Single-Tenant Properties
 
 
4.75

 
 
 
5.25

 
 
 
 
 
4.81

 
 
Total Weighted Average Remaining Term (Years)(2)
 
 
6.53

 
 
 
5.97

 
 
 
 
 
6.41

 
 
__________
(1)
Expiring Net Rentable Square Feet for Unconsolidated Properties is at 100%. Expiring Base Rent for Unconsolidated Properties is at our pro rata share of effective ownership.
(2)
Weighted Average Remaining Term is the average remaining term weighted by Expiring Base Rent.
(3)
Triple Net Single-Tenant Properties include certain properties that have minimal secondary tenant(s).

40

Property Portfolio Size
Our portfolio size at the end of each quarter since commencement of our initial public offering (October 24, 2006) through September 30, 2014 is as follows (Net Rentable Square Feet and Approximate Total Acquisition Cost in thousands):
 
 
Consolidated Properties
 
Unconsolidated Properties(1)
 
Consolidated &
Unconsolidated
Properties(1)
Cumulative
Property
Portfolio as of:
 
Properties
 
Net Rentable
Square Feet
 
Approximate
Total
Acquisition
Cost
 
Properties
 
Net Rentable
Square Feet
 
Approximate
Total
Acquisition
Cost
 
Properties
 
Net Rentable
Square Feet
 
Approximate
Total
Acquisition
Cost
12/31/2006
 
9

 
878

 
$
86,644

 
—

 
—

 
$
—

 
9

 
878

 
$
86,644

3/31/2007
 
9

 
878

 
86,644

 
—

 
—

 
—

 
9

 
878

 
86,644

6/30/2007
 
10

 
928

 
110,491

 
—

 
—

 
—

 
10

 
928

 
110,491

9/30/2007
 
42

 
5,439

 
348,456

 
—

 
—

 
—

 
42

 
5,439

 
348,456

12/31/2007
 
44

 
5,576

 
353,594

 
—

 
—

 
—

 
44

 
5,576

 
353,594

3/31/2008
 
47

 
6,257

 
426,856

 
—

 
—

 
—

 
47

 
6,257

 
426,856

6/30/2008
 
47

 
6,257

 
426,856

 
1

 
605

 
35,636

 
48

 
6,862

 
462,492

9/30/2008
 
49

 
6,483

 
486,777

 
6

 
3,307

 
193,773

 
55

 
9,790

 
680,550

12/31/2008
 
52

 
6,771

 
582,682

 
8

 
5,649

 
273,205

 
60

 
12,420

 
855,887

3/31/2009
 
52

 
6,771

 
582,717

 
8

 
5,649

 
273,130

 
60

 
12,420

 
855,847

6/30/2009
 
53

 
7,106

 
598,103

 
11

 
5,976

 
305,308

 
64

 
13,082

 
903,411

9/30/2009
 
57

 
7,805

 
719,822

 
11

 
5,976

 
305,202

 
68

 
13,781

 
1,025,024

12/31/2009
 
60

 
8,630

 
791,314

 
13

 
6,904

 
356,158

 
73

 
15,534

 
1,147,472

3/31/2010
 
58

 
8,407

 
748,835

 
18

 
7,392

 
418,818

 
76

 
15,799

 
1,167,653

6/30/2010
 
62

 
9,086

 
916,210

 
22

 
8,633

 
471,615

 
84

 
17,719

 
1,387,825

9/30/2010
 
63

 
9,295

 
983,810

 
22

 
8,633

 
471,615

 
85

 
17,928

 
1,455,425

12/31/2010
 
73

 
12,800

 
1,308,560

 
30

 
9,901

 
629,268

 
103

 
22,701

 
1,937,828

3/31/2011
 
73

 
12,800

 
1,308,560

 
43

 
11,950

 
903,508

 
116

 
24,750

 
2,212,068

6/30/2011
 
75

 
14,614

 
1,657,966

 
43

 
12,356

 
917,566

 
118

 
26,970

 
2,575,532

9/30/2011
 
74

 
13,906

 
1,689,048

 
43

 
12,355

 
918,771

 
117

 
26,261

 
2,607,819

12/31/2011
 
77

 
14,434

 
1,747,299

 
45

 
13,851

 
997,506

 
122

 
28,285

 
2,744,805

3/31/2012
 
78

 
15,784

 
1,824,403

 
46

 
13,997

 
1,007,753

 
124

 
29,781

 
2,832,156

6/30/2012
 
78

 
15,784

 
1,842,359

 
46

 
13,997

 
1,007,753

 
124

 
29,781

 
2,850,112

9/30/2012
 
78

 
16,831

 
1,920,218

 
46

 
13,997

 
1,008,246

 
124

 
30,828

 
2,928,464

12/31/2012
 
82

 
18,995

 
2,070,272

 
47

 
15,067

 
1,071,267

 
129

 
34,062

 
3,141,539

3/31/2013
 
99

 
22,314

 
2,572,995

 
30

 
11,748

 
713,722

 
129

 
34,062

 
3,286,717

6/30/2013
 
99

 
22,405

 
2,573,034

 
30

 
11,748

 
713,722

 
129

 
34,153

 
3,286,756

9/30/2013
 
101

 
22,791

 
2,630,692

 
30

 
11,748

 
713,722

 
131

 
34,539

 
3,344,414

12/31/2013
 
99

 
22,460

 
2,595,194

 
30

 
12,807

 
740,525

 
129

 
35,267

 
3,335,719

3/31/2014
 
100

 
23,082

 
2,625,394

 
29

 
12,702

 
728,205

 
129

 
35,785

 
3,353,599

6/30/2014
 
100

 
23,083

 
2,625,394

 
29

 
12,829

 
734,556

 
129

 
35,912

 
3,359,950

9/30/2014
 
100

 
23,453

 
2,618,304

 
29

 
12,829

 
734,556

 
129

 
36,282

 
3,352,860

__________
(1)
Net Rentable Square Feet for unconsolidated properties is at 100%. Approximate Total Acquisition Cost is at our pro rata share of effective ownership and does not include our investment in CBRE Strategic Partners Asia.

41

Critical Accounting Policies
Refer to our Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of our critical accounting policies. There have been no changes to these policies during the nine months ended September 30, 2014.
Results of Operations
As of September 30, 2014, we owned and operated 100 consolidated office and industrial properties and 29 unconsolidated office and industrial properties. As of September 30, 2013, we owned and operated 101 consolidated office, industrial and other properties and 30 unconsolidated office and industrial properties. Our consolidated leased percentage as of September 30, 2014 and 2013 was 96.1% and 94.4%, respectively. Our unconsolidated leased percentage as of September 30, 2014 and 2013 was 99.5% and 99.1%, respectively.
The properties acquired or consolidated during 2014 and 2013 are presented in the table below:
Property
 
Market
 
Date of
Acquisition
 
Property
Type
 
Purchase
Price ('000s)
 
Rentable
Square
Feet
2014 Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
445 Airtech Parkway
 
Indianapolis
 
IN
 
1/2/2014
 
Industrial
 
$
30,200

 
622,440

1 Rocket Road
 
Los Angeles - South Bay
 
CA
 
7/31/2014
 
Industrial
 
46,650

 
514,753

Total 2014 Wholly-Owned Property Acquisitions
 
 
 
$
76,850

 
1,137,193

 
 
 
 
 
 
 
 
 
 
 
 
 
2013 Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
Carpenter Corporate Center I and II
 
Dallas
 
TX
 
7/31/2013
 
Office
 
$
49,509

 
226,822

1200 Woods Chapel Road
 
Spartanburg
 
SC
 
8/8/2013
 
Industrial
 
10,750

 
156,800

Total 2013 Wholly-Owned Property Acquisitions
 
 
 
$
60,259

 
383,622

 
 
 
 
 
 
 
 
 
 
 
 
 
2013 Properties Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Duke Portfolio(1)
 
Various
 
 
 
3/1/2013
 
Office/Industrial
 
$
98,100

 
3,318,402

__________
(1)
We acquired Duke's 20% interest in 17 properties that were held by the Duke JV.
Net Operating Income
Management internally evaluates the operating performance and financial results of our property portfolio based on Net Operating Income. We define "Net Operating Income" as: rental income, tenant reimbursements and other property income less property and related expenses (operating and maintenance and real estate taxes) and excludes other non-property income and expenses, interest expense, depreciation and amortization, and corporate general and administrative expenses. Property operating expenses include insurance, property management, repairs and maintenance, security, janitorial, landscaping and other administrative expenses incurred to operate our properties. Corporate general and administrative expenses represent costs unrelated to property operations or transaction costs. These expenses primarily include corporate office expenses, employee compensation and benefits as well as costs of being a public company including certain audit fees, regulatory fees, legal costs and other professional fees.
Net Operating Income is considered by management to be an important and appropriate supplemental performance measure to net income (loss) because we believe it helps both investors and management to understand the core operations of our properties excluding corporate and financing-related costs and non-cash depreciation and amortization. Net Operating Income is an unlevered operating performance metric of our properties and allows for a useful comparison of the operating performance of individual assets or groups of assets. This measure thereby provides an operating perspective not immediately apparent from GAAP income (loss) from operations or net income (loss). In addition, Net Operating Income is considered by many in the real estate industry to be a useful starting point for determining the value of a real estate asset or group of assets. Other real estate companies may use different methodologies for calculating Net Operating Income, and accordingly, our presentation of Net Operating Income may not be comparable to other real estate companies. Because of the exclusion of the items shown in the reconciliation below, Net Operating Income should only be used as a supplemental measure of our financial performance and not as an alternative to GAAP income (loss) from operations or net income (loss).

42



Comparison of Three Months Ended September 30, 2014 to Three Months Ended September 30, 2013
The following table summarizes the historical results of operations of our portfolio for the three months ended September 30, 2014 and the three months ended September 30, 2013 (in thousands):
 
For the Three Months Ended September 30,
 
 
 
 
 
2014
 
2013
 
$
Change
 
%
Change
 
 
 
 
 
 
 
 
Net Operating Income, as defined
$
49,107

 
$
46,406

 
$
2,701

 
5.8
 %
Expense:
 
 
 
 


 


General and Administrative
7,230

 
5,514

 
1,716

 
31.1
 %
Acquisition-Related
265

 
175

 
90

 
51.4
 %
Depreciation and Amortization
27,208

 
26,435

 
773

 
2.9
 %
Transition and Listing
—

 
1,447

 
(1,447
)
 
(100.0
)%
Total Expenses
34,703

 
33,571

 
1,132

 
3.4
 %
Other Expenses and Income:
 
 
 
 
 
 
 
Interest and Other Income
255

 
618

 
(363
)
 
(58.7
)%
Interest Expense
(13,685
)
 
(12,902
)
 
(783
)
 
6.1
 %
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
68

 
163

 
(95
)
 
(58.3
)%
Gain on Asset Disposition, Net
13,175

 
—

 
13,175

 
100.0
 %
Loss on Early Extinguishment of Debt
—

 
(1,572
)
 
1,572

 
(100.0
)%
Loss on Conversion of Equity Interest to Controlling Interest
—

 
(1,667
)
 
1,667

 
(100.0
)%
Total Other Expenses
(187
)
 
(15,360
)
 
15,173

 
(98.8
)%
Income (Loss) Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities
14,217

 
(2,525
)
 
16,742

 
(663.0
)%
Provision for Income Taxes
(140
)
 
(54
)
 
(86
)
 
159.3
 %
Equity in Income of Unconsolidated Entities
4,391

 
3,324

 
1,067

 
32.1
 %
Income from Continuing Operations
18,468

 
745

 
17,723

 
2,378.9
 %
Income from Discontinued Operations
—

 
114

 
(114
)
 
(100.0
)%
Total Income from Discontinued Operations
—

 
114

 
(114
)
 
(100.0
)%
Net Income
$
18,468

 
$
859

 
$
17,609

 
2,049.9
 %

43

The following tables summarize the Net Operating Income, as defined, for our total portfolio, excluding our unconsolidated properties, for the three months ended September 30, 2014 and 2013 (in thousands):
 
Three Months Ended September 30, 2014
 
Same Office Properties(1)
 
Acquisition Office(2)
 
Same Industrial Properties(1)
 
Acquisition Industrial(3)
 
Other
 
Total
Rental Revenue
$
26,042

 
$
10,980

 
$
12,566

 
$
2,550

 
$
253

 
$
52,391

Tenant Reimbursement
6,903

 
4,340

 
3,505

 
492

 
(21
)
 
15,219

Other Property Income
—

 
—

 
537

 
—

 
—

 
537

Total Revenues
32,945

 
15,320

 
16,608

 
3,042

 
232

 
68,147

Property Operating
4,555

 
3,060

 
1,300

 
190

 
8

 
9,113

Real Estate Taxes
4,367

 
2,325

 
2,921

 
314

 
—

 
9,927

Total Expenses
8,922

 
5,385

 
4,221

 
504

 
8

 
19,040

Net Operating Income
$
24,023

 
$
9,935

 
$
12,387

 
$
2,538

 
$
224

 
$
49,107

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2013
 
Same Office Properties(1)
 
Acquisition Office(2)
 
Same Industrial Properties(1)
 
Acquisition Industrial(3)
 
Other
 
Total
Rental Revenue
$
25,709

 
$
10,462

 
$
12,326

 
$
1,222

 
$
951

 
$
50,670

Tenant Reimbursement
6,493

 
4,145

 
3,163

 
263

 
52

 
14,116

Other Property Income
—

 
—

 
—

 
—

 
—

 
—

Total Revenues
32,202

 
14,607

 
15,489

 
1,485

 
1,003

 
64,786

Property Operating
4,642

 
2,767

 
852

 
163

 
65


8,489

Real Estate Taxes
4,310

 
2,167

 
3,216

 
198

 
—

 
9,891

Total Expenses
8,952

 
4,934

 
4,068

 
361

 
65

 
18,380

Net Operating Income
$
23,250

 
$
9,673

 
$
11,421

 
$
1,124

 
$
938

 
$
46,406

__________
(1)
Properties owned as of January 1, 2013 and still owned as of September 30, 2014.
(2)
Includes results, from the dates of acquisition through the periods presented, for the office properties acquired or consolidated during 2013.
(3)
Includes results, from the dates of acquisition through the periods presented, for the industrial properties acquired or consolidated during 2013 and 2014.
 
Three Months Ended September 30, 2014 as compared to the Three Months Ended September 30, 2013
 
Same Office
Properties
 
Acquisition Office
 
Same Industrial
Properties
 
Acquisition
Industrial
 
Other
 
Total
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
Rental Revenue
$
333

 
1.3
 %
 
$
518

 
5.0
%
 
$
240

 
1.9
 %
 
$
1,328

 
108.7
%
 
$
(698
)
 
(73.4
)%
 
$
1,721

 
3.4
%
Tenant
Reimbursement
410

 
6.3
 %
 
195

 
4.7
%
 
342

 
10.8
 %
 
229

 
87.1
%
 
(73
)
 
(140.4
)%
 
1,103

 
7.8
%
Other Property Income
—

 
—
 %
 
—

 
—
%
 
537

 
—
 %
 
—

 
—
%
 
—

 
—
 %
 
537

 
—
%
Total Revenues
743

 
2.3
 %
 
713

 
4.9
%
 
1,119

 
7.2
 %
 
1,557

 
104.8
%
 
(771
)
 
(76.9
)%
 
3,361

 
5.2
%
Property Operating
(87
)
 
(1.9
)%
 
293

 
10.6
%
 
448

 
52.6
 %
 
27

 
16.6
%
 
(57
)
 
(87.7
)%
 
624

 
7.4
%
Real Estate Taxes
57

 
1.3
 %
 
158

 
7.3
%
 
(295
)
 
(9.2
)%
 
116

 
58.6
%
 
—

 
—
 %
 
36

 
0.4
%
Total Expenses
(30
)
 
(0.3
)%
 
451

 
9.1
%
 
153

 
3.8
 %
 
143

 
39.6
%
 
(57
)
 
(87.7
)%
 
660

 
3.6
%
Net Operating Income
$
773

 
3.3
 %
 
$
262

 
2.7
%
 
$
966

 
8.5
 %
 
$
1,414

 
125.8
%
 
$
(714
)
 
(76.1
)%
 
$
2,701

 
5.8
%
Net Operating Income
Net Operating Income increased $2.7 million, or 5.8%, for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 as a result of:
•
A net increase in revenues of $3.4 million which is primarily due to:

44

◦
$2.3 million from our Acquisition Office and Acquisition Industrial Properties (collectively the "Acquisition Properties") for rental and tenant reimbursement revenue;
◦
$1.9 million from our Same Office Properties and Same Industrial Properties (collectively the "Same Properties") which is primarily a result of $1.4 million for rental and tenant reimbursement revenue and $0.5 million in insurance proceeds received (included in Other Property Revenue) at one of our Same Industrial Properties;
◦
partially offset by a reduction of $0.8 million due to the sale of our last retail property in July 2014;
•
And a net increase of $0.7 million in property operating expenses and real estate taxes due to:
◦
$0.6 million from our Acquisition Properties;
◦
an increase of $0.1 million from our Same Properties which is comprised of:
▪
an increase of $0.4 million primarily due to an increase in operating expenses in our Same Industrial Properties offset by
▪
a decrease of $0.3 million in real estate taxes in our Same Industrial Properties.
Other Expenses and Income
General and Administrative
General and administrative expense increased $1.7 million, or 31.1%, to $7.2 million for the three months ended September 30, 2014 compared to $5.5 million for the three months ended September 30, 2013. The increase was primarily due to $1.3 million of separation expenses incurred during the third quarter of 2014.
Depreciation and Amortization
Depreciation and amortization expense increased $0.8 million, or 2.9%, to $27.2 million for the three months ended September 30, 2014 as compared to $26.4 million for the three months ended September 30, 2013. The increase was primarily due to properties acquired or consolidated during 2014 and 2013.
Transition and Listing
Our transition from being an externally managed company to a self-managed company ("Transition Costs") were primarily incurred in 2012 during our transition to self-management. During the three months ended September 30, 2013, we incurred additional listing-related expenses and we did not incur any further listing costs during 2014.
Interest and Other Income
Interest and other income decreased $0.4 million, or 58.7%, to $0.3 million for the three months ended September 30, 2014 compared to $0.6 million for the three months ended September 30, 2013.
Interest Expense
Interest expense increased $0.8 million, or 6.1%, to $13.7 million for the three months ended September 30, 2014 compared to $12.9 million for the three months ended September 30, 2013 primarily as a result of an increase in the weighted average debt outstanding balance.
Gain on Asset Disposition, Net
During the three months ended September 30, 2014, we had a gain of $13.2 million related to the sale of Maskew Retail Park.
Loss on Early Extinguishment of Debt
During the three months ended September 30, 2013, we incurred a loss on early extinguishment of debt of $1.6 million. The loss on early extinguishment of debt was primarily attributable to the write-off of deferred financing costs related to the WF Term Loan #3 that replaced the WF Term Loan #1.

45

Loss on Conversion of Equity Interest to Controlling Interest
During the three months ended September 30, 2013, loss on conversion of equity interest to controlling interest was $1.7 million, which was attributable to a non-cash adjustment to the gain on conversion of equity interest to controlling interest in connection with the purchase of the Duke Portfolio recognized in the prior quarter.
Equity in Income of Unconsolidated Entities
Equity in income of unconsolidated entities increased $1.1 million, or 32.1%, to $4.4 million for the three months ended September 30, 2014 compared to $3.3 million for the three months ended September 30, 2013. The increase was primarily due to the four properties acquired through the joint venture in Europe (the "European JV") in the fourth quarter of 2013 and a reduction of interest expense due to the payoff of a secured note payable by the Duke JV on July 2, 2013.


46

Comparison of Nine Months Ended September 30, 2014 to Nine Months Ended September 30, 2013
The following table summarizes the historical results of operations of our portfolio for the nine months ended September 30, 2014 and the nine months ended September 30, 2013 (in thousands):
 
Nine Months Ended September 30,
 
 
 
 
 
2014
 
2013
 
$
Change
 
%
Change
Net Operating Income, as defined
$145,689
 
$133,688
 
$12,001
 
9.0
 %
Expense:
 
 
 
 
 
 
 
General and Administrative
20,047

 
17,708

 
2,339

 
13.2
 %
Investment Management Fee
—

 
489

 
(489
)
 
(100.0
)%
Acquisition-Related
555

 
2,178

 
(1,623
)
 
(74.5
)%
Depreciation and Amortization
81,572

 
74,802

 
6,770

 
9.1
 %
Transition and Listing
—

 
12,681

 
(12,681
)
 
(100.0
)%
Total Expenses
102,174

 
107,858

 
(5,684
)
 
(5.3
)%
Other Expenses and Income:
 
 
 
 
 
 
 
Interest and Other Income
573

 
1,105

 
(532
)
 
(48.1
)%
Interest Expense
(41,653
)
 
(32,456
)
 
(9,197
)
 
28.3
 %
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
80

 
582

 
(502
)
 
(86.3
)%
Gain on Asset Disposition, Net
13,175

 
—

 
13,175

 
100.0
 %
Loss on Early Extinguishment of Debt
—

 
(1,572
)
 
1,572

 
(100.0
)%
Gain on Conversion of Equity Interest to Controlling Interest
—

 
75,536

 
(75,536
)
 
(100.0
)%
Total Other (Expenses) Income
(27,825
)
 
43,195

 
(71,020
)
 
(164.4
)%
Income Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities
15,690

 
69,025

 
(53,335
)
 
(77.3
)%
Provision for Income Taxes
(579
)
 
(274
)
 
(305
)
 
111.3
 %
Equity in Income of Unconsolidated Entities
11,829

 
10,263

 
1,566

 
15.3
 %
Income from Continuing Operations
26,940

 
79,014

 
(52,074
)
 
(65.9
)%
Income from Discontinued Operations
—

 
295

 
(295
)
 
(100.0
)%
Total Income from Discontinued Operations
—

 
295

 
(295
)
 
(100.0
)%
Net Income
$
26,940

 
$
79,309

 
$
(52,369
)
 
(66.0
)%

47

The following tables summarize the Net Operating Income, as defined, for our total portfolio, excluding our unconsolidated properties, for the nine months ended September 30, 2014 and 2013 (in thousands):
 
Nine Months Ended September 30, 2014
 
Same Office Properties(1)
 
Acquisition Office(2)
 
Same Industrial Properties(1)
 
Acquisition Industrial(3)
 
Other
 
Total
Rental Revenue
$
78,033

 
$
32,704

 
$
37,157

 
$
6,084

 
$
2,322

 
$
156,300

Tenant Reimbursement
20,549

 
12,470

 
10,723

 
1,244

 
48

 
45,034

Other Property Income
—

 
1,069

 
537

 
—

 
—

 
1,606

Total Revenues
98,582

 
46,243

 
48,417

 
7,328

 
2,370

 
202,940

Property Operating
13,796

 
8,918

 
3,709

 
487

 
148

 
27,058

Real Estate Taxes
13,155

 
7,073

 
9,210

 
755

 
—

 
30,193

Total Expenses
26,951

 
15,991

 
12,919

 
1,242

 
148

 
57,251

Net Operating Income
$
71,631

 
$
30,252

 
$
35,498

 
$
6,086

 
$
2,222

 
$
145,689

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2013
 
Same Office Properties(1)
 
Acquisition Office(2)
 
Same Industrial Properties(1)
 
Acquisition Industrial(3)
 
Other
 
Total
Rental Revenue
$
77,546

 
$
24,167

 
$
37,568

 
$
2,691

 
$
2,869

 
$
144,841

Tenant Reimbursement
18,406

 
9,187

 
11,655

 
568

 
117

 
39,933

Other Property Income
—

 
—

 
—

 
—

 
—

 
—

Total Revenues
95,952

 
33,354

 
49,223

 
3,259

 
2,986

 
184,774

Property Operating
13,277

 
6,168

 
2,641

 
253

 
152

 
22,491

Real Estate Taxes
12,412

 
5,207

 
10,595

 
381

 
—

 
28,595

Total Expenses
25,689

 
11,375

 
13,236

 
634

 
152

 
51,086

Net Operating Income
$
70,263

 
$
21,979

 
$
35,987

 
$
2,625

 
$
2,834

 
$
133,688

__________
(1)
Properties owned as of January 1, 2013 and still owned as of September 30, 2014.
(2)
Includes results, from the dates of acquisition through the periods presented, for the office properties acquired or consolidated during 2013.
(3)
Includes results, from the dates of acquisition through the periods presented, for the industrial properties acquired or consolidated during 2013 and 2014.
 
Nine Months Ended September 30, 2014 as compared to the Nine Months Ended September 30, 2013
 
Same Office
Properties
 
Acquisition Office
 
Same Industrial
Properties
 
Acquisition
Industrial
 
Other
 
Total
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
Rental Revenue
$
487

 
0.6
%
 
$
8,537

 
35.3
%
 
$
(411
)
 
(1.1
)%
 
$
3,393

 
126.1
%
 
$
(547
)
 
(19.1
)%
 
$
11,459

 
7.9
%
Tenant Reimbursement
2,143

 
11.6
%
 
3,283

 
35.7
%
 
(932
)
 
(8.0
)%
 
676

 
119.0
%
 
(69
)
 
(59.0
)%
 
5,101

 
12.8
%
Other Property Income
—

 
—
%
 
1,069

 
100.0
%
 
537

 
—
 %
 
—

 
—
%
 
—

 
—
 %
 
1,606

 
100.0
%
Total Revenues
2,630

 
2.7
%
 
12,889

 
38.6
%
 
(806
)
 
(1.6
)%
 
4,069

 
124.9
%
 
(616
)
 
(20.6
)%
 
18,166

 
9.8
%
Property Operating
519

 
3.9
%
 
2,750

 
44.6
%
 
1,068

 
40.4
 %
 
234

 
92.5
%
 
(4
)
 
(2.6
)%
 
4,567

 
20.3
%
Real Estate Taxes
743

 
6.0
%
 
1,866

 
35.8
%
 
(1,385
)
 
(13.1
)%
 
374

 
98.2
%
 
—

 
—
 %
 
1,598

 
5.6
%
Total Expenses
1,262

 
4.9
%
 
4,616

 
40.6
%
 
(317
)
 
(2.4
)%
 
608

 
95.9
%
 
(4
)
 
(2.6
)%
 
6,165

 
12.1
%
Net Operating Income
$
1,368

 
1.9
%
 
$
8,273

 
37.6
%
 
$
(489
)
 
(1.4
)%
 
$
3,461

 
131.8
%
 
$
(612
)
 
(21.6
)%
 
$
12,001

 
9.0
%
Net Operating Income
Net Operating Income increased $12.0 million, or 9.0%, for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 as a result of:
•
An increase in revenues of $18.2 million which is primarily due to:

48

◦
$17.0 million from our Acquisition Properties which is comprised of:
▪
an increase of $11.9 million from our Acquisition Properties for rental revenue;
▪
an increase of $4.0 million in tenant reimbursements from our Acquisition Properties; and
▪
an increase of $1.1 million from our Acquisition Office Properties due to lease termination fees included in other property income.
•
The increase in revenues are offset by an increase of $6.2 million in property operating expenses and real estate taxes primarily due to:
◦
an increase of $5.2 million from our Acquisition Properties; and
◦
a net increase of $0.9 million from our Same Properties which is primarily comprised of:
▪
an increase of $1.3 million in property operating expenses and real estate taxes in our Same Office Properties; and
▪
a decrease of $0.3 million primarily due to a reduction in real estate taxes in our Same Industrial Properties.
Other Expenses and Income
General and Administrative and Investment Management Fee
General and administrative expense increased $2.3 million, or 13.2%, to $20.0 million for the nine months ended September 30, 2014 compared to $17.7 million for the nine months ended September 30, 2013. The net increase was primarily due to $1.3 million for separation payments and an increase in payroll and administrative costs associated with the growth of the Company.
Our increase in general and administrative expenses is offset by a reduction of $0.5 million in investment management fees due to the termination of the Transitional Services Agreement.
Acquisition-Related
Acquisition-related expenses decreased $1.6 million, or 74.5%, to $0.6 million for the nine months ended September 30, 2014 compared to $2.2 million for the nine months ended September 30, 2013. The decrease was due to fewer properties acquired during the nine months ended September 30, 2014 compared to the amount acquired during the same period in 2013.
Depreciation and Amortization
Depreciation and amortization expense increased $6.8 million, or 9.1%, to $81.6 million for the nine months ended September 30, 2014 as compared to $74.8 million for the nine months ended September 30, 2013. The increase was primarily due to the properties acquired or consolidated during 2014 and 2013.
Transition and Listing
Transition Costs were primarily incurred in 2012 during our transition to self-management. During the nine months ended September 30, 2013, we incurred $11.9 million of expenses in connection with the listing of our common shares on the NYSE on May 21, 2013 (our "Listing") and the completion of the Tender Offer.
Interest and Other Income
Interest and other income decreased $0.5 million, or 48.1%, to $0.6 million for the nine months ended September 30, 2014 compared to $1.1 million for the nine months ended September 30, 2013.
Interest Expense
Interest expense increased $9.2 million, or 28.3%, to $41.7 million for the nine months ended September 30, 2014 compared to $32.5 million for the nine months ended September 30, 2013 primarily as a result of an increase in the weighted average debt outstanding balance.

49

Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
During the nine months ended September 30, 2013, our non-qualifying derivative instruments incurred a gain of $1.5 million. In addition, we made net payments on the non-qualifying interest rate swaps of $1.2 million. All of the Company's derivative financial instruments qualify for hedge accounting treatment as of September 30, 2014.
Gain on Asset Disposition, Net
During the nine months ended September 30, 2014, we had a gain of $13.2 million related to the sale of Maskew Retail Park.
Loss on Early Extinguishment of Debt
During the nine months ended September 30, 2013, we incurred a loss on early extinguishment of debt of $1.6 million. The loss on early extinguishment of debt was primarily attributable to the write-off of deferred financing costs related to the WF Term Loan #3 that replaced the WF Term Loan #1.
Gain on Conversion of Equity Interest to Controlling Interest
During the nine months ended September 30, 2013, gain on conversion of equity interest to controlling interest was $75.5 million attributable to the acquisition of Duke Realty's 20% interest in 17 properties held by the Duke JV.
Equity in Income of Unconsolidated Entities
Equity in income of unconsolidated entities increased $1.6 million, or 15.3%, to $11.8 million for the nine months ended September 30, 2014 compared to $10.3 million for the nine months ended September 30, 2013. The increase was primarily due to our properties acquired through the European JV in the fourth quarter of 2013 and a reduction of interest expense due to the payoff of a secured note payable by the Duke JV on July 2, 2013, which was offset by lower performance from our investment in CBRE Strategic Partners Asia.
Liquidity and Capital Resources
Sources of Liquidity
Liquidity is a measurement of the ability to meet cash requirements, which principally include funding investments and ongoing commitments, to repay borrowings, to make distributions to our shareholders and other general business needs. Our sources of funds will primarily be property operating cash flows, borrowings, including under our unsecured revolving credit facility, term loans or other forms of secured or unsecured financing that we may enter into from time to time, and net proceeds from divestitures of properties. Additionally, we expect other financing opportunities could provide additional sources of funds, including the issuance of common equity (through our at-the-market offering program or otherwise), preferred equity or debt securities. Our ability to raise funds is dependent on general economic conditions, general market conditions for REITs, and our operating performance. We believe that these cash resources will be sufficient to satisfy our cash requirements and we do not anticipate a need to raise funds from other than these sources within the next twelve months. We believe that we have sufficient cash flow from operations to continue as a going concern for the next twelve months and into the foreseeable future.
While we may be able to anticipate and plan for certain liquidity needs, there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations. For example, we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties, thereby increasing our liquidity needs. Even if there are no material changes to our anticipated liquidity requirements, our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or needed. As of September 30, 2014, we had $58.5 million in cash as well as approximately$680.0 million available under our unsecured revolving credit facility. Of the $58.5 million in cash, approximately $2.3 million is held in a financial institution in the United Kingdom.
Net Cash Flow from Operations
Cash flow from operations is our primary source of liquidity and is dependent upon the occupancy level of our portfolio, the net effective rental rates achieved on our leases, the collectability of rent and operating escalations and recoveries from our tenants and the level of operating and other costs. The properties in our portfolio are primarily located in markets throughout the United States. Positive or negative changes in economic or other conditions, adverse weather conditions and natural disasters in these markets may affect our overall performance.

50

Unsecured Term Loan Facilities
We intend to enter into unsecured term loan facilities from time to time for general corporate purposes, to fund potential acquisitions and to potentially repay long-term debt.
The following table summarizes the balance and terms of our unsecured term loan facilities as of September 30, 2014 and December 31, 2013 (in thousands):
 
 
 
 
 
 
 
 
Outstanding Balance
 
 
Unswapped
Interest Rate
 
Effective
Interest Rate(1)
 
Maturity Date
 
September 30,
 
December 31,
Term Loan Facility
 
 
 
 
2014
 
2013
WF Term Loan #2(2)
 
LIBOR + 1.50%
 
2.49%
 
3/7/2018
 
$
200,000

 
$
200,000

WF Term Loan #3(2)
 
LIBOR + 1.50%
 
3.12%
 
1/15/2019
 
200,000

 
200,000

TD Term Loan(3)
 
LIBOR + 1.75%
 
3.28%
 
3/6/2020
 
50,000

 
50,000

Capital One Term Loan(2)
 
LIBOR + 1.75%
 
4.32%
 
1/31/2021
 
120,000

 
120,000

Total Unsecured Term Loan Facilities
 
$
570,000

 
$
570,000

__________
(1)
Represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the effect of the interest rate swaps, excluding debt issuance costs.
(2)
As of September 30, 2014 and December 31, 2013, the applicable LIBOR rate was 0.155% and 0.165%, respectively, for these loans.
(3)
As of September 30, 2014 and December 31, 2013, the applicable LIBOR rate was 0.155% and 0.16875%, respectively, for this loan.
Unsecured Revolving Credit Facility
We intend to borrow under our unsecured revolving credit facility from time to time for general corporate purposes, to fund potential acquisitions and to potentially repay long-term debt. The following table summarizes the balance and terms of our unsecured revolving credit facility as of September 30, 2014 and December 31, 2013, respectively (in thousands):
 
September 30,
 
December 31,
 
2014
 
2013
Outstanding Borrowings
$
170,044

 
$
170,044

Remaining Borrowing Capacity
679,956

 
679,956

Total Borrowing Capacity
$
850,000

 
$
850,000

Interest Rate(1)
1.45
%
 
1.47
%
Facility Fee(2)
30 bps

 
30 bps

Maturity Date(3)
January 15, 2018

 
January 15, 2018

_________
(1)
Calculated based on one-month LIBOR plus 1.30% as of September 30, 2014 and December 31, 2013.
(2)
The facility fee is based on the unsecured revolving credit facility's total borrowing capacity.
(3)
We may exercise an option to extend the maturity date by one year.

51

Secured Debt Financing
From time to time, we partially fund property acquisitions with secured mortgage financing. The following table details our Encumbered and Unencumbered Properties as of September 30, 2014 (Approximate Acquisition Cost and Debt Balance in thousands):
 
Consolidated Properties
 
Unconsolidated Properties(1)
 
Consolidated &
Unconsolidated Properties(1)
 
Properties
 
Approximate
Acquisition Cost
 
Debt
Balance
 
Properties
 
Approximate
Acquisition Cost
 
Debt
Balance
 
Properties
 
Approximate
Acquisition Cost
 
Debt
Balance
Encumbered Properties
42

 
$
1,242,715

 
$
617,298

 
14

 
$
372,506

 
$
175,843

 
56

 
$
1,615,221

 
$
793,141

Unencumbered Properties
58

 
1,375,589

 
—

 
15

 
362,050

 
—

 
73

 
1,737,639

 
—

Total Properties
100

 
$
2,618,304

 
$
617,298

 
29

 
$
734,556

 
$
175,843

 
129

 
$
3,352,860

 
$
793,141

__________
(1)
Number of Properties at 100%. Approximate Acquisition Cost and Debt Balance for Unconsolidated Properties is at our pro rata share of effective ownership. Does not include our investment in CBRE Strategic Partners Asia.
Depending on market conditions, our debt financing may be as much as approximately 65% of the value of the cost of our assets before non-cash reserves and depreciation. The amount of debt we place on an individual property, or the amount of debt incurred by an individual entity in which we invest, may be more or less than 65% of the value of such property or the value of the assets owned by such entity, depending on market conditions and other factors.
In fact, depending on market conditions and other factors, we may choose not to place debt on our portfolio or our assets and may choose not to borrow to finance our operations or to acquire properties. Any indebtedness we do incur will likely be subject to continuing covenants, and we will likely be required to make continuing representations and warranties in connection with such debt. Moreover, some or all of our debt may be secured by some or all of our assets. If we default in the payment of interest or principal on any such debt, breach any representation or warranty in connection with any borrowing or violate any covenant in any loan document, our lender may accelerate the maturity of such debt requiring us to immediately repay all outstanding principal. If we are unable to make such payment, our lender could foreclose on our assets that are pledged as collateral to such lender. The lender could also sue us or force us into bankruptcy.
Debt Covenants and Restrictions
As of September 30, 2014, we were in compliance with all financial debt covenants. See Note 6 "Debt" in the notes to our consolidated financial statements for additional information.
At-The-Market Offering
On November 6, 2013, we and CSP OP entered into four separate Equity Distribution Agreements with certain sales agents, pursuant to which we may sell, from time to time, our common shares having an aggregate offering price of up to $250.0 million. Sales of our common shares may be made in ordinary brokers' transactions on the NYSE, in negotiated transactions or transactions that are deemed to be "at the market" ("ATM") offerings, including sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices. We may use these proceeds and proceeds from the sale of debt securities to repay debt, including borrowings under our unsecured revolving credit facility, to make acquisitions of properties or portfolios of properties, or for general corporate purposes. As of September 30, 2014, there have been no sales of common shares under the ATM program.
Shelf Registration
On November 6, 2013, we filed an automatically effective shelf registration statement on Form S-3 with the SEC that may permit us, from time to time, to facilitate public offerings of our securities. We evaluate the capital markets on an ongoing basis for opportunities to raise capital, and, as circumstances warrant, we may issue securities of all of these types in one or more offerings at any time and from time to time on an opportunistic basis, depending upon, among other things, market conditions, available pricing and capital needs. However, there can be no assurance that we will be able to complete any such offerings of securities. We may use these proceeds to repay debt, including borrowings under our unsecured revolving credit facility, to make acquisitions of properties or portfolios of properties, or for general corporate purposes.

52

Sale of Real Estate Properties
We regularly work to identify, consider and pursue opportunities to dispose of non-strategic properties with the intent of using the proceeds generated from the dispositions to fund new strategic acquisitions, to repay long-term debt and for other general corporate purposes. The timing of any potential future dispositions will depend on market conditions and our capital needs. Our ability to dispose of such properties on favorable terms, or at all, is dependent upon a number of factors including the availability of credit to potential buyers to purchase properties at prices that we consider acceptable.
Transactions with Unconsolidated Joint Ventures
Transactions with unconsolidated joint ventures also provide a source of liquidity. Our unconsolidated joint ventures will from time to time obtain debt financing or sell properties and will then distribute to us, and our joint venture partners, all or a portion of the proceeds from such transactions.
Debt Composition
Our consolidated and pro rata share of unconsolidated debt is comprised of the following as of September 30, 2014 (amounts in thousands):
 
Consolidated Debt(1)
 
Unconsolidated Debt(2)
 
Consolidated &
Unconsolidated Debt(1)(2)
 
Scheduled
Amortization
 
Term
Maturities
 
Total
 
Scheduled
Amortization
 
Term
Maturities
 
Total
 
Scheduled
Amortization
 
Term
Maturities
 
Total
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Interest Rate Debt
$
80,160

 
$
1,107,138

 
$
1,187,298

 
$
9,732

 
$
166,111

 
$
175,843

 
$
89,892

 
$
1,273,249

 
$
1,363,141

Floating Interest Rate Debt
—

 
170,044

 
170,044

 
—

 
—

 
—

 
—

 
170,044

 
170,044

Total
$
80,160

 
$
1,277,182

 
$
1,357,342

 
$
9,732

 
$
166,111

 
$
175,843

 
$
89,892

 
$
1,443,293

 
$
1,533,185

Weighted Average Remaining Term (years):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Interest Rate Debt
 
 
 
 
4.00

 
 
 
 
 
5.31

 
 
 
 
 
4.17

Floating Interest Rate Debt
 
 
 
 
3.29

 
 
 
 
 
N/A

 
 
 
 
 
3.29

Total
 
 
 
 
3.91

 
 
 
 
 
5.31

 
 
 
 
 
4.07

Weighted Average Interest Rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Interest Rate Debt
 
 
 
 
4.23
%
 
 
 
 
 
3.53
%
 
 
 
 
 
4.14
%
Floating Interest Rate Debt
 
 
 
 
1.45
%
 
 
 
 
 
N/A

 
 
 
 
 
1.45
%
Total
 
 
 
 
3.88
%
 
 
 
 
 
3.53
%
 
 
 
 
 
3.84
%
__________
(1)
Consolidated debt amount includes a $170.0 million outstanding balance on our unsecured revolving credit facility as of September 30, 2014. The unsecured revolving credit facility may be extended for an additional year from January 2018 to January 2019. The annual facility fee of 0.30% is not reflected in the interest rate amounts included this table.
(2)
Unconsolidated debt amounts are at our pro rata share of effective ownership.

53

Contractual Obligations and Commitments
The following table provides information with respect to our contractual obligations as of September 30, 2014 (in thousands): 
Contractual Obligations
 
Less than
One Year
 
One to Three
Years
 
Three to Five
Years
 
More than
Five Years
 
Total
Principal Payments - Secured Notes Payable
 
$
56,407

 
$
275,116

 
$
182,454

 
$
103,321

 
$
617,298

Principal Payments - Unsecured Term Loan Facilities
 
—

 
—

 
400,000

 
170,000

 
570,000

Principal Payments - Unsecured Revolving Credit Facility
 
—

 
—

 
170,044

 
—

 
170,044

Principal Payments - Unconsolidated Debt at Pro Rata Share(1)
 
1,194

 
34,004

 
34,936

 
105,709

 
175,843

Interest Payments - Fixed-Rate Debt(2)
 
49,587

 
77,867

 
47,303

 
17,698

 
192,455

Interest Payments - Variable-Rate Debt(3)
 
2,494

 
4,989

 
734

 
—

 
8,217

Interest Payments - Unconsolidated Debt at Pro Rata Share(1)

 
6,170

 
12,028

 
9,014

 
7,538

 
34,750

Ground Lease Payments
 
273

 
546

 
575

 
4,551

 
5,945

Total
 
$
116,125

 
$
404,550

 
$
845,060

 
$
408,817

 
$
1,774,552

__________
(1)
Unconsolidated debt excludes amounts due to our investment in CBRE Strategic Partners Asia.
(2)
Amounts include the expected net payments due under our interest rate swap agreements where in each case we have swapped our variable interest rate payments due under the debt agreements for fixed rates of interest payments.
(3)
As of September 30, 2014, our variable rate debt consisted of amounts outstanding under our unsecured revolving credit facility. The variable interest rate payments are based on LIBOR plus a spread of 1.30%. As of September 30, 2014, LIBOR was 0.155%.
Debt Maturities
The following table details our consolidated and unconsolidated debt maturities as of September 30, 2014 (in thousands):
 
Consolidated Debt(1)
 
Unconsolidated Debt(2)
 
Consolidated &
Unconsolidated Debt(1)(2)
 
Weigh-
ted
Average
Interest
Rate(3)(4)
 
Scheduled
Amort
 
Term
Maturities
 
Total
 
Scheduled
Amort
 
Term
Maturities
 
Total
 
Scheduled
Amort
 
Term
Maturities
 
Total
 
Remaining 2014
$
4,121

 
—

 
$
4,121

 
$
293

 
$
—

 
$
293

 
$
4,414

 
$
—

 
$
4,414

 
—
%
2015
16,437

 
132,448

 
148,885

 
1,210

 
—

 
1,210

 
17,647

 
132,448

 
150,095

 
4.76
%
2016
13,271

 
121,341

 
134,612

 
1,272

 
—

 
1,272

 
14,543

 
121,341

 
135,884

 
5.46
%
2017
12,495

 
34,327

 
46,822

 
1,338

 
63,509

 
64,847

 
13,833

 
97,836

 
111,669

 
5.97
%
2018
10,627

 
431,986

 
442,613

 
1,408

 
—

 
1,408

 
12,035

 
431,986

 
444,021

 
2.35
%
2019
7,982

 
300,786

 
308,768

 
1,481

 
—

 
1,481

 
9,463

 
300,786

 
310,249

 
4.01
%
2020
6,290

 
65,846

 
72,136

 
1,558

 
49,382

 
50,940

 
7,848

 
115,228

 
123,076

 
4.31
%
2021
3,743

 
190,448

 
194,191

 
1,172

 
53,220

 
54,392

 
4,915

 
243,668

 
248,583

 
4.70
%
2022
1,870

 
—

 
1,870

 
—

 
—

 
—

 
1,870

 
—

 
1,870

 
—
%
2023
1,987

 
—

 
1,987

 
—

 
—

 
—

 
1,987

 
—

 
1,987

 
—
%
Thereafter
1,337

 
—

 
1,337

 
—

 
—

 
—

 
1,337

 
—

 
1,337

 
6.26
%
Total
$
80,160

 
$
1,277,182

 
$
1,357,342

 
$
9,732

 
$
166,111

 
$
175,843

 
$
89,892

 
$
1,443,293

 
$
1,533,185

 
3.84
%
__________
(1)
Consolidated debt amount includes a $170.0 million outstanding balance on the unsecured revolving credit facility as of September 30, 2014. The unsecured revolving credit facility expires January 15, 2018. We may exercise an option to extend the maturity date by one year.
(2)
Unconsolidated debt amounts are at our pro rata share of effective ownership.
(3)
Weighted average interest rate is calculated using the maturity date of our various debt.
(4)
Weighted average interest rate for 2018 debt maturity consists of 1.45% floating rate for the revolving credit facility and 2.92% of interest rate for all other fixed rate debt.


54

Distribution Policy
We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2004. As a REIT, we generally will not be subject to U.S. federal income tax on income that we distribute currently to our shareholders. Under the Internal Revenue Code of 1986 (the "Internal Revenue Code"), REITs are subject to numerous organizational and operational requirements, including a requirement that they generally distribute at least 90% of their annual net taxable income (excluding net capital gains) to their shareholders. If we fail to qualify for taxation as a REIT in any year, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify.
In order to qualify as a REIT under the Internal Revenue Code, we generally must make distributions to our shareholders each year in an amount at least equal to 90% of our REIT taxable income (as determined without regard to the dividends paid deduction and excluding net capital gain). Our distribution policy is subject to revision at the discretion of our Board of Trustees without notice to you or shareholder approval. All distributions will be made by us at the discretion of our Board of Trustees and will be based upon out Board of Trustee's evaluation of our assets, operating results, historical and projected cash flows (and source thereof), historical and projected equity offering proceeds from our offerings, historical and projected debt incurred, projected investments and capital requirements, the anticipated timing between receipt of our equity offering proceeds and investment of those proceeds, maintenance of REIT qualification, applicable provisions of Maryland law, general economic, market and industry conditions, and such other factors as our Board of Trustees deems relevant.
It is anticipated that distributions generally will be taxable as ordinary income to our shareholders, although a portion of such distributions may be designated by us as a return of capital or as capital gain. We will furnish annually to each of our shareholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital or capital gains.
The following table presents total distributions declared and paid and distributions per share as well as the source of payment of such distributions, for the following periods (in thousands, except per share amounts):
2014 Quarter
First
 
Second
 
Third
Total distributions declared and paid
$
29,820

 
$
29,862

 
$
29,854

Distributions per share
$
0.126

 
$
0.126

 
$
0.126

Amount of distributions per share funded by cash flows provided by operations
$
0.126

 
$
0.126

 
$
0.126

On April 29, 2014, our Board of Trustees approved a monthly distribution of $0.042 per common share for each of the months of July, August and September of 2014. The July dividend was paid on August 7, 2014 to all shareholders of record on July 31, 2014, the August dividend was paid on September 8, 2014 to all shareholders of record on August 29, 2014, and the September dividend was paid on October 7, 2014 to all shareholders of record on September 30, 2014.
On July 31, 2014, our Board of Trustees approved a monthly distribution of $0.042 per common share for each of the months of October, November and December of 2014. The October dividend will be paid on November 7, 2014 to all shareholders of record on October 30, 2014, the November dividend will be paid on December 8, 2014 to all shareholders of record on November 26, 2014, and the December dividend will be paid on January 7, 2015 to all shareholders of record on December 30, 2014.
On October 27, 2014, our Board of Trustees approved a monthly distribution of $0.0425 per common share for each of the months of January, February and March of 2015. The January dividend will be paid on February 6, 2015 to all shareholders of record on January 30, 2015, the February dividend will be paid on March 6, 2015 to all shareholders of record on February 27, 2015, and the March dividend will be paid on April 8, 2015 to all shareholders of record on March 31, 2015.
Historical Cash Flows
Our net cash provided by operating activities increased by $30.8 million to $122.8 million for the nine months ended September 30, 2014, compared to $92.0 million for the nine months ended September 30, 2013. The increase was primarily due to Net Operating Income generated by the properties acquired or consolidated since January 1, 2013. In addition, we paid expenses to our former investment advisor during the nine months ended September 30, 2013 that were accrued for as of December 31, 2012.
Net cash provided by investing activities was $11.1 million for the nine months ended September 30, 2014, compared to net cash used by investing activities of $245.0 million for the nine months ended September 30, 2013. The change was primarily attributable to proceeds of $61.1 million received from the sale of Maskew Retail Park and $22.5 million of distributions received due to the sale of an office property through the Duke JV and the partial sale of a property through CBRE Strategic Partners Asia. In addition, we had a reduction of $59.0 million

55

paid for acquisitions during the current period as compared to the prior year period. We also made contributions to our unconsolidated entities to repay various notes payable secured by properties held within the joint ventures in the prior year period.
Net cash used in financing activities increased by $266.0 million to $158.1 million for the nine months ended September 30, 2014, compared to net cash provided by financing activities of $107.9 million for the nine months ended September 30, 2013. During the nine months ended September 30, 2014 we increased our distribution payments by $12.9 million as compared to the prior year period. During the nine months ended September 30, 2013 we received $570.0 million from borrowings under our unsecured term loan facilities offset by $169.2 million paid to complete our Tender Offer.
Off-Balance Sheet Arrangements
As of September 30, 2014, we had four Investments in Unconsolidated Entities: (i) a 5.07% ownership interest in CBRE Strategic Partners Asia; (ii) an 80% ownership interest in the Duke JV; (iii) an 80% ownership interest in the UK JV; and (iv) an 80% ownership interest in the European JV. Our investments are discussed in Note 4 to the accompanying condensed consolidated financial statements "Investments in Unconsolidated Entities."
Inflation
The real estate market has not been affected significantly by inflation in the past several years due to the relatively low inflation rate. We expect to include provisions in the majority of our tenant leases designed to protect us from the impact of inflation. We expect these provisions will include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements, or in some cases, annual reimbursement of operating expenses above a certain allowance. Due to the generally long-term nature of these leases, annual rent increases may not be sufficient to cover inflation and rent may be below market.
Non-GAAP Supplemental Financial Measures: FFO, Core FFO and AFFO
Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry analysts and investors consider presentations of operating results for REITs that use historical cost accounting to be insufficient. Consequently, the National Association of Real Estate Investment Trusts ("NAREIT") created Funds from Operations ("FFO") as a supplemental measure of REIT operating performance.
FFO is a non-GAAP measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net income. FFO, as we define it, is presented as a supplemental financial measure. Management believes that FFO is a useful supplemental measure of REIT performance. FFO does not present, nor do we intend for it to present, a complete picture of our financial condition and/or operating performance. We believe that net income, as computed under GAAP, appropriately remains the primary measure of our performance and that FFO, when considered in conjunction with net income, improves the investing public's understanding of the operating results of REITs and makes comparisons of REIT operating results more meaningful.
We compute FFO in accordance with standards established by NAREIT. Modifications to the NAREIT calculation of FFO are common among REITs, as companies seek to provide financial measures that meaningfully reflect their business and provide greater transparency to the investing public as to how the management team considers their results of operations. As a result, our FFO may not be comparable to FFO as reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than we do. The revised NAREIT White Paper on FFO defines FFO as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, impairment charges and gains and losses from sales of depreciable operating property, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures.
Management believes that NAREIT's definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time, and that depreciation charges required by GAAP do not always reflect the underlying economic conditions. Likewise, the exclusion from NAREIT's definition of FFO of impairment charges and gains and losses from the sales of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT's activity and assists in comparing those operating results between periods. Thus, FFO provides a performance measure that, when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates and operating costs. Management also believes that FFO provides useful information to the investment community about our financial performance when compared to other REITs, since FFO is generally recognized as the industry standard for reporting the operations of REITs.

56

However, changes in the accounting and reporting rules under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that have been put into effect since the establishment of NAREIT's definition of FFO have prompted an increase in the non-cash and non-operating items included in FFO. We calculate Core FFO as FFO exclusive of the net effects of acquisition costs, interest rate swap gains/losses, transition and listing costs, and unrealized gain/loss in investments in unconsolidated entities. Core FFO is a useful measure to management's decision-making process. As discussed below, period to period fluctuations in the excluded items can be driven by short-term factors that are not particularly relevant to our long-term investment decisions, long-term capital structures or long-term tax planning and tax structuring decisions.
We believe that Core FFO appropriately presents our results of operations on a comparative basis. The items that we exclude from net income are subject to significant fluctuations from period to period that cause both positive and negative effects on our results of operations, often in inconsistent and unpredictable directions. For example, our acquisition costs are primarily the result of the volume of our acquisitions completed during each period, and therefore we believe such acquisition costs are not reflective of our operating results during each period. Similarly, unrealized gains or losses that we have recognized during a given period are based primarily upon changes in the estimated fair market value of certain of our investments due to changes in market conditions and do not necessarily reflect the operating performance of these properties during the corresponding period. During the year ended December 31, 2012, the Company began the process of transitioning from being an externally managed company to a self-managed company and we believe the costs incurred to accomplish this transition involve many costs which are being excluded to arrive at Core FFO. Lastly, we incurred certain costs during the year ended December 31, 2013, in connection with our Listing and the Tender Offer and believe the costs incurred should also be excluded to arrive at Core FFO.
We believe that Core FFO is useful to investors as a supplemental measure of operating performance. We believe that adjusting FFO to exclude acquisition costs provides investors a view of the performance of our portfolio over time, including if we cease to acquire properties on a frequent and regular basis and allows for a comparison of the performance of our portfolio with other REITs that are not currently engaging in acquisitions. We also believe that Core FFO may provide investors with a useful indication of our future performance, and of the sustainability of our current distribution policy. However, because Core FFO excludes acquisition costs, which are important components in an analysis of our historical performance, such supplemental measure should not be construed as a historical performance measure and may not be as useful a measure for estimating the value of our common shares.
We calculate AFFO as Core FFO exclusive of the net effects of (i) amortization associated with deferred financings costs; (ii) amortization of above- and below-market lease intangibles; (iii) amortization of premium on notes payable; (iv) amortization of deferred revenue related to tenant improvements, (v) deferred income taxes; (vi) share-based and other non-cash compensation expense; (vii) deferred straight-line rental revenue; and (viii) recurring capital expenditures.
FFO, Core FFO and AFFO measure cash generated from operating activities not in accordance with GAAP and should not be considered as alternatives to (i) net income (determined in accordance with GAAP), as indications of our financial performance, or (ii) to cash flow from operating activities (determined in accordance with GAAP) as measures of our liquidity, nor are they indicative of funds available to fund our cash needs, including our ability to make cash distributions. We believe that to further understand our performance, each of FFO, Core FFO and AFFO, should be compared with our reported net income and considered in addition to cash flows in accordance with GAAP, as presented in our Consolidated Financial Statements.
Not all REITs calculate FFO, Core FFO and AFFO (or an equivalent measure), in the same manner and therefore comparisons with other REITs may not be meaningful.

57

The following table presents our FFO, Core FFO and AFFO for the three and nine months ended September 30, 2014 and 2013 (in thousands, except share data): 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Reconciliation of Net Income to FFO, Core FFO and AFFO
 
 
 
 
 
Net Income
$
18,468

 
$
859

 
$
26,940

 
$
79,309

Real Estate Depreciation and Amortization
27,090

 
26,549

 
81,231

 
75,323

Pro Rata Share of Real Estate Depreciation and Amortization from Unconsolidated Entities
8,163

 
8,406

 
25,172

 
26,952

Loss (Gain) on Conversion of Equity Interest to Controlling Interest
—

 
1,667

 
—

 
(75,536
)
Gain on Asset Disposition, Net
(13,175
)
 
—

 
(13,175
)
 
—

Pro Rata Share of Realized (Gain) Loss on Investment in CBRE Strategic Partners Asia
(123
)
 
—

 
(123
)
 
2,113

Funds from Operations
$
40,423

 
$
37,481

 
$
120,045

 
$
108,161

Acquisition-Related Expenses
265

 
175

 
555

 
2,178

Loss on Early Extinguishment of Debt
—

 
1,572

 
—

 
1,572

Severance-Related Expense

1,312

 
—

 
1,312

 
—

Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
(68
)
 
(265
)
 
(80
)
 
(1,731
)
Transition and Listing Expenses
—

 
1,447

 
—

 
12,681

Pro Rata Share of Unrealized (Gain) Loss on Investment in CBRE Strategic Partners Asia
(2
)
 
(247
)
 
117

 
(3,813
)
Core Funds from Operations
$
41,930

 
$
40,163

 
$
121,949

 
$
119,048

Amortization of Non-Cash Interest Expense
(312
)
 
(94
)
 
(660
)
 
(461
)
Pro Rata Share of Amortization of Non-Cash Interest Expense from Unconsolidated Entities
117

 
97

 
354

 
436

Amortization of Above and Below Market Leases
1,173

 
1,956

 
4,056

 
5,028

Pro Rata Share of Amortization of Above/Below Market Leases from Unconsolidated Entities
(54
)
 
(126
)
 
(162
)
 
(150
)
Amortization of Deferred Revenue Related to Tenant Improvements
(272
)
 
(276
)
 
(747
)
 
(909
)
Share-Based Compensation
816

 
554

 
2,740

 
1,547

Straight-line Rent Adjustments, Net
(2,096
)
 
(3,355
)
 
(4,641
)
 
(7,886
)
Pro Rata Share of Straight-Line Rent Adjustments, Net from Unconsolidated Entities
296

 
(1,044
)
 
1,026

 
(4,426
)
Recurring Capital Expenditures
(3,401
)
 
(1,652
)
 
(8,319
)
 
(3,890
)
Pro Rata Share of Recurring Capital Expenditures from Unconsolidated Entities
(394
)
 
(1,435
)
 
(754
)
 
(2,966
)
Adjusted Funds from Operations
$
37,803

 
$
34,788

 
$
114,842

 
$
105,371

Amounts per share (Basic and Diluted):
 
 
 
 
 
 
 
Net Income Attributable to Common Shareholders

$
0.08

 
$
0.00

 
$
0.11

 
$
0.32

Funds from Operations
$
0.17

 
$
0.16

 
$
0.51

 
$
0.44

Core Funds from Operations
$
0.18

 
$
0.17

 
$
0.51

 
$
0.49

Adjusted Funds from Operations
$
0.16

 
$
0.15

 
$
0.48

 
$
0.43



58

Subsequent Events
On October 24, 2014, the Company completed the acquisition of 1659 Sauget, an industrial property of approximately 502,500 square feet in Sauget, Illinois, for $21.1 million. The property is 100% net leased to two tenants through 2019 and 2020.
On October 27, 2014, our Board of Trustees approved a monthly distribution of $0.0425 per common share for each of the months of January, February and March of 2015. The January dividend will be paid on February 6, 2015 to all shareholders of record on January 30, 2015, the February dividend will be paid on March 6, 2015 to all shareholders of record on February 27, 2015, and the March dividend will be paid on April 8, 2015 to all shareholders of record on March 31, 2015.
On November 3, 2014, we entered into amended and restated indemnification agreements (the "Amended Indemnification Agreements") with each of the Company’s trustees and executive officers.  The Amended Indemnification Agreements generally contain the same terms and conditions as the original indemnification agreements entered into by and between us and each trustee and executive officer, except for the following changes: (i) requiring a final adjudication, not subject to appeal, of exceptions to indemnification coverage; (ii) providing enhanced protection for attorney-client privilege and prohibiting our ability to raise arguments regarding validity of the indemnification agreement; (iii) eliminating our option to assume the defense of an indemnitee; (iv) enhancing an indemnitee's ability to obtain reimbursement of defense costs; (v) prohibiting the cancellation of trustee and officer insurance coverage without notice to an indemnitee; (vi) creating primacy in our obligations to indemnify the indemnitee; and (vii) requiring us to provide information to an indemnitee to assist in such indemnitee's defense.
The above description of the Amended Indemnification Agreements does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the form of amended and restated indemnification agreement, which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated by reference into this Item 5 "Other Information."
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.
We may be exposed to the effects of interest rate changes primarily as a result of long-term debt used to maintain liquidity and fund expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we will borrow primarily at fixed rates or variable rates and, in some cases, with the ability to convert variable rates to fixed rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes.To illustrate the effect of movements in the interest rate markets, we performed a market sensitivity analysis on its outstanding hedging instruments. We applied various basis point spreads to the underlying interest rate curves of the derivative portfolio in order to determine the instruments’ change in fair value. The following tables summarize the results of the analysis performed for the nine months ended September 30, 2014 and 2013, respectively (amounts in thousands):

59

 
 
 
 
 
 
Effects of Change in Interest Rates as of
Type of Instrument
 
Notional 
Amount
 
Maturity Date
 
September 30, 2014
-100 Basis
Points
 
-50 Basis
Points
 
+50 Basis
Points
 
+100 Basis
Points
 
 
 
 
 
 
 
 
 
 
 
 
 
Qualifying Interest Rate Swap on Point West I Debt
 
$
10,797

 
12/6/2016
 
(154
)
 
(95
)
 
113

 
226

Qualifying Interest Rate Swap on Wells Fargo Term Loan
 
$
200,000

 
3/7/2018
 
(5,689
)
 
(3,119
)
 
3,207

 
6,351

Qualifying Interest Rate Swap on Atrium I Debt
 
$
21,814

 
5/31/2018
 
(638
)
 
(343
)
 
355

 
704

Qualifying Interest Rate Swap on Wells Fargo Term Loan
 
$
200,000

 
1/15/2019
 
(8,229
)
 
(4,152
)
 
3,937

 
7,814

Qualifying Interest Rate Swap on Easton III Debt
 
$
6,327

 
1/31/2019
 
(242
)
 
(122
)
 
122

 
242

Qualifying Interest Rate Swap on TD Term Loan
 
$
50,000

 
3/6/2020
 
(2,562
)
 
(1,259
)
 
1,223

 
2,410

Qualifying Interest Rate Swap on Capital One Term Loan
 
$
120,000

 
1/31/2021
 
(7,081
)
 
(3,500
)
 
3,522

 
6,793

 
 
 
 
 
 
Effects of Change in Interest Rates as of
Type of Instrument
 
Notional 
Amount
 
Maturity Date
 
September 30, 2013
-100 Basis
Points
 
-50 Basis
Points
 
+50 Basis
Points
 
+100 Basis
Points
 
 
 
 
 
 
 
 
 
 
 
 
 
Qualifying Interest Rate Swap on Maskew Retail Park Debt(1)
 
$
22,621

 
8/10/2014
 
(104
)
 
(92
)
 
91

 
181

Qualifying Interest Rate Swap on Point West I 
    Debt
 
$
11,123

 
12/6/2016
 
(211
)
 
(143
)
 
165

 
330

Qualifying Interest Rate Swap on Wells Fargo Term Loan
 
$
200,000

 
3/7/2018
 
(8,484
)
 
(4,283
)
 
4,114

 
8,126

Qualifying Interest Rate Swap on Atrium I Debt
 
$
22,750

 
5/31/2018
 
(877
)
 
(449
)
 
466

 
908

Qualifying Interest Rate Swap on Wells Fargo Term Loan
 
$
200,000

 
1/15/2019
 
(10,053
)
 
(5,148
)
 
4,790

 
9,536

Qualifying Interest Rate Swap on Easton III Debt
 
$
6,513

 
1/31/2019
 
(297
)
 
(152
)
 
153

 
299

Qualifying Interest Rate Swap on TD Term Loan
 
$
50,000

 
3/6/2020
 
(2,958
)
 
(1,391
)
 
1,405

 
2,763

Qualifying Interest Rate Swap on Capital One Term Loan
 
$
120,000

 
1/31/2021
 
(8,172
)
 
(4,145
)
 
3,898

 
7,719

__________
(1)
Based on three-month GBP-based LIBOR BBA Index with variable rate reset dates every 90 days during the term of the swaps.
The estimated fair value of our investment in CBRE Strategic Partners Asia is most sensitive to changes in capitalization rates for commercial properties in large urban areas in China, and among other factors, is also sensitive to currency exchange rate fluctuations and changes in the interest rates of China and the U.S., respectively. Decreases in capitalization rates and increases in interest rates generally increase the value of our investments. Changes in currency exchanges rates where the U.S. Dollar increases in value against the Chinese Yuan generally decrease the value of our investments.
Upon the maturity of our debt, there is a market risk as to the prevailing rates at the time of refinancing. Changes in market rates on our fixed-rate debt affect the fair market value of our debt but it has no impact on interest expense or cash flow. A 100 basis point increase or decrease in interest rates on our fixed rate debt would not increase or decrease our annual interest expense on our fixed rate debt.
A 100 basis point decrease or increase in interest rates would decrease or increase the fair market value of our notes payable and unsecured term loan facilities by $19.1 million at September 30, 2014.
In addition to changes in interest rates, the value of our real estate is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of lessees, which may affect our ability to refinance our debt if necessary.

60


ITEM 4.    CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We have formally adopted a policy for disclosure controls and procedures that provides guidance on the evaluation of disclosure controls and procedures and is designed to ensure that all corporate disclosure is complete and accurate in all material respects and that all information required to be disclosed in the periodic reports submitted by us under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods and in the manner specified in the Securities and Exchange Commission's rules and forms and that disclosure controls and procedures were effective to ensure that the information required to be disclosed by us is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within our Company to disclose material information otherwise required to be set forth in our periodic reports.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, as required by the Securities Exchange Act Rule 13(a)-15(e), our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Controls Over Financial Reporting
No changes in internal control over financial reporting occurred during the fiscal quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

61

PART II.
OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS
We are not party to any material legal proceedings as of September 30, 2014.
ITEM 1A.    RISK FACTORS
There have been no material changes to the "Risk Factors" set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013.
ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Securities and Repurchases of Securities
During the three months ended September 30, 2014, we did not sell any equity securities that are not registered under the Securities Act of 1933, as amended.
The following table provides information with respect to our tax tendering activity for the three months ended September 30, 2014:
Period
 
Total Number of
Shares Purchased(1)
 
Average Price
Paid per
Share
 
Total Number of 
Shares Purchased as Part of
Publicly
 Announced Plans
or Programs
 
Maximum Number 
(or approximate 
dollar value)  of
Shares that May-Yet Be Purchased
Under the Plans
or Programs
 
 
 
 
 
 
 
 
 
July 1, 2014 to July 31, 2014(1)
 
40,247

 
$
8.11

 
N/A
 
N/A
August 1, 2014 to August 31, 2014
 
—

 
—

 
N/A
 
N/A
September 1, 2014 to September 30, 2014(1)
 
23,107

 
7.48

 
N/A
 
N/A
Total
 
63,354

 
$
7.88

 
N/A
 
N/A
__________
(1)
In July and September 2014, a total of 40,247 and 23,107 shares, respectively, were tendered by certain of our employees to us to satisfy minimum statutory tax withholding obligations related to the vesting of restricted shares.
Use of Proceeds from Sale of Registered Securities
None.
ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.    MINE SAFETY DISCLOSURE
None. 
ITEM 5.    OTHER INFORMATION
On November 3, 2014, we entered into amended and restated indemnification agreements (the "Amended Indemnification Agreements") with each of the Company’s trustees and executive officers.  The Amended Indemnification Agreements generally contain the same terms and conditions as the original indemnification agreements entered into by and between us and each trustee and executive officer, except for the following changes: (i) requiring a final adjudication, not subject to appeal, of exceptions to indemnification coverage; (ii) providing enhanced protection for attorney-client privilege and prohibiting our ability to raise arguments regarding validity of the indemnification agreement; (iii) eliminating our option to assume the defense of an indemnitee; (iv) enhancing an indemnitee's ability to obtain reimbursement of defense costs; (v) prohibiting the cancellation of trustee and officer insurance coverage without notice to an indemnitee; (vi) creating primacy in our obligations to indemnify the indemnitee; and (vii) requiring us to provide information to an indemnitee to assist in such indemnitee's defense.

62

The above description of the Amended Indemnification Agreements does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the form of amended and restated indemnification agreement, which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated by reference into this Item 5.
ITEM 6.    EXHIBITS
10.1
Form of Amended and Restated Indemnification Agreement for trustees and executive officers, filed herewith.
 
 
31.1
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 
31.2
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 
32.1
Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 
32.2
Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 
101
The following materials from Chambers Street Properties' Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Equity and (vi) the Notes to the Condensed Consolidated Financial Statements, filed herewith.


63

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. 
 
Chambers Street Properties
 
 
Date: November 3, 2014
/S/    JACK A. CUNEO
 
Jack A. Cuneo
 
President and Chief Executive Officer
 
 
Date: November 3, 2014
/S/    MARTIN A. REID
 
Martin A. Reid
 
Chief Financial Officer

64

Gramercy Property Trust Reports