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EX-31.1 - EXHIBIT 31.1 - Gramercy Property Trusta201533110-qex311.htm
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EXCEL - IDEA: XBRL DOCUMENT - Gramercy Property TrustFinancial_Report.xls

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM 10-Q
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
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 236,860,895 as of May 7, 2015.




CHAMBERS STREET PROPERTIES
INDEX

 
 
Page
 
 
PART I. FINANCIAL INFORMATION
 
Item 1.
Consolidated Financial Statements (unaudited)
 
 
 
Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014
 
 
 
Consolidated Statements of Operations for the Three Months Ended March 31, 2015 and 2014
 
 
 
Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2015 and 2014
 
 
 
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014
 
 
 
Consolidated Statements of Equity for the Three Months Ended March 31, 2015 and 2014
 
 
 
Notes to the Consolidated Financial Statements
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4.
Controls and Procedures
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
Item 1.
Legal Proceedings
 
 
Item 1A.
Risk Factors
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 3.
Defaults Upon Senior Securities
 
 
Item 4.
Mine Safety Disclosure
 
 
Item 5.
Other Information
 
 
Item 6.
Exhibits
 
 
SIGNATURES
 
 




PART I.
FINANCIAL INFORMATION
ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CHAMBERS STREET PROPERTIES
Consolidated Balance Sheets
as of March 31, 2015 and December 31, 2014
(In Thousands, Except Share Data)
 
March 31,
 
December 31,
 
2015
 
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Investments in Real Estate:
 
 
 
Land
$
630,783

 
$
630,840

Land Available for Expansion
24,992

 
23,368

Buildings and Improvements
1,685,019

 
1,674,955

 
2,340,794

 
2,329,163

Less: Accumulated Depreciation and Amortization
(257,510
)
 
(239,973
)
Net Investments in Real Estate
2,083,284

 
2,089,190

Investments in Unconsolidated Entities
394,738

 
423,693

Cash and Cash Equivalents
44,658

 
40,139

Restricted Cash
15,186

 
14,718

Tenant and Other Receivables, Net
11,676

 
11,216

Deferred Rent
41,071

 
39,429

Deferred Leasing Costs and Intangible Assets, Net
208,614

 
220,490

Deferred Financing Costs, Net
8,555

 
9,321

Prepaid Expenses and Other Assets
19,385

 
21,612

Total Assets
$
2,827,167

 
$
2,869,808

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
LIABILITIES
 
 
 
Secured Notes Payable, Net
$
581,706

 
$
610,608

Unsecured Term Loan Facilities
570,000

 
570,000

Unsecured Revolving Credit Facility
235,044

 
200,044

Accounts Payable, Accrued Expenses and Other Liabilities
74,786

 
76,421

Intangible Liabilities, Net
25,067

 
26,248

Prepaid Rent and Security Deposits
16,939

 
15,569

Distributions Payable
10,075

 
9,951

Total Liabilities
1,513,617

 
1,508,841

COMMITMENTS AND CONTINGENCIES (NOTE 13)


 


SHAREHOLDERS' EQUITY
 
 
 
Common Shares of Beneficial Interest, $0.01 par value, 990,000,000 shares authorized; 236,861,496 and 236,920,675 issued and outstanding as of March 31, 2015 and December 31, 2014, respectively
2,366

 
2,364

Additional Paid-in-Capital
2,073,109

 
2,071,526

Accumulated Deficit
(713,877
)
 
(689,654
)
Accumulated Other Comprehensive Loss
(48,048
)
 
(23,269
)
Total Shareholders' Equity
1,313,550

 
1,360,967

Total Liabilities and Shareholders' Equity
$
2,827,167

 
$
2,869,808


See accompanying notes to consolidated financial statements.
1


CHAMBERS STREET PROPERTIES
Consolidated Statements of Operations
For the Three Months Ended March 31, 2015 and 2014 (unaudited)
(In Thousands, Except Share and per Share Data)
 
Three Months Ended
 
March 31,
 
2015
 
2014
REVENUES
 
 
 
Rental
$
54,346

 
$
51,876

Tenant Reimbursements
16,439

 
15,220

Other Property Income
198

 
1,069

Total Revenues
70,983

 
68,165

EXPENSES
 
 
 
Property Operating
9,781

 
9,553

Real Estate Taxes
10,782

 
9,801

General and Administrative
9,873

 
6,864

Acquisition-Related

 
290

Depreciation and Amortization
27,920

 
27,238

Total Expenses
58,356

 
53,746

Income Before Other (Expenses) Income
12,627

 
14,419

OTHER EXPENSES AND INCOME
 
 
 
Interest and Other Income
80

 
167

Interest Expense
(13,059
)
 
(14,061
)
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
17

 
26

Total Other (Expenses)
(12,962
)
 
(13,868
)
(Loss) Income Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities
(335
)
 
551

Provision For Income Taxes
(176
)
 
(58
)
Equity in Income of Unconsolidated Entities
6,505

 
2,826

NET INCOME
5,994

 
3,319

Basic and Diluted Net Income per Share
$
0.03

 
$
0.01

Weighted Average Common Shares Outstanding - Basic
236,940,134

 
236,583,752

Weighted Average Common Shares Outstanding - Diluted
236,963,354

 
236,583,752

Dividends Declared per Common Share
$
0.128

 
$
0.126


See accompanying notes to consolidated financial statements.
2


CHAMBERS STREET PROPERTIES
Consolidated Statements of Comprehensive Income (Loss)
For the Three Months Ended March 31, 2015 and 2014 (unaudited)
(In Thousands)
 
 
Three Months Ended
 
March 31,
 
2015
 
2014
NET INCOME
$
5,994

 
$
3,319

Foreign Currency Translation (Loss) Gain
(18,736
)
 
823

Swap Fair Value Adjustments
(6,043
)
 
(2,761
)
COMPREHENSIVE (LOSS) INCOME
(18,785
)
 
1,381


See accompanying notes to consolidated financial statements.
3


CHAMBERS STREET PROPERTIES
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2015 and 2014 (unaudited)
(In Thousands)
 
Three Months Ended
 
March 31,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net Income
$
5,994

 
$
3,319

Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities:
 
 
 
Equity in Income of Unconsolidated Entities
(6,505
)
 
(2,826
)
Distributions from Unconsolidated Entities
10,225

 
10,076

Gain on Interest Rate Swaps
(17
)
 
(26
)
Prepaid Tenant Improvement Amortization
(365
)
 

Lease Inducement Amortization
252

 

Depreciation and Amortization
27,920

 
27,238

Amortization of Non-Cash Interest Expense
(380
)
 
(104
)
Amortization of Above and Below Market Leases
975

 
1,482

Share-Based Compensation
4,038

 
1,012

Straight-Line Rent Adjustment
(1,668
)
 
(1,291
)
Changes in Operating Assets and Liabilities:
 
 
 
Tenant and Other Receivables
(465
)
 
(1,297
)
Prepaid Expenses and Other Assets
102

 
337

Accounts Payable, Accrued Expenses and Other Liabilities
(3,874
)
 
(6,185
)
Net Cash Flows Provided by Operating Activities
36,232

 
31,735

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Acquisition of Real Property
(1,715
)
 
(27,450
)
Distributions from Unconsolidated Entities
7,407

 
10,186

Restricted Cash
(468
)
 
3,021

Lease Commissions
(322
)
 
(1,396
)
Improvements to Investments in Real Estate
(10,446
)
 
(398
)
Net Cash Flows Used in Investing Activities
(5,544
)
 
(16,037
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Repurchase and Cancellation of Vested Shares
(3,240
)
 
(247
)
Payment of Distributions
(30,093
)
 
(29,797
)
Borrowings on Unsecured Revolving Credit Facility
35,000

 
10,000

Principal Payments on Unsecured Revolving Credit Facility

 
(10,000
)
Principal Payments on Secured Notes Payable
(27,757
)
 
(23,991
)
Payment of Financing Costs

 
(62
)
Net Cash Flows Used in Financing Activities
(26,090
)
 
(54,097
)
EFFECT OF FOREIGN CURRENCY TRANSLATION
(79
)
 
(43
)
Net Increase (Decrease) in Cash and Cash Equivalents
4,519

 
(38,442
)
Cash and Cash Equivalents, Beginning of the Period
40,139

 
83,007

Cash and Cash Equivalents, End of the Period
$
44,658

 
$
44,565

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
Cash Paid During the Period for Interest
$
13,694

 
$
14,298

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Distributions Declared and Payable
$
10,075

 
$
9,954

Accounts Payable and Accrued Expenses—Construction In Progress
$
3,715

 
$
58

Deferred Revenue Due to Cash Trap Provision
$
377

 
$

Reserve for Cash Held by Lenders
$
839

 
$


See accompanying notes to consolidated financial statements.
4


CHAMBERS STREET PROPERTIES
Consolidated Statements of Equity
For the Three Months Ended March 31, 2015 and 2014 (unaudited)
(In Thousands, Except Share Data)

 
Common Shares
 
Additional
Paid-in-
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
Shares
 
Amount
 
Balance at January 1, 2015
236,920,675

 
$
2,364

 
$
2,071,526

 
$
(689,654
)
 
$
(23,269
)
 
$
1,360,967

Net Income

 

 

 
5,994

 

 
5,994

Other Comprehensive Loss

 

 

 

 
(24,779
)
 
(24,779
)
Share-Based Compensation
350,000

 
6

 
3,328

 

 

 
3,334

Repurchase and Cancellation of Vested Shares
(409,179
)
 
(4
)
 
(3,236
)
 

 

 
(3,240
)
Non-Cash Amortization of Share-Based Compensation

 

 
1,491

 

 

 
1,491

Distributions Declared ($0.128 per share)

 

 

 
(30,217
)
 

 
(30,217
)
Balance at March 31, 2015
236,861,496

 
$
2,366

 
$
2,073,109

 
$
(713,877
)
 
$
(48,048
)
 
$
1,313,550


 
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

 

 

 
3,319

 

 
3,319

Other Comprehensive Loss

 

 

 

 
(1,938
)
 
(1,938
)
Share-Based Compensation
578,425

 
1

 
1,011

 

 

 
1,012

Repurchase and Cancellation of Vested Shares
(31,959
)
 

 
(247
)
 

 

 
(247
)
Distributions Declared ($0.126 per share)

 

 

 
(29,820
)
 

 
(29,820
)
Balance at March 31, 2014
237,010,447

 
$
2,360

 
$
2,067,772

 
$
(615,814
)
 
$
2,658

 
$
1,456,976


See accompanying notes to consolidated financial statements.
5


CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(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 March 31, 2015, we owned 100% of the limited partnership units of CSP OP directly or indirectly through a wholly-owned taxable REIT subsidiary.
As of March 31, 2015, we owned, on a consolidated basis, 102 industrial (primarily warehouse/distribution) and office properties located in 18 U.S. states (Arizona, California, Colorado, Florida, 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 25.3 million rentable square feet. Our consolidated properties were approximately 97.6% leased (based upon rentable square feet) as of March 31, 2015. As of March 31, 2015, 77 of our consolidated properties were net leased to single tenants, which encompassed approximately 20.6 million rentable square feet.
We had ownership interests in four unconsolidated entities that, as of March 31, 2015, owned interests in 28 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, 25 industrial (primarily warehouse/distribution) and office properties located in seven U.S. states (Arizona, Florida, Illinois, Indiana, Ohio, Tennessee and Texas) and three countries in Europe (France, Germany and the United Kingdom), encompassing approximately 12.3 million rentable square feet. Our unconsolidated properties were approximately 99.9% leased (based upon rentable square feet) as of March 31, 2015. As of March 31, 2015, 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."

6

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying 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 months ended March 31, 2015 have been made. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results of operations to be expected for the entire year. The 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, 2014.
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
We currently operate our consolidated properties in two geographic areas, the United States and the United Kingdom. We view our consolidated property operations as two reportable segments, Industrial Properties and Office Properties, which participate in the acquisition, development, ownership, and operation of high quality real estate in their respective segments.
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 $20.3 million as security for such leases at March 31, 2015 and December 31, 2014.
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 $18,000 and $62,000 as of March 31, 2015 and December 31, 2014, respectively.
Translation of Non-U.S. Currency Amounts
The financial statements and transactions of our United Kingdom properties are recorded in their functional currency, namely the Great Britain Pound ("GBP") and are then translated into U.S. dollars ("USD").

7

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Assets and liabilities of these properties 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 $1.4819 and $1.5576 at March 31, 2015 and December 31, 2014, respectively. The profit and loss average exchange rate of the USD to the GBP was approximately $1.5357 and $1.6586 for the three months ended March 31, 2015 and 2014, 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 $1.0732 and $1.2099 at March 31, 2015 and December 31, 2014. The profit and loss average exchange rate of the USD to the EUR was approximately $1.1513 and $1.3679 for the three months ended March 31, 2015 and 2014, respectively.
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. We believe that we have met all the REIT organizational and operational requirements for the three months ended March 31, 2015, and we were not subject to any U.S. federal income taxes, other than U.S. federal income taxes on income generated by our Taxable REIT Subsidiary. As such, we have not provided for income taxes other than as addressed below.
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 recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary difference, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
No deferred tax assets or liabilities were recorded as of March 31, 2015, other than as mentioned below related to the United Kingdom net operating losses. In addition, we believe that any current or deferred tax liability associated with our Taxable REIT Subsidiary would be de minimus.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
We did not have any uncertain tax positions which would require us to record any unrecognized tax benefits or additional tax liabilities as of March 31, 2015.
Even if we qualify for taxation as a REIT, we may be subject to certain state, foreign, and local taxes on our income and property and to U.S. federal income and excise taxes on our undistributed taxable income, if any.

8

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


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 $176,000 and $58,000 during the three months ended March 31, 2015 and 2014, respectively.
The United Kingdom taxes real property operating results at a statutory rate of 20%. The properties we own (or hold interest in) in the United Kingdom have operated at a taxable loss to date and have generated a deferred tax 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 March 31, 2015 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.
The tax years from 2010 through 2014 remain open to examination by the taxing jurisdictions to which the Company is subject.
Fair Value of Financial Instruments and Investments
We generally determine or calculate the fair value of financial instruments using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments and our estimates for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow. The Investment Manager of CBRE Strategic Partners Asia applies valuation techniques for our investment carried at fair value based upon the application of the income approach, the direct market comparison approach, the replacement cost approach or third party appraisals to the underlying assets held in the unconsolidated entity in determining the net asset value attributable to our ownership interest therein. As of March 31, 2015, the financial assets and liabilities recorded at fair value in our consolidated financial statements are our derivative instruments and our investment in CBRE Strategic Partners Asia.
The remaining financial assets and liabilities which are only disclosed at fair value are comprised of all other notes payable, the unsecured line of credit and other debt instruments. We determined the fair value of our secured notes payable and other debt instruments by performing discounted cash flow analyses using an appropriate market discount rate. We calculate the market discount rate by obtaining period-end treasury rates for fixed-rate debt, or London Inter-Bank Offering Rate ("LIBOR") rates for variable-rate debt, for maturities that correspond to the maturities of our debt and then adding an appropriate credit spread derived from information obtained from third-party financial institutions. These credit spreads take into account factors such as our credit standing, the maturity of the debt, whether the debt is secured or unsecured, and the loan-to-value ratios of the debt.
The carrying amounts of our cash and cash equivalents, restricted cash, tenant and other receivables and accounts payable approximate fair value due to their short-term maturities.
Share-based Compensation
For share-based awards for which there is no pre-established performance period, we recognize compensation costs over the service vesting period, which represents the requisite service period, on a straight-line basis.
For share-based awards with service or market conditions, we record the cost of the awards based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. For share-based awards in which the performance period precedes the grant date, we recognize compensation costs straight-lined over the requisite service period, which includes both the performance and service vesting periods.
During the performance period for a share-based award program, we estimate the total compensation cost of the potential future awards. We then record compensation costs equal to the portion of the requisite service period that has elapsed through the end of the reporting period.
For share-based awards granted by the Company, CSP OP issues a number of common units equal to the number of common shares ultimately granted by us in respect of such awards.

9

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


New Accounting Standards
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 January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The ASU is a part of the Simplification Initiative, to identify, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to the users of financial statements. The new standard eliminates the requirements for reporting entities to consider whether an underlying event or transaction is extraordinary but retains the presentation and disclosure guidance for items that are unusual in nature and occur infrequently. The ASU applies to all entities and is effective for fiscal years beginning after December 15, 2015, 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.
In February 2015, the FASB issued ASU 2015-02, Consolidated (Topic 810): Amendments to the Consolidation Analysis. The ASU changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Key amendments under the new standard include the following: evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; elimination of the presumption that a general partner should consolidate a limited partnership; consolidation analysis of reporting entities that are involved with variable interest entities (VIEs), particularly those that have fee arrangements and related party relationship; addition of scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements similar to those for registered money market funds. The ASU applies to all reporting entities that are required to evaluate whether they should consolidate certain legal entities and is effective for fiscal years beginning after December 15, 2015, and interim periods thereafter, with early adoption permitted. We are still assessing the impact of this guidance on our consolidated financial statements and notes to our consolidated financial statements.
In April 7, 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU addresses balance sheet presentation requirements for debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding debt liability. This will make the presentation of debt issuance costs consistent with the presentation of debt discounts or premiums. The recognition and measurement guidance for debt issuance costs is not affected. The guidance is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, it is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Upon adoption, an entity must apply the new guidance retrospectively to all prior periods presented in the financial statements. An entity is also required in the year of adoption (and in interim periods within that year) to provide certain disclosures about the change in accounting principle, including the nature of and reason for the change, the transition method, a description of the prior-period information that has been retrospectively adjusted and the effect of the change on the financial statement line items (that is, debt issuance cost asset and the debt liability). We are still assessing the impact of this guidance on our consolidated financial statements and notes to our consolidated financial statements.
3. Investment in Real Estate Activity
Wholly-Owned Acquisitions
During the three months ended March 31, 2015, we acquired an 11.8 acre undeveloped parcel in Phoenix, Arizona for approximately $1.7 million. The undeveloped parcel is situated immediately adjacent to our Goodyear Crossing II property.


10

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


4. Investments in Unconsolidated Entities
As of March 31, 2015 and December 31, 2014, we owned the following number of properties through unconsolidated entities:
 
Ownership %
 
Number of Properties
 
 
March 31,
 
December 31,
 
 
2015
 
2014
Duke JV
80.0%
 
13

 
14

European JV
80.0%
 
9

 
9

UK JV
80.0%
 
3

 
3

CBRE Strategic Partners Asia
5.07%
 
3

 
3

 
 
 
28

 
29

Investments in unconsolidated entities at March 31, 2015 and December 31, 2014 consist of the following (in thousands):
 
March 31,
 
December 31,
 
2015
 
2014
Duke JV
$
230,861

 
$
239,376

European JV
125,853

 
144,141

UK JV
31,223

 
33,189

Afton Ridge
117

 
117

CBRE Strategic Partners Asia
6,684

 
6,870

 
$
394,738

 
$
423,693

The following is a summary of the investments in unconsolidated entities for the three months ended March 31, 2015 and the year ended December 31, 2014 (in thousands):
 
March 31,
 
December 31,
 
2015
 
2014
Investment Balance, January 1
$
423,693

 
$
514,802

Contributions

 
7,625

Company's Equity in Net Income (including adjustments for basis differences)
6,505

 
28,823

Other Comprehensive Loss of Unconsolidated Entities
(17,828
)
 
(22,342
)
Distributions
(17,632
)
 
(105,215
)
Investment Balance, End of Period
$
394,738

 
$
423,693


11

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


The following are the balance sheets of our investments in unconsolidated entities at March 31, 2015 (in thousands):
 
Duke JV
 
European JV
 
Other (2)
 
Total
 
 
 
 
Assets
 
 
 
 
 
 
 
Investments in Real Estate(1)
$
319,663

 
$
241,518

 
$
184,245

 
$
745,426

Other Assets
32,886

 
42,108

 
10,379

 
85,373

Total Assets
$
352,549

 
$
283,626

 
$
194,624

 
$
830,799

Liabilities and Equity
 
 
 
 
 
 
 
Secured Notes Payable, net
$
56,948

 
$
119,897

 
$

 
$
176,845

Other Liabilities
7,581

 
6,413

 
20,150

 
34,144

Total Liabilities
64,529

 
126,310

 
20,150

 
210,989

CSP Equity
230,861

 
125,853

 
38,024

 
394,738

Other Investors' Equity
57,159

 
31,463

 
136,450

 
225,072

Total Liabilities and Equity
$
352,549

 
$
283,626

 
$
194,624

 
$
830,799

__________
(1)
Includes REIT Basis Adjustments for costs incurred by the Company outside of the Duke/Hulfish, LLC joint venture (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.
(2)
Includes  the Goodman Princeton Holdings (Jersey) Limited joint venture (the "UK JV") and CBRE Strategic Partners Asia.
The following are the balance sheets of our investments in unconsolidated entities at December 31, 2014 (in thousands):
 
Duke JV
 
European JV
 
Other (2)
 
Total
 
 
 
 
Assets
 
 
 
 
 
 
 
Investments in Real Estate(1)
$
323,236

 
$
274,128

 
$
186,360

 
$
783,724

Real Estate Investments and Other Assets Held-for-Sale
17,230

 

 

 
17,230

Other Assets
32,474

 
49,435

 
11,553

 
93,462

Total Assets
$
372,940

 
$
323,563

 
$
197,913

 
$
894,416

Liabilities and Equity
 
 
 
 
 
 
 
Liabilities Related to Real Estate Investments Held-for-Sale
$
11,048

 
$

 
$

 
$
11,048

Secured Notes Payable, net
57,222

 
135,173

 

 
192,395

Other Liabilities
6,013

 
8,214

 
17,093

 
31,320

Total Liabilities
74,283

 
143,387

 
17,093

 
234,763

CSP Equity
239,376

 
144,141

 
40,176

 
423,693

Other Investors' Equity
59,281

 
36,035

 
140,644

 
235,960

Total Liabilities and Equity
$
372,940

 
$
323,563

 
$
197,913

 
$
894,416

__________
(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.
(2)
Includes UK JV, Afton Ridge, and CBRE Strategic Partners Asia.

12

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


The following are the statements of operations for our investments in unconsolidated entities for the three months ended March 31, 2015 and March 31, 2014 (in thousands):
 
Three Months Ended
 
March 31, 2015
 
March 31, 2014
 
Duke JV
 
European JV
 
Other (1)
 
Total
 
Duke JV
 
European JV
 
Other (2)
 
Total
Total Revenue
$
12,631

 
$
6,573

 
$
(2,334
)
 
$
16,870

 
$
14,660

 
$
7,336

 
$
(399
)
 
$
21,597

Operating Expenses
3,423

 
1,215

 
618

 
5,256

 
5,036

 
1,129

 
745

 
6,910

Net Operating Income
9,208

 
5,358

 
(2,952
)
 
11,614

 
9,624

 
6,207

 
(1,144
)
 
14,687

Depreciation and Amortization
5,214

 
2,601

 
484

 
8,299

 
7,516

 
2,929

 
523

 
10,968

Interest Expense
794

 
957

 

 
1,751

 
1,040

 
1,133

 

 
2,173

Gain on Sale of Real Estate
3,020

 

 

 
3,020

 

 

 

 

Loss on Extinguishment of Debt
(73
)
 

 

 
(73
)
 

 

 

 

Net Income (Loss)
6,147

 
1,800

 
(3,436
)
 
4,511

 
1,068

 
2,145

 
(1,667
)
 
1,546

Company Share in Net Income
4,917

 
1,439

 
175

 
6,531

 
854

 
1,716

 
287

 
2,857

Adjustments for REIT basis
(26
)
 

 

 
(26
)
 
(31
)
 

 

 
(31
)
CSP Equity in Net Income
$
4,891

 
$
1,439

 
$
175

 
$
6,505

 
$
823

 
$
1,716

 
$
287

 
$
2,826

__________
(1)
Includes UK JV and CBRE Strategic Partners Asia.
(2)
Includes UK JV, Afton Ridge, and CBRE Strategic Partners Asia.
Investments in Unconsolidated Entities Activity
On January 23, 2015, the Duke JV sold one office property located in Raleigh, North Carolina for approximately $20.6 million, of which our pro rata share was approximately $16.4 million and our pro rata gain was approximately $2.4 million.

13

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


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):
 
March 31,
 
December 31,
 
2015
 
2014
Deferred Leasing Costs and Intangible Assets, Net:
 
 
 
Deferred Leasing Costs
$
22,848

 
$
22,481

Accumulated Amortization
(4,961
)
 
(4,218
)
Deferred Leasing Costs, Net
17,887

 
18,263

Above-Market Leases
63,566

 
63,566

Accumulated Amortization
(32,449
)
 
(30,311
)
Above-Market Leases, Net
31,117

 
33,255

In-Place Leases
300,124

 
300,124

Accumulated Amortization
(141,740
)
 
(132,414
)
In-Place Leases, Net
158,384

 
167,710

Other Intangible Assets
1,425

 
1,425

Accumulated Amortization

(199
)
 
(163
)
Other Intangible Assets, Net
1,226

 
1,262

Total Deferred Leasing Costs and Intangible Assets, Net
$
208,614

 
$
220,490

 
 
 
 
Intangible Liabilities, Net:
 
 
 
Below-Market Leases
$
51,653

 
$
51,653

Accumulated Amortization
(27,838
)
 
(26,675
)
Below-Market Leases, Net
23,815

 
24,978

Above-Market Ground Lease Obligation
1,501

 
1,501

Accumulated Amortization
(249
)
 
(231
)
Above-Market Ground Lease Obligation, Net
1,252

 
1,270

Total Intangible Liabilities, Net
$
25,067

 
$
26,248


14

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


The following table sets forth amortization related to intangible assets and liabilities for the three months ended March 31, 2015 and 2014 (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Deferred Leasing Costs(1)
$
749

 
$
354

Above-Market Leases(2)
2,138

 
2,515

In-Place Leases(1)
9,326

 
9,469

Other Intangible Assets(1)
36

 

Below-Market Leases(2)
(1,163
)
 
(1,033
)
Above-Market Ground Lease Obligation(3)
(18
)
 
(18
)
__________
(1)
The amortization of deferred leasing costs, in-place leases and other intangible assets are recorded to depreciation and amortization expense in the 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 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 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 March 31, 2015 (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 2015
$
1,424

 
$
6,327

 
$
27,236

 
$
108

 
$
3,368

 
$
53

2016
1,750

 
5,557

 
29,727

 
144

 
3,590

 
71

2017
1,604

 
4,466

 
25,254

 
144

 
3,098

 
71

2018
1,531

 
3,862

 
21,050

 
144

 
2,825

 
71

2019
1,332

 
3,300

 
17,284

 
144

 
2,604

 
71

Thereafter
10,246

 
7,605

 
37,833

 
542

 
8,330

 
915

 
$
17,887

 
$
31,117

 
$
158,384

 
$
1,226

 
$
23,815

 
$
1,252


15

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(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
 
 
 
 
March 31,
 
December 31,
 
 
 
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
Lakeside Office Center
 
6.03%
 
6.03%
 
9/1/2015
 
$
8,585

 
$
8,617

Celebration Office Center III(2)
 
4.25%
 
2.50%
 
12/1/2015
 
8,770

 
8,817

22535 Colonial Pkwy(2)
 
4.25%
 
2.50%
 
12/1/2015
 
7,847

 
7,889

Northpoint III(2)
 
4.25%
 
2.50%
 
12/1/2015
 
10,155

 
10,209

Goodyear Crossing II(2)
 
4.25%
 
2.50%
 
12/1/2015
 
19,386

 
19,489

3900 North Paramount Parkway(2)
 
4.25%
 
2.50%
 
12/1/2015
 
7,616

 
7,656

3900 South Paramount Parkway(2)
 
4.25%
 
2.50%
 
12/1/2015
 
7,616

 
7,656

1400 Perimeter Park Drive(2)
 
4.25%
 
2.50%
 
12/1/2015
 
2,308

 
2,320

Miramar I(2)
 
4.25%
 
2.50%
 
12/1/2015
 
9,047

 
9,095

Miramar II(2)
 
4.25%
 
2.50%
 
12/1/2015
 
12,185

 
12,250

70 Hudson Street (3)
 
5.65%
 
5.15%
 
4/11/2016
 
113,570

 
114,108

Point West I - Swapped to Fixed
 
3.41%
 
3.41%
 
12/6/2016
 
10,635

 
10,716

100 Tice Blvd
 
5.97%
 
4.38%
 
9/15/2017
 
18,808

 
18,960

100 Tice Blvd
 
5.97%
 
4.38%
 
9/15/2017
 
18,808

 
18,960

4701 Gold Spike Drive(4)
 
4.45%
 
4.45%
 
3/1/2018
 
9,908

 
9,958

1985 International Way(4)
 
4.45%
 
4.45%
 
3/1/2018
 
6,883

 
6,920

3660 Deerpark Boulevard(4)
 
4.45%
 
4.45%
 
3/1/2018
 
7,117

 
7,153

Tolleson Commerce Park II(4)
 
4.45%
 
4.45%
 
3/1/2018
 
4,280

 
4,301

20000 S. Diamond Lake Road(4)
 
4.45%
 
4.45%
 
3/1/2018
 
6,233

 
6,265

Atrium I - Swapped to Fixed
 
3.78%
 
3.78%
 
5/31/2018
 
21,346

 
21,580

McAuley Place
 
3.98%
 
3.50%
 
9/1/2018
 
12,771

 
12,865

Easton III - Swapped to Fixed
 
3.95%
 
3.95%
 
1/31/2019
 
6,234

 
6,280

90 Hudson Street
 
5.66%
 
5.26%
 
5/1/2019
 
102,880

 
103,301

Fairforest Bldg. 6
 
5.42%
 
6.50%
 
6/1/2019
 
1,664

 
1,751

North Rhett I
 
5.65%
 
6.50%
 
8/1/2019
 
1,843

 
1,958

Kings Mountain II
 
5.47%
 
6.50%
 
1/1/2020
 
3,318

 
3,467

1 Rocket Road
 
6.60%
 
4.00%
 
8/1/2020
 
18,413

 
18,516

North Rhett II
 
5.20%
 
6.50%
 
10/1/2020
 
1,372

 
1,425

Mount Holly Bldg.
 
5.20%
 
6.50%
 
10/1/2020
 
1,372

 
1,425

Orangeburg Park Bldg.
 
5.20%
 
6.50%
 
10/1/2020
 
1,395

 
1,449

Kings Mountain I
 
5.27%
 
6.50%
 
10/1/2020
 
1,189

 
1,235

Ten Parkway North
 
4.75%
 
4.75%
 
1/1/2021
 
11,388

 
11,469

Union Cross Bldg. II
 
5.53%
 
6.50%
 
6/1/2021
 
5,570

 
5,755

Union Cross Bldg. I
 
5.50%
 
6.50%
 
7/1/2021
 
1,832

 
1,892


16

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Property
 
Stated
Interest Rate
 
Effective Interest Rate(1)
 
Maturity Date
 
Outstanding Balance
 
 
 
 
March 31,
 
December 31,
 
 
 
 
2015
 
2014
Norman Pointe I
 
5.24%
 
3.50%
 
10/1/2021
 
20,091

 
20,177

Norman Pointe II
 
5.24%
 
3.50%
 
10/1/2021
 
22,119

 
22,214

The Landings I
 
5.24%
 
3.50%
 
10/1/2021
 
15,120

 
15,185

The Landings II
 
5.24%
 
3.50%
 
10/1/2021
 
13,336

 
13,393

Fairforest Bldg. 5
 
6.33%
 
6.50%
 
2/1/2024
 
7,522

 
7,678

North Rhett IV
 
5.80%
 
6.50%
 
2/1/2025
 
7,719

 
7,862

One Wayside Road(5)
 
5.66%
 
5.25%
 
8/1/2015
 

 
12,938

One Wayside Road(5)
 
5.92%
 
5.25%
 
8/1/2015
 

 
10,854

Total Secured Notes Payable
 
 
 
 
 
 
 
568,251

 
596,008

Plus Premium
 
 
 
 
 
 
 
14,291

 
15,494

Less Discount
 
 
 
 
 
 
 
(836
)
 
(894
)
Total Secured Notes Payable, Net
 
 
 
 
 
 
 
$
581,706

 
$
610,608

__________
(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)
In accordance with the provisions of this loan, beginning in February 2015, the property's excess cash proceeds after the payment of debt service, impounds and budgeted operating expenses are being held by the lender until the loan is repaid or the property is re-leased under terms described in the loan agreement.
(4)
These five loans are cross-collaterialized.
(5)
This loan was paid off in full on February 2, 2015 prior to the maturity date.
Unsecured Term Loan Facilities
The terms of our unsecured term loan facilities and outstanding balances as of March 31, 2015 and December 31, 2014 are set forth in the table below (in thousands):
Term Loan Facility
 
Unswapped Interest Rate
 
Effective Interest Rate(1)
 
Maturity Date
 
Outstanding Balance
 
 
 
 
March 31,
 
December 31,
 
 
 
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
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 March 31, 2015 and December 31, 2014, the applicable LIBOR rate was 0.172% and 0.156%, respectively, for these loans.
(3)
As of March 31, 2015 and December 31, 2014, the applicable LIBOR rate was 0.172% and 0.155%, respectively, for this loan.

17

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Unsecured Revolving Credit Facility
The terms of our unsecured revolving credit facility are set forth in the table below (in thousands):
 
March 31,
 
December 31,
 
2015
 
2014
Outstanding Borrowings
$
235,044


$
200,044

Remaining Borrowing Capacity
614,956


649,956

Total Borrowing Capacity
$
850,000


$
850,000

Interest Rate(1)
1.47
%

1.46
%
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 March 31, 2015 and December 31, 2014.
(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 financial covenants (interest coverage and loan to value ratio).
As of March 31, 2015, 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, September 26, 2015 for WF Term Loan #2, WF Term Loan #3, and unsecured revolving credit facility, or March 6, 2015 for the TD Term Loan, or (b) 0.40 thereafter; (iv) an unencumbered leverage ratio of not more than 0.60; (v) minimum tangible net worth of $1.5 billion plus 85% of the net proceeds of certain future equity issuances; (vi) unencumbered asset value of at least $400.0 million; and (vii) a minimum of 10 Eligible Properties. 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 has provided guarantees in connection with our unsecured term loan facilities and revolving credit facility. As of March 31, 2015, 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 March 31, 2015 (in thousands):
Remaining 2015
$
103,960

2016
134,612

2017
46,822

2018
507,612

2019
308,768

Thereafter
271,521

 
$
1,373,295


18

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(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 March 31, 2015 and December 31, 2014 (amounts in thousands):
 
Notional Amount
 
Fair Value
 
Rate
 
 
 
 
Type of Instrument
March 31,
 
December 31,
 
March 31,
 
December 31,
 
March 31,
 
December 31,
 
Index
 
Maturity 
Date
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
 
Interest Rate Swap(1)
$
10,635

 
$
10,716

 
$
(146
)
 
$
(135
)
 
1.2
%
 
1.3
%
 
LIBOR
 
12/6/2016
Interest Rate Swap(2)
200,000

 
200,000

 
(116
)
 
1,467

 
0.8
%
 
0.8
%
 
LIBOR
 
3/7/2018
Interest Rate Swap(1)
21,346

 
21,580

 
(478
)
 
(354
)
 
1.6
%
 
1.6
%
 
LIBOR
 
5/31/2018
Interest Rate Swap
200,000

 
200,000

 
(3,497
)
 
(1,540
)
 
1.5
%
 
1.5
%
 
LIBOR
 
1/15/2019
Interest Rate Swap(1)
6,234

 
6,280

 
(177
)
 
(127
)
 
1.8
%
 
1.8
%
 
LIBOR
 
1/31/2019
Interest Rate Swap(2)
50,000

 
50,000

 
(399
)
 
266

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

 
120,000

 
(7,179
)
 
(5,543
)
 
2.4
%
 
2.4
%
 
LIBOR
 
1/31/2021
__________
(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 March 31, 2015. 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 March 31, 2015. 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.

19

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


We record all derivative instruments on a gross basis in the 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
 
 
 
March 31,
 
December 31,
 
 
 
March 31,
 
December 31,
Type of Instrument
Balance Sheet Location
 
2015
 
2014
 
Balance Sheet Location
 
2015
 
2014
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
Interest Rate Swaps
Prepaid Expenses and Other Assets
 
$

 
$
1,733

 
Accounts Payable, Accrued Expenses and Other Liabilities
 
$
11,992

 
$
7,699

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 months ended March 31, 2015 and 2014 (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Derivatives Designated as Cash Flow Hedges:
 
 
 
Gain (Loss) Recognized in Other Comprehensive Income (OCI) (Effective Portion)
$
(8,188
)
 
$
(5,089
)
Loss Reclassified from AOCI into Interest Expense (Effective Portion)
(2,145
)
 
(2,328
)
Net Change in Fair Value of Derivative Financial Instruments (Ineffective Portion and Amount Excluded from Effectiveness Testing)
17

 
26

At March 31, 2015, 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 $7.5 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, 2015.
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.
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.

20

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


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 March 31, 2015 (in thousands):
Remaining 2015
$
162,143

2016
197,435

2017
185,133

2018
168,162

2019
149,110

Thereafter
463,068

 
$
1,325,051

9. Related Party Transactions
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 year ended December 31, 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.
Additionally, until June 30, 2017, if we attempt to effect certain types of transactions, including, but not limited to, a merger, consolidation or sale of 10% of more of our business, assets or voting securities (excluding the sale of any securities pursuant to a registration statement filed pursuant to the Securities Act of 1933, as amended), we have agreed under our Transition to Self-Management Agreement, by and among CB Richard Ellis Realty Trust, CBRE Operating Partnership, L.P., CBRE Global Investors, LLC and CBRE Advisors LLC, dated April 27, 2012 (the “Transition to Self-Management Agreement”) to engage CBRE Global Investors, LLC, our former sponsor, or an affiliate of our former sponsor to provide financial advice and assistance in connection therewith provided that such entity continues to have the sufficient expertise and resources to provide such financial advice and assistance.  The transactional financial advisory fee payable by the Company to CBRE Global Investors or its affiliate upon the closing of a transaction will be equal to one-quarter of one percent (0.25%) of the consideration in the transaction, as defined in the Transition to Self-Management Agreement, plus the reimbursement of reasonable expenses.
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. 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 March 31, 2015, there were 3,330,631 common shares available for grant under the 2013 Equity Incentive Plan.

21

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


2015 Awards
On January 9, 2015, our Board of Trustees' independent trustees, Messrs. Charles Black, Mark Brugger, James Francis, James Orphanides and Louis Salvatore, were awarded restricted shares units ("Trustee RSUs") under the Company's 2013 Equity Incentive Plan on the following terms: (i) (y) Mr. Black was awarded 20,000 Trustee RSUs, and (z) Messrs. Brugger, Francis, Orphanides and Salvatore each were awarded 5,000 Trustee RSUs; and (ii) each award is subject to a mandatory deferral program. Pursuant to the mandatory deferral program, each Trustee RSU entitles a holder to receive one common share upon the earlier of (i) the sixth month anniversary of the holder's separation of service from the Company, and (ii) a change in control of the Company. Each Trustee RSU also entitles a holder to receive an amount equal to the dividends paid on one common share. The fair value of the Trustee RSUs was valued by a third-party valuation firm taking into consideration the mandatory deferral program restrictions. Based on the valuation analysis, the fair value of each Trustee RSU was determined to be $7.13, which represents a discount of 12.5% from the grant date closing share price of $8.15. The expected remaining tenure is estimated to be two years.
On March 13, 2015, our employees were awarded an aggregate of 474,862 restricted share units under the Company's 2013 Equity Incentive Plan, of which 237,440 are subject to market and service vesting requirements ("Performance Share Units" or "PSUs") and 237,422 are subject to time-based vesting requirements ("Time-Based RSUs" or "RSUs").
The Time-Based RSUs are subject to vest in three equal annual installments from the date of grant contingent on the grantee's continued employment with the Company. The Company pays an amount into an escrow account for the benefit of the grantee, measured by the dividends and other distributions paid with respect to the number of shares underlying the Time-Based RSU, or a Dividend Equivalent, between the grant date and the date such Time-Based RSU vests. The Dividend Equivalent is paid to the grantee on the relevant vesting dates of the Time-Based RSU.
The PSUs are restricted share units that vest at the end of a three-year performance period. Each employee is granted a target number of PSUs (the “PSU Target Award”). The actual number of common shares issued to each employee is subject to the achievement of certain levels of total shareholder return relative to the total shareholder return of a peer group of publicly-traded REITs included in the FTSE NAREIT All Equity Total Return Index, over a three-year performance period. There will be no payout of our common shares if our total shareholder return falls below the 30th percentile of the total shareholder returns of the peer group. The maximum number of common shares issued to an employee is equal to 150% of the PSU Target Award and is earned if our total shareholder return is equal to or greater than the 75th percentile of the total shareholder returns of the peer group. The number of PSUs can ultimately fluctuate from the 237,440 granted based upon the levels of achievement for shareholder returns. Compensation expense for the PSU's will be recorded on a straight-line basis over the three year period. The fair value of the Performance Share Unit award was determined using a Monte Carlo simulation performed by a third-party valuation firm. The following table summarizes the assumptions utilized in the Monte Carlo simulation pricing model:
 
 
Assumptions
Fair value per unit at March 13, 2015
 
$
6.00

Expected share price volatility
 
22.0
%
Dividend yield
 
6.0
%
Risk-free interest rate
 
0.99
%
Remaining expected life
 
2.8 years

The computations of expected volatility are based on a blend of the historical volatility of our common shares and those of our peer group companies with similar operations over approximately five and a half years as that is expected to be most consistent with future volatility and equates to a time period twice as long as the approximate two and four-fifths year remaining performance period of the PSUs. Implied volatility data is based on the observed pricing of six month (180 day) publicly-traded options on each company's common stock. The risk-free interest rate corresponds to the length of the remaining Performance Cycle and is based on the prevailing zero-coupon U.S. Treasury yield as of March 13, 2015. The expected dividend yield is estimated by examining the Company's average dividend yield over the preceding five years,

22

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


as well as its current dividend yield as of March 13, 2015. The expected life of the PSUs is equal to the remaining 2.8 year vesting period as of March 13, 2015.
Retirement of Mr. Cuneo
On March 5, 2015, Mr. Cuneo stepped down as President and Chief Executive Officer of the Company and resigned from the Board of Trustees of the Company. Pursuant to his Memorandum of Retirement dated November 9, 2014, Mr. Cuneo remained employed by the Company in a non-officer position through March 16, 2015. As part of his 2014 performance bonus, Mr. Cuneo received 75,000 Time-Based RSUs and 75,000 PSUs, which became fully vested upon his retirement. We recognized cash compensation of approximately $187,000 and non-cash compensation of approximately $3.3 million related to Mr. Cuneo’s retirement in 2015.
2014 Awards
On January 29, 2014, our Board's independent trustees, Messrs. Black, Brugger, Francis, Orphanides and Salvatore, were awarded equity grants under our 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 common shares awarded to trustees and (ii) each award vested in its entirety, upon issuance. We recorded compensation expense based upon the $7.87 price per share on January 29, 2014.
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. We recorded compensation expense based upon the $7.74 price per share on March 15, 2014. Compensation expense is recognized on a straight-line basis over the service vesting period of three years. We recognized share-based compensation expense of $171,000 and $66,000 during the three and three months ended March 31, 2015 and 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 of the Company (the “Compensation Committee”) 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 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 their 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.

23

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Summary of Time-Based Restricted Common Shares
A summary of our Time-Based Restricted Common Shares from January 1, 2015 through March 31, 2015 is presented below:
 
Nonvested Restricted Stock
 
Common Shares
 
Weighted-Average
Grant Date
Fair Value
per Share
Outstanding at January 1, 2015
800,699

 
$
8.68

Granted(1)
200,000

 
8.10

Vested(1)(2)
(728,963
)
 
8.50

Outstanding at March 31, 2015
271,736

 
$
8.53

__________
(1)
Shares granted to Mr. Cuneo were fully vested upon his retirement.
(2)
Total shares vested include 331,485 common shares that were tendered in accordance with the terms of our 2013 Equity Incentive Plan 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.
Summary of Time-Based Restricted Share Units
A summary of our Time-Based Restricted Share Units from January 1, 2015 through March 31, 2015 is presented below:
 
Nonvested RSUs
 
 
 
 
 
Amount
 
Weighted-Average Grant Date Fair Value Per Share
 
Vested RSUs
 
Total RSUs
Outstanding at January 1, 2015

 
$

 

 

Granted
237,422

 
7.78

 

 
237,422

Vested 
(75,000
)
 
7.78

 
75,000

 

Settled(1)

 

 
(75,000
)
 
(75,000
)
Outstanding at March 31, 2015
162,422

 
$
7.78

 

 
162,422

__________
(1)
Represents vested RSUs that were settled in shares of the Company's common shares. Total shares settled include 38,806 shares that were tendered in accordance with the terms of our 2013 Equity Incentive Plan to satisfy minimum state tax withholding requirements related to the RSU settled. 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.

24

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Summary of Performance Share Units
A summary of our Performance Share Units from January 1, 2015 through March 31, 2015 is presented below:
 
Nonvested PSUs
 
 
 
 
 
Amount
 
Weighted-Average Grant Date Fair Value Per Share
 
Vested PSUs
 
Total PSUs
Outstanding at January 1, 2015

 
$

 

 

Granted
237,440

 
6.56

 

 
237,440

Vested 
(75,000
)
 
7.78

 
75,000

 

Settled(1)

 

 
(75,000
)
 
(75,000
)
Outstanding at March 31, 2015
162,440

 
$
6.00

 

 
162,440

__________
(1)
Represents vested PSUs that were settled in shares of the Company's common shares. Total shares settled include 38,888 shares that were tendered in accordance with the terms of our 2013 Equity Incentive Plan to satisfy minimum state tax withholding requirements related to the PSU settled. 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.
 
2015
 
2014
 
(in thousands, except share data)
Compensation Expense Recorded During the Three Months Ended March 31(1)
$
4,038

 
$
1,012

Unamortized Compensation Costs
$
4,269

 
$
8,263

Shares Available for the Future Awards(2)
3,330,631

 
4,019,075

__________
(1)
2015 compensation expense includes severance expense totaling $3.3 million.
(2)
Shares available for the future awards includes units under our 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. As of March 31, 2015 and December 31, 2014, there were no preferred shares issued or outstanding.
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 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 March 31, 2015 there have been no sales of common shares under the ATM program.

25

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Accumulated Other Comprehensive Income (Loss)
The following presents the changes in the balances of each component of accumulated other comprehensive income (loss) for the three months ended March 31, 2015 and 2014 (in thousands):
 
Foreign Currency
Translation Gain (Loss)
 
Swap Fair Value
Adjustment
 
Accumulated
Other Comprehensive
Income (Loss)
Balance at January 1, 2015
$
(17,513
)
 
$
(5,756
)
 
$
(23,269
)
Other Comprehensive Loss Before Reclassifications
(18,736
)
 
(8,188
)
 
(26,924
)
Amounts Reclassified from Accumulated Other Comprehensive Income to Interest Expense

 
2,145

 
2,145

Balance at March 31, 2015
$
(36,249
)
 
$
(11,799
)
 
$
(48,048
)
 
Foreign Currency
Translation Gain
 
Swap Fair Value
Adjustment
 
Accumulated
Other Comprehensive
Income (Loss)
Balance at January 1, 2014
$
1,670

 
$
2,926

 
$
4,596

Other Comprehensive Income (Loss) Before Reclassifications
823

 
(5,089
)
 
(4,266
)
Amounts reclassified from Accumulated Other Comprehensive Income to Interest Expense

 
2,328

 
2,328

Balance at March 31, 2014
$
2,493

 
$
165

 
$
2,658

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 March 31, 2015 and December 31, 2014, 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 March 31, 2015 and December 31, 2014, 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

26

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


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.
Impairment of Real Estate
During the year ended December 31, 2014, we recognized an impairment charge of $27.6 million in continuing operations related to our 70 Hudson Street property. Accordingly, we reduced the carrying value of this property to the property’s current estimated fair value of approximately $94.0 million. The inputs used to calculate the fair value included projected cash flows and risk-adjusted rate of return that we estimated would be used by a market participant in valuing the asset or by obtaining a range of third-party broker valuation estimates.
We utilized a discounted cash flow analysis to estimate the property's fair value. The unobservable inputs (Level 3) of our real estate that was recorded at fair value as of December 31, 2014 included a discount rate of 12%, a terminal capitalization rate of 6.5%, a market rent growth rate range of 3% - 3.4% and an expense growth rate of 3%.
The following items are measured at fair value on a recurring basis and non-recurring basis at March 31, 2015 and December 31, 2014 (in thousands):
 
As of March 31, 2015
 
Fair Value Measurements Using:
 
 
 
Quoted
Markets
Prices
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Fair Value
Assets (Liabilities)
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
1,574

 
$

 
$

 
$
1,574

Interest Rate Swaps Designated as Cash Flow Hedges - Assets

 

 

 

Interest Rate Swaps Designated as Cash Flow Hedges - Liabilities

 
(11,992
)
 

 
(11,992
)
Investment in CBRE Strategic Partners Asia

 

 
6,684

 
6,684

 

27

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


 
As of December 31, 2014
 
Fair Value Measurements Using:
 
 
 
Quoted
Markets
Prices
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Fair Value
Assets (Liabilities)
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
1,573

 
$

 
$

 
$
1,573

Interest Rate Swaps Designated as Cash Flow Hedges - Assets

 
1,733

 

 
1,733

Interest Rate Swaps Designated as Cash Flow Hedges - Liabilities

 
(7,699
)
 

 
(7,699
)
Investment in CBRE Strategic Partners Asia

 

 
6,870

 
6,870

Fair Value of Real Estate at Impairment(1)

 

 
94,000

 
94,000

__________
(1)
Represents a non-recurring fair value measurement.
The following table presents our activity for our investment in CBRE Strategic Partners Asia measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2015 and 2014, respectively (in thousands):
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
Investment in
CBRE Strategic
Partners Asia
Balance at January 1, 2015
 
$
6,870

Translation Adjustment in Other Comprehensive Income
 
(186
)
Balance at March 31, 2015
 
$
6,684

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
Investment in
CBRE Strategic
Partners Asia
Balance at January 1, 2014
 
$
9,676

Total Loss on Fair Value Adjustment
 
(112
)
Balance at March 31, 2014
 
$
9,564

Disclosure of Fair Value Financial Instruments
For disclosure purposes only, the following table summarizes our notes payable and their estimated fair value at March 31, 2015 and December 31, 2014 (in thousands):
 
 
March 31, 2015
 
December 31, 2014
Financial Instrument
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Secured Notes Payable(1)
 
$
581,706

 
$
603,775

 
$
610,608

 
$
628,194

Unsecured Term Loan Facilities(1)
 
$
570,000

 
$
584,654

 
$
570,000

 
$
577,196

Unsecured Revolving Credit Facility(1)
 
$
235,044

 
$
235,044

 
$
200,044

 
$
200,044

__________
(1)
Items are measured using Level 2 inputs.

28

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


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.
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 March 31, 2015 and thereafter is as follows (in thousands):
Remaining 2015
$
205

2016
273

2017
273

2018
276

2019
308

Thereafter
4,474

 
$
5,809

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
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. 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 CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


The following table compares the net operating income for the three months ended March 31, 2015 and 2014 (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Industrial Properties
 
 
 
Revenues:
 
 
 
Rental
$
18,386

 
$
14,145

Tenant Reimbursements
4,948

 
3,721

Other Property Income
198

 

Total Revenues
23,532

 
17,866

Property and Related Expenses:
 
 
 
Property Operating
1,872

 
1,491

Real Estate Taxes
3,832

 
3,129

Total Property and Related Expenses
5,704

 
4,620

Net Operating Income
$
17,828

 
$
13,246

Office Properties
 
 
 
Revenues:
 
 
 
Rental
$
35,960

 
$
36,700

Tenant Reimbursements
11,491

 
11,476

Other Property Income

 
1,069

Total Revenues
47,451

 
49,245

Property and Related Expenses:
 
 
 
Property Operating
7,909

 
8,002

Real Estate Taxes
6,950

 
6,672

Total Property and Related Expenses
14,859

 
14,674

Net Operating Income
$
32,592

 
$
34,571

Non-Reportable Properties
 
 
 
Revenues:
 
 
 
Rental
$

 
$
1,031

Tenant Reimbursements

 
23

Total Revenues

 
1,054

Property and Related Expenses:
 
 
 
Property Operating

 
60

Real Estate Taxes

 

Total Property and Related Expenses

 
60

Net Operating Income
$

 
$
994


30

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


 
Three Months Ended
 
March 31,
 
2015
 
2014
Reconciliation to Consolidated Net Income
 
 
 
Total Segment Net Operating Income
$
50,420

 
$
48,811

Expenses:
 
 
 
General and Administrative
9,873

 
6,864

Acquisition-Related

 
290

Depreciation and Amortization
27,920

 
27,238

Total Expenses
37,793

 
34,392

Income Before Other (Expenses) Income
12,627

 
14,419

Other Expenses and Income
 
 
 
Interest and Other Income
80

 
167

Interest Expense
(13,059
)
 
(14,061
)
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
17

 
26

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

(335
)
 
551

Provision for Income Taxes
(176
)
 
(58
)
Equity in Income of Unconsolidated Entities
6,505

 
2,826

Net Income
$
5,994

 
$
3,319

 
March 31,
 
December 31,
Assets
2015
 
2014
Industrial Properties
$
915,999

 
$
916,038

Office Properties
1,491,098

 
1,504,285

Non-Segment Assets(1)
420,070

 
449,485

Total Assets
$
2,827,167

 
$
2,869,808

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

31

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


15. Earnings per Share
The following table reconciles the numerator and denominator in computing the Company's basic and diluted per-share computations for net income for the three months ended March 31, 2015 and 2014 is as follows (in thousands except share data):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Numerator:
 
 
 
Net Income
$
5,994

 
$
3,319

Allocation to Participating Securities (Nonvested Restricted Shares and Vested RSUs)
(40
)
 
(127
)
Numerator for Basic and Diluted Net Income
$
5,954

 
$
3,192

Denominator:
 
 


Basic Weighted Average Shares Outstanding
236,940,134

 
236,583,752

Effect of Dilutive Securities - Non-Vested Time-Based RSUs
23,220

 

Diluted Weighted Average Shares Outstanding
236,963,354

 
236,583,752

Basic and Diluted Earnings Per Share:
 
 
 
Net Income per Share
$
0.03

 
$
0.01

16. Subsequent Events
On April 28, 2015, our Board of Trustees approved a monthly distribution of $0.0425 per common share for each of the months of July, August and September of 2015. The July dividend will be paid on August 10, 2015 to all shareholders of record on July 31, 2015, the August dividend will be paid on September 9, 2015 to all shareholders of record on August 31, 2015, and the September dividend will be paid on October 8, 2015 to all shareholders of record on September 30, 2015.
On April 28, 2015, our Board of Trustees appointed Hugh S. O’Beirne, in addition to his current position of General Counsel, as Executive Vice President, Chief Legal Officer, Chief Compliance Officer, Chief Risk Officer and Secretary. 

On May 8, 2015, we entered into (i) amendments to the employment agreements with certain of our officers, including Martin A. Reid, our Interim President and Chief Executive Officer, and Chief Financial Officer, and Philip L. Kianka, our Chief Operating Officer, and (ii) an amended and restated severance agreement with Hugh S. O'Beirne, our Chief Legal Officer, General Counsel, Chief Compliance Officer, Chief Risk Officer and Secretary, which, in each case, amended the definition of "Change of Control" to provide that a Change in Control of our company would occur following any consolidation or merger of the company if the company's shareholders immediately prior to the consolidation or merger, would not, immediately thereafter, in substantially the same proportions, beneficially own shares representing 70% rather than 50%, of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger.


32


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 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 ability to successfully manage growth and/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;

33


ability to comply with our debt covenants;
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 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, 2014 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.
Except as required by law, 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 Item1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2014, 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. Since the Company was established, 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.
As of March 31, 2015, we owned, on a consolidated basis, 102 industrial (primarily warehouse/distribution) and office properties located in 18 U.S. states (Arizona, California, Colorado, Florida, 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 25.3 million rentable square feet. Our consolidated properties were approximately 97.6% leased (based upon rentable square feet) as of March 31, 2015. As of March 31, 2015, 77 of our consolidated properties were net leased to single tenants, which encompassed approximately 20.6 million rentable square feet.
In addition, we owned, on an unconsolidated basis, 25 industrial (primarily warehouse/distribution) and office properties located in seven U.S. states (Arizona, Florida, Illinois, Indiana, Ohio, Tennessee and Texas) and in three European countries (France, Germany and the United Kingdom) encompassing approximately 12.3 million rentable square feet. Our unconsolidated properties were approximately 99.9% leased (based upon rentable square feet) as of March 31, 2015. As of March 31, 2015, 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

34


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 helps us to identify and consummate the acquisition and development of high-quality net leased properties. Our strategy has been to grow our portfolio with properties targeted to provide steady income, sustaining tenant relationships and enhancing the value of our existing properties, with a focus on 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 three months ended March 31, 2015, we acquired an 11.8 acre undeveloped parcel adjacent to Goodyear Crossing II in Phoenix, Arizona for approximately $1.7 million.
Build-to-Suit Opportunities. We may consider build-to-suit opportunities that have attractive development yields and leased to tenants with strong credit profiles on a long-term basis.
Maximize Cash Flow Through Internal Growth. We target 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. A majority of our existing leases typically have embedded rental rate growth as they provide for periodic increases in rent.
Capital Recycling. We consider selectively disposing of properties that are no longer consistent with our investment strategy or whose returns appear to have been maximized. During the three months ended March 31, 2015, consistent with our investment strategy to focus on single-tenant industrial and office properties, we sold an office property located in North Carolina and held in the Duke JV for approximately $20.6 million, of which our pro rata share was approximately $16.4 million and our pro rata gain was approximately $2.4 million.
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 three months ended March 31, 2015, we completed the following activities in order to maintain a prudent capital structure:
On February 2, 2015, we paid off the note payable secured by One Wayside Road in the amount of approximately $23.8 million prior to their maturity dates of August 1, 2015.
Factors that May Influence the Results of Operations
Economic conditions, leasing activity and real estate capital availability all continue to improve. Industrial leasing activity has strengthened over the past few years with the improvement in economic drivers such as employment, industrial production, international trading volumes and consumer confidence. Office leasing activity is also improving with recovering employment, beginning in the tech and energy sectors, and now broadening across other sectors including business and financial services, and healthcare. 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.
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 begun 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.

35


Debt and equity capital for commercial real estate investment is broadly available. While there has been increased competition to acquire properties, we are seeing transactions in many markets that are consistent with our strategy, particularly in the eastern part of the United States. Rents have generally continued to grow and vacancies are trending downward. We are also seeing more attractive transactions that have shorter duration lease terms. E-commerce sales growth has been strong and continues to be a large driver of demand for warehouse/distribution space.
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 March 31, 2015 is presented in the table below ($ in thousands):
 
 
 
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
128,356

 
$
428

 
$
428

 
$
428

 
$
440

 
$
113

 
3.21

New Tenants - Previously Leased Space(6)
68,800

 
216

 
216

 
216

 
222

 
70

 
3.25

New Tenants - Not Previously Leased Space(7)
9,100

 

 

 
29

 
29

 
9

 
3.25

Total Consolidated
206,256

 
644

 
644

 
673

 
691

 
192

 
3.22

Consolidated & Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
128,356

 
428

 
428

 
428

 
440

 
113

 
3.21

New Tenants - Previously Leased Space(6)
68,800

 
216

 
216

 
216

 
222

 
70

 
3.25

New Tenants - Not Previously Leased Space(7)
9,100

 

 

 
29

 
29

 
9

 
3.25

Total Consolidated & Unconsolidated
206,256

 
644

 
644

 
673

 
691

 
192

 
3.22

Office Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
11,061

 
161

 
155

 
182

 
181

 
118

 
3.94

New Tenants - Previously Leased Space
30,777

 
626

 
626

 
626

 
626

 

 
2.00

Total Consolidated
41,838

 
787

 
781

 
808

 
807

 
118

 
2.44

Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
New Tenants - Not Previously Leased Space(7)
3,603

 

 

 
66

 
72

 
130

 
7.00

Total Unconsolidated
3,603

 

 

 
66

 
72

 
130

 
7.00

Consolidated & Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
11,061

 
161

 
155

 
182

 
181

 
118

 
3.94

New Tenants - Previously Leased Space(6)
30,777

 
626

 
626

 
626

 
626

 

 
2.00

New Tenants - Not Previously Leased Space(7)
3,603

 

 

 
66

 
72

 
130

 
7.00

Total Consolidated & Unconsolidated
45,441

 
787

 
781

 
874

 
879

 
248

 
2.78

Total Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
139,417

 
589

 
583

 
610

 
621

 
231

 
3.43

New Tenants - Previously Leased Space(6)
99,577

 
842

 
842

 
842

 
848

 
70

 
2.32

New Tenants - Not Previously Leased Space(7)
9,100

 

 

 
29

 
29

 
9

 
3.25

Total Consolidated
248,094

 
1,431

 
1,425

 
1,481

 
1,498

 
310

 
2.79

Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
New Tenants - Not Previously Leased Space(7)
3,603

 

 

 
66

 
72

 
130

 
7.00

Total Unconsolidated
3,603

 

 

 
66

 
72

 
130

 
7.00

Consolidated & Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
139,417

 
589

 
583

 
610

 
621

 
231

 
3.43

New Tenants - Previously Leased Space(6)
99,577

 
842

 
842

 
842

 
848

 
70

 
2.32

New Tenants - Not Previously Leased Space(7)
12,703

 

 

 
95

 
101

 
139

 
5.87

Total Consolidated & Unconsolidated
251,697

 
$
1,431

 
$
1,425

 
$
1,547

 
$
1,570

 
$
440

 
2.97


36


__________
(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. For certain leases, prior lease amounts are adjusted for comparability to new lease amounts (i.e. if a prior lease is gross and the new lease is net, the prior amounts are adjusted accordingly).
(2)
Cash Annualized Base Rent for each lease equals (i) 12 times the monthly cash base rent due as of March 31, 2015, or (ii) for any lease still in an initial free or reduced rent period as of March 31, 2015, 12 times the monthly cash base rent due upon expiration of the initial free or reduced rent period. U.S. Generally 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 March 31, 2015 and 2014. 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 data):
 
Total Square Feet
 
% of Total Square Feet
 
% Leased
 
Average Annual
Net Effective Rent(1)
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Consolidated Properties:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
7,284

 
7,559

 
28.8
%
 
32.7
%
 
98.9
%
 
97.2
%
 
$
149,775

 
$
148,848

Industrial
18,041

 
15,380

 
71.2
%
 
66.6
%
 
97.1
%
 
92.7
%
 
74,016

 
58,560

Other

 
144

 
%
 
0.7
%
 
—%

 
100.0
%
 

 
4,225

Total
25,325

 
23,083

 
100.0
%
 
100.0
%
 
97.6
%
 
94.2
%
 
$
223,791

 
$
211,633

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated Properties:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
667

 
1,201

 
5.4
%
 
9.5
%
 
98.9
%
 
95.0
%
 
$
11,265

 
$
17,968

Industrial
11,627

 
11,501

 
94.6
%
 
90.5
%
 
100.0
%
 
100.0
%
 
44,432

 
54,698

Total
12,294

 
12,702

 
100.0
%
 
100.0
%
 
99.9
%
 
99.5
%
 
$
55,697

 
$
72,666

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated and Unconsolidated Properties:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
7,951

 
8,760

 
21.1
%
 
24.5
%
 
98.9
%
 
96.9
%
 
$
161,040

 
$
166,816

Industrial
29,668

 
26,881

 
78.9
%
 
75.1
%
 
98.2
%
 
95.8
%
 
118,448

 
113,258

Other

 
144

 
%
 
0.4
%
 
—%

 
100.0
%
 

 
4,225

Total
37,619

 
35,785

 
100.0
%
 
100.0
%
 
98.4
%
 
96.1
%
 
$
279,488

 
$
284,299

__________
(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.

37


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 6.33 years as of March 31, 2015. In addition, approximately 89.1% of our base rent is scheduled to expire after 2016. The following table sets forth a schedule of expiring leases for our consolidated and unconsolidated properties as of March 31, 2015 (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 2015
897

 
$
4,986

 
21

 
$
367

 
19

 
918

 
$
5,353

 
1.9
%
2016
1,778

 
23,629

 
547

 
2,277

 
29

 
2,325

 
25,906

 
9.0
%
2017
1,727

 
15,751

 
873

 
3,940

 
23

 
2,600

 
19,691

 
6.8
%
2018
2,024

 
20,879

 
2,088

 
9,904

 
30

 
4,112

 
30,782

 
10.7
%
2019
3,843

 
26,554

 
2,815

 
11,026

 
27

 
6,658

 
37,580

 
13.0
%
2020
2,173

 
19,665

 
104

 
2,144

 
18

 
2,277

 
21,809

 
7.6
%
2021
4,747

 
38,114

 
2,167

 
8,714

 
21

 
6,914

 
46,829

 
16.3
%
2022
663

 
7,908

 
1,364

 
6,334

 
7

 
2,027

 
14,242

 
4.9
%
2023
3,353

 
30,431

 
1,188

 
5,251

 
19

 
4,541

 
35,682

 
12.4
%
2024
705

 
19,859

 
12

 
264

 
5

 
717

 
20,123

 
7.0
%
Thereafter
2,807

 
25,247

 
1,107

 
4,930

 
18

 
3,914

 
30,177

 
10.4
%
Total
24,717

 
$
233,023

 
12,286

 
$
55,151

 
216

 
37,003

 
$
288,174

 
100.0
%
Weighted Average Remaining Term (Years) (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Triple Net Single-Tenant Properties(3)
 
 
6.49

 
 
 
6.10

 
 
 
 
 
6.40

 
 
Multi-Tenant Properties
 
 
7.09

 
 
 
5.13

 
 
 
 
 
6.82

 
 
Other Single-Tenant Properties
 
 
4.02

 
 
 
4.75

 
 
 
 
 
4.10

 
 
Total Weighted Average Remaining Term (Years)(2)
 
 
6.42

 
 
 
5.92

 
 
 
 
 
6.33

 
 
__________
(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).
The leases scheduled to expire during the remainder of 2015 and in 2016 represent approximately 3.2 million rentable square feet or 10.9% of our total expiring base rent. We believe that, on average, the current market rental rates are approximately 10% below the expiring cash rental rates and approximately 2% above the expiring GAAP rental rates for leases scheduled to expire during the remainder of 2015 and in 2016, although individual properties within any particular market presently may be leased either above, below, or at the current quoted market rates within that market, and the average rental rates for individual markets may be above, below, or at the average cash rental rate of our overall portfolio. Our ability to re-lease available space depends upon both general market conditions and the market conditions in the specific regions in which individual properties are located.

38


Property Portfolio Size
Our portfolio size at the end of each quarter since commencement of our initial public offering (October 24, 2006) through March 31, 2015 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

12/31/2014
 
102

 
25,325

 
2,668,298

 
26

 
12,416

 
694,432

 
128

 
37,741

 
3,362,730

3/31/2015
 
102

 
25,325

 
2,669,973

 
25

 
12,294

 
676,432

 
127

 
37,619

 
3,346,405

__________
(1)
Net Rentable Square Feet for unconsolidated properties is at 100%. Approximate Total Acquisition Cost for unconsolidated properties is at our pro rata share of effective ownership.

39


Critical Accounting Policies
Refer to our Annual Report on Form 10-K for the year ended December 31, 2014 for a discussion of our critical accounting policies. There have been no changes to these policies during the three months ended March 31, 2015.
Significant Tenants
The following table details our largest tenants as of March 31, 2015 ($ in thousands):
 
 
 
 
 
Credit Rating(1)
 
Consolidated &
Unconsolidated
Properties(2)
 
% of
Cash
An-nual-
ized
Base
Rent
 
Major Tenants(3)
 
Primary Industry
 
S&P
 
Moody's
 
Net
Rentable
Square
Feet
 
Annualized
Base Rent
 
 
 
 
 
 
Cash
 
GAAP(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1
Amazon.com
 
Internet Retail
 
 AA-
 
 Baa1
 
6,540,667

 
$
26,022

 
$
25,161

 
9.8
%
2
Raytheon Company
 
Defense and Aerospace
 
 A
 
 A3
 
666,290

 
10,582

 
11,248

 
4.0
%
3
Lord Abbett & Co.
 
Financial Services
 
 
 
272,127

 
10,069

 
10,370

 
3.8
%
4
U.S. General Services Administration
 
Government
 
 AA+
 
 Aa1
 
418,682

 
9,958

 
10,174

 
3.7
%
5
JP Morgan Chase
 
Financial Services
 
 A
 
 A3
 
396,179

 
6,212

 
6,626

 
2.3
%
6
Endo Health Solutions Inc.
 
Pharmaceutical and Healthcare Related
 
 
 
299,809

 
5,846

 
6,338

 
2.2
%
7
Nuance Communications, Inc.
 
Software
 
 BB-
 
 Ba3
 
200,605

 
5,842

 
5,842

 
2.2
%
8
Comcast of California
 
Telecommunications
 
 A-
 
 A3
 
219,631

 
5,205

 
5,042

 
2.0
%
9
Eisai, Inc.
 
Pharmaceutical and Healthcare Related
 
 
 
208,911

 
5,189

 
5,217

 
2.0
%
10
PPD Development LP
 
Pharmaceutical and Healthcare Related
 
 B
 
 B3
 
251,475

 
4,991

 
4,643

 
1.9
%
11
Charles Komar & Sons, Inc.
 
Apparel Retail
 
 
 
159,341

 
4,933

 
4,093

 
1.9
%
12
The Coleman Company, Inc.
 
Consumer Products
 
 BB
 
 Ba3
 
1,107,000

 
4,760

 
4,569

 
1.8
%
13
Deloitte LLP
 
Professional Services
 
 
 
175,000

 
4,740

 
4,660

 
1.8
%
14
Barclay's Capital(5)
 
Financial Services
 
 A
 
 A2
 
409,272

 
4,582

 
2,221

 
1.7
%
15
Barr Laboratories, LLC
 
Pharmaceutical and Healthcare Related
 
 A-
 
 A3
 
142,500

 
4,489

 
4,426

 
1.7
%
16
Clorox International Co
 
Consumer Products
 
 BBB+
 
 Baa1
 
1,350,000

 
4,484

 
4,429

 
1.7
%
17
Unilever
 
Consumer Products
 
 A+
 
 A1
 
1,594,760

 
4,250

 
4,058

 
1.6
%
18
Nationwide Mutual Insurance Co
 
Insurance
 
 A+
 
 A1
 
315,102

 
3,808

 
3,761

 
1.4
%
19
Humana
 
Pharmaceutical and Healthcare Related
 
 BBB+
 
 Baa3
 
226,822

 
3,788

 
3,731

 
1.4
%
20
Carl Zeiss Meditec
 
Pharmaceutical and Healthcare Related
 
 
 
201,620

 
3,770

 
3,395

 
1.4
%
21
ConAgra Foods Packaged Foods, LLC
 
Food Service and Retail
 
 BBB-
 
 Baa2
 
741,860

 
3,423

 
3,269

 
1.3
%
22
Whirlpool Corporation
 
Consumer Products
 
 BBB
 
 Baa2
 
1,020,000

 
3,385

 
3,429

 
1.3
%
23
Kimberly-Clark Global Sales, Inc.
 
Consumer Products
 
 A
 
 A2
 
744,080

 
3,348

 
3,279

 
1.3
%
24
Space Exploration Technologies Corp
 
Defense and Aerospace
 
 
 
514,753

 
3,348

 
3,913

 
1.3
%
25
SBM Atlantia, Inc.
 
Petroleum and Mining
 
 
 
171,091

 
3,293

 
2,659

 
1.2
%
26
Prime Distribution Services
 
Logistics Distribution
 
 
 
1,200,420

 
3,256

 
3,038

 
1.2
%
27
NCS Pearson, Inc.
 
Education
 
 BBB+
 
 Baa1
 
167,218

 
3,201

 
2,794

 
1.2
%
28
Bob's Discount Furniture
 
Home Furnishings/Home Improvement
 
 
 
672,000

 
3,098

 
3,154

 
1.2
%
29
Noxell Corporation
 
Consumer Products
 
 
 
800,797

 
3,088

 
3,274

 
1.2
%
30
Kellogg Sale Company
 
Consumer Products
 
 BBB+
 
 Baa2
 
1,142,400

 
3,033

 
2,854

 
1.1
%
31
Royal Caribbean Cruises Ltd
 
Travel/Leisure
 
 BB
 
 Ba1
 
128,540

 
2,893

 
2,462

 
1.1
%
32
Time Warner Cable Inc.
 
Telecommunications
 
 BBB
 
 Baa2
 
134,000

 
2,814

 
2,655

 
1.1
%
33
REMEC Defense and Space
 
Defense and Aerospace
 
 
 
132,685

 
2,736

 
2,753

 
1.0
%
34
Syngenta Seeds Inc
 
Agriculture
 
 A+
 
 A2
 
116,338

 
2,728

 
2,575

 
1.0
%
35
American Home Mortgage
 
Financial Services
 
 
 
182,700

 
2,713

 
2,676

 
1.0
%
36
Dr Pepper / Seven Up, Inc.
 
Food Service and Retail
 
 BBB+
 
 Baa1
 
601,500

 
2,611

 
2,696

 
1.0
%
37
Citicorp North America, Inc.
 
Financial Services
 
 A
 
 Baa2
 
175,695

 
2,574

 
2,551

 
1.0
%
38
Mercy Health Partners of SW Ohio
 
Pharmaceutical and Healthcare Related
 
 
 A1
 
124,671

 
2,566

 
2,099

 
1.0
%
39
Disney Vacation Development
 
Travel/Leisure
 
 A
 
 A2
 
100,924

 
2,533

 
2,121

 
1.0
%
40
Verizon Wireless
 
Telecommunications
 
 BBB+
 
 Baa1
 
180,147

 
2,519

 
2,408

 
0.9
%
 
Other (approx 146) tenants
 
12,795,956

 
73,348

 
70,584

 
27.6
%
 
 
 
 
 
 
 
 
 
37,003,568

 
$
266,028

 
$
257,247

 
100.0
%
__________
(1)
Credit rating is for our tenant, its guarantor or its parent company.
(2)
Includes unconsolidated properties held through our Duke/Hulfish, LLC joint venture (the "Duke JV"), our joint venture in Europe (the "European JV") and Goodman Princeton Holdings (Jersey) Limited joint venture (the "UK JV"). Net Rentable Square Feet is at 100% and annualized base rent is at our pro rata share of effective ownership.
(3)
In certain cases in which our tenant is a wholly-owned subsidiary of its parent company, the parent company is listed as our tenant.
(4)
Includes amortization of straight line rent, above-market leases and lease inducement. Excludes operating expense reimbursements.
(5)
In accordance with the provisions of the loan secured by our 70 Hudson Street property, beginning in February 2015, the property's cash flow in excess of interest and operating expenses is being reserved by the lender. As a result, we are only able to recognize a portion of this tenant's annualized base rental revenue. The rents in this table are presented at the adjusted amounts.

40


Results of Operations
As of March 31, 2015, we owned and operated 102 consolidated office and industrial properties and 25 unconsolidated office and industrial properties. As of March 31, 2014, we owned and operated 100 consolidated office, industrial and other properties and 29 unconsolidated office and industrial properties. Our consolidated leased percentage as of March 31, 2015 and 2014 was 97.6% and 94.2%, respectively. Our unconsolidated leased percentage as of March 31, 2015 and 2014 was 99.9% and 99.5%, respectively.
We had no property acquisitions during the three months ended March 31, 2015. The properties acquired during 2014 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

1659 Sauget
 
St. Louis
 
MO
 
10/24/2014
 
Industrial
 
21,100

 
502,500

325 Centerpoint Blvd
 
Northeast
 
PA
 
11/18/2014
 
Industrial
 
45,750

 
744,080

550 Oak Ridge Drive
 
Northeast
 
PA
 
11/18/2014
 
Industrial
 
40,700

 
615,600

125 Capital Road
 
Northeast
 
PA
 
11/18/2014
 
Industrial
 
8,700

 
144,000

14-46 Alberigi Drive
 
Northeast
 
PA
 
11/18/2014
 
Industrial
 
10,500

 
140,800

Total 2014 Wholly-Owned Property Acquisitions
 
 
 
$
203,600

 
3,284,173

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).


41


Comparison of Three Months Ended March 31, 2015 to Three Months Ended March 31, 2014
The following table summarizes the historical results of operations of our portfolio for the three months ended March 31, 2015 and the three months ended March 31, 2014 (in thousands):
 
For the Three Months Ended March 31,
 
 
 
 
 
2015
 
2014
 
$
Change
 
%
Change
 
 
 
 
 
 
 
 
Net Operating Income, as defined
$
50,420

 
$
48,811

 
$
1,609

 
3.3
 %
Expense:
 
 
 
 


 


General and Administrative
9,873

 
6,864

 
3,009

 
43.8
 %
Acquisition-Related

 
290

 
(290
)
 
(100.0
)%
Depreciation and Amortization
27,920

 
27,238

 
682

 
2.5
 %
Total Expenses
37,793

 
34,392

 
3,401

 
9.9
 %
Income Before Other (Expenses) Income
12,627

 
14,419

 
(1,792
)
 
(12.4
)%
Other Expenses and Income:
 
 
 
 
 
 
 
Interest and Other Income
80

 
167

 
(87
)
 
(52.1
)%
Interest Expense
(13,059
)
 
(14,061
)
 
1,002

 
(7.1
)%
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
17

 
26

 
(9
)
 
(34.6
)%
Total Other Expenses
(12,962
)
 
(13,868
)
 
906

 
(6.5
)%
(Loss) Income Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities
(335
)
 
551

 
(886
)
 
(160.8
)%
Provision for Income Taxes
(176
)
 
(58
)
 
(118
)
 
203.4
 %
Equity in Income of Unconsolidated Entities
6,505

 
2,826

 
3,679

 
130.2
 %
Net Income
$
5,994

 
$
3,319

 
$
2,675

 
80.6
 %

42


The following tables summarize the Net Operating Income, as defined, for our total portfolio, excluding our unconsolidated properties, for the three months ended March 31, 2015 and 2014 (in thousands):
 
Three Months Ended March 31, 2015
 
Same Office Properties(1)
 
Same Industrial Properties(1)
 
Acquisition Industrial(2)
 
Other (3)
 
Total
Rental Revenue
$
35,960

 
$
14,487

 
$
3,899

 
$

 
$
54,346

Tenant Reimbursement
11,491

 
4,060

 
888

 

 
16,439

Other Property Income

 
198

 

 

 
198

Total Revenues
47,451

 
18,745

 
4,787

 

 
70,983

Property Operating
7,909

 
1,449

 
423

 

 
9,781

Real Estate Taxes
6,950

 
3,336

 
496

 

 
10,782

Total Expenses
14,859

 
4,785

 
919

 

 
20,563

Net Operating Income
$
32,592

 
$
13,960

 
$
3,868

 
$

 
$
50,420

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2014
 
Same Office Properties(1)
 
Same Industrial Properties(1)
 
Acquisition Industrial(2)
 
Other (3)
 
Total
Rental Revenue
$
35,504

 
$
13,669

 
$
476

 
$
2,227

 
$
51,876

Tenant Reimbursement
11,082

 
3,641

 
80

 
417

 
15,220

Other Property Income
1,069

 

 

 

 
1,069

Total Revenues
47,655

 
17,310

 
556

 
2,644

 
68,165

Property Operating
7,729

 
1,409

 
82

 
333


9,553

Real Estate Taxes
6,511

 
3,129

 

 
161

 
9,801

Total Expenses
14,240

 
4,538

 
82

 
494

 
19,354

Net Operating Income
$
33,415

 
$
12,772

 
$
474

 
$
2,150

 
$
48,811

__________
(1)
Properties owned as of January 1, 2014 and still owned as of March 31, 2015.
(2)
Includes results, from the dates of acquisition through the periods presented, for the industrial properties acquired during 2014.
(3)
Includes results from properties sold during 2014.
 
Three Months Ended March 31, 2015 as compared to the Three Months Ended March 31, 2014
 
Same Office
Properties
 
Same Industrial
Properties
 
Acquisition
Industrial
 
Other
 
Total
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
Rental Revenue
$
456

 
1.3
 %
 
$
818

 
6.0
%
 
$
3,423

 
719.1
%
 
$
(2,227
)
 
(100.0
)%
 
$
2,470

 
4.8
 %
Tenant Reimbursement
409

 
3.7
 %
 
419

 
11.5
%
 
808

 
1,010.0
%
 
(417
)
 
(100.0
)%
 
1,219

 
8.0
 %
Other Property Income
(1,069
)
 
(100.0
)%
 
198

 
100.0
%
 

 
%
 

 
 %
 
(871
)
 
(81.5
)%
Total Revenues
(204
)
 
1.9
 %
 
1,435

 
8.3
%
 
4,231

 
761.0
%
 
(2,644
)
 
(100.0
)%
 
2,818

 
4.1
 %
Property Operating
180

 
2.3
 %
 
40

 
2.8
%
 
341

 
415.9
%
 
(333
)
 
(100.0
)%
 
228

 
2.4
 %
Real Estate Taxes
439

 
6.7
 %
 
207

 
6.6
%
 
496

 
100.0
%
 
(161
)
 
(100.0
)%
 
981

 
10.0
 %
Total Expenses
619

 
4.3
 %
 
247

 
5.4
%
 
837

 
1,020.7
%
 
(494
)
 
(100.0
)%
 
1,209

 
6.2
 %
Net Operating Income
$
(823
)
 
0.8
 %
 
$
1,188

 
9.3
%
 
$
3,394

 
716.0
%
 
$
(2,150
)
 
(100.0
)%
 
$
1,609

 
3.3
 %
Net Operating Income
Net Operating Income increased $1.6 million, or 3.3%, for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 as a result of:
A net increase in revenues of $2.8 million which is primarily due to:
$4.2 million from our Acquisition Industrial Properties for rental and tenant reimbursement revenue;

43


$1.2 million from our Same Office Properties and Same Industrial Properties (collectively the "Same Properties") which is primarily a result of:
an increase of $3.3 million in rental revenue and tenant reimbursement revenue due to higher occupancy
partially offset by a reduction of $1.2 million in rental revenue at our 70 Hudson Street property as a result of our inability to recognize some of the revenue due to the cash trap in place and $0.9 million in lease termination revenue recognized (included in Other Property Revenue);
partially offset by a reduction of $2.6 million due to the office properties and retail property sold in 2014;
And a net increase of $1.2 million in property operating expenses and real estate taxes due to:
$0.8 million from our Acquisition Industrial Properties;
an increase of $0.9 million from our Same Properties which is primarily comprised of:
an increase of $0.3 million in real estate taxes from office portfolio-wide increases and an increase of $0.1 million in real estate taxes from a Same Office property that was recently leased up where the tenant reimbursement revenue increased by an equal amount;
an increase of $0.2 million in real estate taxes in our Same Industrial Properties;
a slight increase of $0.2 million in operating expenses from our Same Properties; and
partially offset by a reduction of $0.5 million due to the office properties and retail property sold in 2014.
Other Expenses and Income
General and Administrative
General and administrative expense increased $3.0 million, or 43.8%, to $9.9 million for the three months ended March 31, 2015 compared to $6.9 million for the three months ended March 31, 2014. The increase was primarily due to $4.0 million of severance and transition-related expenses due to the retirement of our president and chief executive officer incurred during the first quarter of 2015 offset by a reduction in professional fees such as marketing and legal expenses.
Acquisition-Related
Acquisition-related expenses decreased $0.3 million, or 100.0%, for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 since we did not have any property acquisitions during the three months ended March 31, 2015.
Depreciation and Amortization
Depreciation and amortization expense increased $0.7 million, or 2.5%, to $27.9 million for the three months ended March 31, 2015 as compared to $27.2 million for the three months ended March 31, 2014. The increase was primarily due to properties acquired during 2014.
Interest and Other Income
Interest and other income decreased $0.1 million, or 52.1%, to $0.1 million for the three months ended March 31, 2015 compared to $0.2 million for the three months ended March 31, 2014.
Interest Expense
Interest expense decreased $1.0 million, or 7.1%, to $13.1 million for the three months ended March 31, 2015 compared to $14.1 million for the three months ended March 31, 2014 primarily as a result of a decrease in our outstanding debt balance.

44


Equity in Income of Unconsolidated Entities
Equity in income of unconsolidated entities increased $3.7 million, or 130.2%, to $6.5 million for the three months ended March 31, 2015 compared to $2.8 million for the three months ended March 31, 2014. The increase was primarily due to our pro rata gain of $2.4 million for the sale of the Duke JV property during the three months ended March 31, 2015.
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. 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. From time to time, we may consider strategic transactions, which may include a sale, merger, acquisition or other form of business combination or recapitalization.
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 March 31, 2015, we had $44.7 million in cash as well as approximately$615.0 million available under our unsecured revolving credit facility. Of the $44.7 million in cash, approximately $1.6 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.
Unsecured Term Loan Facilities
We may 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 March 31, 2015 and December 31, 2014 (in thousands):
 
 
 
 
 
 
 
 
Outstanding Balance
 
 
Unswapped
Interest Rate
 
Effective
Interest Rate(1)
 
Maturity Date
 
March 31,
 
December 31,
Term Loan Facility
 
 
 
 
2015
 
2014
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 March 31, 2015 and December 31, 2014, the applicable London Inter-Bank Offering Rate ("LIBOR") rate was 0.172% and 0.156%, respectively, for these loans.

45


(3)
As of March 31, 2015 and December 31, 2014, the applicable LIBOR rate was 0.172% and 0.155%, respectively, for this loan.
Unsecured Revolving Credit Facility
We may 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 March 31, 2015 and December 31, 2014, respectively (in thousands):
 
March 31,
 
December 31,
 
2015
 
2014
Outstanding Borrowings
$
235,044

 
$
200,044

Remaining Borrowing Capacity
614,956

 
649,956

Total Borrowing Capacity
$
850,000

 
$
850,000

Interest Rate(1)
1.47
%
 
1.46
%
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 March 31, 2015 and December 31, 2014.
(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.
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 March 31, 2015 (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
39

 
$
1,148,861

 
$
568,251

 
12

 
$
334,106

 
$
141,476

 
51

 
$
1,482,967

 
$
709,727

Unencumbered Properties
63

 
1,521,112

 

 
13

 
342,326

 

 
76

 
1,863,438

 

Total Properties
102

 
$
2,669,973

 
$
568,251

 
25

 
$
676,432

 
$
141,476

 
127

 
$
3,346,405

 
$
709,727

__________
(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.

46


Debt Covenants and Restrictions
As of March 31, 2015, 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 March 31, 2015, 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.
Sale of Real Estate Properties
We consider 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 may 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.

47


Debt Composition
Our consolidated and pro rata share of unconsolidated debt is comprised of the following as of March 31, 2015 (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
$
70,982

 
$
1,067,269

 
$
1,138,251

 
$
6,776

 
$
134,700

 
$
141,476

 
$
77,758

 
$
1,201,969

 
$
1,279,727

Floating Interest Rate Debt

 
235,044

 
235,044

 

 

 

 

 
235,044

 
235,044

Total
$
70,982

 
$
1,302,313

 
$
1,373,295

 
$
6,776

 
$
134,700

 
$
141,476

 
$
77,758

 
$
1,437,013

 
$
1,514,771

Weighted Average Remaining Term (years):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Interest Rate Debt
 
 
 
 
3.61

 
 
 
 
 
4.72

 
 
 
 
 
3.73

Floating Interest Rate Debt
 
 
 
 
2.79

 
 
 
 
 
N/A

 
 
 
 
 
2.79

Total
 
 
 
 
3.47

 
 
 
 
 
4.72

 
 
 
 
 
3.58

Weighted Average Interest Rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Interest Rate Debt
 
 
 
 
4.18
%
 
 
 
 
 
3.47
%
 
 
 
 
 
4.10
%
Floating Interest Rate Debt
 
 
 
 
1.47
%
 
 
 
 
 
N/A

 
 
 
 
 
1.47
%
Total
 
 
 
 
3.72
%
 
 
 
 
 
3.47
%
 
 
 
 
 
3.70
%
__________
(1)
Consolidated debt amount includes a $235.0 million outstanding balance on our unsecured revolving credit facility as of March 31, 2015. 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.
Contractual Obligations and Commitments
The following table provides information with respect to our contractual obligations as of March 31, 2015 (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
 
$
103,960

 
$
181,434

 
$
181,336

 
$
101,521

 
$
568,251

Principal Payments - Unsecured Term Loan Facilities
 

 

 
400,000

 
170,000

 
570,000

Principal Payments - Unsecured Revolving Credit Facility
 

 

 
235,044

 

 
235,044

Principal Payments - Unconsolidated Debt at Pro Rata Share(1)
 
675

 
55,891

 
2,141

 
82,769

 
141,476

Interest Payments - Fixed-Rate Debt(2)
 
35,407

 
73,172

 
42,144

 
14,558

 
165,281

Interest Payments - Variable-Rate Debt(3)
 
2,598

 
6,928

 
144

 

 
9,670

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

 
1,761

 
4,560

 
4,351

 
3,749

 
14,421

Ground Lease Payments
 
205

 
546

 
584

 
4,474

 
5,809

Total
 
$
144,606

 
$
322,531

 
$
865,744

 
$
377,071

 
$
1,709,952

__________
(1)
Unconsolidated debt excludes amounts due to our investment in CBRE Strategic Partners Asia.

48


(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 March 31, 2015, 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 March 31, 2015, LIBOR was 0.172%.
Debt Maturities
The following table details our consolidated and unconsolidated debt maturities as of March 31, 2015 (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 2015
$
11,732

 
92,228

 
$
103,960

 
$
675

 
$

 
$
675

 
$
12,407

 
$
92,228

 
$
104,635

 
4.41
%
2016
13,271

 
121,341

 
134,612

 
941

 

 
941

 
14,212

 
121,341

 
135,553

 
5.46
%
2017
12,495

 
34,327

 
46,822

 
990

 
53,960

 
54,950

 
13,485

 
88,287

 
101,772

 
3.82
%
2018
10,276

 
497,336

 
507,612

 
1,042

 

 
1,042

 
11,318

 
497,336

 
508,654

 
2.26
%
2019
7,982

 
300,786

 
308,768

 
1,097

 

 
1,097

 
9,079

 
300,786

 
309,865

 
2.58
%
2020
6,290

 
65,846

 
72,136

 
1,156

 
41,958

 
43,114

 
7,446

 
107,804

 
115,250

 
3.87
%
2021
3,743

 
190,449

 
194,192

 
875

 
38,782

 
39,657

 
4,618

 
229,231

 
233,849

 
4.78
%
2022
1,870

 

 
1,870

 

 

 

 
1,870

 

 
1,870

 
%
2023
1,987

 

 
1,987

 

 

 

 
1,987

 

 
1,987

 
%
2024
1,167

 

 
1,167

 

 

 

 
1,167

 

 
1,167

 
6.33
%
Thereafter
169

 

 
169

 

 

 

 
169

 

 
169

 
5.80
%
Total
$
70,982

 
$
1,302,313

 
$
1,373,295

 
$
6,776

 
$
134,700

 
$
141,476

 
$
77,758

 
$
1,437,013

 
$
1,514,771

 
3.70
%
__________
(1)
Consolidated debt amount includes a $235.0 million outstanding balance on the unsecured revolving credit facility as of March 31, 2015. 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 1.47% floating rate for the revolving credit facility and 2.93% of interest rate for all other fixed rate debt.
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.

49


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):
2015 Quarter
First
Total distributions declared and paid
$
30,210

Distributions per share
$
0.128

Amount of distributions per share funded by cash flows provided by operations
$
0.128

On February 20, 2015, our Board of Trustees approved a monthly distribution of $0.0425 per common share for each of the months of April, May and June of 2015. The April dividend will be paid on May 8, 2015 to all shareholders of record on April 30, 2015, the May dividend will be paid on June 8, 2015 to all shareholders of record on May 29, 2015, and the June dividend will be paid on July 9, 2015 to all shareholders of record on June 30, 2015.
On April 28, 2015, our Board of Trustees approved a monthly distribution of $0.0425 per common share for each of the months of July, August and September of 2015. The July dividend will be paid on August 10, 2015 to all shareholders of record on July 31, 2015, the August dividend will be paid on September 9, 2015 to all shareholders of record on August 31, 2015, and the September dividend will be paid on October 8, 2015 to all shareholders of record on September 30, 2015.
Historical Cash Flows
Our net cash provided by operating activities increased by $4.5 million to $36.2 million for the three months ended March 31, 2015, compared to $31.7 million for the three months ended March 31, 2014. The increase was primarily due to Net Operating Income generated by the properties acquired since January 1, 2014.
Net cash used in investing activities was $5.5 million for the three months ended March 31, 2015, compared to $16.0 million for the three months ended March 31, 2014. Due to more competitive acquisition pricing in the current year, we purchased an undeveloped land parcel and increased cash paid for improvements to our operating properties as compared to the purchase of an industrial property and less capital expenditures at our operating properties in the prior year period.
Net cash used in financing activities decreased by $28.0 million to $26.1 million for the three months ended March 31, 2015, compared to$54.1 million for the three months ended March 31, 2014. This was primarily due to net borrowings of $35.0 million under our unsecured revolving credit facility in the current year as compared to no net borrowings in the prior year period.
Off-Balance Sheet Arrangements
As of March 31, 2015, 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 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.

50


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.
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.
- Acquisition-related expenses: Acquisition-related expenses 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.
- Loss on early extinguishment of debt: Losses on early extinguishment of debt incurred in the current year are primarily a result of secured mortgage loan repayments typically associated with the sales of the underlying properties.
- Net change in fair value of non-qualifying derivative financial instruments and unrealized gains or losses on our investment in unconsolidated entities: 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.
- Other non-recurring expenses: Other non-recurring expenses such as severance-related costs and costs related to the process of listing our common shares on the New York Stock Exchange and our modified “Dutch Auction” tender offer are not reflective of our operating results during each period.
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

51


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.

52


The following table presents our FFO, Core FFO and AFFO for the three months ended March 31, 2015 and 2014 (in thousands, except share data): 
 
Three Months Ended
 
March 31,
 
2015
 
2014
Reconciliation of Net Income to FFO, Core FFO and AFFO
 
 
 
Net Income
$
5,994

 
$
3,319

Real Estate Depreciation and Amortization
27,780

 
27,132

Pro Rata Share of Real Estate Depreciation and Amortization from Unconsolidated Entities
6,639

 
8,770

Pro Rata Share of Gain on Sale from Unconsolidated Entities
(2,416
)
 

Funds from Operations
$
37,997

 
$
39,221

Acquisition-Related Expenses

 
290

Pro Rata Share of Loss on Early Extinguishment of Debt from Unconsolidated Entities
58

 

Severance-Related Expense

4,017

 

Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
(17
)
 
(26
)
Pro Rata Share of Unrealized Loss on Investment in CBRE Strategic Partners Asia
31

 
69

Core Funds from Operations
$
42,086

 
$
39,554

Amortization of Non-Cash Interest Expense
(380
)
 
(104
)
Pro Rata Share of Amortization of Non-Cash Interest Expense from Unconsolidated Entities
96

 
118

Amortization of Above and Below Market Leases
975

 
1,482

Pro Rata Share of Amortization of Above/Below Market Leases from Unconsolidated Entities
(50
)
 
(54
)
Amortization of Deferred Revenue Related to Tenant Improvements
(113
)
 
(276
)
Share-Based Compensation
735

 
1,012

Straight-line Rent Adjustments, Net
(1,668
)
 
(1,291
)
Pro Rata Share of Straight-Line Rent Adjustments, Net from Unconsolidated Entities
301

 
506

Recurring Capital Expenditures
(723
)
 
(1,852
)
Pro Rata Share of Recurring Capital Expenditures from Unconsolidated Entities
(694
)
 
(121
)
Adjusted Funds from Operations
$
40,565

 
$
38,974

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

$
0.03

 
$
0.01

Funds from Operations
$
0.16

 
$
0.17

Core Funds from Operations
$
0.18

 
$
0.17

Adjusted Funds from Operations
$
0.17

 
$
0.16


53


Subsequent Events
On April 28, 2015, our Board of Trustees approved a monthly distribution of $0.0425 per common share for each of the months of July, August and September of 2015. The July dividend will be paid on August 10, 2015 to all shareholders of record on July 31, 2015, the August dividend will be paid on September 9, 2015 to all shareholders of record on August 31, 2015, and the September dividend will be paid on October 8, 2015 to all shareholders of record on September 30, 2015.
On April 28, 2015, our Board of Trustees appointed Hugh S. O’Beirne, in addition to his current position of General Counsel, as Executive Vice President, Chief Legal Officer, Chief Compliance Officer, Chief Risk Officer and Secretary. 

On May 8, 2015, we entered into (i) amendments to the employment agreements with certain of our officers, including Martin A. Reid, our Interim President and Chief Executive Officer, and Chief Financial Officer, and Philip L. Kianka, our Chief Operating Officer, and (ii) an amended and restated severance agreement with Hugh S. O'Beirne, our Chief Legal Officer, General Counsel, Chief Compliance Officer, Chief Risk Officer and Secretary, which, in each case, amended the definition of "Change of Control" to provide that a Change in Control of our company would occur following any consolidation or merger of the company if the company's shareholders immediately prior to the consolidation or merger, would not, immediately thereafter, in substantially the same proportions, beneficially own shares representing 70% rather than 50%, of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger.
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 three months ended March 31, 2015 and 2014, respectively (amounts in thousands):
 
 
 
 
 
 
Effects of Change in Interest Rates as of
Type of Instrument
 
Notional 
Amount
 
Maturity Date
 
March 31, 2015
-100 Basis
Points
 
-50 Basis
Points
 
+50 Basis
Points
 
+100 Basis
Points
 
 
 
 
 
 
 
 
 
 
 
 
 
Qualifying Interest Rate Swap on Point West I Debt
 
$
10,635

 
12/6/2016
 
(113
)
 
(77
)
 
87

 
174

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

 
3/7/2018
 
(4,607
)
 
(2,677
)
 
2,800

 
5,559

Qualifying Interest Rate Swap on Atrium I Debt
 
$
21,346

 
5/31/2018
 
(499
)
 
(288
)
 
306

 
613

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

 
1/15/2019
 
(6,967
)
 
(3,598
)
 
3,588

 
7,092

Qualifying Interest Rate Swap on Easton III Debt
 
$
6,234

 
1/31/2019
 
(208
)
 
(108
)
 
108

 
215

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

 
3/6/2020
 
(2,349
)
 
(1,172
)
 
1,133

 
2,242

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

 
1/31/2021
 
(6,726
)
 
(3,330
)
 
3,210

 
6,398


54


 
 
 
 
 
 
Effects of Change in Interest Rates as of
Type of Instrument
 
Notional 
Amount
 
Maturity Date
 
March 31, 2014
-100 Basis
Points
 
-50 Basis
Points
 
+50 Basis
Points
 
+100 Basis
Points
 
 
 
 
 
 
 
 
 
 
 
 
 
Qualifying Interest Rate Swap on Maskew Retail Park Debt(1)
 
$
23,288

 
8/10/2014
 
(38
)
 
(36
)
 
35

 
71

Qualifying Interest Rate Swap on Point West I Debt
 
$
10,960

 
12/6/2016
 
(178
)
 
(116
)
 
137

 
275

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

 
3/7/2018
 
(7,468
)
 
(3,831
)
 
3,613

 
7,203

Qualifying Interest Rate Swap on Atrium I Debt
 
$
22,282

 
5/31/2018
 
(794
)
 
(409
)
 
402

 
802

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

 
1/15/2019
 
(9,273
)
 
(4,719
)
 
4,335

 
8,666

Qualifying Interest Rate Swap on Easton III Debt
 
$
6,420

 
1/31/2019
 
(273
)
 
(140
)
 
135

 
269

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

 
3/6/2020
 
(2,834
)
 
(1,382
)
 
1,318

 
2,609

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

 
1/31/2021
 
(7,745
)
 
(3,912
)
 
3,617

 
7,192

__________
(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 increase in interest rates would decrease the fair market value of our notes payable and unsecured term loan facilities by $39.4 million at March 31, 2015.
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.
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.

55


Changes in Internal Controls Over Financial Reporting
No changes in internal control over financial reporting occurred during the fiscal quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

56


PART II.
OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS
We are not party to any material legal proceedings as of March 31, 2015.
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, 2014.
ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Securities and Repurchases of Securities
During the three months ended March 31, 2015, 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 March 31, 2015:
Period
 
Total Number of
Shares Purchased
 
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
 
 
 
 
 
 
 
 
 
January 1, 2015 to January 31, 2015
 

 
$

 
N/A
 
N/A
February 1, 2015 to February 28, 2015
 

 

 
N/A
 
N/A
March 1, 2015 to March 31, 2015(1)
 
409,179

 
7.81

 
N/A
 
N/A
Total
 
409,179

 
$
7.81

 
N/A
 
N/A
__________
(1)
Shares were tendered by certain of our employees to us to satisfy minimum statutory tax withholding obligations related to the vesting of restricted shares and restricted share units.
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
None.

57


ITEM 6.    EXHIBITS
Exhibit No.
 
10.1
Second Amendment to Employment Agreement, dated May 8, 2015, by and among Chambers Street Properties, CSP Operating Partnership, LP and Martin A. Reid.
 
 
10.2
First Amendment to Employment Agreement, dated May 8, 2015, by and among Chambers Street Properties, CSP Operating Partnership, LP and Philip L. Kianka.
 
 
10.3
Amended and Restated Severance Agreement, dated May 8, 2015, by and among Chambers Street Properties and Hugh S. O'Beirne.
 
 
31.1
Certification by the Interim President and Chief Executive Officer, and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 
32.1
Certification by the Interim President and Chief Executive Officer, and 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 March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity and (vi) the Notes to the Consolidated Financial Statements, filed herewith.


58


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: May 8, 2015
 
By:
/s/    MARTIN A. REID        
 
 
Name:
Martin A. Reid
 
 
Title:
Interim President and Chief Executive Officer, and Chief Financial Officer


59


EXHIBIT INDEX
Exhibit No.
 
10.1
Second Amendment to Employment Agreement, dated May 8, 2015, by and among Chambers Street Properties, CSP Operating Partnership, LP and Martin A. Reid.
 
 
10.2
First Amendment to Employment Agreement, dated May 8, 2015, by and among Chambers Street Properties, CSP Operating Partnership, LP and Philip L. Kianka.
 
 
10.3
Amended and Restated Severance Agreement, dated May 8, 2015, by and among Chambers Street Properties and Hugh S. O'Beirne.
 
 
31.1
Certification by the Interim President and Chief Executive Officer, and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 
32.1
Certification by the Interim President and Chief Executive Officer, and 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 March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity and (vi) the Notes to the Consolidated Financial Statements, filed herewith.