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TMCNet:  CHAMBERS STREET PROPERTIES - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[November 14, 2012]

CHAMBERS STREET PROPERTIES - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Edgar Glimpses Via Acquire Media NewsEdge) 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 products, operations and business; and ¡ the use of the proceeds of our dividend reinvestment plan offering and subsequent offerings.

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, along with the following factors that could cause actual results to vary from our forward-looking statements: ¡ national, regional and local economic climates; ¡ changes in supply and demand for office and industrial properties; ¡ adverse changes in the real estate markets, including increasing vacancy, decreasing rental revenue and increasing insurance costs; ¡ availability and credit worthiness of prospective tenants; ¡ our ability to maintain rental rates and maximize occupancy; ¡ our ability to identify and secure acquisitions; ¡ our failure to successfully manage growth or operate acquired properties; ¡ our pace of acquisitions and/or dispositions of properties; ¡ risks related to development projects (including construction delay, cost overruns or our inability to obtain necessary permits); ¡ payment of distributions from sources other than cash flows and operating activities; ¡ receiving a corporate debt rating and changes in the general interest rate environment; ¡ availability of capital (debt and equity); ¡ our ability to refinance existing indebtedness or incur additional indebtedness; ¡ failure to comply with our debt covenants; 54 -------------------------------------------------------------------------------- Table of Contents ¡ 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 in the United States or abroad; ¡ the ability of CSP OP to qualify as a partnership for U.S. federal income tax purposes; ¡ foreign currency fluctuations; ¡ changes to accounting principles, 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, 2011 and those factors that may be contained in any filing we make with the SEC, including Part II, Item 1A of Form 10-Qs.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.

For a further discussion of these and other factors that could impact our future results, performance or transactions, see Item 1A. "Risk Factors." Overview Chambers Street Properties is a self-managed Maryland REIT that was formed on March 30, 2004. Our management team manages our day-to-day operations and oversee and supervise our employees and outside service providers. Acquisitions and asset management services are performed principally by the Company, with certain services provided by third parties. Prior to July 1, 2012, all of the business activities of the Company were managed by CBRE Advisors LLC (the "former investment advisor") pursuant to the fourth amended and restated advisory agreement (the "Fourth Amended Advisory Agreement"), which terminated according to its terms on June 30, 2012. In addition, effective July 1, 2012, the Company entered into a transitional services agreement with CSP OP and the former investment advisor pursuant to which the former investment advisor will provide certain operational and consulting services to the Company at the direction of our officers and other personnel for a term ending not later than April 30, 2013 which is described further below.

We invest in real estate properties, focusing primarily on office and industrial (primarily warehouse/distribution) properties, as well as other real estate-related assets. We may also utilize our expertise and resources to capitalize on unique opportunities that may exist elsewhere in the marketplace.

We intend to invest primarily in properties located in geographically-diverse metropolitan areas in the United States. In addition, we currently seek to invest up to 30% of our total assets in properties outside of the United States.

We expect that our international investments will focus on properties typically located in significant business districts and suburban markets. Some of our domestic and international investments may be in partnership with other entities that have significant local-market expertise.

Our business objective is to maximize shareholder value through: (1) maintaining an experienced management team of investment professionals; (2) investing in properties in certain markets where property fundamentals will support stable income returns and where capital appreciation is expected to be above average; (3) acquiring properties at a discount to replacement cost and where there is expected positive rent growth; and (4) repositioning our properties where the potential exists to increase their value in the market place. Operating results at our individual properties are impacted by the supply and demand for office, industrial, and retail space, trends of national and regional economies, the financial health of current and prospective tenants and their customers, capital and credit market trends, construction costs, and interest rate movements.

Individual operating property performance is monitored and calculated using certain non-GAAP financial measures such as an analysis of net operating income.

An analysis of net operating income as compared to local regional and national statistics may provide insight into short or longer term trends exclusive of capital markets or capital structuring issues. Interest rates are a critical factor in our results of operations. Our properties may be financed with significant amounts of debt, so changes in interest rates may affect both net income and the health of capital markets. For investments outside of the United States, in addition to monitoring local property market fundamentals and capital and credit market trends, we evaluate currency hedging strategies, taxes, the stability of the local government and economy and the experience of our management team in the region.

55-------------------------------------------------------------------------------- Table of Contents All of our real estate investments are held directly by, or indirectly through wholly owned subsidiaries of, CSP OP. Generally, we contribute the proceeds we receive from the issuance of common shares for cash to CSP OP and CSP OP, in turn, issues units of limited partnership to us, which entitle us to receive our share of CSP OP's earnings or losses and net cash flow. Provided we have sufficient available cash flow, we intend to continue to pay our shareholders quarterly cash dividends. We are structured in a manner that allows CSP OP to issue limited partnership interests from time to time in exchange for real estate properties. By structuring our acquisitions in this manner, the contributors of real estate to CSP OP are generally able to defer gain recognition for U.S. federal income tax purposes. We have elected to be taxed as a REIT for U.S. federal income tax purposes. As a REIT, we generally will not be subject to U.S. federal income tax on that portion of our income that is distributed to our shareholders if at least 90% of our net taxable income is distributed to our shareholders.

As of September 30, 2012, we owned, on a consolidated basis, 78 office, industrial (primarily warehouse/distribution) and retail properties located in 17 states (Arizona, California, Colorado, Florida, Georgia, Illinois, Kansas, Kentucky, Massachusetts, Minnesota, New Jersey, North Carolina, Pennsylvania, South Carolina, Texas, Utah and Virginia) and in the United Kingdom encompassing approximately 16,831,000 rentable square feet in the aggregate. In addition, we had ownership interests in five unconsolidated entities that, as of September 30, 2012, owned interests in 53 properties. Excluding those properties owned through our investment in CB Richard Ellis Strategic Partners Asia II, L.P. ("CBRE Strategic Partners Asia"), we owned, on an unconsolidated basis, 46 office, industrial (primarily warehouse/distribution) and retail properties located in 10 states (Arizona, Florida, Illinois, Indiana, Minnesota, Missouri, North Carolina, Ohio, Tennessee and Texas) and in the United Kingdom and Europe encompassing approximately 13,997,000 rentable square feet in the aggregate.

As of September 30, 2012, our portfolio was 98.10% leased, and the total effective annual rents for our office properties, industrial properties and retail properties were approximately $149,859,000, $79,648,000 and $8,599,000, respectively (net of any rent concessions). The average effective annual rent per square foot for our office properties, industrial (primarily warehouse/distribution) properties and retail properties was approximately $19.30, $4.02 and $18.09 as of September 30, 2012, respectively (net of any rent concessions). As of September 30, 2011, our portfolio was 97.18% leased, and the total effective annual rents for our office properties, industrial properties and retail properties were approximately $144,895,000, $60,125,000 and $8,430,000, respectively (net of any rent concessions). The average effective annual rent per square foot for our office properties, industrial properties and retail properties was approximately $18.98, $3.82 and $17.82 as of September 30, 2011, respectively (net of any rent concessions).

We commenced operations in July 2004, following an initial private placement of our common shares of beneficial interest. We raised aggregate net proceeds (after commissions and expenses) of approximately $55,500,000 from July 2004 to October 2004 in private placements of our common shares. On October 24, 2006, we commenced an initial public offering of up to $2,000,000,000 in our common shares. Our initial public offering was terminated effective as of the close of business on January 29, 2009, at which time we had sold a total of 60,808,967 common shares in the initial public offering, including 1,487,943 common shares which were issued pursuant to our dividend reinvestment plan, and received $607,345,702 in gross proceeds. On January 30, 2009, we commenced a follow-on public offering of up to $3,000,000,000 in our common shares. Our follow-on public offering was terminated effective as of the close of business on January 30, 2012, at which time we had sold a total of 190,672,251 common shares in the follow-on public offering, including 11,170,603 common shares which were issued pursuant to our dividend reinvestment plan, and received $1,901,137,211 in gross proceeds. On February 3, 2012, we filed a registration statement on Form S-3 to register 25,000,000 of our common shares for up to $237,500,000 pursuant to the amended and restated dividend reinvestment plan. On July 5, 2012, we filed post-effective amendment No. 1 to the registration statement on Form S-3 to reflect our name change.

In 2010, our Board of Trustees established a Special Committee of the Board (the "Special Committee") consisting of the Board's independent trustees to explore and review our strategic alternatives and liquidity events in accordance with our investment objectives. The Special Committee engaged Robert A. Stanger & Co., Inc. as its financial advisor, to assist with its exploration and review of our strategic alternatives and liquidity events in accordance with our investment objectives (as discussed above). During 2011, with the assistance of its financial advisor and in consultation with the former investment advisor and our Board of Trustees, the Special Committee discussed and considered various strategic alternatives, including potentially continuing as a going concern under our current business plan, a potential liquidation of our assets either through a sale or merger of our company (including through either a bulk sale of our portfolio or through a sale of our individual properties) as well as a potential listing of our shares on a national securities exchange. In December 2011, after consideration of the recent general economic and capital market conditions, market conditions for listed REITs, credit market conditions, our operational performance, the status of our portfolio, our then current offering and our current and anticipated deployment of available capital to investments, the Special Committee and our Board of Trustees determined it was in the best interests of our shareholders for our shares to remain unlisted and to continue operations rather than commencing a liquidation of our assets. The Special Committee and our Board of Trustees believed that remaining unlisted and continuing our operations would provide us with the ability to purchase additional properties in order to continue to expand and diversify our portfolio and thus potentially better position us for a liquidity event. Our Board of Trustees continues to monitor market conditions and explore strategic alternatives and liquidity options.

56-------------------------------------------------------------------------------- Table of Contents In March 2012, the Special Committee determined that our company and its shareholders would benefit from an internal management structure in that such a structure could provide cost savings, improved distribution coverage, flexibility to pursue a variety of strategic initiatives, the ability to take advantage of opportunities created by changing market conditions and an opportunity to enhance the trading values of our common shares to the extent that we pursue and complete a listing of our common shares on a national securities exchange, the NASDAQ Global Select Market or the NASDAQ Global Market. Our Board of Trustees, based on the recommendation of the Special Committee, authorized the Special Committee to commence a process to achieve internal management.

On April 27, 2012, we entered into a transition to self-management agreement (the "Transition to Self-Management Agreement") with CSP OP, CBRE Global Investors, and the former investment advisor, which sets forth certain tasks to be performed by each of the parties to the agreement in order to facilitate our self-management, including but not limited to our hiring of the 19 identified employees of the former investment advisor and/or its affiliates who were dedicated to our operations. At this time, the tasks set forth in the Transition to Self-Management Agreement have been fulfilled.

Additionally, on June 29, 2012, effective June 30, 2012, we undertook several management and board changes as follows: (i) appointed Louis P. Salvatore to serve as an independent trustee, the Chairman of the Audit Committee of the Board of Trustees and as a member of each of the Compensation and Nominating and Corporate Governance Committees of the Board of Trustees, to fill the vacancy left by Peter E. DiCorpo, who stepped down as a trustee in connection with the termination of the Fourth Amended Advisory Agreement, (ii) appointed Jack A.

Cuneo to serve as our President and Chief Executive Officer, (iii) appointed Philip L. Kianka to serve as our Executive Vice President and Chief Operating Officer and (iv) appointed Martin A. Reid to serve as our Executive Vice President and Chief Financial Officer. In connection with Mr. Reid's appointment as Chief Financial Officer, Laurie E. Romanak stepped down as our Chief Financial Officer and Mr. Reid stepped down as the Chairman and as a member of the Audit Committee of the Board of Trustees and as a member of each of the Compensation Committee and the Conflicts Committee of the Board of Trustees. In addition, on June 19, 2012, our Board of Trustees appointed Charles E. Black to serve as the Chairman of the Board of Trustees in accordance with a provision in our bylaws that requires the chairman be an independent member.

Effective July 1, 2012, we entered into a transitional services agreement (the "Transitional Services Agreement") with CSP OP and the former investment advisor pursuant to which the former investment advisor will provide certain operational and consulting related services to us at the direction of our officers and other personnel for a term ending April 30, 2013.

For consulting services provided to us in connection with the investment management of our assets, the former investment advisor shall be paid an investment management consulting fee payable in cash consisting of (i) a monthly fee equal to one-twelfth of 0.5% of the aggregate cost (before non-cash reserves and depreciation) of all real estate investments within our portfolio and (ii) a monthly fee equal to 5.0% of the aggregate monthly net operating income derived from all real estate investments within our portfolio, subject to certain adjustments. For consulting services provided to us in connection with the acquisition of assets, the former investment advisor or its affiliates shall be paid acquisition fees up to 1.5% of (i) the contract purchase price of real estate investments acquired by us, or (ii) when we make an investment indirectly through another entity, such investment's pro rata share of the gross asset value of real estate investments held by that entity. The total of all acquisition consulting fees payable with respect to real estate investments shall not exceed an amount equal to 6% of the contract purchase price (or 6% of funds advanced with respect to mortgages) provided, however, that a majority of the uninterested members of the Board of Trustees may approve amounts in excess of this limit.

Upon the termination date of the Transitional Services Agreement, we and the former investment advisor shall agree on a list of unacquired real estate investments for which the former investment advisor has performed certain acquisition related consulting services (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. Real estate investments for which there is a dispute as to whether it is a Qualifying Property that are acquired within the nine months following the termination of the Transitional Services Agreement will be submitted to arbitration.

For consulting services provided to us in connection with property management, leasing or construction services, the former investment advisor shall be paid based upon the customary property management, leasing and construction supervision fees applicable to the geographic location and type of property.

Such fees for each service provided are expected to range from 2.0% to 5.0% of gross revenues received from a property that we own. We shall pay the former investment advisor a real estate commission fee upon the sale of properties in an amount equal to the lesser of (i) one-half of the competitive real estate commission or (ii) 3% of the sales price of each property sold. The total brokerage commission paid may not exceed the lesser of the competitive real estate commission or an amount equal to 6% of the sales price of the property.

57 -------------------------------------------------------------------------------- Table of Contents To the extent that the Company assumes or incurs prior to the termination of the Transition Services Agreement a cost that was previously borne by the former investment advisor during the term of the Transition Services Agreement or its predecessor agreement, then amounts otherwise owed under the Transition Services Agreement shall be correspondingly reduced on a monthly basis; provided that (i) any Assumed Costs resulting from hiring of any targeted personnel shall reduce the amounts payable by the Company under this agreement for such month only to the extent of their base salary and benefits (as in effect immediately prior to their hiring by the Company) and any related other direct employer costs (but excluding any bonus amounts) earned or incurred during the month.

We will reimburse the former investment advisor for certain expenses paid or incurred in connection with services provided under the Transitional Services Agreement. In addition, the former investment advisor will only be entitled to reimbursement for third party expenses incurred in connection with services provided pursuant to the Transitional Services Agreement that we have approved in writing. Our sole obligation to reimburse the former investment advisor for expenses incurred related to personnel costs was to make an aggregate payment equal to $2,500,000 on the effective date of the agreement.

In early 2010, the commercial real estate market experienced gradual indications of market stabilization and improved access to debt financing on attractive terms began to reappear. During 2010 and into 2011, we also noted the initial signs of added competition for commercial real estate investments, particularly for high-quality stabilized properties leased to credit worthy tenants on a long-term basis, and we additionally experienced a willingness of our tenants to commit to extended lease maturities, and in some instances expand existing facilities.

As economic activity progressed in 2011 and during the initial nine months of 2012, a slower pace of recovery in the general economy continued with a gradual improvement in certain key metrics such as exports and corporate profits. In the current environment, capital availability continues to remain concentrated on the highest quality, well-leased and strategically positioned properties that provide lower risk and stable investment return potential, and for well sponsored real estate investment programs with experienced management teams.

Construction and development of new properties has shown signs of improvement, primarily with regard to new, single-tenant, built-to-suit opportunities leased on a long-term basis. As a well-capitalized core investor with modest levels of leverage, we expect to continue to have access to attractive investment opportunities in the U.S. markets. We also anticipate there will be enhanced opportunities to acquire high-quality properties in strong European markets.

Moreover, we were able to execute on our investment objectives during 2011 and the first nine months of 2012 in the same disciplined and selective manner we have employed since our inception.

We believe we are well positioned with a relative advantage due to our modest leverage, modest near-term capital needs and strong liquidity position. All of our management decisions are done with the same goals in mind; growing our portfolio for steady income, sustaining our tenant relationships and enhancing the value of our portfolio.

58 -------------------------------------------------------------------------------- Table of Contents The following table provides information relating to our properties, excluding those owned through our investment in CBRE Strategic Partners Asia, as of September 30, 2012. These properties consisted of 65 industrial properties, encompassing 21,852,000 rentable square feet, 56 office properties, encompassing 8,480,000 rentable square feet and three retail properties, encompassing 496,000 rentable square feet.

Approximate Our Net Rentable Total Date Year Effective Square Feet Percentage Acquisition Cost(1) Property and Market Acquired Built Property Type Ownership (in thousands) Leased (in thousands) Domestic Consolidated Properties: REMEC Corporate Campus 1(2) San Diego, CA 9/15/2004 1983 Office 100.00 % 34 100.00 % $ 6,833 REMEC Corporate Campus 2(2) San Diego, CA 9/15/2004 1983 Office 100.00 % 30 100.00 % 6,125 REMEC Corporate Campus 3(2) San Diego, CA 9/15/2004 1983 Office 100.00 % 37 100.00 % 7,523 REMEC Corporate Campus 4(2) San Diego, CA 9/15/2004 1983 Office 100.00 % 31 100.00 % 6,186 300 Constitution Drive(2) Boston, MA 11/3/2004 1998 Warehouse/Distribution 100.00 % 330 100.00 % 19,805 Deerfield Commons(3) Atlanta, GA 6/21/2005 2000 Office 100.00 % 122 100.00 % 21,834 505 Century(2) Dallas, TX 1/9/2006 1997 Warehouse/Distribution 100.00 % 100 100.00 % 6,095 631 International(2) Dallas, TX 1/9/2006 1998 Warehouse/Distribution 100.00 % 73 100.00 % 5,407 660 North Dorothy(2) Dallas, TX 1/9/2006 1997 Warehouse/Distribution 100.00 % 120 79.17 % 6,836 Bolingbrook Point III Chicago, IL 8/29/2007 2006 Warehouse/Distribution 100.00 % 185 100.00 % 18,170 Community Cash Complex 1(2) Spartanburg, SC 8/30/2007 1960 Warehouse/Distribution 100.00 % 206 46.44 % 2,690 Community Cash Complex 2(2) Spartanburg, SC 8/30/2007 1978 Warehouse/Distribution 100.00 % 144 100.00 % 2,225 Community Cash Complex 3(2) Spartanburg, SC 8/30/2007 1981 Warehouse/Distribution 100.00 % 116 100.00 % 1,701 Community Cash Complex 4(2) Spartanburg, SC 8/30/2007 1984 Warehouse/Distribution 100.00 % 33 100.00 % 547 Community Cash Complex 5(2) Spartanburg, SC 8/30/2007 1984 Warehouse/Distribution 100.00 % 53 100.00 % 824 Fairforest Building 1(2) Spartanburg, SC 8/30/2007 2000 Warehouse/Distribution 100.00 % 51 100.00 % 2,974 Fairforest Building 2(2) Spartanburg, SC 8/30/2007 1999 Warehouse/Distribution 100.00 % 104 100.00 % 5,379 Fairforest Building 3(2) Spartanburg, SC 8/30/2007 2000 Warehouse/Distribution 100.00 % 100 100.00 % 5,760 Fairforest Building 4(2) Spartanburg, SC 8/30/2007 2001 Warehouse/Distribution 100.00 % 101 100.00 % 5,640 Fairforest Building 5 Spartanburg, SC 8/30/2007 2006 Warehouse/Distribution 100.00 % 316 100.00 % 16,968 Fairforest Building 6 Spartanburg, SC 8/30/2007 2005 Warehouse/Distribution 100.00 % 101 100.00 % 7,469 Fairforest Building 7(2) Spartanburg, SC 8/30/2007 2006 Warehouse/Distribution 100.00 % 101 83.78 % 5,626 Greenville/Spartanburg Industrial Park(2) Spartanburg, SC 8/30/2007 1990 Warehouse/Distribution 100.00 % 67 100.00 % 3,388 Highway 290 Commerce Park Building 1(2) Spartanburg, SC 8/30/2007 1995 Warehouse/Distribution 100.00 % 150 100.00 % 5,388 Highway 290 Commerce Park Building 5(2) Spartanburg, SC 8/30/2007 1993 Warehouse/Distribution 100.00 % 30 100.00 % 1,420 Highway 290 Commerce Park Building 7(2) Spartanburg, SC 8/30/2007 1994 Warehouse/Distribution 100.00 % 94 100.00 % 4,889 HJ Park Building 1 Spartanburg, SC 8/30/2007 2003 Warehouse/Distribution 100.00 % 70 100.00 % 4,216 Jedburg Commerce Park(2) Charleston, SC 8/30/2007 2007 Warehouse/Distribution 100.00 % 513 100.00 % 41,991 Kings Mountain I Charlotte, NC 8/30/2007 1998 Warehouse/Distribution 100.00 % 100 100.00 % 5,497 59 -------------------------------------------------------------------------------- Table of Contents Approximate Our Net Rentable Total Date Year Effective Square Feet Percentage Acquisition Cost(1) Property and Market Acquired Built Property Type Ownership (in thousands) Leased (in thousands) Domestic Consolidated Properties: Kings Mountain II Charlotte, NC 8/30/2007 2002 Warehouse/Distribution 100.00 % 301 100.00 % 11,311 Mount Holly Building Charleston, SC 8/30/2007 2003 Warehouse/Distribution 100.00 % 101 100.00 % 6,208 North Rhett I Charleston, SC 8/30/2007 1973 Warehouse/Distribution 100.00 % 285 28.09 % 10,302 North Rhett II Charleston, SC 8/30/2007 2001 Warehouse/Distribution 100.00 % 102 100.00 % 7,073 North Rhett III(2) Charleston, SC 8/30/2007 2002 Warehouse/Distribution 100.00 % 80 100.00 % 4,812 North Rhett IV Charleston, SC 8/30/2007 2005 Warehouse/Distribution 100.00 % 316 100.00 % 17,060 Orangeburg Park Building Charleston, SC 8/30/2007 2003 Warehouse/Distribution 100.00 % 101 100.00 % 5,474 Orchard Business Park 2(2) Spartanburg, SC 8/30/2007 1993 Warehouse/Distribution 100.00 % 18 100.00 % 761 Union Cross Building I Winston-Salem, NC 8/30/2007 2005 Warehouse/Distribution 100.00 % 101 100.00 % 6,585 Union Cross Building II Winston-Salem, NC 8/30/2007 2005 Warehouse/Distribution 100.00 % 316 100.00 % 17,216 Highway 290 Commerce Park Building 2(2) Spartanburg, SC 9/24/2007 1995 Warehouse/Distribution 100.00 % 100 100.00 % 4,626 Highway 290 Commerce Park Building 6(2) Spartanburg, SC 11/1/2007 1996 Warehouse/Distribution 100.00 % 105 100.00 % 3,760 Lakeside Office Center Dallas, TX 3/5/2008 2006 Office 100.00 % 99 93.44 % 17,994 Kings Mountain III Charlotte, NC 3/14/2008 2007 Warehouse/Distribution 100.00 % 542 100.00 % 25,728 Enclave on the Lake(2) Houston, TX 7/1/2008 1999 Office 100.00 % 171 100.00 % 37,827 Avion Midrise III Washington, DC 11/18/2008 2002 Office 100.00 % 72 100.00 % 21,111 Avion Midrise IV Washington, DC 11/18/2008 2002 Office 100.00 % 72 100.00 % 21,112 13201 Wilfred(2) Minneapolis, MN 6/29/2009 1999 Warehouse/Distribution 100.00 % 335 100.00 % 15,340 3011, 3055 & 3077 Comcast Place(2) East Bay, CA 7/1/2009 1988 Office 100.00 % 220 100.00 % 49,000 140 Depot Street(2) Boston, MA 7/31/2009 2009 Warehouse/Distribution 100.00 % 238 100.00 % 18,950 12650 Ingenuity Drive Orlando, FL 8/5/2009 1999 Office 100.00 % 125 100.00 % 25,350 Crest Ridge Corporate Center 1(2) Minneapolis, MN 8/17/2009 2009 Office 100.00 % 116 100.00 % 28,419 West Point Trade Center(2) Jacksonville, FL 12/30/2009 2009 Warehouse/Distribution 100.00 % 602 100.00 % 29,000 5160 Hacienda Drive(2) East Bay, CA 4/8/2010 1988 Office 100.00 % 202 100.00 % 38,500 10450 Pacific Center Court(2) San Diego, CA 5/7/2010 1985 Office 100.00 % 134 100.00 % 32,750 225 Summit Ave(2) Northern NJ 6/21/2010 1966 Office 100.00 % 143 100.00 % 40,600 One Wayside Road Boston, MA 6/24/2010 1998 Office 100.00 % 201 100.00 % 55,525 100 Tice Blvd.

Northern NJ 9/28/2010 2007 Office 100.00 % 209 100.00 % 67,600 Ten Parkway North Chicago, IL 10/12/2010 1999 Office 100.00 % 100 100.00 % 25,000 4701 Gold Spike Drive Dallas, TX 10/27/2010 2002 Warehouse/Distribution 100.00 % 420 100.00 % 20,300 1985 International Way Cincinnati, OH 10/27/2010 1998 Warehouse/Distribution 100.00 % 189 100.00 % 14,800 Summit Distribution Center Salt Lake City, UT 10/27/2010 2001 Warehouse/Distribution 100.00 % 275 100.00 % 13,400 60 -------------------------------------------------------------------------------- Table of Contents Approximate Our Net Rentable Total Date Year Effective Square Feet Percentage Acquisition Cost(1) Property and Market Acquired Built Property Type Ownership (in thousands) Leased (in thousands) Domestic Consolidated Properties: 3660 Deerpark Boulevard Jacksonville, FL 10/27/2010 2002 Warehouse/Distribution 100.00 % 322 100.00 % 15,300 Tolleson Commerce Park II Phoenix, AZ 10/27/2010 1999 Warehouse/Distribution 100.00 % 217 100.00 % 9,200 Pacific Corporate Park(3) Washington, DC 11/15/2010 2002 Office 100.00 % 696 100.00 % 144,500 100 Kimball Drive Northern NJ 12/10/2010 2006 Office 100.00 % 175 100.00 % 60,250 70 Hudson Street New York City Metro, NJ 4/11/2011 2000 Office 100.00 % 409 100.00 % 155,000 90 Hudson Street New York City Metro, NJ 4/11/2011 1999 Office 100.00 % 418 100.00 % 155,000 Millers Ferry Road(2) Dallas, TX 6/2/2011 2011 Warehouse/Distribution 100.00 % 1,020 100.00 % 40,366 Sky Harbor Operations Center(2) Phoenix, AZ 9/30/2011 2003 Office 100.00 % 396 100.00 % 53,500 1400 Atwater Drive(2)(4) Philadelphia, PA 10/27/2011 - Office 100.00 % - - 61,877 Aurora Commerce Center Bldg. C(2) Denver, CO 11/30/2011 2007 Warehouse/Distribution 100.00 % 407 100.00 % 24,500 Sabal Pavilion Tampa, FL 12/30/2011 1998 Office 100.00 % 121 100.00 % 21,368 2400 Dralle Road(2)(3) Chicago, IL 3/20/2012 2011 Warehouse/Distribution 100.00 % 1,350 100.00 % 64,250 Midwest Commerce Center I Kansas City, KS 8/16/2012 2010 Warehouse/Distribution 100.00 % 1,107 100.00 % 62,950 Total Domestic Consolidated Properties 16,541 97.81 % 1,790,961 International Consolidated Properties: 602 Central Blvd.(2) Coventry, UK 4/27/2007 2001 Office 100.00 % 50 100.00 % 23,847 Thames Valley Five Reading, UK 3/20/2008 1998 Office 100.00 % 40 100.00 % 29,572 Albion Mills Retail Park Wakefield, UK 7/11/2008 2000 Retail 100.00 % 55 100.00 % 22,098 Maskew Retail Park Peterborough, UK 10/23/2008 2007 Retail 100.00 % 145 100.00 % 53,740 Total International Consolidated Properties 290 100.00 % 129,257 Total Consolidated Properties 16,831 97.84 % 1,920,218 Domestic Unconsolidated Properties(5): Buckeye Logistics Center(6) Phoenix, AZ 6/12/2008 2008 Warehouse/Distribution 80.00 % 1,009 100.00 % 52,797 Afton Ridge Shopping Center(7) Charlotte, NC 9/18/2008 2007 Retail 90.00 % 296 98.57 % 44,530 AllPoints at Anson Bldg. 1(6) Indianapolis, IN 9/30/2008 2008 Warehouse/Distribution 80.00 % 1,037 100.00 % 42,684 12200 President's Court(6) Jacksonville, FL 9/30/2008 2008 Warehouse/Distribution 80.00 % 772 100.00 % 29,995 201 Sunridge Blvd.(6) Dallas, TX 9/30/2008 2008 Warehouse/Distribution 80.00 % 823 100.00 % 25,690 Aspen Corporate Center 500(6) Nashville, TN 9/30/2008 2008 Office 80.00 % 180 100.00 % 29,936 125 Enterprise Parkway(6) Columbus, OH 12/10/2008 2008 Warehouse/Distribution 80.00 % 1,142 100.00 % 38,088 AllPoints Midwest Bldg. I(6) Indianapolis, IN 12/10/2008 2008 Warehouse/Distribution 80.00 % 1,200 100.00 % 41,428 Celebration Office Center(6) Orlando, FL 5/13/2009 2009 Office 80.00 % 101 100.00 % 13,640 22535 Colonial Pkwy(6) Houston, TX 5/13/2009 2009 Office 80.00 % 90 100.00 % 11,596 Fairfield Distribution Ctr. IX(6) Tampa, FL 5/13/2009 2008 Warehouse/Distribution 80.00 % 136 100.00 % 7,151 61 -------------------------------------------------------------------------------- Table of Contents Approximate Our Net Rentable Total Date Year Effective Square Feet Percentage Acquisition Cost(1) Property and Market Acquired Built Property Type Ownership (in thousands) Leased (in thousands) Northpoint III(6) Orlando, FL 10/15/2009 2001 Office 80.00 % 108 100.00 % 14,592 Goodyear Crossing Ind. Park II(6) Phoenix, AZ 12/7/2009 2009 Warehouse/Distribution 80.00 % 820 100.00 % 36,516 3900 North Paramount Parkway(6) Raleigh, NC 3/31/2010 1999 Office 80.00 % 101 100.00 % 11,176 3900 South Paramount Parkway(6) Raleigh, NC 3/31/2010 1999 Office 80.00 % 119 100.00 % 13,055 1400 Perimeter Park Drive(6) Raleigh, NC 3/31/2010 1991 Office 80.00 % 45 100.00 % 3,970 Miramar I(6)(8) Ft. Lauderdale, FL 3/31/2010 2001 Office 80.00 % 94 100.00 % 13,645 Miramar II(6)(8) Ft. Lauderdale, FL 3/31/2010 2001 Office 80.00 % 129 100.00 % 20,899 McAuley Place(6) Cincinnati, OH 12/21/2010 2001 Office 80.00 % 191 100.00 % 28,000 Point West I(6) Dallas, TX 12/21/2010 2008 Office 80.00 % 183 100.00 % 23,600 Sam Houston Crossing I(6) Houston, TX 12/21/2010 2007 Office 80.00 % 160 100.00 % 20,400 Regency Creek(6) Raleigh, NC 12/21/2010 2008 Office 80.00 % 122 100.00 % 18,000 Easton III(6) Columbus, OH 12/21/2010 1999 Office 80.00 % 136 100.00 % 14,400 533 Maryville Centre(6) St. Louis, MO 12/21/2010 2000 Office 80.00 % 125 100.00 % 19,102 555 Maryville Centre(6) St. Louis, MO 12/21/2010 2000 Office 80.00 % 127 90.49 % 15,578 Norman Pointe I(6) Minneapolis, MN 3/24/2011 2000 Office 80.00 % 213 72.97 % 34,080 Norman Pointe II(6) Minneapolis, MN 3/24/2011 2007 Office 80.00 % 324 100.00 % 37,520 One Conway Park(2)(6) Chicago, IL 3/24/2011 1989 Office 80.00 % 105 66.82 % 12,320 West Lake at Conway(6) Chicago, IL 3/24/2011 2008 Office 80.00 % 98 100.00 % 14,060 The Landings I(6) Cincinnati, OH 3/24/2011 2006 Office 80.00 % 176 100.00 % 23,728 The Landings II(6) Cincinnati, OH 3/24/2011 2007 Office 80.00 % 175 96.06 % 20,928 One Easton Oval(2)(6) Columbus, OH 3/24/2011 1997 Office 80.00 % 125 57.26 % 9,529 Two Easton Oval(2)(6) Columbus, OH 3/24/2011 1995 Office 80.00 % 129 81.92 % 10,195 Atrium I(6) Columbus, OH 3/24/2011 1996 Office 80.00 % 315 100.00 % 36,200 Weston Pointe I(6) Ft. Lauderdale, FL 3/24/2011 1999 Office 80.00 % 98 85.32 % 15,507 Weston Pointe II(6) Ft. Lauderdale, FL 3/24/2011 2000 Office 80.00 % 97 84.87 % 18,701 Weston Pointe III(6) Ft. Lauderdale, FL 3/24/2011 2003 Office 80.00 % 97 100.00 % 18,867 Weston Pointe IV(6) Ft. Lauderdale, FL 3/24/2011 2006 Office 80.00 % 96 100.00 % 22,605 Total Domestic Unconsolidated Properties(5) 11,294 98.04 % 864,708 International Unconsolidated Properties(5): Amber Park(2)(9) South Normanton, UK 6/10/2010 1997 Warehouse/Distribution 80.00 % 208 100.00 % 12,514 Brackmills(2)(9) Northampton, UK 6/10/2010 1984 Warehouse/Distribution 80.00 % 187 100.00 % 13,407 Düren(2)(10) Rhine-Ruhr, Germany 6/10/2010 2008 Warehouse/Distribution 80.00 % 392 100.00 % 13,148 Schönberg(2)(10) Hamburg, Germany 6/10/2010 2009 Warehouse/Distribution 80.00 % 454 100.00 % 13,819 62 -------------------------------------------------------------------------------- Table of Contents Approximate Our Net Rentable Total Date Year Effective Square Feet Percentage Acquisition Cost(1) Property and Market Acquired Built Property Type Ownership (in thousands) Leased (in thousands) Langenbach(2)(10) Munich, Germany 10/28/2010 2010 Warehouse/Distribution 80.00 % 225 100.00 % 18,573 Graben Distribution Center I(2)(10) Munich, Germany 12/20/2011 2012 Warehouse/Distribution 80.00 % 1,018 100.00 % 54,962 Graben Distribution Center II(2)(10) Munich, Germany 12/20/2011 2012 Warehouse/Distribution 80.00 % 73 100.00 % 6,868 Valley Park, Unit D(2)(9) Rugby, UK 3/19/2012 2000 Warehouse/Distribution 80.00 % 146 100.00 % 10,247 Total International Unconsolidated Properties(5) 2,703 100.00 % 143,538 Total Unconsolidated Properties(5) 13,997 98.42 % 1,008,246 Total Properties(5) 30,828 98.10 % $ 2,928,464 (1) Approximate total acquisition cost represents the purchase price inclusive of customary costs and acquisition fees for properties acquired prior to January 1, 2009 and exclusive of customary costs and acquisition fees for properties acquired on dates subsequent to January 1, 2009.

(2) This property is unencumbered.

(3) Includes undeveloped land zoned for future use.

(4) This property is a consolidated joint venture office development property currently under construction. This property's Approximate Total Acquisition Cost reflects the costs incurred as of September 30, 2012. This property's projected 300,000 square footage upon completion is not included in the Net Rentable Square Feet and Percentage Lease statistics on this table.

(5) Does not include CBRE Strategic Partners Asia properties.

(6) This property is held through the Duke joint venture.

(7) This property is held through the Afton Ridge joint venture.

(8) Consolidated properties acquired on December 31, 2009 and contributed to the Duke joint venture.

(9) This property is held through the UK JV.

(10) This property is held through the European JV.

63 -------------------------------------------------------------------------------- Table of Contents Single- and Multi-Tenant Property Distribution Our Triple Net Single-Tenant Properties as of September 30, 2012 are as follows (Net Rentable Square Feet and Approximate Total Acquisition Cost in thousands): Consolidated Unconsolidated Consolidated & Unconsolidated Properties Properties(1) Properties (1) Approximate Approximate Approximate Total Total Total Net Rentable Acquisition Net Rentable Acquisition Net Rentable Acquisition Property Type Properties Square Feet Cost Properties Square Feet Cost Properties Square Feet Cost Triple Net Single-Tenant Properties(2) 57 13,225 $ 1,382,396 27 11,195 $ 629,320 84 24,420 $ 2,011,716 Multi-Tenant Properties 14 2,567 359,189 15 2,379 312,403 29 4,946 671,592 Other Single-Tenant Properties 7 1,039 178,633 4 423 66,523 11 1,462 245,156 Total 78 16,831 $ 1,920,218 46 13,997 $ 1,008,246 124 30,828 $ 2,928,464 (1) Number of Properties and Net Rentable Square Feet for Unconsolidated Properties are at 100%. Approximate Total Acquisition Cost for Unconsolidated Properties is at our pro rata share of effective ownership.

Does not include our investment in CBRE Strategic Partners Asia.

(2) Net Rentable Square Feet does not include the projected 300,000 square footage upon completion of 1400 Atwater Drive property. Triple Net Single-Tenant Properties include certain properties that have di minimis secondary tenant(s).

Property Type Distribution Our property type distributions as of September 30, 2012 are as follows (Net Rentable Square Feet and Approximate Total Acquisition Cost in thousands): Consolidated Unconsolidated Consolidated & Unconsolidated Properties Properties(1) Properties (1) Approximate Approximate Approximate Total Total Total Net Rentable Acquisition Net Rentable Acquisition Net Rentable Acquisition Property Type Properties Square Feet Cost Properties Square Feet Cost Properties Square Feet Cost Office(2) 27 4,421 $ 1,214,203 29 4,059 $ 545,829 56 8,480 $ 1,760,032 Warehouse/Distribution 49 12,210 630,177 16 9,642 417,887 65 21,852 1,048,064 Retail 2 200 75,838 1 296 44,530 3 496 120,368 Total 78 16,831 $ 1,920,218 46 13,997 $ 1,008,246 124 30,828 $ 2,928,464 (1) Number of Properties and Net Rentable Square Feet for Unconsolidated Properties are at 100%. Approximate Total Acquisition Cost for Unconsolidated Properties is at our pro rata share of effective ownership. Does not include our investment in CBRE Strategic Partners Asia.

(2) Net Rentable Square Feet does not include the projected 300,000 square footage upon completion of 1400 Atwater Drive property.

64 -------------------------------------------------------------------------------- Table of Contents Geographic Distribution Our geographic concentrations as of September 30, 2012 are as follows (Net Rentable Square Feet and Approximate Total Acquisition Cost in thousands): Consolidated Unconsolidated Consolidated & Unconsolidated Properties Properties(1) Properties (1) Approximate Approximate Approximate Total Total Total Net Rentable Acquisition Net Rentable Acquisition Net Rentable Acquisition Domestic Properties Square Feet Cost Properties Square Feet Cost Properties Square Feet Cost New Jersey 5 1,354 $ 478,450 - - $ - 5 1,354 $ 478,450 Florida 4 1,170 91,018 10 1,728 175,602 14 2,898 266,620 Texas 7 2,003 134,825 4 1,256 81,286 11 3,259 216,111 Virginia 3 840 186,723 - - - 3 840 186,723 Ohio - - - 8 2,389 181,068 8 2,389 181,068 South Carolina 27 3,558 179,171 - - - 27 3,558 179,171 North Carolina 5 1,360 66,337 5 683 90,731 10 2,043 157,068 Arizona 2 613 62,700 2 1,829 89,313 4 2,442 152,013 California 7 688 146,917 - - - 7 688 146,917 Illinois 3 1,635 107,420 2 203 26,380 5 1,838 133,800 Minnesota 2 451 43,759 2 537 71,600 4 988 115,359 Massachusetts 3 769 94,280 - - - 3 769 94,280 Indiana - - - 2 2,237 84,112 2 2,237 84,112 Kansas 1 1,107 62,950 - - - 1 1,107 62,950 Pennsylvania(2) 1 - 61,877 - - - 1 - 61,877 Missouri - - - 2 252 34,680 2 252 34,680 Tennessee - - - 1 180 29,936 1 180 29,936 Colorado 1 407 24,500 - - - 1 407 24,500 Georgia 1 122 21,834 - - - 1 122 21,834 Kentucky 1 189 14,800 - - - 1 189 14,800 Utah 1 275 13,400 - - - 1 275 13,400 Total Domestic 74 16,541 1,790,961 38 11,294 864,708 112 27,835 2,655,669 International United Kingdom 4 290 129,257 3 541 36,168 7 831 165,425 Germany - - - 5 2,162 107,370 5 2,162 107,370 Total International 4 290 129,257 8 2,703 143,538 12 2,993 272,795 Total 78 16,831 $ 1,920,218 46 13,997 $ 1,008,246 124 30,828 $ 2,928,464 (1) Number of Properties and Net Rentable Square Feet for Unconsolidated Properties are at 100%. Approximate Total Acquisition Cost for Unconsolidated Properties is at our pro rata share of effective ownership.

Does not include our investment in CBRE Strategic Partners Asia.

(2) Net Rentable Square Feet does not include the projected 300,000 square footage upon completion of 1400 Atwater Drive property.

65 -------------------------------------------------------------------------------- Table of Contents Significant Tenants The following table details our largest tenants as of September 30, 2012 (in thousands): Consolidated & Unconsolidated Unconsolidated Consolidated Properties Properties(1) Properties(1) Net Rentable Annualized Net Rentable Annualized Net Rentable Annualized Tenant Primary Industry Square Feet Base Rent Square Feet Base Rent Square Feet Base Rent 1. Amazon.com, Inc(2) Internet Retail - $ - 3,884 $ 14,951 3,884 $ 14,951 2. Barclay's Capital Financial Services 409 12,278 - - 409 12,278 3. U.S. Government Government 71 2,158 378 8,458 449 10,616 4. Raytheon Company Defense and Aerospace 666 9,755 - - 666 9,755 5. National Union Fire Insurance Insurance Co 172 6,010 - - 172 6,010 6. JP Morgan Chase Financial Services 396 5,893 - - 396 5,893 7. Nuance Communications Software 201 5,623 - - 201 5,623 8. Lord Abbett & Co Financial Services 149 5,211 - - 149 5,211 9. Eisai Pharmaceutical and Health Care Related 209 5,189 - - 209 5,189 10 Comcast Telecommunications 220 4,819 - - 220 4,819 11 The Coleman Company, Inc Consumer Product 1,107 4,528 - - 1,107 4,528 12 Deloitte Professional Services 175 4,390 - - 175 4,390 13 Clorox International Co. Consumer Products 1,350 4,310 - - 1,350 4,310 14 Barr Laboratories Pharmaceutical and Health Care Related 142 4,061 - - 142 4,061 15 Unilever(3) Consumer Products - - 1,595 3,864 1,595 3,864 16 PPD Development Pharmaceutical and Health Care Related - - 252 3,762 252 3,762 17 Eveready Battery Company Consumer Products - - 168 3,568 168 3,568 18 ConAgra Foods Food Service and Retail 742 3,422 - - 742 3,422 19 NDB Capital Markets Financial Services 97 3,400 - - 97 3,400 20 Carl Zeiss Pharmaceutical and Health Care Related 202 3,337 - - 202 3,337 21 Whirlpool Corp Consumer Product 1,020 3,264 - - 1,020 3,264 22 American LaFrance Vehicle Related Manufacturing 513 3,163 - - 513 3,163 23 Prime Distribution Logistics and Services Distribution - - 1,201 2,958 1,201 2,958 24 Nationwide Mutual Ins Insurance - - 315 2,869 315 2,869 25 Kellogg's Consumer Products - - 1,142 2,817 1,142 2,817 26 Time Warner Telecommunications 134 2,814 - - 134 2,814 27 B&Q Home Furnishings/Home Improvement 104 2,697 - - 104 2,697 28 REMEC Defense and Aerospace 133 2,504 - - 133 2,504 29 Syngenta Seeds Agriculture 116 2,473 - - 116 2,473 30 Dr. Pepper Food Service and Retail 602 2,460 - - 602 2,460 31 NCS Pearson, Inc Education - - 153 2,424 153 2,424 32 Verizon Wireless(4) Telecommunications - - 180 2,306 180 2,306 33 Citicorp North America Financial Services - - 194 2,264 194 2,264 34 Iowa College Acquisition Education Corp.(5) 124 2,241 - - 124 2,241 35 Royal Caribbean Cruises Travel/Leisure - - 129 2,182 129 2,182 36 American Home Mortgage Financial Services - - 183 2,024 183 2,024 37 Best Buy Specialty Retail 238 1,657 30 332 268 1,989 38 Markel Midwest, Inc. Financial Services 100 1,981 - - 100 1,981 39 Mercy Health Partners of Pharmaceutical and SW Ohio Health Care Related - - 121 1,903 121 1,903 40 Lockheed Martin Defense and Aerospace 72 1,903 - - 72 1,903 Other (231 tenants) 7,004 34,895 3,851 34,986 10,855 69,881 16,468 $ 146,436 13,776 $ 91,668 30,244 $ 238,104 (1) Net Rentable Square Feet for Unconsolidated Properties is at 100%. Annualized Base Rent for Unconsolidated Properties is at our pro rata share of effective ownership. Does not include our investment in CBRE Strategic Partners Asia.

66 -------------------------------------------------------------------------------- Table of Contents (2) Our tenants are Amazon.com.azdc, Inc., in the Buckeye Logistics Center and Goodyear Crossing Park II properties, Amazon.com.indc, LLC, in the AllPoints at Anson Bldg. 1 property, and Amazon Fulfillment GmbH, in the Graben Distribution Center I property, which are all wholly-owned subsidiaries of Amazon.com.

(3) Our tenant is CONOPCO, Inc., a wholly-owned subsidiary of Unilever.

(4) Verizon Wireless is the d/b/a for Cellco Partnership.

(5) Our tenant is Iowa College Acquisitions Corp., an operating subsidiary of Kaplan, Inc. The lease is guaranteed by Kaplan Inc.

Tenant Industries Our tenants operate across a wide range of industries. The following table details our tenant-industry concentrations as of September 30, 2012 (in thousands): Consolidated & Unconsolidated Unconsolidated Consolidated Properties Properties(1) Properties(1) Net Rentable Annualized Net Rentable Annualized Net Rentable Annualized Primary Tenant Industry Category Square Feet Base Rent Square Feet Base Rent Square Feet Base Rent Financial Services 1,233 $ 28,495 514 $ 5,768 1,747 $ 34,263 Consumer Products 3,727 13,294 3,510 13,290 7,237 26,584 Pharmaceutical and Health Care Related 888 14,021 710 8,427 1,598 22,448 Internet Retail 330 1,426 3,884 14,951 4,214 16,377 Defense and Aerospace 901 14,926 - - 901 14,926 Logistics and Distribution 1,226 5,163 2,243 7,932 3,469 13,095 Insurance 271 7,992 438 4,515 709 12,507 Telecommunications 737 9,788 194 2,467 931 12,255 Government 72 2,158 378 8,458 450 10,616 Food Service and Retail 2,032 8,320 40 515 2,072 8,835 Vehicle Related Manufacturing 1,542 8,571 - - 1,542 8,571 Education 124 2,241 362 5,668 486 7,909 Professional Services 258 5,127 144 1,875 402 7,002 Business Services 733 2,889 310 3,801 1,043 6,690 Software 201 5,623 10 181 211 5,804 Home Furnishings/Home Improvement 554 4,726 70 1,036 624 5,762 Other Manufacturing 850 2,661 154 2,493 1,004 5,154 Specialty Retail 391 3,196 111 1,193 502 4,389 Travel and Leisure - - 240 4,228 240 4,228 Agriculture 116 2,472 9 97 125 2,569 Petroleum and Mining 174 1,492 55 646 229 2,138 Apparel Retail - - 225 1,897 225 1,897 Executive Office Suites 86 1,728 - - 86 1,728 Utilities - - 127 1,538 127 1,538 Other Retail 22 127 48 692 70 819 Total 16,468 $ 146,436 13,776 $ 91,668 30,244 $ 238,104 (1) Net Rentable Square Feet for Unconsolidated Properties is at 100%.

Annualized Base Rent for Unconsolidated Properties is at our pro rata share of effective ownership. Does not include our investment in CBRE Strategic Partners Asia.

67 -------------------------------------------------------------------------------- Table of Contents Tenant Lease Expirations The following table sets forth a schedule of expiring leases for our consolidated and unconsolidated properties as of September 30, 2012, (Expiring Net Rentable Square Feet and Expiring Base Rent in thousands): Consolidated & Unconsolidated Unconsolidated Consolidated Properties Properties(1) Properties (1) Number Expiring Expiring Expiring Expiring Of Expiring Percentage Net Rentable Base Net Rentable Base Expiring Net Rentable Expiring of Expiring Square Feet Rent Square Feet Rent Leases Square Feet Base Rent Base Rent 2012 (Three months ending December 31, 2012) 735 $ 7,295 62 $ 866 18 797 $ 8,161 3.17 % 2013 1,584 8,379 644 4,768 43 2,228 13,147 5.10 % 2014 1,266 7,648 156 2,187 35 1,422 9,835 3.82 % 2015 723 6,273 397 3,959 31 1,120 10,232 3.97 % 2016 868 15,487 927 12,972 31 1,795 28,459 11.05 % 2017 425 6,493 1,314 10,905 34 1,739 17,398 6.75 % 2018 813 8,859 2,184 12,177 22 2,997 21,036 8.16 % 2019 2,156 15,631 3,737 18,426 23 5,893 34,057 13.22 % 2020 1,875 18,621 30 457 12 1,905 19,078 7.40 % 2021 4,126 33,703 2,538 16,436 17 6,664 50,139 19.46 % Thereafter 1,897 30,547 1,787 15,565 20 3,684 46,112 17.90 % Total 16,468 $ 158,936 13,776 $ 98,718 286 30,244 $ 257,654 100.00 % Weighted Average Remaining Term (years)(2) 7.37 6.80 7.15 (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. Does not include our investment in CBRE Strategic Partners Asia.

(2) Weighted Average Remaining Term is the average remaining term weighted by Expiring Base Rent.

68 -------------------------------------------------------------------------------- Table of Contents Property Portfolio Size Our portfolio size at the end of each quarter since commencement of our initial public offering through September 30, 2012 is as follows (Net Rentable Square Feet and Approximate Total Acquisition Cost in thousands): Consolidated & Unconsolidated Consolidated Properties Unconsolidated Properties(1) Properties (1) Net Approximate Approximate Net Approximate Cumulative Rentable Total Total Rentable Total Property Square Acquisition Net Rentable Acquisition Square Acquisition Portfolio as of: Properties Feet Cost Properties Square Feet Cost Properties Feet Cost 9/30/2006 9 878 $ 86,644 - - $ - 9 878 $ 86,644 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(2) 77 14,434 1,747,299 45 13,851 997,506 122 28,285 2,744,805 3/31/2012(2) 78 15,784 1,824,403 46 13,997 1,007,753 124 29,781 2,832,156 6/30/2012(2) 78 15,784 1,842,359 46 13,997 1,007,753 124 29,781 2,850,112 9/30/2012(2)…………. 78 16,831 1,920,218 46 13,997 1,008,246 124 30,828 2,928,464 (1) Net Rentable Square Feet for unconsolidated properties is at 100%.

Approximate Total Acquisition Cost is at our pro rata share of effective ownership and does not include our investment in CBRE Strategic Partners Asia.

(2) Net Rentable Square Feet does not include the projected 300,000 square footage upon completion of 1400 Atwater Drive property.

Critical Accounting Policies Management believes our most critical accounting policies are accounting for lease revenues (including straight-line rent), regular evaluation of whether the value of a real estate asset has been impaired, real estate purchase price allocations, accounting for our derivatives and hedging activities and fair value of financial instruments and investments, if any. Each of these items involves estimates that require management to make judgments that are subjective in nature. Management relies on its experience, collects historical data and current market data, and analyzes these assumptions in order to arrive at what it believes to be reasonable estimates. Under different conditions or assumptions, materially different amounts could be reported related to the accounting policies described below. In addition, application of these accounting policies involves the exercise of judgments on the use of assumptions as to future uncertainties and, as a result, actual results could materially differ from these estimates.

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 $17,810,000 and $16,714,000 as security for such leases at September 30, 2012 and December 31, 2011.

69-------------------------------------------------------------------------------- Table of Contents 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 $656,000 and $821,000 as of September 30, 2012 and December 31, 2011, respectively.

Investments in Real Estate and Related Long-Lived Assets (Impairment Evaluation) We record investments in real estate at cost (including third-party acquisition expenses) and we capitalize improvements and replacements when they extend the useful life or improve the efficiency of the asset. We expense costs of repairs and maintenance as incurred. We compute depreciation using the straight-line method over the estimated useful lives of our real estate assets, which we expect to be approximately 39 years for buildings and improvements, three to five years for equipment and fixtures and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.

We are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in real estate. These assessments have a direct impact on our net income because, if we were to shorten the expected useful lives of our investments in real estate, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis throughout the expected useful lives of the related assets.

We have adopted, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FASB ASC 360-10"), which establishes a single accounting model for the impairment or disposal of long-lived assets including discontinued operations.

This accounting provision requires that the operations related to properties that have been sold or that we intend to sell be presented as discontinued operations in the statement of operations for all periods presented, and properties we intend to sell be designated as "held for sale" on our balance sheet.

When circumstances such as adverse market conditions, excessive property vacancies, or declining sales values indicate a possible impairment of the value of a property, we review the recoverability of the property's carrying value.

The review of recoverability is based on our estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property's use and eventual disposition. Our forecast of these cash flows considers factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. These factors contain subjectivity and thus are not able to be precisely estimated. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. We are required to make subjective assessments as to whether there are impairments in the values of our investments in real estate and the most critical assumption is the expected exit cap rate applied in determining the terminal value.

We assess whether there has been impairment in the value of our long-lived assets whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. The estimated fair value of the asset group identified for step two testing is based on either the income approach with market discount rate, terminal capitalization rate and rental rate assumptions being most critical, or on the sales comparison approach to similar properties.

Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.

Purchase Accounting for Acquisition of Investments in Real Estate We apply the acquisition method to all acquired real estate investments. The purchase consideration of the real estate is allocated to the acquired tangible assets, consisting primarily of land, site improvements, building and tenant improvements and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases, value of tenant relationships and acquired ground leases, based in each case on their fair values. Loan premiums, in the case of above-market rate loans, or loan discounts, in the case of below-market loans, will be recorded based on the fair value of any loans assumed in connection with acquiring the real estate.

70 -------------------------------------------------------------------------------- Table of Contents The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to land (or acquired ground lease if the land is subject to a ground lease), site improvements, building and tenant improvements based on management's determination of the relative fair values of these assets.

Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs.

In allocating the purchase consideration of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases; and (ii) management's estimate of fair market lease rates for the corresponding in-place leases measured over a period equal to the remaining non-cancelable term of the lease and, for below-market leases, over a period equal to the initial term plus any below-market fixed-rate renewal periods. The capitalized below-market lease values, also referred to as acquired lease obligations, are amortized as an increase to rental income over the initial terms of the respective leases and any below-market fixed-rate renewal periods. The capitalized above-market lease values are amortized as a decrease to rental income over the initial terms of the prospective leases.

The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, is measured by the estimated cost of operations during a theoretical lease-up period to replace in-place leases, including lost revenues and any unreimbursed operating expenses, plus an estimate of deferred leasing commissions for in-place leases. This aggregate value is allocated between in-place lease value and tenant relationships based on management's evaluation of the specific characteristics of each tenant's lease; however, the value of tenant relationships has not been separated from in-place lease value for the real estate acquired as such value and its consequence to amortization expense is immaterial for these particular acquisitions. Should future acquisitions of properties result in allocating material amounts to the value of tenant relationships, an amount would be separately allocated and amortized over the estimated life of the relationship. The value of in-place leases is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written-off.

Accounting for Derivative Financial Investments and Hedging Activities All of our derivative instruments are carried at fair value on the balance sheet. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking each hedge transaction.

We periodically review the effectiveness of each hedging transaction, which involves estimating future cash flows. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or liability, with a corresponding amount recorded in other comprehensive income within shareholders' equity. Calculation of a fair value of derivative instruments also requires management to use estimates. Amounts will be reclassified from other comprehensive income to the income statement in the period or periods the hedged forecasted transaction affects earnings.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. The changes in fair value hedges are accounted for by recording the fair value of the derivative instruments on the balance sheet as either assets or liabilities, with the corresponding amount recorded in current period earnings. We have certain interest rate swap derivatives that are designated as qualifying cash flow hedges and follow the accounting treatment discussed above. We also have certain interest rate swap derivatives that do not qualify for hedge accounting, and accordingly, changes in fair values are recognized in current earnings.

We disclose the fair values of derivative instruments and their gains and losses in a tabular format. We also provide more information about our liquidity by disclosing derivative features that are credit risk-related. Finally, we cross-reference within footnotes to enable financial statement users to locate important information about derivative instruments. See Note 15 to the Consolidated Financial Statements "Derivative Instruments" and Note 17 to the Consolidated Financial Statements "Fair Value of Financial Instruments and Investments" for a further discussion of our derivative financial instruments.

71 -------------------------------------------------------------------------------- Table of Contents Fair Value of Financial Instruments and Investments We elected to apply the fair value option for one of our eligible mortgage notes payable that was newly issued debt during the year ended December 31, 2008. The measurement of the elected mortgage note payable at its fair value and its impact on the statement of operations is described in Note 16 to the Consolidated Financial Statements "Fair Value Option-Note Payable" and Note 17 to the Consolidated Financial Statements "Fair Value of Financial Instruments and Investments." We generally determine or calculate the fair value of financial instruments using the 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. The financial assets and liabilities recorded at fair value in our consolidated financial statements are the seven interest rate swaps, our investment in CBRE Strategic Partners Asia (a real estate entity which qualifies as an investment company under the Investment Company Act with respect to its accounting treatment) and one mortgage note payable that is economically hedged by one of the interest rate swaps.

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, accounts receivable and accounts payable approximate fair value due to their short-term maturities.

We adopted the fair value measurement criteria described herein for our non-financial assets and non-financial liabilities on January 1, 2009. The adoption of the fair value measurement criteria to our non-financial assets and liabilities did not have a material impact on our consolidated financial statements. Assets and liabilities typically recorded at fair value on a non-recurring basis include: ¡ Non-financial assets and liabilities initially measured at fair value in an acquisition or business combination; ¡ Long-lived assets measured at fair value due to an impairment assessment and ¡ Asset retirement obligations initially measured under the Codification Topic "Asset Retirement and Environmental Obligations" ("FASB ASC 410").

Rental Operations Our reportable segments consist of three types of commercial real estate properties, namely, Domestic Industrial Properties, Domestic Office Properties and International Office/Retail Properties. 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 which are not considered separate operating segments. Our reportable segments are on the same basis of accounting as described in Note 2-"Basis of Presentation and Summary of Significant Accounting Policies." 72-------------------------------------------------------------------------------- Table of Contents We evaluate the performance of our segments based on net operating income, defined as: rental income and tenant reimbursements less property and related expenses (operating and maintenance, property management fees, property level general and administrative expenses and real estate taxes) and excludes other non-property income and expenses, interest expense, depreciation and amortization, and our general and administrative expenses. The following table compares the net operating income for the three and nine months ended September 30, 2012 and 2011 (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Domestic Industrial Properties Revenues: Rental $ 11,880 $ 8,344 $ 31,646 $ 22,455 Tenant Reimbursements 2,077 1,748 6,994 5,091 Total Revenues 13,957 10,092 38,640 27,546 Property and Related Expenses: Operating and Maintenance 529 432 1,781 1,366 General and Administrative 234 179 505 503 Property Management Fee to Related Party 79 68 238 205 Property Taxes 2,086 1,612 6,127 4,824 Total Expenses 2,928 2,291 8,651 6,898 Net Operating Income 11,029 7,801 29,989 20,648 Domestic Office Properties Revenues: Rental 24,230 22,415 72,862 59,861 Tenant Reimbursements 6,996 5,481 18,314 14,620 Total Revenues 31,226 27,896 91,176 74,481 Property and Related Expenses: Operating and Maintenance 3,750 3,704 12,243 10,060 General and Administrative 78 16 277 194 Property Management Fee to Related Party 234 213 695 515 Property Taxes 4,666 3,012 11,411 8,535 Total Expenses 8,728 6,945 24,626 19,304 Net Operating Income 22,498 20,951 66,550 55,177 International Office/Retail Properties Revenues: Rental 1,870 1,717 5,358 4,851 Tenant Reimbursements 94 84 258 218 Total Revenues 1,964 1,801 5,616 5,069 Property and Related Expenses: Operating and Maintenance 94 175 290 533 General and Administrative 67 107 219 181 Property Management Fee to Related Party 83 230 235 376 Total Expenses 244 512 744 1,090 Net Operating Income 1,720 1,289 4,872 3,979 73 -------------------------------------------------------------------------------- Table of Contents Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Reconciliation to Consolidated Net Loss Total Segment Net Operating Income 35,247 30,041 101,411 79,804 Interest Expense 8,566 9,329 26,033 24,724 General and Administrative 7,162 1,172 10,973 3,386Investment Management Fee to Related Party 5,159 5,607 17,270 15,100 Acquisition Expenses 1,099 1,044 2,508 12,537 Depreciation and Amortization 18,787 16,656 54,749 43,901 Transition Costs 6,216 0 8,152 0 (11,742 ) (3,767 ) (18,274 ) (19,844 ) Other Income and Expenses Interest and Other Income 255 460 1,800 1,271 Net Settlement Payments on Interest Rate Swaps (171 ) (178 ) (495 ) (532 ) Gain on Interest Rate Swaps 134 32 380 177 (Loss) Gain on Note Payable at Fair Value (26 ) 75 (85 ) 41 Loss on Early Extinguishment of Debt (1,191 ) 0 (1,191 ) 0 Loss on Swap Termination (495 ) 0 (495 ) 0 Loss from Continuing Operations Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities (13,236 ) (3,378 ) (18,360 ) (18,887 ) Provision for Income Taxes (75 ) (85 ) (218 ) (385 ) Equity in Income of Unconsolidated Entities 927 609 2,556 4,160 Net Loss from Continuing Operations (12,384 ) (2,854 ) (16,022 ) (15,112 ) Discontinued Operations (Loss) Income from Discontinued Operations 0 (18 ) 0 377 Realized (Loss) Gain from Sale (0 ) 426 (415 ) 301 Income (Loss) From Discontinued Operations (0 ) 408 (415 ) 678 Net Loss (12,384 ) (2,446 ) (16,437 ) (14,434 ) Net Loss Attributable to Non-Controlling Operating Partnership Units 5 4 7 20 Net Loss Attributable to Chambers Street Properties Shareholders $ (12,379 ) $ (2,442 ) $ (16,430 ) $ (14,414 ) (1) Total Segment Net Operating Income is a Non-GAAP financial measure which may be useful as a supplemental measure for evaluating the relationship of each reporting segment to the combined total. This measure should not be viewed as an alternative measure of operating performance to our U.S. GAAP presentations provided. Segment "Net Operating Income" is defined as operating revenues (rental income, tenant reimbursements and other property income) less property and related expenses (property expenses, including real estate taxes) before depreciation and amortization expense. The Net Operating Income segment information presented consists of the same Net Operating Income segment information disclosed in Note 10 to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Consolidated Results of Operations Comparison of Three Months Ended September 30, 2012 to Three Months Ended September 30, 2011 Revenues Rental Rental revenue increased $5,504,000, or 17%, to $37,980,000 during the three months ended September 30, 2012 compared to $32,476,000 for the three months ended September 30, 2011. The increase was due to the acquisitions of 70 Hudson Street, 90 Hudson Street, Millers Ferry Road, Sky Harbor Operations Center, Aurora Commerce Center, and Sabal Pavilion (the "2011 Acquisitions") during the year ended December 31, 2011 and the acquisitions of 2400 Dralle Road and Midwest Commerce Center I (the "2012 Acquisitions", together with the "2011 Acquisitions", the "2011 and 2012 Acquisitions") during the year ended December 31, 2012.

74 -------------------------------------------------------------------------------- Table of Contents Tenant Reimbursements Tenant reimbursements increased $1,854,000, or 25%, to $9,167,000 for the three months ended September 30, 2012 compared to $7,313,000 for the three months ended September 30, 2011, due to tenant reimbursement revenue from the 2011 and 2012 Acquisitions.

Expenses Operating and Maintenance Property operating and maintenance expenses increased $62,000, or 1%, to $4,373,000 for the three months ended September 30, 2012 compared to $4,311,000 for the three months ended September 30, 2011. The increase was primarily due to operating and maintenance expenses attributable to the 2011 and 2012 Acquisitions.

Property Taxes Property tax expense increased $2,128,000, or 46%, to $6,752,000 for the three months ended September 30, 2012 compared to $4,624,000 for the three months ended September 30, 2011. The increase in property taxes was due to the 2011 and 2012 Acquisitions.

Interest Interest expense decreased $763,000, or 8%, to $8,566,000 for the three months ended September 30, 2012 compared to $9,329,000 for the three months ended September 30, 2011 as a result of the payoff of notes payable on REMEC, North Rhett III and 300 Constitution on September 6, 2011, November 22, 2011 and December 21, 2011, respectively, and the payoff of the $25,000,000 loan payable in September 2012.

General and Administrative General and administrative expense increased $6,067,000, or 412%, to $7,541,000 for the three months ended September 30, 2012 compared to $1,474,000 for the three months ended September 30, 2011. Of the total increase, $5,068,000 was due to salary and other expenses incurred as a result of internalization of management on July 1, 2012; $699,000 was due to the increase in professional fees; $123,000 in general audit fees and Sarbanes-Oxley assistance; $93,000 was due to the increase in directors' and officers' insurance and expenses; $41,000 was due to the increase in shareholders servicing fees and report production costs; $28,000 was due to the increase in legal expenses and $15,000 was related to restricted common shares granted to certain of our officers in 2012.

Property Management Fee and Investment Management Fee to Related Party Property management fee and investment management fee to related party decreased $563,000, or 9%, to $5,555,000 for the three months ended September 30, 2012 compared to $6,118,000 for the three months ended September 30, 2011. The decrease was due to certain adjustments made in accordance with the Transitional Services Agreement.

Acquisition Expenses Acquisition expenses increased $55,000, or 5%, to $1,099,000 for the three months ended September 30, 2012 compared to $1,044,000 for the three months ended September 30, 2011. The increase was due to an increased value of properties acquired during three months ended September 30, 2012.

Depreciation and Amortization Depreciation and amortization expense increased $2,131,000, or 13%, to $18,787,000 for the three months ended September 30, 2012 as compared to $16,656,000 for the three months ended September 30, 2011. The net increase was related to the 2011 and 2012 Acquisitions.

Transition Costs Transition costs increased $6,216,000, or 100%, to $6,216,000 for the three months ended September 30, 2012 as compared to $0 for the three months ended September 30, 2011. The increase was due to expenses incurred during our transition to self-management.

75-------------------------------------------------------------------------------- Table of Contents Interest and Other Income Interest and other income decreased $205,000, or 45%, to $255,000 for the three months ended September 30, 2012 compared to $460,000 for the three months ended September 30, 2011. The decrease was primarily due to lower interest rates in cash and cash equivalents during the three months ended September 30, 2012.

Net Settlement Payments on Interest Rate Swaps During the three months ended September 30, 2012, we made net payments on interest rate swaps of $171,000 compared to $178,000 during the three months ended September 30, 2011. The decrease is a result of lower variable interest rates for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011.

Gain on Interest Rate Swaps During the three months ended September 30, 2012, our derivative instruments generated income of $134,000 as compared to $32,000 for the three months ended September 30, 2011 or a year-to-year increase of $102,000.

(Loss) Gain on Note Payable on Fair Value Loss on notes payables was $26,000 for the three months ended September 30, 2012 compared to a gain of $75,000 for the three months ended September 30, 2011. The year-to-year change is attributable to a stabilization of UK interest rate spreads and base rates used to value the loan.

Loss on Early Extinguishment of Debt Loss on early extinguishment of debt increased $1,191,000, or 100%, to $1,191,000 for the three months ended September 30, 2012 compared to $0 for the three months ended September 30, 2011. The increase in loss is due to the payoff of a $25,000,000 loan payable during the three months ended September 30, 2012.

Loss on Swap Termination Loss on swap termination increased $495,000, or 100%, to $495,000 for the three months ended September 30, 2012 compared to $0 for the three months ended September 30, 2011. The increase in loss is due to the termination of an interest rate swap upon the payoff of a $25,000,000 loan payable during the three months ended September 30, 2012.

Provision for Income Taxes Provision for income taxes decreased $10,000, or 12%, to $75,000 for the three months ended September 30, 2012 compared to $85,000 for the three months ended September 30, 2011 resulting primarily from decreased state liabilities.

Equity in Income of Unconsolidated Entities Equity in income of unconsolidated entities increased $318,000, or 52%, to $927,000 for the three months ended September 30, 2012 compared $609,000 for the three months ended September 30, 2011. The increase was primarily due to an increase in rental revenue from the acquisitions of Graben Distribution Center I and II by our European JV in December 2011.

Discontinued Operations Loss from discontinued operations for the three months ended September 30, 2012 was $0. Income from discontinued operations for the three months ended September 30, 2011 was $408,000. Revenues and expenses from discontinued operations represent the activities of the held for sale portfolio of light industrial and warehouse distribution buildings acquired during the year ended December 31, 2010 and sold during the year ended December 31, 2011.

Net Loss Attributable to Non-Controlling Operating Partnership Units During the three months ended September 30, 2012, net loss attributable to non-controlling interest was $5,000 compared to $4,000 for the three months ended September 30, 2011, or a year-to-year increase of $1,000.

76-------------------------------------------------------------------------------- Table of Contents Comparison of Nine Months Ended September 30, 2012 to Nine Months Ended September 30, 2011 Revenues Rental Rental revenue increased $22,699,000, or 26%, to $109,866,000 during the nine months ended September 30, 2012 compared to $87,167,000 for the nine months ended September 30, 2011. The increase was due to the 2011 and 2012 Acquisitions.

Tenant Reimbursements Tenant reimbursements increased $5,637,000, or 28%, to $25,566,000 for the nine months ended September 30, 2012 compared to $19,929,000 for the nine months ended September 30, 2011, due to tenant reimbursement revenue from the 2011 and 2012 Acquisitions.

Expenses Operating and Maintenance Property operating and maintenance expenses increased $2,355,000, or 20%, to $14,314,000 for the nine months ended September 30, 2012 compared to $11,959,000 for the nine months ended September 30, 2011. The increase was primarily due to operating and maintenance expenses attributable to the 2011 and 2012 Acquisitions.

Property Taxes Property tax expense increased $4,179,000, or 31%, to $17,538,000 for the nine months ended September 30, 2012 compared to $13,359,000 for the nine months ended September 30, 2011. The increase in property taxes was due to the 2011 and 2012 Acquisitions and increased property taxes in the Carolina Portfolio.

Interest Interest expense increased $1,309,000, or 5%, to $26,033,000 for the nine months ended September 30, 2012 compared to $24,724,000 for the nine months ended September 30, 2011 as a result of the assumption of debt related to the 2011 acquisitions of 70 Hudson Street, 90 Hudson Street and Sabal Pavilion, and the placement of debt on Kings Mountain III.

General and Administrative General and administrative expense increased $7,710,000, or 181%, to $11,974,000 for the nine months ended September 30, 2012 compared to $4,264,000 for the nine months ended September 30, 2011. Of the total increase, $5,068,000 was due to salary and other expenses incurred as a result of the internalization of management on July 1, 2012; $1,208,000 was due to the increase in professional fees; $715,000 was due to the increase in shareholders servicing fees and report production costs; $477,000 was due to the increase in legal expenses; $186,000 was due to the increase in directors' and officers' insurance and expenses; $68,000 was due to the increase in general audit fees and Sarbanes-Oxley assistance; and $1,000 was due to increase in organizational costs offset by the reduction of $13,000 related to restricted common shares granted to our independent trustees in 2011 and to certain of our officers in 2012.

Property Management Fee and Investment Management Fee to Related Party Property management fee and investment management fee to related party increased $2,242,000, or 14%, to $18,438,000 for the nine months ended September 30, 2012 compared to $16,196,000 for the nine months ended September 30, 2011. The increase resulted from the year to year growth in assets under management.

Acquisition Expenses Acquisition expenses decreased $10,029,000, or 80%, to $2,508,000 for the nine months ended September 30, 2012 compared to $12,537,000 for the nine months ended September 30, 2011. The decrease was due to a reduction of the value of properties acquired during the nine months ended September 30, 2012 as compared to those acquired during the same period in 2011.

Depreciation and Amortization Depreciation and amortization expense increased $10,848,000, or 25%, to $54,749,000 for the nine months ended September 30, 2012 as compared to $43,901,000 for the nine months ended September 30, 2011. The net increase was related to 2011 and 2012 Acquisitions.

77-------------------------------------------------------------------------------- Table of Contents Transition Costs Transition costs increased $8,152,000, or 100%, to $8,152,000 for the nine months ended September 30, 2012 as compared to $0 for the nine months ended September 30, 2011. The increase was due to expenses incurred during our 2012 transition to self-management.

Interest and Other Income Interest and other income increased $529,000, or 42%, to $1,800,000 for the nine months ended September 30, 2012 compared to $1,271,000 for the nine months ended September 30, 2011. The increase was primarily due to the recognition of approximately $600,000 of revenue for the lease termination at Fairforest Bldg.

3 in 2012.

Net Settlement Payments on Interest Rate Swaps During the nine months ended September 30, 2012, we made net payments on interest rate swaps of $495,000 compared to $532,000 during the nine months ended September 30, 2011. The decrease is a result of lower variable interest rates for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011.

Gain on Interest Rate Swaps During the nine months ended September 30, 2012, our derivative instruments generated income of $380,000 compared to $177,000 for the nine months ended September 30, 2011 or a year-to-year increase of $203,000.

(Loss) Gain on Note Payable at Fair Value Loss on notes payables was $85,000 for the nine months ended September 30, 2012 compared to a gain of $41,000 for the nine months ended September 30, 2011. The year-to-year change is attributable to a stabilization of UK interest rate spreads and base rates used to value the loan.

Loss on Early Extinguishment of Debt Loss on early extinguishment of debt increased $1,191,000, or 100%, to $1,191,000 for the nine months ended September 30, 2012 compared to $0 for the nine months ended September 30, 2011. The increase in loss is due to payoff of a $25,000,000 loan payable during the three months ended September 30, 2012.

Loss on Swap Termination Loss on swap termination increased $495,000, or 100%, to $495,000 for the nine months ended September 30, 2012 compared to $0 for the nine months ended September 30, 2011. The increase in loss is due to payoff of a $25,000,000 loan payable during the three months ended September 30, 2012.

Provision for Income Taxes Provision for income taxes decreased $167,000, or 43%, to $218,000 for the nine months ended September 30, 2012 compared to $385,000 for the nine months ended September 30, 2011 resulting primarily from decreased state liabilities.

Equity in Income of Unconsolidated Entities Equity in income of unconsolidated entities decreased $1,604,000, or 39%, to $2,556,000 for the nine months ended September 30, 2012 compared $4,160,000 for the nine months ended September 30, 2011. The decrease was primarily due to the increase in interest expense related to the 2011 placement of debt on 18 Duke joint venture properties and valuation loss related to CBRE Strategic Partners Asia joint venture.

Discontinued Operations Loss from discontinued operations for the nine months ended September 30, 2012 was $415,000. The loss was attributable to a realized loss from sale of Cherokee Corporate Park which closed in July 2012. Income from discontinued operations for the nine months ended September 30, 2011 was $678,000. Revenues and expenses from discontinued operations represent the activities of the held for sale portfolio of light industrial and warehouse distribution buildings acquired during the year ended December 31, 2010 and sold during the year ended December 31, 2011.

78 -------------------------------------------------------------------------------- Table of Contents Net Loss Attributable to Non-Controlling Operating Partnership Units During the nine months ended September 30, 2012, net loss attributable to non-controlling interest was $7,000 compared to $20,000 for the nine months ended September 30, 2011, or a year-to-year decrease of $13,000.

Financial Condition, Liquidity and Capital Resources Overview Liquidity is a measurement of the ability to meet cash requirements, including 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 the remaining net proceeds of our follow-on public offering, our current dividend reinvestment plan offering, operating cash flows and borrowings, including under our Amended Wells Unsecured Credit Facility. 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. Cash flow from operations is primarily 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. Depending on market conditions, we expect that once the net proceeds of our follow-on offering are fully invested, 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. Our declaration of trust limits our borrowing to 300% of our net assets unless any excess borrowing is approved by a majority of our independent trustees and is disclosed to our shareholders in our next quarterly report. Our declaration of trust defines "net assets" as our total assets (other than intangibles) at cost, before deducting depreciation, reserves for bad debts or other non-cash reserves, less total liabilities, calculated at least quarterly by us on a basis consistently applied; provided, however, that during such periods in which we are obtaining regular independent valuations of the current value of its net assets for purposes of enabling fiduciaries of employee benefit plan shareholders to comply with applicable Department of Labor reporting requirements, "net assets" means the greater of (i) the amount determined pursuant to the foregoing and (ii) the assets' aggregate valuation established by the most recent such valuation report without reduction for depreciation, bad debts or other non-cash reserves. 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. Any such event would have a material adverse effect on the value of our common shares. We believe that, even without any proceeds raised from our public offering, we have sufficient cash flow from operations to continue as a going concern for the next twelve months and into the foreseeable future.

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to the former investment advisor. During the acquisition and operational stages, certain services related to the acquisition and management of our investments and our operations were provided to us by the former investment advisor pursuant to an advisory agreement entered into in July 2004 which was amended and restated in October 2006, in December 2010 and again in April 2012. The advisory agreement terminated according to its terms on June 30, 2012. Pursuant to the advisory agreement, we made various payments to the former investment advisor, including acquisition fees, investment management fees and payments for reimbursements of certain costs incurred by the former investment advisor in providing related services to us. See Note 11 to the Consolidated Financial Statements "Investment Management and Other Fees to Related Parties," for a discussion of fees and expenses paid to the former investment advisor for the three and nine months ended September 30, 2012 and 2011, respectively, and for a discussion of our transition to self-management.

In order to avoid corporate-level tax on our net taxable income, we are required to pay distributions to our shareholders equal to our net taxable income. In addition, to qualify as a REIT, we generally are required to pay annual distributions to our shareholders equal to at least 90% of our net ordinary taxable income. Therefore, once the net proceeds we received from our follow on public offering are substantially fully invested, we will need to raise additional capital in order to grow our business and acquire additional real estate investments. We anticipate borrowing funds to obtain additional capital, but there can be no assurance that we will be able to do so on terms acceptable to us, if at all.

79 -------------------------------------------------------------------------------- Table of Contents As of September 30, 2012, we had $191,409,000 cash and cash equivalents available as well as $700,000,000 available under the Unsecured Credit Facility.

Historical Cash Flows Our net cash provided by operating activities increased by $42,711,000 to $85,971,000 for the nine months ended September 30, 2012, compared to $43,260,000 for the nine months ended September 30, 2011. The increase was primarily due to the positive operating results from 2011 consolidated property acquisitions, the Duke joint venture, the European JV and the receipt of deferred rent from the tenant at 1400 Atwater.

Net cash used in investing activities decreased by $75,651,000 to $147,076,000 for the nine months ended September 30, 2012, compared to $222,727,000 for the nine months ended September 30, 2011. The decrease was primarily due to a reduction in aggregate acquisitions, a decrease in investments in unconsolidated entities and increase in distribution from unconsolidated entities offset by an increase in improvements to investments in real estate and decrease in proceeds from the sale of discontinued operations during the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011.

Net cash provided by financing activities decreased by $295,912,000 to $14,389,000 for the nine months ended September 30, 2012, compared to $310,301,000 for the nine months ended September 30, 2011. The decrease was primarily due to a decrease in proceeds from the public offering of $261,630,000, a decrease in proceeds from notes payable of $81,700,000, an increase in distributions to shareholders of $14,812,000, an increase in shareholder redemptions of $10,411,000, a decrease in borrowing on loan payable of $50,000,000 and an increase in deferred financing costs of $4,206,000 offset by a decrease in payment of offering costs of $26,976,000, a decrease in principal payment on loan payable of $60,000,000 and a decrease in principal payments on notes payable of $39,266,000.

Non-GAAP Supplemental Financial Measure: Funds from Operations 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 by themselves. Consequently, the National Association of Real Estate Investment Trusts, or NAREIT, created Funds from Operations, or FFO, as a supplemental measure of REIT operating performance.

FFO is a non-GAAP measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net income. FFO, as we define it, is presented as a supplemental financial measure. Management believes that FFO is a useful supplemental measure of REIT performance. FFO does not present, nor do we intend for it to present, a complete picture of our financial condition and/or operating performance. We believe that net income, as computed under GAAP, appropriately remains the primary measure of our performance and that FFO, when considered in conjunction with net income, improves the investing public's understanding of the operating results of REITs and makes comparisons of REIT operating results more meaningful.

We compute FFO in accordance with standards established by NAREIT. Modifications to the NAREIT calculation of FFO are common among REITs, as companies seek to provide financial measures that meaningfully reflect their business and provide greater transparency to the investing public as to how our management team considers our 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 realities. 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. Furthermore, publicly registered, non-traded 80 -------------------------------------------------------------------------------- Table of Contents REITs typically have a significant amount of acquisition activity during their initial years of investment and operation and therefore we believe require additional adjustments to FFO in evaluating performance. As a result, in addition to presenting FFO in accordance with the NAREIT definition, we also disclose FFO, as adjusted, which excludes the effects of acquisition costs and unrealized gain/loss in investments in unconsolidated entities carried at fair value for GAAP to comply with specialized accounting of the investee, amongst other items discussed in the next paragraph below. FFO, as adjusted, 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 adjusting FFO to exclude these acquisition costs, transition costs unrealized gains/losses and non-cash impairment changes more appropriately presents our results of operations on a comparative basis. The items that we exclude from net income are subject to significant fluctuations from period to period that cause both positive and negative effects on our results of operations, often in inconsistent and unpredictable directions. For example, our acquisition costs are primarily the result of the volume of our acquisitions completed during each period, and therefore we believe such acquisition costs are not reflective of our operating results during each period. Similarly, unrealized gains/losses or non-cash impairment charges 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 deterioration in market conditions and do not necessarily reflect the operating performance of these properties during the corresponding period. Lastly, during the three month period ended June 30, 2012, the Company began the process of transitioning from being an externally managed company to a self-managed company and we believe the costs incurred to accomplish this transition involve many non-recurring costs which are being excluded to arrive at FFO, as adjusted.

We believe that FFO, as adjusted, is useful to investors as a supplemental measure of operating performance. We believe that adjusting FFO to exclude acquisition costs and transition to self-management costs provides investors a view of the performance of our portfolio over time, including after we cease to acquire properties on a frequent and regular basis and complete our transition to self-management, and allows for a comparison of the performance of our portfolio with other REITs that are not currently engaging in acquisitions or transitioning to self-management. In addition, as many other non-traded REITs adjust FFO to exclude acquisition costs and impairment charges, we believe that our calculation and reporting of FFO, as adjusted, will assist investors and analysts in comparing our performance with that of other non-traded REITs. We also believe that FFO, as adjusted, may provide investors with a useful indication of our future performance, particularly after our acquisition stage and transition to self management, and of the sustainability of our current distribution policy. However, because FFO, as adjusted, excludes acquisition costs, which are an important component 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. In addition, the impairment charges that we exclude from FFO, as adjusted, may be realized as a loss in the future upon the ultimate disposition of the related properties or other assets through the form of lower cash proceeds. FFO and FFO as adjusted 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 and FFO, as adjusted, 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 and FFO, as adjusted (or an equivalent measure), in the same manner and therefore comparisons with other REITs may not be meaningful.

81-------------------------------------------------------------------------------- Table of Contents The following table presents our FFO and FFO, as adjusted for the three and nine months ended September 30, 2012 and 2011 (in thousands, except share data): Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Reconciliation of Net Loss to Funds from Operations Net Loss Attributable to Chambers Street Properties Shareholders $ (12,379 ) $ (2,442 ) $ (16,430 ) $ (14,414 ) Adjustments: Non-Controlling Interest (5 ) (4 ) (7 ) (20 ) Real Estate Depreciation and Amortization 18,787 16,656 54,749 43,901 Realized (Gain) Loss from sale of Discontinued Operations (0 ) (426 ) 415 (301 ) Net Effect of FFO Adjustment from Unconsolidated Entities(1) 13,369 12,830 40,522 33,750 FFO $ 19,772 $ 26,614 $ 79,249 $ 62,916 Other Adjustments: Acquisition Expenses 1,099 1,044 3,027 12,537 Loss on Early Extinguishment of Debt 1,191 0 1,191 0 Loss on Swap Termination 495 0 495 0 Transition Costs 6,216 0 8,152 0 Unrealized Loss / (Gain) from Unconsolidated Entity (55 ) 369 743 596 FFO, as adjusted $ 28,718 $ 28,027 $ 92,857 $ 76,049 Net loss per share (basic and diluted) $ (0.05 ) $ (0.01 ) $ (0.07 ) $ (0.08 ) FFO per share (basic and diluted) $ 0.08 $ 0.13 $ 0.32 $ 0.34 FFO as adjusted, per share (basic and diluted) $ 0.12 $ 0.14 $ 0.37 $ 0.42 (1) Represents our share of the FFO adjustments allowable under the NAREIT definition (primarily depreciation) for each of our unconsolidated entities multiplied by the percentage of income or loss recognized by us for each of these unconsolidated entities during each of the quarters.

Notes Payable In connection with our acquisition of the Carolina Portfolio on August 30, 2007, we assumed 13 loans with principal balances totaling $66,110,000 ($62,944,000 at estimated fair value including the discount of $3,166,000) from various lenders that are secured by first deeds of trust on the properties and the assignment of related rents and leases. The loans bear interest at rates ranging from 4.98% to 6.33% per annum and mature between March 1, 2013 and February 1, 2025. The loans require monthly payments of interest and principal, fully amortized over the lives of the loans. One of the 13 loans, North Rhett III, was paid off in full on November 22, 2011. Principal payments totaling $3,367,000 were made during the nine months ended September 30, 2012. We indemnify the lenders against environmental costs and expenses and guarantee the loans under certain conditions.

On December 27, 2007, we entered into a $9,000,000 financing agreement secured by the Bolingbrook Point III property with the Northwestern Mutual Life Insurance Company. The loan is for a term of seven years and bears a fixed interest rate of 5.26% per annum with principal due at maturity. On January 14, 2011, we paid down $1,100,000 of principal in connection with the lease termination settlement with one of the tenants.

On May 30, 2008, we entered into a £7,500,000 financing arrangement with the Royal Bank of Scotland plc secured by the Thames Valley Five property. On July 27, 2010, we paid down the loan by £1,860,000 leaving a loan balance of £5,640,000 ($9,107,000 at September 30, 2012). The loan is for a term of five years (with a two year extension option) and bears interest at a variable rate adjusted quarterly, based on nine month GBP-based LIBOR plus 1.01%. On August 14, 2008, we entered into an interest rate swap agreement that fixed the GBP-based LIBOR at 5.41% for the loan's remaining term and therefore effectively fixed the mortgage note's all-in interest rate at 6.42% per annum for its remaining term. In conjunction with the loan paydown, we incurred a cost of £227,000 ($361,000 at August 3, 2010) to reduce the notional amount of the interest rate swap from £7,500,000 to £5,640,000. Interest only payments are due quarterly for the term of the loan with principal due at maturity.

On October 10, 2008, we entered into a £5,771,000 ($9,318,000 at September 30, 2012) financing agreement with the Royal Bank of Scotland plc secured by Albion Mills Retail Park property. The loan is for a term of five years and bears interest at a variable rate adjusted quarterly, based on three month GBP-based LIBOR plus 1.31%. On November 25, 2008, we entered into an interest rate swap agreement that fixed the GBP-based LIBOR at 3.94% and therefore effectively fixed the mortgage note's all-in interest rate at 5.25% per annum for its remaining term. Interest only payments are due quarterly for the term of the loan with principal due at maturity.

82-------------------------------------------------------------------------------- Table of Contents On November 18, 2008, in connection with the acquisition of Avion Midrise III & IV, we assumed a $20,851,000 ($22,186,000 face value less discount of $1,335,000) fixed-rate mortgage loan from Capmark Finance, Inc. that bears interest at a rate of 5.52% per annum and matures on April 1, 2014. Principal and interest payments are due monthly for the remaining loan term and principal payments totaling $338,000 were made during the nine months ended September 30, 2012.

On August 5, 2009, in connection with the acquisition of 12650 Ingenuity Drive, we assumed a $12,572,000 ($13,539,000 face value less a discount of $967,000) fixed-rate mortgage loan from PNC Bank, National Association which bears interest at a rate of 5.62% and matures on October 1, 2014. Principal and interest payments are due monthly for the remaining loan term and principal payments totaling $300,000 were made during the nine months ended September 30, 2012.

On August 10, 2009, we entered into a £13,975,000 ($22,566,000 at September 30, 2012) financing agreement with the Abbey National Treasury Services plc secured by the Maskew Retail Park property. On September 24, 2009, we drew the full amount of the loan and concurrently entered into an interest rate swap agreement that fixed the GBP-based LIBOR at 3.42% and therefore effectively fixed the mortgage note's all-in interest rate at 5.68% per annum for its remaining term.

Interest only payments are due quarterly for the term of the loan with principal due at maturity.

On June 24, 2010, we assumed two loans in connection with the acquisition of One Wayside Road: (i) a $14,888,000 ($14,633,000 at face value plus a premium of $255,000) fixed-rate mortgage loan from State Farm Life Insurance Company that bears interest at a rate of 5.66% and matures on August 1, 2015; and (ii) a $12,479,000 ($12,132,000 at face value plus a premium of $347,000) fixed-rate mortgage loan from State Farm Life Insurance Company that bears interest at a rate of 5.92% and matures on August 1, 2015. Principal and interest payments are due monthly for the remaining loan terms and principal payments totaling $484,000 were made during the nine months ended September 30, 2012 on the two loans.

On September 28, 2010, we assumed two loans in connection with the acquisition of 100 Tice Blvd.: (i) a $23,136,000 ($21,218,000 at face value plus a premium of $1,918,000) fixed-rate loan from Principal Life Insurance Company that bears interest at a rate of 5.97%, matures on September 15, 2022 and the lender has the right to call the loan due and payable on September 15, 2017; (ii) a $23,136,000 ($21,217,000 at a face value plus a premium of $1,919,000) fixed-rate mortgage from Hartford Life and Accidental Insurance Company that bears interest at a rate of 5.97%, matures on September 15, 2022 and the lender has the right to call the loan due and payable on September 15, 2017. Principal and interest payments are due monthly for the remaining loan terms and principal payments totaling $771,000 were made during the nine months ended September 30, 2012 on the two loans.

On December 7, 2010, we entered into a $85,000,000 secured term loan through a subsidiary with Wells Fargo Bank, National Association, or the Pacific Corporate Park Loan. The Pacific Corporate Park Loan has a seven-year term, monthly amortization of $250,000 and is secured by Pacific Corporate Park. Upon closing of the Pacific Corporate Park Loan on December 7, 2010, we entered into an interest rate swap agreement with Wells Fargo Bank, National Association to effectively fix the interest rate on the entire outstanding Pacific Corporate Park Loan amount at 4.89% for its seven-year term. Principal and interest payments are due monthly and principal payments totaling $2,000,000 were made during the nine months ended September 30, 2012.

On December 29, 2010, we entered into a $12,600,000 secured term loan through Woodmen of The World Life Insurance Society secured by the Ten Parkway North property. The Ten Parkway North loan bears interest at a fixed rate of 4.75% per annum and matures on January 1, 2021. Principal and interest payments are due monthly and principal payments totaling $210,000 were made during the nine months ended September 30, 2012.

Beginning January 2011, principal and interest payments are due monthly on the $9,725,000 term loan secured by the Deerfield Commons I that was originally entered into on November 29, 2005. The loan bears interest at a fixed rate of 5.23% per annum and interest only payments were due monthly for the first 60 months. Principal payments totaling $108,000 were made during the nine months ended September 30, 2012.

On February 8, 2011, we entered into five cross-collateralized secured term loans totaling $37,000,000 with ING USA Annuity and Life Insurance Company secured by the following properties: 4701 Gold Spike Road, $10,650,000, Summit Distribution Center, $6,700,000, Tolleson Commerce Park II, $4,600,000, 3660 Deerpark Blvd., $7,650,000 and 1985 International Way, $7,400,000. The loans bear interest at a fixed rate of 4.45% and mature on March 1, 2018. Principal and interest payments are due monthly and principal payments totaling $464,000 were made during the nine months ended September 30, 2012.

On February 28, 2011, we entered into a $33,000,000 secured term loan with TD Bank secured by the 100 Kimball Drive property. Upon closing the 100 Kimball Drive loan, we simultaneously entered into an interest rate swap agreement with TD Bank to effectively fix the interest rate on the entire outstanding loan amount to 5.25% for its ten-year term. Principal and interest payments are due monthly and principal payments totaling $498,000 were made during the nine months ended September 30, 2012.

83-------------------------------------------------------------------------------- Table of Contents On April 11, 2011, in connection with the acquisition of 70 Hudson Street, we assumed a $124,113,000 ($120,857,000 face value plus a premium of $3,256,000) fixed-rate mortgage loan from Lehman Brothers Bank, FSB that bears interest at a rate of 5.65% and matures on April 11, 2016. Principal and interest payments are due monthly and principal payments totaling $1,300,000 were made during the nine months ended September 30, 2012.

On April 11, 2011, in connection with the acquisition of 90 Hudson Street, we assumed a $120,247,000 ($117,562,000 face value plus a premium of $2,685,000) fixed-rate mortgage loan from Teachers Insurance and Annuity Association of America that bears interest at a rate of 5.66% and matures on May 1, 2016. On July 14, 2011, we and Teachers Insurance and Annuity Association of America, agreed to modify the $117,562,000 existing mortgage loan assumed by us. The loan was modified to extend its maturity by three years, from May 1, 2016 to May 1, 2019. The 5.66% annual interest rate was unchanged but is subject to a new 30-year amortization schedule. We pre-paid approximately $8,600,000 of loan's balance (with no pre-payment penalty) in connection with the modification.

Principal and interest payments are due monthly and principal payments totaling $960,000 were made during the nine months ended September 30, 2012.

On June 24, 2011, we entered into a $11,700,000 secured term loan with TD Bank secured by the Kings Mountain III property. Effective July 1, 2011, we entered into an interest rate swap agreement with TD Bank to effectively fix the interest rate on the entire outstanding loan amount to 4.47% for its seven-year term. Principal and interest payments are due monthly and principal payments totaling $194,000 were made during the nine months ended September 30, 2012.

On December 30, 2011, in connection with the acquisition of Sabal Pavilion, we assumed a $15,428,000 ($14,700,000 face value plus a premium of $728,000) fixed-rate mortgage loan from U.S. Bank National Association that bears interest at a rate of 6.38% and matures on August 1, 2013. Interest payments are due monthly with principal due at maturity.

Loan Payable On May 26, 2010, we entered into a $70,000,000 revolving credit facility with Wells Fargo Bank, N.A., or the Wells Fargo Credit Facility. The initial maturity date of the Wells Fargo Credit Facility was May 26, 2014, however we could extend the maturity date to May 26, 2015, subject to certain conditions.

$15,000,000 of the Wells Fargo Credit Facility was initially drawn upon closing on May 26, 2010, with $55,000,000 initially remaining available for disbursement during the term of the facility. We had the right to prepay any outstanding amount of the Wells Fargo Credit Facility, in whole or in part, without premium or penalty at any time during the term of this Wells Fargo Credit Facility, however, we initially could not reduce the outstanding principal balance below a minimum outstanding amount of $15,000,000, without reducing the total $70,000,000 Wells Fargo Credit Facility capacity. Initially, the Wells Fargo Credit Facility had a floating interest rate of 300 basis points over LIBOR, however this interest rate would be at least 4.00% for any of the outstanding balance that was not subject to an interest rate swap with an initial term of at least two years.

Upon closing on May 26, 2010, we entered into an interest rate swap agreement with Wells Fargo Bank, N.A. to effectively fix the interest rate on the initial $15,000,000 outstanding loan amount at 5.10% for the four-year term of the facility. The interest rate swap was designated as a qualifying cash flow hedge at the start date of the hedge relationship as described in Note 15 "Derivative Instruments." The Wells Fargo Credit Facility was initially secured by our 13201 Wilfred, 3011, 3055 & 3077 Comcast Place, 140 Depot Street, Crest Ridge Corporate Center I and West Point Trade Center properties. In addition, CSP OP provided a limited guarantee for the Wells Fargo Credit Facility.

On August 31, 2010, we entered into an amended and restated credit agreement with Wells Fargo Bank, N.A. to expand the Wells Fargo Credit Facility from its initial capacity of $70,000,000 to an amended capacity of $125,000,000 (the "Amended Wells Fargo Credit Facility"). In connection with the Amended Wells Fargo Credit Facility, the minimum outstanding amount was increased to $25,000,000 and as such an additional $10,000,000 was drawn (in addition to the $15,000,000 initially drawn on May 26, 2010) with the remaining $100,000,000 available for disbursement during the term of the facility. The Amended Wells Fargo Credit Facility was secured by an additional three of our properties, for a total of eight properties in all: 13201 Wilfred Lane, 3011, 3055 & 3077 Comcast Place, 140 Depot Street, Crest Ridge Corporate Center, West Point Trade Center, 5160 Hacienda Drive, 10450 Pacific Center Court and 225 Summit Avenue.

The interest rate was reduced by 25 basis points to 275 basis points over LIBOR (which rate would apply to all withdrawals from the Amended Wells Fargo Credit Facility other than the initial $15,000,000 that was drawn on May 26, 2010) and the initial interest rate floor of 4.00% was eliminated. The initial maturity date remained May 26, 2014, however we could extend the maturity date to May 26, 2015, subject to certain conditions.

On September 13, 2012, we entered into a credit agreement (the "Credit Agreement") with a group of lenders to provide CSP OP with an unsecured, revolving credit facility (the "Unsecured Credit Facility") with an initial capacity of $700,000,000. The Unsecured Credit Facility replaced the Amended Wells Fargo Credit Facility, which was terminated concurrently with the closing of the Unsecured Credit 84 -------------------------------------------------------------------------------- Table of Contents Facility. The Company paid the $25,000,000 outstanding balance of the Amended Wells Fargo Credit Facility with cash on hand and expensed the unamortized deferred financing costs associated with obtaining the loan totaling $1,191,000.

No borrowings were outstanding under the Unsecured Credit Facility as of September 30, 2012. The Unsecured Credit Facility has a term of four years, which term may be extended for one year at the option of CSP OP provided that CSP OP is not then in default and upon payment of customary extension fees. The Unsecured Credit Facility has no minimum outstanding balance requirements. Under certain circumstances, CSP OP may request an increase in the capacity of the Unsecured Credit Facility by up to an additional $700,000,000, to an aggregate size of $1,400,000,000, although none of the lenders has any obligation to participate in such increase. The Unsecured Credit Facility includes a $25,000,000 swingline sub-facility and a $25,000,000 letter of credit sub-facility. CSP OP paid customary arrangement and commitment fees to the lenders in connection with the Unsecured Credit Facility. The Company and certain of its subsidiaries have provided a guaranty in connection with the Unsecured Credit Facility.

The loans under the Unsecured Credit Facility will bear interest, at CSP OP's election, based on (i) LIBOR, for interest periods of one, three or six months, plus the applicable margin, or (ii) the LIBOR Market Index Rate plus the applicable margin (if the LIBOR Market Index Rate is unavailable, the per annum rate of interest would be the Federal Funds Rate plus 1.5%, plus the applicable margin). The LIBOR Market Index Rate is LIBOR in respect of loans of one-month interest periods, determined on a daily basis, plus the applicable margin. The applicable margin is (i) for periods prior to the Company or CSP OP having a credit rating, based on the Company's then current leverage ratio, and (ii) during such periods when the Company or CSP OP has a credit rating, based on its then current credit rating. The applicable margin can vary from (i) 1.60% to 2.35% based upon the then current leverage ratio, or (ii) 1.00% to 1.80% based upon a then current credit rating of the Company or CSP OP. As of the closing of the Unsecured Credit Facility, the current stated applicable margin was 1.60%. CSP OP will pay customary fees in connection with borrowings under the Unsecured Credit Facility. Further, CSP OP may prepay any revolving or swingline loan, in whole or in part, at anytime without premium or penalty.

Under the Unsecured Credit Facility, the Company will be 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 the Unsecured Credit Facility's second anniversary, or (b) 0.40 thereafter; (iv) an unencumbered leverage ratio of not more than 0.60; (v) a ratio of unencumbered net operating income to unsecured interest expense of at least 1.75 (unless the Company or CSP OP obtains an investment grade credit rating, in which case this requirement is eliminated); (vi) minimum tangible net worth of $1,653,403,000 plus 85% of the net proceeds of certain future equity issuances; and (vii) unencumbered asset value of at least $400,000,000. In addition, the Unsecured Credit Facility contains 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.

Distribution Policy 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).

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.

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