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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;
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¡ 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.
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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.
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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.
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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.
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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
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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
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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
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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
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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.
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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.
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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.
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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.
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(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.
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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.
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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.
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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.
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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.
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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."
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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
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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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