Gramercy Property Trust - FORM 10-Q - August 7, 2015

Attached files

file filename
EX-32.1 - EXHIBIT 32.1 - Gramercy Property Trusta201563010-qex321.htm
EX-31.1 - EXHIBIT 31.1 - Gramercy Property Trusta201563010-qex311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM 10-Q
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission File Number: 001-35933
 
 
 
 
CHAMBERS STREET PROPERTIES
(Exact name of registrant as specified in its charter)
 
 
 
 

Maryland
56-2466617
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
47 Hulfish Street, Suite 210, Princeton, New Jersey 08542
(Address of principal executive offices) (Zip Code)
(609) 683-4900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x   NO  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x
 
Accelerated filer  o
 
Non-accelerated filer  o
 
Smaller reporting company  o
 
 
 
 
(do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  o    NO  x
The number of shares outstanding of the registrant's common shares of beneficial ownership, $0.01 par value, was 236,860,294 as of August 5, 2015.



CHAMBERS STREET PROPERTIES
INDEX

 
 
Page
 
 
PART I. FINANCIAL INFORMATION
 
Item 1.
Consolidated Financial Statements (unaudited)
 
 
 
Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014
 
 
 
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014
 
 
 
Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2015 and 2014
 
 
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014
 
 
 
Consolidated Statements of Equity for the Six Months Ended June 30, 2015 and 2014
 
 
 
Notes to the Consolidated Financial Statements
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4.
Controls and Procedures
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
Item 1.
Legal Proceedings
 
 
Item 1A.
Risk Factors
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 3.
Defaults Upon Senior Securities
 
 
Item 4.
Mine Safety Disclosure
 
 
Item 5.
Other Information
 
 
Item 6.
Exhibits
 
 
SIGNATURES
 
 



PART I.
FINANCIAL INFORMATION
ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CHAMBERS STREET PROPERTIES
Consolidated Balance Sheets
as of June 30, 2015 and December 31, 2014
(In Thousands, Except Share Data)
 
June 30,
 
December 31,
 
2015
 
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Investments in Real Estate:
 
 
 
Land
$
618,142

 
$
630,840

Land Available for Expansion
24,292

 
23,368

Buildings and Improvements
1,646,738

 
1,674,955

 
2,289,172

 
2,329,163

Less: Accumulated Depreciation and Amortization
(266,256
)
 
(239,973
)
Net Investments in Real Estate
2,022,916

 
2,089,190

Investments in Unconsolidated Entities
393,325

 
423,693

Cash and Cash Equivalents
94,252

 
40,139

Restricted Cash
17,721

 
14,718

Tenant and Other Receivables, Net
8,360

 
11,216

Deferred Rent
42,644

 
39,429

Deferred Leasing Costs and Intangible Assets, Net
195,836

 
220,490

Deferred Financing Costs, Net
7,896

 
9,321

Prepaid Expenses and Other Assets
17,713

 
21,612

Total Assets
$
2,800,663

 
$
2,869,808

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
LIABILITIES
 
 
 
Secured Notes Payable, Net
$
568,077

 
$
610,608

Unsecured Term Loan Facilities
570,000

 
570,000

Unsecured Revolving Credit Facility
240,044

 
200,044

Accounts Payable, Accrued Expenses and Other Liabilities
68,861

 
76,421

Intangible Liabilities, Net
22,869

 
26,248

Prepaid Rent and Security Deposits
15,987

 
15,569

Distributions Payable
10,096

 
9,951

Total Liabilities
1,495,934

 
1,508,841

COMMITMENTS AND CONTINGENCIES (NOTE 13)


 


SHAREHOLDERS' EQUITY
 
 
 
Common Shares of Beneficial Interest, $0.01 par value, 990,000,000 shares authorized; 236,860,294 and 236,920,675 issued and outstanding as of June 30, 2015 and December 31, 2014, respectively
2,366

 
2,364

Additional Paid-in-Capital
2,073,701

 
2,071,526

Accumulated Deficit
(734,416
)
 
(689,654
)
Accumulated Other Comprehensive Loss
(36,922
)
 
(23,269
)
Total Shareholders' Equity
1,304,729

 
1,360,967

Total Liabilities and Shareholders' Equity
$
2,800,663

 
$
2,869,808


See accompanying notes to consolidated financial statements.
1

CHAMBERS STREET PROPERTIES
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2015 and 2014 (unaudited)
(In Thousands, Except Share and per Share Data)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
REVENUES
 
 
 
 
 
 
 
Rental
$
56,759

 
$
52,033

 
$
111,105

 
$
103,909

Tenant Reimbursements
14,832

 
14,595

 
31,271

 
29,815

Other Property Income
250

 
—

 
448

 
1,069

Total Revenues
71,841

 
66,628

 
142,824

 
134,793

EXPENSES
 
 
 
 
 
 
 
Property Operating
8,135

 
8,392

 
17,916

 
17,945

Real Estate Taxes
10,574

 
10,465

 
21,356

 
20,266

General and Administrative
11,697

 
5,953

 
21,570

 
12,817

Acquisition-Related
—

 
—

 
—

 
290

Depreciation and Amortization
27,933

 
27,126

 
55,853

 
54,364

Total Expenses
58,339

 
51,936

 
116,695

 
105,682

Income Before Other (Expenses) Income
13,502

 
14,692

 
26,129

 
29,111

OTHER EXPENSES AND INCOME
 
 
 
 
 
 
 
Interest and Other Income
12

 
151

 
92

 
318

Interest Expense
(12,986
)
 
(13,907
)
 
(26,045
)
 
(27,968
)
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
26

 
(14
)
 
43

 
12

Gain on Sale of Real Estate
5,844

 
—

 
5,844

 
—

Total Other Expenses
(7,104
)
 
(13,770
)
 
(20,066
)
 
(27,638
)
Income Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities
6,398

 
922

 
6,063

 
1,473

Provision For Income Taxes
(387
)
 
(381
)
 
(563
)
 
(439
)
Equity in Income of Unconsolidated Entities
3,676

 
4,612

 
10,181

 
7,438

NET INCOME
$
9,687

 
$
5,153

 
$
15,681

 
$
8,472

Basic and Diluted Net Income per Share
$
0.04

 
$
0.02

 
$
0.07

 
$
0.03

Weighted Average Common Shares Outstanding - Basic
236,900,677

 
237,000,613

 
236,922,064

 
236,793,334

Weighted Average Common Shares Outstanding - Diluted
236,955,835

 
237,000,613

 
236,950,577

 
236,793,334

Dividends Declared per Common Share
$
0.128

 
$
0.126

 
$
0.256

 
$
0.252


See accompanying notes to consolidated financial statements.
2

CHAMBERS STREET PROPERTIES
Consolidated Statements of Comprehensive Income (Loss)
For the Three and Six Months Ended June 30, 2015 and 2014 (unaudited)
(In Thousands)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
NET INCOME
$
9,687

 
$
5,153

 
$
15,681

 
$
8,472

Foreign Currency Translation Gain (Loss)
7,749

 
1,330

 
(10,987
)
 
2,153

Swap Fair Value Adjustments
3,377

 
(5,130
)
 
(2,666
)
 
(7,891
)
COMPREHENSIVE INCOME
$
20,813

 
$
1,353

 
$
2,028

 
$
2,734


See accompanying notes to consolidated financial statements.
3

CHAMBERS STREET PROPERTIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2015 and 2014 (unaudited)
(In Thousands)
 
Six Months Ended
 
June 30,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net Income
$
15,681

 
$
8,472

Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities:
 
 
 
Equity in Income of Unconsolidated Entities
(10,181
)
 
(7,438
)
Distributions from Unconsolidated Entities
20,596

 
22,609

Gain on Interest Rate Swaps
(43
)
 
(12
)
Gain on Sale of Real Estate
(5,844
)
 
—

Prepaid Tenant Improvement Amortization
(733
)
 
—

Lease Inducement Amortization
504

 
—

Depreciation and Amortization
55,853

 
54,364

Amortization of Non-Cash Interest Expense
(827
)
 
(348
)
Amortization of Above and Below Market Leases
1,913

 
2,883

Share-Based Compensation
4,630

 
1,924

Straight-Line Rent Adjustment
(3,403
)
 
(2,545
)
Changes in Operating Assets and Liabilities:
 
 
 
Tenant and Other Receivables
2,851

 
(1,856
)
Prepaid Expenses and Other Assets
1,492

 
1,041

Accounts Payable, Accrued Expenses and Other Liabilities
(5,327
)
 
(6,244
)
Net Cash Flows Provided by Operating Activities
77,162

 
72,850

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Acquisition of Real Property
(1,715
)
 
(27,450
)
Proceeds from Sale of Real Estate
55,119

 
—

Distributions from Unconsolidated Entities
8,848

 
19,690

Acquisition Deposit
—

 
(875
)
Restricted Cash
(2,500
)
 
2,443

Lease Commissions
(3,635
)
 
(1,810
)
Improvements to Investments in Real Estate
(15,332
)
 
(4,202
)
Net Cash Flows Provided by (Used in) Investing Activities
40,785

 
(12,204
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Repurchase and Cancellation of Vested Shares
(3,240
)
 
(247
)
Payment of Distributions
(60,298
)
 
(59,660
)
Borrowings on Unsecured Revolving Credit Facility
40,000

 
10,000

Principal Payments on Unsecured Revolving Credit Facility
—

 
(10,000
)
Principal Payments on Secured Notes Payable
(40,278
)
 
(28,013
)
Payment of Financing Costs
—

 
(160
)
Net Cash Flows Used in Financing Activities
(63,816
)
 
(88,080
)
EFFECT OF FOREIGN CURRENCY TRANSLATION
(18
)
 
15

Net Increase (Decrease) in Cash and Cash Equivalents
54,113

 
(27,419
)
Cash and Cash Equivalents, Beginning of the Period
40,139

 
83,007

Cash and Cash Equivalents, End of the Period
$
94,252

 
$
55,588

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
Cash Paid During the Period for Interest
$
27,197

 
$
28,464

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Distributions Declared and Payable
$
10,096

 
$
9,953

Accounts Payable and Accrued Expenses—Construction In Progress
$
2,155

 
$
430

JV Contribution/Distribution—Expansion
$
—

 
$
6,351


See accompanying notes to consolidated financial statements.
4

CHAMBERS STREET PROPERTIES
Consolidated Statements of Equity
For the Six Months Ended June 30, 2015 and 2014 (unaudited)
(In Thousands, Except Share Data)

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

 
$
2,364

 
$
2,071,526

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

Net Income
—

 
—

 
—

 
15,681

 
—

 
15,681

Other Comprehensive Loss
—

 
—

 
—

 
—

 
(13,653
)
 
(13,653
)
Share-Based Compensation
348,798

 
6

 
5,411

 
—

 
—

 
5,417

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

 
—

 
(3,240
)
Distributions Declared ($0.256 per share)
—

 
—

 
—

 
(60,443
)
 
—

 
(60,443
)
Balance at June 30, 2015
236,860,294

 
$
2,366

 
$
2,073,701

 
$
(734,416
)
 
$
(36,922
)
 
$
1,304,729


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

 
$
2,359

 
$
2,067,008

 
$
(589,313
)
 
$
4,596

 
$
1,484,650

Net Income
—

 
—

 
—

 
8,472

 
—

 
8,472

Other Comprehensive Loss
—

 
—

 
—

 
—

 
(5,738
)
 
(5,738
)
Share-Based Compensation
555,508

 
2

 
1,922

 
—

 
—

 
1,924

Repurchase and Cancellation of Vested Shares
(31,959
)
 
—

 
(247
)
 
—

 
—

 
(247
)
Distributions Declared ($0.252 per share)
—

 
—

 
—

 
(59,682
)
 
—

 
(59,682
)
Balance at June 30, 2014
236,987,530

 
$
2,361

 
$
2,068,683

 
$
(640,523
)
 
$
(1,142
)
 
$
1,429,379


See accompanying notes to consolidated financial statements.
5

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Nature of Business
Chambers Street Properties (NYSE: CSG) is a self-administered real estate investment trust ("REIT") that focuses on acquiring, owning and managing net leased industrial and office properties leased to creditworthy tenants. We were formed under the laws of the state of Maryland on March 30, 2004, and have elected to be taxed as a REIT under sections 856 through 860 of the Internal Revenue Code of 1986 (the "Internal Revenue Code") beginning with the taxable period ended December 31, 2004. On July 1, 2015, we entered into an Agreement and Plan of Merger with Gramercy Property Trust Inc. ("Gramercy") (See Note 16).
We operate in an umbrella partnership REIT structure in which our operating partnership, CSP Operating Partnership, LP ("CSP OP"), indirectly owns substantially all of the properties acquired on our behalf. CSP OP was formed in Delaware on March 30, 2004, and we are the 100% owner and sole general partner. For each interest in our common shares of beneficial interest $0.01 par value (the "common shares"), that we issue, an equal interest in the limited partnership units of CSP OP is issued to us in exchange for the cash proceeds from the issuance of the interest in our common shares. As of June 30, 2015, we owned 100% of the limited partnership units of CSP OP directly or indirectly through a wholly-owned taxable REIT subsidiary.
As of June 30, 2015, we owned, on a consolidated basis, 100 industrial (primarily warehouse/distribution) and office properties located in 18 U.S. states (Arizona, California, Colorado, Florida, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Texas and Virginia) and in the United Kingdom, encompassing approximately 24.9 million rentable square feet. Our consolidated properties were approximately 98.9% leased (based upon rentable square feet) as of June 30, 2015. As of June 30, 2015, 76 of our consolidated properties were net leased to single tenants, which encompassed approximately 20.2 million rentable square feet.
We had ownership interests in four unconsolidated entities that, as of June 30, 2015, owned interests in 27 properties. Excluding those properties owned through our investment in CB Richard Ellis Strategic Partners Asia II-A, L.P. ("CBRE Strategic Partners Asia"), we owned, on an unconsolidated basis, 25 industrial (primarily warehouse/distribution) and office properties located in seven U.S. states (Arizona, Florida, Illinois, Indiana, Ohio, Tennessee and Texas) and three countries in Europe (France, Germany and the United Kingdom), encompassing approximately 12.3 million rentable square feet. Our unconsolidated properties were approximately 99.9% leased (based upon rentable square feet) as of June 30, 2015. As of June 30, 2015, 20 of our unconsolidated properties were net leased to single tenants, which encompassed approximately 11.5 million rentable square feet.
Unless the context otherwise requires or indicates, references to the "Company," "we," "our" and "us" refer to the activities of and the assets and liabilities of the business and operations of Chambers Street Properties and its subsidiaries. References to unconsolidated properties include properties owned through unconsolidated joint ventures and do not include properties owned by CBRE Strategic Partners Asia. See Note 4 "Investments in Unconsolidated Entities."

6
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") and reflect the accounts of the Company, CSP OP and its consolidated subsidiaries. The Company consolidates its wholly-owned properties and joint ventures it controls through either 1) voting rights or similar rights or 2) by means other than voting rights if the Company is deemed to be the primary beneficiary of a variable interest entity. All intercompany accounts and transactions are eliminated in consolidation.
Certain information and footnotes required for annual financial statement presentation have been condensed or excluded pursuant to Securities and Exchange Commission (the "SEC") rules and regulations. Accordingly, our interim financial statements do not include all of the information and disclosures required under GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary in all material respects to present fairly our financial position, results of our operations and cash flows as of and for the three and six months ended June 30, 2015 have been made. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results of operations to be expected for the entire year. The consolidated financial statements and notes thereto should be read in conjunction with our current Annual Report on Form 10-K, which contains the latest available audited consolidated financial statements and notes thereto, which are as of and for the year ended December 31, 2014.
Use of Estimates
The preparation of financial statements, in conformity with GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Segment Information
We currently operate our consolidated properties in two geographic areas, the United States and the United Kingdom. We view our consolidated property operations as two reportable segments, Industrial Properties and Office Properties, which participate in the acquisition, development, ownership, and operation of high quality real estate in their respective segments.
Revenue Recognition and Valuation of Receivables
All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is recorded as deferred rent. In connection with various leases, we have received irrevocable stand-by letters of credit totaling $20.3 million as security for such leases at June 30, 2015 and December 31, 2014.
Reimbursements from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes, insurance and other recoverable costs, are recognized as revenue in the period the expenses are incurred. Tenant reimbursements are recognized and presented on a gross basis, when we are the primary obligor with respect to incurring expenses and with respect to having the credit risk.
Tenant receivables and deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and deferred rent. Management's determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, individual receivables, current economic conditions, and other relevant factors. The allowances are increased or decreased through the provision for bad debts. The allowance for uncollectible rent receivable was $12,000 and $62,000 as of June 30, 2015 and December 31, 2014, respectively.
Translation of Non-U.S. Currency Amounts
The financial statements and transactions of our United Kingdom properties are recorded in their functional currency, namely the Great Britain Pound ("GBP") and are then translated into U.S. dollars ("USD").

7
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Assets and liabilities of these properties are denominated in the functional currency and are then translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rate for the reporting period. Translation adjustments are reported in "Accumulated Other Comprehensive Income (Loss)," a component of Shareholders' Equity.
The carrying value of our United Kingdom assets and liabilities fluctuate due to changes in the exchange rate between the USD and the GBP. The exchange rate of the USD to the GBP was $1.5713 and $1.5576 at June 30, 2015 and December 31, 2014, respectively. The profit and loss average exchange rate of the USD to the GBP was approximately $1.5151 and $1.6764 for the three months ended June 30, 2015 and 2014, respectively; and $1.5253 and $1.6675 for the six months ended June 30, 2015 and 2014, respectively.
The carrying value of our assets and liabilities held within our joint venture in Europe (the "European JV") fluctuate due to changes in the exchange rate between the USD and the Euro ("EUR"). The exchange rate of the USD to the EUR was $1.1147 and $1.2099 at June 30, 2015 and December 31, 2014. The profit and loss average exchange rate of the USD to the EUR was approximately $1.0977 and $1.3757 for the three months ended June 30, 2015 and 2014, respectively; and $1.1239 and $1.3718 for the six months ended June 30, 2015 and 2014, respectively.
Income Taxes
We elected to be taxed as a REIT under the Internal Revenue Code commencing with our taxable year ended December 31, 2004. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we generally distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding net capital gain). It is our current intention to adhere to these requirements and maintain our REIT qualification. As a REIT, we generally will not be subject to corporate level U.S. federal income tax on net income we distribute currently to our shareholders. If we fail to qualify as a REIT in any taxable year, then we will be subject to U.S. federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. We believe that we have met all the REIT organizational and operational requirements for the six months ended June 30, 2015, and we were not subject to any U.S. federal income taxes, other than U.S. federal income taxes on income generated by our Taxable REIT Subsidiary. As such, we have not provided for income taxes other than as addressed below.
ASC 740-10 Income Taxes requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary difference, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
No deferred tax assets or liabilities were recorded as of June 30, 2015, other than as mentioned below related to the United Kingdom net operating losses. In addition, we believe that any current or deferred tax liability associated with our Taxable REIT Subsidiary would be de minimus.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
We did not have any uncertain tax positions which would require us to record any unrecognized tax benefits or additional tax liabilities as of June 30, 2015.

8
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Even if we qualify for taxation as a REIT, we may be subject to certain state, foreign, and local taxes on our income and property and to U.S. federal income and excise taxes on our undistributed taxable income, if any.
Included as a component of our tax provision, we have incurred income and other taxes (franchise, local and state government and international) related to our continuing operations in the amount of $387,000 and $381,000 during the three months ended June 30, 2015 and 2014, respectively; and $563,000 and $439,000 for the six months ended June 30, 2015 and 2014, respectively.
The United Kingdom taxes real property operating results at a statutory rate of 20% . The properties we own (or hold interest in) in the United Kingdom have operated at a taxable loss to date and have generated a deferred tax asset of approximately $0.6 million consisting of these net operating loss carryforwards. We have provided for a full valuation allowance of $0.6 million as of June 30, 2015 on deferred tax assets because it is not likely that future operating profits in the United Kingdom would be sufficient to absorb the net operating losses.
The tax years from 2010 through 2014 remain open to examination by the taxing jurisdictions to which the Company is subject.
Fair Value of Financial Instruments and Investments
We generally determine or calculate the fair value of financial instruments using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments and our estimates for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow. The Investment Manager of CBRE Strategic Partners Asia applies valuation techniques for our investment carried at fair value based upon the application of the income approach, the direct market comparison approach, the replacement cost approach or third party appraisals to the underlying assets held in the unconsolidated entity in determining the net asset value attributable to our ownership interest therein. As of June 30, 2015, the financial assets and liabilities recorded at fair value in our consolidated financial statements are our derivative instruments and our investment in CBRE Strategic Partners Asia.
The remaining financial assets and liabilities which are only disclosed at fair value are comprised of all other notes payable, the unsecured line of credit and other debt instruments. We determined the fair value of our secured notes payable and other debt instruments by performing discounted cash flow analyses using an appropriate market discount rate. We calculate the market discount rate by obtaining period-end treasury rates for fixed-rate debt, or London Inter-Bank Offering Rate ("LIBOR") rates for variable-rate debt, for maturities that correspond to the maturities of our debt and then adding an appropriate credit spread derived from information obtained from third-party financial institutions. These credit spreads take into account factors such as our credit standing, the maturity of the debt, whether the debt is secured or unsecured, and the loan-to-value ratios of the debt.
The carrying amounts of our cash and cash equivalents, restricted cash, tenant and other receivables and accounts payable approximate fair value due to their short-term maturities.
Share-based Compensation
For share-based awards for which there is no pre-established performance period, we recognize compensation costs over the service vesting period, which represents the requisite service period, on a straight-line basis.
For share-based awards with service or market conditions, we record the cost of the awards based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. For share-based awards in which the performance period precedes the grant date, we recognize compensation costs straight-lined over the requisite service period, which includes both the performance and service vesting periods.
During the performance period for a share-based award program, we estimate the total compensation cost of the potential future awards. We then record compensation costs equal to the portion of the requisite service period that has elapsed through the end of the reporting period.
For share-based awards granted by the Company, CSP OP issues a number of common units equal to the number of common shares ultimately granted by us in respect of such awards.

9
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


New Accounting Standards
In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The ASU is a part of the Simplification Initiative, to identify, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to the users of financial statements. The new standard eliminates the requirements for reporting entities to consider whether an underlying event or transaction is extraordinary but retains the presentation and disclosure guidance for items that are unusual in nature and occur infrequently. The ASU applies to all entities and is effective for fiscal years beginning after December 15, 2015, and interim periods thereafter, with early adoption permitted. The adoption of this guidance is not anticipated to have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, Consolidated (Topic 810): Amendments to the Consolidation Analysis. The ASU changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Key amendments under the new standard include the following: evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; elimination of the presumption that a general partner should consolidate a limited partnership; consolidation analysis of reporting entities that are involved with variable interest entities (VIEs), particularly those that have fee arrangements and related party relationship; addition of scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements similar to those for registered money market funds. The ASU applies to all reporting entities that are required to evaluate whether they should consolidate certain legal entities and is effective for fiscal years beginning after December 15, 2015, and interim periods thereafter, with early adoption permitted. We are still assessing the impact of this guidance on our consolidated financial statements and notes to our consolidated financial statements.
In April 7, 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU addresses balance sheet presentation requirements for debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding debt liability. This will make the presentation of debt issuance costs consistent with the presentation of debt discounts or premiums. The recognition and measurement guidance for debt issuance costs is not affected. The guidance is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, it is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Upon adoption, an entity must apply the new guidance retrospectively to all prior periods presented in the financial statements. An entity is also required in the year of adoption (and in interim periods within that year) to provide certain disclosures about the change in accounting principle, including the nature of and reason for the change, the transition method, a description of the prior-period information that has been retrospectively adjusted and the effect of the change on the financial statement line items (that is, debt issuance cost asset and the debt liability). We are still assessing the impact of this guidance on our consolidated financial statements and notes to our consolidated financial statements.
In July 2015, the FASB deferred the effective date of ASU No. 2014-09, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including the guidance on real estate derecognition for most transactions. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in ASU 2014-09. For public entities, the ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017, with early adoption permitted. We are assessing the impact of this guidance on our consolidated financial statements and notes to our consolidated financial statements.

10
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



3. Investment in Real Estate Activity
Wholly-Owned Acquisitions
During the six months ended June 30, 2015, we acquired an 11.8 acre undeveloped parcel in Phoenix, Arizona for approximately $1.7 million. The undeveloped parcel is situated immediately adjacent to our Goodyear Crossing II property.
Dispositions
During the six months ended June 30, 2015, we completed the sale of 300 Constitution Drive, a 330,000 square foot distribution warehouse located in Boston, Massachusetts. The industrial property was sold for a gross sales price of $20.3 million, resulting in a gain of approximately $3.5 million, after closing and other transaction related costs. We also completed the sale of 225 Summit Avenue, a 142,500 square foot office building located in Northern New Jersey. The office property was sold for a gross sales price of $37.0 million, resulting in a gain of approximately $2.3 million, after closing and other transaction related costs.

11
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


4. Investments in Unconsolidated Entities
As of June 30, 2015 and December 31, 2014, we owned the following number of properties through unconsolidated entities:
 
Ownership %
 
Number of Properties
 
 
June 30,
 
December 31,
 
 
2015
 
2014
Duke JV
80.0%
 
13

 
14

European JV
80.0%
 
9

 
9

UK JV
80.0%
 
3

 
3

CBRE Strategic Partners Asia
5.07%
 
2

 
3

 
 
 
27

 
29

Investments in unconsolidated entities at June 30, 2015 and December 31, 2014 consist of the following (in thousands):
 
June 30,
 
December 31,
 
2015
 
2014
Duke JV
$
226,444

 
$
239,376

European JV
128,815

 
144,141

UK JV
32,749

 
33,189

Afton Ridge
—

 
117

CBRE Strategic Partners Asia
5,317

 
6,870

 
$
393,325

 
$
423,693

The following is a summary of the investments in unconsolidated entities for the six months ended June 30, 2015 and the year ended December 31, 2014 (in thousands):
 
June 30,
 
December 31,
 
2015
 
2014
Investment Balance, January 1
$
423,693

 
$
514,802

Contributions
—

 
7,625

Company's Equity in Net Income (including adjustments for basis differences)
10,181

 
28,823

Other Comprehensive Loss of Unconsolidated Entities
(11,105
)
 
(22,342
)
Distributions
(29,444
)
 
(105,215
)
Investment Balance, End of Period
$
393,325

 
$
423,693


12
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


The following are the balance sheets of our investments in unconsolidated entities at June 30, 2015 (in thousands):
 
Duke JV
 
European JV
 
Other (2)
 
Total
 
 
 
 
Assets
 
 
 
 
 
 
 
Investments in Real Estate(1)
$
315,944

 
$
249,185

 
$
157,032

 
$
722,161

Other Assets
29,968

 
40,669

 
12,871

 
83,508

Total Assets
$
345,912

 
$
289,854

 
$
169,903

 
$
805,669

Liabilities and Equity
 
 
 
 
 
 
 
Secured Notes Payable, net
$
56,671

 
$
124,535

 
$
—

 
$
181,206

Other Liabilities
6,722

 
4,299

 
20,276

 
31,297

Total Liabilities
63,393

 
128,834

 
20,276

 
212,503

CSP Equity
226,444

 
128,815

 
38,066

 
393,325

Other Investors' Equity
56,075

 
32,205

 
111,561

 
199,841

Total Liabilities and Equity
$
345,912

 
$
289,854

 
$
169,903

 
$
805,669

__________
(1)
Includes REIT Basis Adjustments for costs incurred by the Company outside of the Duke/Hulfish, LLC joint venture (the "Duke JV") that are directly capitalizable to its investment in real estate assets acquired, including acquisition costs paid to our former investment advisor prior to January 1, 2009.
(2)
Includes  the Goodman Princeton Holdings (Jersey) Limited joint venture (the "UK JV") and CBRE Strategic Partners Asia.
The following are the balance sheets of our investments in unconsolidated entities at December 31, 2014 (in thousands):
 
Duke JV
 
European JV
 
Other (2)
 
Total
 
 
 
 
Assets
 
 
 
 
 
 
 
Investments in Real Estate(1)
$
323,236

 
$
274,128

 
$
186,360

 
$
783,724

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

 
—

 
—

 
17,230

Other Assets
32,474

 
49,435

 
11,553

 
93,462

Total Assets
$
372,940

 
$
323,563

 
$
197,913

 
$
894,416

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

 
$
—

 
$
—

 
$
11,048

Secured Notes Payable, net
57,222

 
135,173

 
—

 
192,395

Other Liabilities
6,013

 
8,214

 
17,093

 
31,320

Total Liabilities
74,283

 
143,387

 
17,093

 
234,763

CSP Equity
239,376

 
144,141

 
40,176

 
423,693

Other Investors' Equity
59,281

 
36,035

 
140,644

 
235,960

Total Liabilities and Equity
$
372,940

 
$
323,563

 
$
197,913

 
$
894,416

__________
(1)
Includes REIT Basis Adjustments for costs incurred by the Company outside of the Duke JV that are directly capitalizable to its investment in real estate assets acquired, including acquisition costs paid to our former investment advisor prior to January 1, 2009.
(2)
Includes UK JV, Afton Ridge, and CBRE Strategic Partners Asia.

13
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


The following are the statements of operations for our investments in unconsolidated entities for the three months ended June 30, 2015 and June 30, 2014 (in thousands):
 
Three Months Ended
 
June 30, 2015
 
June 30, 2014
 
Duke JV
 
European JV
 
Other (1)
 
Total
 
Duke JV
 
European JV
 
Other (2)
 
Total
Total Revenue
$
11,159

 
$
6,100

 
$
2,147

 
$
19,406

 
$
14,693

 
$
7,783

 
$
1,253

 
$
23,729

Operating Expenses
3,124

 
656

 
563

 
4,343

 
4,293

 
863

 
722

 
5,878

Net Operating Income
8,035

 
5,444

 
1,584

 
15,063

 
10,400

 
6,920

 
531

 
17,851

Depreciation and Amortization
5,219

 
2,432

 
478

 
8,129

 
6,683

 
3,087

 
528

 
10,298

Interest Expense
755

 
917

 
—

 
1,672

 
1,035

 
1,165

 
—

 
2,200

Gain on Sale of Real Estate
19

 
—

 
—

 
19

 
—

 
—

 
—

 
—

Net Income
2,080

 
2,095

 
1,106

 
5,281

 
2,682

 
2,668

 
3

 
5,353

Company Share in Net Income
1,664

 
1,676

 
363

 
3,703

 
2,146

 
2,134

 
362

 
4,642

Adjustments for REIT basis
(27
)
 
—

 
—

 
(27
)
 
(30
)
 
—

 
—

 
(30
)
CSP Equity in Net Income
$
1,637

 
$
1,676

 
$
363

 
$
3,676

 
$
2,116

 
$
2,134

 
$
362

 
$
4,612

__________
(1)
Includes UK JV and CBRE Strategic Partners Asia.
(2)
Includes UK JV, Afton Ridge, and CBRE Strategic Partners Asia.
The following are the statements of operations for our investments in unconsolidated entities for the six months ended June 30, 2015 and June 30, 2014 (in thousands):
 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
 
Duke JV
 
European JV
 
Other (1)
 
Total
 
Duke JV
 
European JV
 
Other (2)
 
Total
Total Revenue
$
23,790

 
$
12,673

 
$
(187
)
 
$
36,276

 
$
29,353

 
$
15,119

 
$
854

 
$
45,326

Operating Expenses
6,547

 
1,871

 
1,181

 
9,599

 
9,329

 
1,992

 
1,467

 
12,788

Net Operating Income
17,243

 
10,802

 
(1,368
)
 
26,677

 
20,024

 
13,127

 
(613
)
 
32,538

Depreciation and Amortization
10,433

 
5,033

 
962

 
16,428

 
14,199

 
6,016

 
1,051

 
21,266

Interest Expense
1,549

 
1,874

 
—

 
3,423

 
2,075

 
2,298

 
—

 
4,373

Gain on Sale of Real Estate
3,039

 
—

 
—

 
3,039

 
—

 
—

 
—

 
—

Loss on Extinguishment of Debt
(73
)
 
—

 
—

 
(73
)
 
—

 
—

 
—

 
—

Net Income (Loss)
8,227

 
3,895

 
(2,330
)
 
9,792

 
3,750

 
4,813

 
(1,664
)
 
6,899

Company Share in Net Income
6,581

 
3,116

 
537

 
10,234

 
3,000

 
3,850

 
649

 
7,499

Adjustments for REIT basis
(53
)
 
—

 
—

 
(53
)
 
(61
)
 
—

 
—

 
(61
)
CSP Equity in Net Income
$
6,528

 
$
3,116

 
$
537

 
$
10,181

 
$
2,939

 
$
3,850

 
$
649

 
$
7,438

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

14
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


On April 30, 2015, CBRE Strategic Partners Asia sold the remaining three floors at the Kowloon Commerce Center in Hong Kong for approximately $42.2 million, of which our pro rata share was approximately $1.4 million.
5. Deferred Leasing Costs and Intangible Assets and Liabilities
The following table summarizes our deferred leasing costs and intangible assets, including acquired above-market leases, acquired in-place leases and other intangible assets and intangible liabilities, including acquired below-market leases and acquired above-market ground lease obligations (in thousands):
 
June 30,
 
December 31,
 
2015
 
2014
Deferred Leasing Costs and Intangible Assets, Net:
 
 
 
Deferred Leasing Costs
$
25,797

 
$
22,481

Accumulated Amortization
(5,760
)
 
(4,218
)
Deferred Leasing Costs, Net
20,037

 
18,263

Above-Market Leases
63,566

 
63,566

Accumulated Amortization
(34,575
)
 
(30,311
)
Above-Market Leases, Net
28,991

 
33,255

In-Place Leases
290,758

 
300,124

Accumulated Amortization
(145,141
)
 
(132,414
)
In-Place Leases, Net
145,617

 
167,710

Other Intangible Assets
1,425

 
1,425

Accumulated Amortization

(234
)
 
(163
)
Other Intangible Assets, Net
1,191

 
1,262

Total Deferred Leasing Costs and Intangible Assets, Net
$
195,836

 
$
220,490

 
 
 
 
Intangible Liabilities, Net:
 
 
 
Below-Market Leases
$
46,766

 
$
51,653

Accumulated Amortization
(25,131
)
 
(26,675
)
Below-Market Leases, Net
21,635

 
24,978

Above-Market Ground Lease Obligation
1,501

 
1,501

Accumulated Amortization
(267
)
 
(231
)
Above-Market Ground Lease Obligation, Net
1,234

 
1,270

Total Intangible Liabilities, Net
$
22,869

 
$
26,248


15
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


The following table sets forth amortization related to intangible assets and liabilities for the three and six months ended June 30, 2015 and 2014 (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Deferred Leasing Costs(1)
$
792

 
$
364

 
$
1,541

 
$
718

Above-Market Leases(2)
2,125

 
2,433

 
4,263

 
4,948

In-Place Leases(1)
9,285

 
9,284

 
18,611

 
18,753

Other Intangible Assets(1)
36

 
—

 
72

 
—

Below-Market Leases(2)
(1,187
)
 
(1,032
)
 
(2,350
)
 
(2,065
)
Above-Market Ground Lease Obligation(3)
(17
)
 
(17
)
 
(35
)
 
(35
)
__________
(1)
The amortization of deferred leasing costs, in-place leases and other intangible assets are recorded to depreciation and amortization expense in the consolidated statements of operations for the periods presented.
(2)
The amortization of above-market leases and below-market leases are recorded as reductions and additions to rental income, respectively, in the consolidated statements of operations for the periods presented.
(3)
The amortization of the above-market ground lease obligation is recorded as a decrease to property operating expense in the consolidated statements of operations for the periods presented.
The following is a schedule of future amortization of deferred leasing costs, intangible assets and liabilities as of June 30, 2015 (in thousands):
 
Intangible Assets
 
Intangible Liabilities
 
Deferred Leasing Costs
 
Acquired
Above-Market
Leases
 
Acquired
In-Place
 Leases
 
Other Intangible Assets
 
Acquired
Below-Market
Leases
 
Above-Market
Ground Lease
Obligations
Remaining 2015
$
1,042

 
$
4,201

 
$
17,617

 
$
72

 
$
2,085

 
$
35

2016
1,956

 
5,557

 
29,075

 
144

 
3,404

 
71

2017
1,809

 
4,466

 
24,603

 
144

 
2,912

 
71

2018
1,718

 
3,862

 
20,399

 
144

 
2,639

 
71

2019
1,516

 
3,300

 
16,633

 
144

 
2,418

 
71

Thereafter
11,996

 
7,605

 
37,290

 
543

 
8,177

 
915

 
$
20,037

 
$
28,991

 
$
145,617

 
$
1,191

 
$
21,635

 
$
1,234


16
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


6. Debt
Secured Debt
Secured notes payable are summarized as follows (in thousands):
Property
 
Stated
Interest Rate
 
Effective Interest Rate(1)
 
Maturity Date
 
Outstanding Balance
 
 
 
 
June 30,
 
December 31,
 
 
 
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
Celebration Office Center III(2)
 
4.25%
 
2.50%
 
12/1/2015
 
$
8,723

 
$
8,817

22535 Colonial Pkwy(2)
 
4.25%
 
2.50%
 
12/1/2015
 
7,804

 
7,889

Northpoint III(2)
 
4.25%
 
2.50%
 
12/1/2015
 
10,100

 
10,209

Goodyear Crossing II(2)
 
4.25%
 
2.50%
 
12/1/2015
 
19,282

 
19,489

3900 North Paramount Parkway(2)
 
4.25%
 
2.50%
 
12/1/2015
 
7,575

 
7,656

3900 South Paramount Parkway(2)
 
4.25%
 
2.50%
 
12/1/2015
 
7,575

 
7,656

1400 Perimeter Park Drive(2)
 
4.25%
 
2.50%
 
12/1/2015
 
2,295

 
2,320

Miramar I(2)
 
4.25%
 
2.50%
 
12/1/2015
 
8,998

 
9,095

Miramar II(2)
 
4.25%
 
2.50%
 
12/1/2015
 
12,120

 
12,250

70 Hudson Street (3)
 
5.65%
 
5.15%
 
4/11/2016
 
113,060

 
114,108

Point West I - Swapped to Fixed
 
3.41%
 
3.41%
 
12/6/2016
 
10,553

 
10,716

100 Tice Blvd
 
5.97%
 
4.38%
 
9/15/2017
 
18,655

 
18,960

100 Tice Blvd
 
5.97%
 
4.38%
 
9/15/2017
 
18,655

 
18,960

4701 Gold Spike Drive(4)
 
4.45%
 
4.45%
 
3/1/2018
 
9,857

 
9,958

1985 International Way(4)
 
4.45%
 
4.45%
 
3/1/2018
 
6,849

 
6,920

3660 Deerpark Boulevard(4)
 
4.45%
 
4.45%
 
3/1/2018
 
7,080

 
7,153

Tolleson Commerce Park II(4)
 
4.45%
 
4.45%
 
3/1/2018
 
4,258

 
4,301

20000 S. Diamond Lake Road(4)
 
4.45%
 
4.45%
 
3/1/2018
 
6,201

 
6,265

Atrium I - Swapped to Fixed
 
3.78%
 
3.78%
 
5/31/2018
 
21,112

 
21,580

McAuley Place
 
3.98%
 
3.50%
 
9/1/2018
 
12,677

 
12,865

Easton III - Swapped to Fixed
 
3.95%
 
3.95%
 
1/31/2019
 
6,187

 
6,280

90 Hudson Street
 
5.66%
 
5.26%
 
5/1/2019
 
102,452

 
103,301

Fairforest Bldg. 6
 
5.42%
 
6.50%
 
6/1/2019
 
1,577

 
1,751

North Rhett I
 
5.65%
 
6.50%
 
8/1/2019
 
1,725

 
1,958

Kings Mountain II
 
5.47%
 
6.50%
 
1/1/2020
 
3,167

 
3,467

1 Rocket Road
 
6.60%
 
4.00%
 
8/1/2020
 
18,314

 
18,516

North Rhett II
 
5.20%
 
6.50%
 
10/1/2020
 
1,319

 
1,425

Mount Holly Bldg.
 
5.20%
 
6.50%
 
10/1/2020
 
1,319

 
1,425

Orangeburg Park Bldg.
 
5.20%
 
6.50%
 
10/1/2020
 
1,341

 
1,449

Kings Mountain I
 
5.27%
 
6.50%
 
10/1/2020
 
1,143

 
1,235

Ten Parkway North
 
4.75%
 
4.75%
 
1/1/2021
 
11,308

 
11,469

Union Cross Bldg. II
 
5.53%
 
6.50%
 
6/1/2021
 
5,382

 
5,755

Union Cross Bldg. I
 
5.50%
 
6.50%
 
7/1/2021
 
1,771

 
1,892

Norman Pointe I
 
5.24%
 
3.50%
 
10/1/2021
 
20,003

 
20,177


17
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Property
 
Stated
Interest Rate
 
Effective Interest Rate(1)
 
Maturity Date
 
Outstanding Balance
 
 
 
 
June 30,
 
December 31,
 
 
 
 
2015
 
2014
Norman Pointe II
 
5.24%
 
3.50%
 
10/1/2021
 
22,022

 
22,214

The Landings I
 
5.24%
 
3.50%
 
10/1/2021
 
15,054

 
15,185

The Landings II
 
5.24%
 
3.50%
 
10/1/2021
 
13,278

 
13,393

Fairforest Bldg. 5
 
6.33%
 
6.50%
 
2/1/2024
 
7,364

 
7,678

North Rhett IV
 
5.80%
 
6.50%
 
2/1/2025
 
7,574

 
7,862

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

 
12,938

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

 
10,854

Lakeside Office Center(6)
 
6.03%
 
6.03%
 
9/1/2015
 
—

 
8,617

Total Secured Notes Payable
 
 
 
 
 
 
 
555,729

 
596,008

Plus Premium
 
 
 
 
 
 
 
13,129

 
15,494

Less Discount
 
 
 
 
 
 
 
(781
)
 
(894
)
Total Secured Notes Payable, Net
 
 
 
 
 
 
 
$
568,077

 
$
610,608

__________
(1)
Represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of any discounts/premiums, excluding debt issuance costs.
(2)
These nine loans are cross-collateralized.
(3)
In accordance with the provisions of this loan, beginning in February 2015, the property's excess cash proceeds after the payment of debt service, impounds and budgeted operating expenses are being held by the lender until the loan is repaid or the property is re-leased to the existing tenant under terms described in the loan agreement.
(4)
These five loans are cross-collaterialized.
(5)
This loan was paid off in full on February 2, 2015 prior to the maturity date.
(6)
This loan was paid off in full on June 3, 2015 prior to the maturity date.
Unsecured Term Loan Facilities
The terms of our unsecured term loan facilities and outstanding balances as of June 30, 2015 and December 31, 2014 are set forth in the table below (in thousands):
Term Loan Facility
 
Unswapped Interest Rate
 
Effective Interest Rate(1)
 
Maturity Date
 
Outstanding Balance
 
 
 
 
June 30,
 
December 31,
 
 
 
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
WF Term Loan #2(2)
 
LIBOR + 1.50%
 
2.49%
 
3/7/2018
 
$
200,000

 
$
200,000

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

 
200,000

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

 
50,000

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

 
120,000

Total Unsecured Term Loan Facilities
 
 
 
 
 
 
 
$
570,000

 
$
570,000

__________
(1)
Represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the effect of the interest rate swaps, excluding debt issuance costs.
(2)
As of June 30, 2015 and December 31, 2014, the applicable LIBOR rate was 0.184% and 0.156%, respectively, for these loans.
(3)
As of June 30, 2015 and December 31, 2014, the applicable LIBOR rate was 0.184% and 0.155%, respectively, for this loan.

18
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Unsecured Revolving Credit Facility
The terms of our unsecured revolving credit facility are set forth in the table below (in thousands):
 
June 30,
 
December 31,
 
2015
 
2014
Outstanding Borrowings
$
240,044


$
200,044

Remaining Borrowing Capacity
609,956


649,956

Total Borrowing Capacity
$
850,000


$
850,000

Interest Rate(1)
1.49
%

1.46
%
Facility Fee(2)
30 bps


30 bps

Maturity Date(3)
January 15, 2018


January 15, 2018

__________
(1)
Calculated based on one-month LIBOR plus 1.30% as of June 30, 2015 and December 31, 2014.
(2)
The facility fee is based on the unsecured revolving credit facility's total borrowing capacity.
(3)
We may exercise an option to extend the maturity date by one year.
Debt Covenants and Restrictions
Certain of our secured notes payable are subject to financial covenants (interest coverage and loan to value ratio).
As of June 30, 2015, our unsecured term loan facilities and revolving credit facility were subject to certain financial covenants that require, among other things: the maintenance of (i) a leverage ratio of not more than 0.60; (ii) a fixed charge coverage ratio of at least 1.50; (iii) a secured leverage ratio of not more than (a) 0.45 prior to September 30, 2014 for the Capital One Term Loan, September 26, 2015 for WF Term Loan #2, WF Term Loan #3, and unsecured revolving credit facility, or March 6, 2015 for the TD Term Loan, or (b) 0.40 thereafter; (iv) an unencumbered leverage ratio of not more than 0.60; (v) minimum tangible net worth of $1.5 billion plus 85% of the net proceeds of certain future equity issuances; (vi) unencumbered asset value of at least $400.0 million; and (vii) a minimum of 10 Eligible Properties. In addition, our unsecured term loan facilities and revolving credit facility contain a number of customary non-financial covenants including those restricting liens, mergers, sales of assets, certain investments in unimproved land and mortgage receivables, intercompany transfers, transactions with affiliates and distributions. The Company has provided guarantees in connection with our unsecured term loan facilities and revolving credit facility. As of June 30, 2015, we were in compliance with all financial debt covenants.
The minimum principal payments due for our secured notes payable, unsecured term loan facilities and unsecured revolving credit facility are as follows as of June 30, 2015 (in thousands):
Remaining 2015
$
91,438

2016
134,612

2017
46,822

2018
512,612

2019
308,768

Thereafter
271,521

 
$
1,365,773


19
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


7. Risk Management and Use of Financial Instruments
Risk Management
In the course of our ongoing business operations, we encounter economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. We are subject to interest rate risk on our interest-bearing liabilities. Credit risk is primarily the risk of inability or unwillingness of tenants to make contractually required payments and of counterparties on derivatives contracts to fulfill their obligations. Market risk is the risk of declines in the value of our properties due to changes in rental rates, interest rates, supply and demand of similar products and other market factors affecting the valuation of properties.
Derivative Financial Instruments
We utilize interest rate swaps to mitigate the effects of interest rate fluctuations on our variable-rate loans. Our strategy is to use a swap to convert the floating-rate borrowing (usually a secured note payable or an unsecured term loan facility) where LIBOR is consistently applied into a fixed-rate obligation with the only variable piece remaining is the spread between different reset dates when/if the swap and debt are not lined up. We generally enter into an interest rate swap agreement concurrently with the origination of the variable-rate loan for an equivalent principal amount for a period covering the term of the loan, which effectively converts our variable-rate debt to a fixed-rate loan. Our use of derivative instruments, including swaps, is limited by policy to hedging or mitigating commercial risk and we do not use derivative instruments for speculative, trading or investment purposes.
The following table sets forth the terms of our interest rate swaps at June 30, 2015 and December 31, 2014 (amounts in thousands):
 
Notional Amount
 
Fair Value
 
Rate
 
 
 
 
Type of Hedging Instrument
June 30,
 
December 31,
 
June 30,
 
December 31,
 
June 30,
 
December 31,
 
Index
 
Maturity 
Date
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
 
Interest Rate Swap(1)
$
10,553

 
$
10,716

 
$
(127
)
 
$
(135
)
 
1.2
%
 
1.3
%
 
LIBOR
 
12/6/2016
Interest Rate Swap(2)
200,000

 
200,000

 
72

 
1,467

 
0.8
%
 
0.8
%
 
LIBOR
 
3/7/2018
Interest Rate Swap(1)
21,112

 
21,580

 
(413
)
 
(354
)
 
1.6
%
 
1.6
%
 
LIBOR
 
5/31/2018
Interest Rate Swap
200,000

 
200,000

 
(2,615
)
 
(1,540
)
 
1.4
%
 
1.5
%
 
LIBOR
 
1/15/2019
Interest Rate Swap(1)
6,187

 
6,280

 
(145
)
 
(127
)
 
1.8
%
 
1.8
%
 
LIBOR
 
1/31/2019
Interest Rate Swap(2)
50,000

 
50,000

 
40

 
266

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

 
120,000

 
(5,401
)
 
(5,543
)
 
2.4
%
 
2.4
%
 
LIBOR
 
1/31/2021
__________
(1)
We assumed this swap in connection with the purchase of the Duke Portfolio on March 1, 2013. This swap is considered a hedging instrument under ASC 815-20 as of June 30, 2015. The swap was not considered a hedging instrument under ASC 815-20 during the period from March 1, 2013 to March 31, 2013.
(2)
We entered into these swaps in connection with the origination of the TD Term Loan and WF Term Loan #1 in March 2013. These swaps are considered hedging instruments under ASC 815-20 as of June 30, 2015. These swaps were not considered hedging instruments under ASC 815-20 during the period from March 11, 2013 and March 12, 2013, respectively, to May 29, 2013.

20
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


We record all derivative instruments on a gross basis in the consolidated balance sheets. Accordingly, there are no offsetting amounts that net assets against liabilities. The asset and liability balances presented in the table below reflect the gross amounts of derivatives recorded in the consolidated balance sheets (in thousands):
 
Asset Derivatives
 
Liability Derivatives
 
 
 
Fair Value
 
 
 
Fair Value
 
 
 
June 30,
 
December 31,
 
 
 
June 30,
 
December 31,
Type of Instrument
Balance Sheet Location
 
2015
 
2014
 
Balance Sheet Location
 
2015
 
2014
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
Interest Rate Swaps
Prepaid Expenses and Other Assets
 
$
112

 
$
1,733

 
Accounts Payable, Accrued Expenses and Other Liabilities
 
$
8,701

 
$
7,699

The table below presents the effect of our derivative instruments on our consolidated statement of operations and consolidated statement of comprehensive income for the three and six months ended June 30, 2015 and 2014 (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Derivatives Designated as Cash Flow Hedges:
 
 
 
 
 
 
 
Gain (Loss) Recognized in Other Comprehensive Income (OCI) (Effective Portion)
$
1,225

 
$
(7,497
)
 
$
(6,963
)
 
$
(12,586
)
Loss Reclassified from AOCI into Interest Expense (Effective Portion)
(2,152
)
 
(2,367
)
 
(4,297
)
 
(4,695
)
Net Change in Fair Value of Derivative Financial Instruments (Ineffective Portion and Amount Excluded from Effectiveness Testing)
26

 
(14
)
 
43

 
12

At June 30, 2015, the Company expects that the hedged forecasted transactions, for each of the outstanding qualifying cash flow hedging relationships, remains probable of occurring. During the next twelve months we anticipate reclassifying $7.2 million of amounts currently recorded in accumulated other comprehensive income to earnings.
Concentration of Credit Risk
Our credit risk relates primarily to cash, restricted cash, and interest rate swap agreements. Cash accounts at each U.S. institution are insured by the Federal Deposit Insurance Corporation up to $250,000 through December 31, 2015.
We have not experienced any losses to date on our invested cash and restricted cash. The interest rate swap agreements create credit risk. Credit risk arises from the potential failure of counterparties to perform in accordance with the terms of their contracts. Our risk management policies define parameters of acceptable market risk and limit exposure to credit risk. Credit exposure resulting from derivative financial instruments is represented by their fair value amounts, increased by an estimate of potential adverse position exposure arising from changes over time in interest rates, maturities, and other relevant factors. We do not anticipate nonperformance by any of our counterparties.
Our consolidated properties are located throughout the United States and in the United Kingdom. The ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory, and social factors affecting the communities in which the tenants operate. In addition, we do not have any tenant whose rent exceeds 10% of our total rental revenue.

21
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


8. Future Minimum Rents
The following is a schedule of future minimum rents to be received on non-cancelable operating leases from consolidated properties as of June 30, 2015 (in thousands):
Remaining 2015
$
105,969

2016
194,475

2017
181,266

2018
163,914

2019
144,816

Thereafter
460,575

 
$
1,251,015

9. Related Party Transactions
As required by the Transitional Services Agreement, we and the former investment advisor have agreed on a list of unacquired real estate investments for which the former investment advisor has performed certain acquisition related consulting services prior to the termination of the Transitional Service Agreement (a "Qualifying Property"). If any Qualifying Property is acquired by us within the nine months following the termination of the Transitional Services Agreement then we shall pay an acquisition consulting fee equal to 0.75% of (i) the contract purchase price of the real estate investments (including debt), or (ii) when we make an investment indirectly through another entity, such investment's pro rata share of the gross asset value of real estate investments held by that entity to the former investment advisor.
During the year ended December 31, 2014, we acquired one Qualifying Property and paid the former investment advisor $0.2 million in acquisition consulting fees. There are no further Qualifying Properties under the Transitional Services Agreement and we do not anticipate paying the former investment advisor any further acquisition consulting fees.
Additionally, until June 30, 2017, if we attempt to effect certain types of transactions, including, but not limited to, a merger, consolidation or sale of 10% of more of our business, assets or voting securities (excluding the sale of any securities pursuant to a registration statement filed pursuant to the Securities Act of 1933, as amended), we have agreed under our Transition to Self-Management Agreement, by and among CB Richard Ellis Realty Trust, CBRE Operating Partnership, L.P., CBRE Global Investors, LLC and CBRE Advisors LLC, dated April 27, 2012 (the “Transition to Self-Management Agreement”) to engage CBRE Global Investors, LLC, our former sponsor, or an affiliate of our former sponsor to provide financial advice and assistance in connection therewith provided that such entity continues to have the sufficient expertise and resources to provide such financial advice and assistance. The transactional financial advisory fee payable by the Company to CBRE Global Investors or its affiliate upon the closing of a transaction will be equal to one-quarter of one percent (0.25%) of the consideration in the transaction, as defined in the Transition to Self-Management Agreement, plus the reimbursement of reasonable expenses. In accordance with the Transition to Self-Management Agreement, we engaged CBRE Global Investors, LLC in connection with the proposed merger with Gramercy, and CBRE Global Investors, LLC will be entitled to receive the aforementioned transaction advisory fee upon consummation of such merger.
10. Equity Incentive Plan and Performance Bonus Plan
Equity Incentive Plan
At our annual shareholders' meeting held on May 31, 2013, our shareholders approved the 2013 Equity Incentive Plan. Our key employees, directors, trustees, officers, advisors, consultants or other personnel of ours and our subsidiaries or other persons expected to provide significant services to us or our subsidiaries would be eligible to be granted incentive share options, non-qualified share options, share appreciation rights, restricted shares, restricted share units, dividend equivalent rights and other equity-based awards as contemplated in the 2013 Equity Incentive Plan. As of June 30, 2015, there were 3,332,627 common shares available for grant under the 2013 Equity Incentive Plan.

22
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


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

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

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

23
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


as well as its current dividend yield as of March 13, 2015. The expected life of the PSUs is equal to the remaining 2.8 year vesting period as of March 13, 2015.
Retirement of Mr. Cuneo
On March 5, 2015, Mr. Cuneo stepped down as President and Chief Executive Officer of the Company and resigned from the Board of Trustees of the Company. Pursuant to his Memorandum of Retirement dated November 9, 2014, Mr. Cuneo remained employed by the Company in a non-officer position through March 16, 2015. As part of his 2014 performance bonus, Mr. Cuneo received 75,000 Time-Based RSUs and 75,000 PSUs, which became fully vested upon his retirement. We recognized cash compensation of approximately $187,000 and non-cash compensation of approximately $3.3 million related to Mr. Cuneo’s retirement in 2015.
2014 Awards
On January 29, 2014, our Board's independent trustees, Messrs. Black, Brugger, Francis, Orphanides and Salvatore, were awarded equity grants under our 2013 Equity Incentive Plan on the following terms: (i) (x) Mr. Black's award was for 20,000 common shares, (y) Messrs. Orphanides and Salvatore each were awarded 5,000 common shares and (z) Messrs. Brugger and Francis each were awarded 1,550 common shares, for a total of 33,100 common shares awarded to trustees and (ii) each award vested in its entirety, upon issuance. We recorded compensation expense based upon the $7.87 price per share on January 29, 2014.
On February 26, 2014, the Company and Operating Partnership entered into an amendment to Martin A. Reid's employment agreement, effective as of January 1, 2013, increasing Mr. Reid's annual target Long Term Incentive Award to 90,000 restricted common shares of the Company.
On March 15, 2014, a total of 401,875 restricted common shares were granted to our named executive officers (Messrs. Cuneo, Kianka and Reid) based on each executive's achievement of performance objectives during 2013, as determined at the discretion of our Compensation Committee. Additionally, 25 of our employees were granted 143,450 restricted common shares, in the aggregate, on March 15, 2014. One-third of the restricted shares granted to our named executive officers and employees will vest on each of the first three anniversaries of grant if the grantee is employed by the Company on such anniversary. We recorded compensation expense based upon the $7.74 price per share on March 15, 2014. Compensation expense is recognized on a straight-line basis over the service vesting period of three years. We recognized share-based compensation expense of $169,000 and $339,000 during the three months ended June 30, 2015 and 2014, respectively, and $340,000 and $405,000 during the six months ended June 30, 2015 and 2014, respectively, as a result of granting the awards to our named executive officers and our employees.
On July 31, 2014, the Compensation Committee of the Board of Trustees of the Company (the “Compensation Committee”) adopted and approved an incentive bonus plan, a form of restricted share award agreement, and a form of restricted share unit award agreement that may be used in connection with awards made pursuant to the 2013 Equity Incentive Plan from time to time to the Company’s trustees, executive officers and other employees.
The incentive bonus plan is intended to provide additional incentive for key employees of the Company to perform to the best of their abilities, to further the growth, development and financial success of the Company, and to enable us to attract and retain qualified and talented individuals. Restricted shares are awarded to grantees based on a time-based vesting formula. Restricted share units represent a contingent commitment of the Company to issue shares to a grantee based on certain performance-based goals determined by the Compensation Committee.

24
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Summary of Time-Based Restricted Common Shares
A summary of our Time-Based Restricted Common Shares from January 1, 2015 through June 30, 2015 is presented below:
 
Nonvested Restricted Stock
 
Common Shares
 
Weighted-Average
Grant Date
Fair Value
per Share
Outstanding at January 1, 2015
800,699

 
$
8.68

Granted(1)
200,000

 
8.10

Vested(1)(2)
(728,963
)
 
8.50

Forfeited
(1,202
)
 
8.37

Outstanding at June 30, 2015
270,534

 
$
8.53

__________
(1)
Shares granted to Mr. Cuneo were fully vested upon his retirement.
(2)
Total shares vested include 331,485 common shares that were tendered in accordance with the terms of our 2013 Equity Incentive Plan to satisfy minimum state tax withholding requirements related to the restricted common shares that have vested. We accept the return of shares at the current quoted closing share price of the Company's common shares on the NYSE to satisfy tax obligations.
Summary of Time-Based Restricted Share Units
A summary of our Time-Based Restricted Share Units from January 1, 2015 through June 30, 2015 is presented below:
 
Nonvested RSUs
 
 
 
 
 
Amount
 
Weighted-Average Grant Date Fair Value Per Share
 
Vested RSUs
 
Total RSUs
Outstanding at January 1, 2015
—

 
$
—

 
—

 
—

Granted
237,422

 
7.78

 
—

 
237,422

Vested 
(75,000
)
 
7.78

 
75,000

 
—

Forfeited
(397
)
 
7.78

 
—

 
(397
)
Settled(1)
—

 
—

 
(75,000
)
 
(75,000
)
Outstanding at June 30, 2015
162,025

 
$
7.78

 
—

 
162,025

__________
(1)
Represents vested RSUs that were settled in shares of the Company's common shares. Total shares settled include 38,806 shares that were tendered in accordance with the terms of our 2013 Equity Incentive Plan to satisfy minimum state tax withholding requirements related to the RSU settled. We accept the return of shares at the current quoted closing share price of the Company's common shares on the NYSE to satisfy tax obligations.

25
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Summary of Performance Share Units
A summary of our Performance Share Units from January 1, 2015 through June 30, 2015 is presented below:
 
Nonvested PSUs
 
 
 
 
 
Amount
 
Weighted-Average Grant Date Fair Value Per Share
 
Vested PSUs
 
Total PSUs
Outstanding at January 1, 2015
—

 
$
—

 
—

 
—

Granted
237,440

 
6.56

 
—

 
237,440

Vested 
(75,000
)
 
7.78

 
75,000

 
—

Forfeited
(397
)
 
6.00

 
—

 
(397
)
Settled(1)
—

 
—

 
(75,000
)
 
(75,000
)
Outstanding at June 30, 2015
162,043

 
$
6.00

 
—

 
162,043

__________
(1)
Represents vested PSUs that were settled in shares of the Company's common shares. Total shares settled include 38,888 shares that were tendered in accordance with the terms of our 2013 Equity Incentive Plan to satisfy minimum state tax withholding requirements related to the PSU settled. We accept the return of shares at the current quoted closing share price of the Company's common shares on the NYSE to satisfy tax obligations.
 
2015
 
2014
 
(in thousands, except share data)
Compensation Expense Recorded During the Six Months Ended June 30(1)
$
4,629

 
$
1,924

Unamortized Compensation Costs
$
3,656

 
$
7,351

Shares Available for the Future Awards(2)
3,332,627

 
4,041,992

__________
(1)
2015 compensation expense includes severance expense totaling $3.3 million.
(2)
Shares available for the future awards includes units under our 2013 Equity Incentive Plan.
11. Shareholders' Equity
Common Shares
Under our current declaration of trust, we have the authority to issue a total of 1,000,000,000 shares of beneficial interest. Of the total shares authorized, 990,000,000 shares are designated as common shares, with a par value of $0.01 per share, and 10,000,000 shares are designated as preferred shares, with a par value of $0.01 per share. As of June 30, 2015 and December 31, 2014, there were no preferred shares issued or outstanding.
At-The-Market Offering
On November 6, 2013, we and CSP OP entered into four separate Equity Distribution Agreements with certain sales agents, pursuant to which we may sell, from time to time, subject to the restrictions contained in the Merger Agreement (as defined herein), our common shares having an aggregate offering price of up to $250.0 million. Sales of our common shares may be made in ordinary brokers' transactions on the NYSE, in negotiated transactions or transactions that are deemed to be "at the market" ("ATM") offerings, including sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices. We may use these proceeds and proceeds from the sale of its debt securities to repay debt, including borrowings under our unsecured revolving credit facility, to make acquisitions of properties or portfolios of properties, or for general corporate purposes. As of June 30, 2015 there have been no sales of common shares under the ATM program.

26
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Accumulated Other Comprehensive Income (Loss)
The following presents the changes in the balances of each component of accumulated other comprehensive income (loss) for the six months ended June 30, 2015 and 2014 (in thousands):
 
Foreign Currency
Translation Gain (Loss)
 
Swap Fair Value
Adjustment
 
Accumulated
Other Comprehensive
Income (Loss)
Balance at January 1, 2015
$
(17,513
)
 
$
(5,756
)
 
$
(23,269
)
Other Comprehensive Loss Before Reclassifications
(10,987
)
 
(6,963
)
 
(17,950
)
Amounts Reclassified from Accumulated Other Comprehensive Income to Interest Expense
—

 
4,297

 
4,297

Balance at June 30, 2015
$
(28,500
)
 
$
(8,422
)
 
$
(36,922
)
 
Foreign Currency
Translation Gain
 
Swap Fair Value
Adjustment
 
Accumulated
Other Comprehensive
Income (Loss)
Balance at January 1, 2014
$
1,670

 
$
2,926

 
$
4,596

Other Comprehensive Income (Loss) Before Reclassifications
2,153

 
(12,586
)
 
(10,433
)
Amounts reclassified from Accumulated Other Comprehensive Income to Interest Expense
—

 
4,695

 
4,695

Balance at June 30, 2014
$
3,823

 
$
(4,965
)
 
$
(1,142
)
12. Fair Value of Financial Instruments and Investments
We apply the three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical financial instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as instruments that have little to no pricing observability as of the reported date. These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
As of June 30, 2015 and December 31, 2014, we held certain items that were required to be measured at fair value on a recurring basis. These included cash equivalents, interest rate swap derivative contracts and our equity method investment in CBRE Strategic Partners Asia. Cash equivalents consist of short-term, highly liquid, income-producing investments, all of which have original maturities of 90 days or less, including money market funds and U.S. Government obligations. Derivative instruments are related to our economic hedging activities with respect to interest rates.
The fair values of the interest rate swap derivative agreements are estimated with the assistance of a third-party valuation specialist using the market standard methodology of discounting the future expected cash payments and receipts on the pay and receive legs of the interest rate swap agreements that swap the estimated variable rate mortgage note payment stream for a fixed rate receive payment stream over the period of the loan. The variable interest rates used in the calculation of projected receipts on the interest rate swap agreements are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements (where appropriate). Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of June 30, 2015 and December 31, 2014, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative

27
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


valuations in their entirety are classified in Level 2 of the fair value hierarchy. We have consistently applied these valuation techniques in all periods presented and believe we have obtained the most accurate information available for the types of derivative contracts we hold.
Our investment in CBRE Strategic Partners Asia is based on the Level 3 valuation inputs applied by the Investment Manager of this investment company utilizing a mix of different approaches for valuing the underlying real estate related investments within the investment company. The approaches include the income approach, direct market comparison approach and the replacement cost approach for newer properties. For investments owned more than one year, except for investments under construction or incurring significant renovation, it is CBRE Strategic Partners Asia’s policy to obtain a third-party appraisal. For investments in real estate under construction or incurring significant renovation, the valuation analysis is prepared by the Investment Manager. On a quarterly basis, the Company obtains the financial results of CBRE Strategic Partners Asia and on an annual basis the Company receives audited financial statements.
Impairment of Real Estate
During the year ended December 31, 2014, we recognized an impairment charge of $27.6 million in continuing operations related to our 70 Hudson Street property. Accordingly, we reduced the carrying value of this property to the property’s current estimated fair value of approximately $94.0 million. The inputs used to calculate the fair value included projected cash flows and risk-adjusted rate of return that we estimated would be used by a market participant in valuing the asset or by obtaining a range of third-party broker valuation estimates.
We utilized a discounted cash flow analysis to estimate the property's fair value. The unobservable inputs (Level 3) of our real estate that was recorded at fair value as of December 31, 2014 included a discount rate of 12%, a terminal capitalization rate of 6.5%, a market rent growth rate range of 3% - 3.4% and an expense growth rate of 3%.
The following items are measured at fair value on a recurring basis and non-recurring basis at June 30, 2015 and December 31, 2014 (in thousands):
 
As of June 30, 2015
 
Fair Value Measurements Using:
 
 
 
Quoted
Markets
Prices
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Fair Value
Assets (Liabilities)
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
1,574

 
$
—

 
$
—

 
$
1,574

Interest Rate Swaps Designated as Cash Flow Hedges - Assets
—

 
112

 
—

 
112

Interest Rate Swaps Designated as Cash Flow Hedges - Liabilities
—

 
(8,701
)
 
—

 
(8,701
)
Investment in CBRE Strategic Partners Asia
—

 
—

 
5,317

 
5,317

 

28
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


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

 
$
—

 
$
—

 
$
1,573

Interest Rate Swaps Designated as Cash Flow Hedges - Assets
—

 
1,733

 
—

 
1,733

Interest Rate Swaps Designated as Cash Flow Hedges - Liabilities
—

 
(7,699
)
 
—

 
(7,699
)
Investment in CBRE Strategic Partners Asia
—

 
—

 
6,870

 
6,870

Fair Value of Real Estate at Impairment(1)
—

 
—

 
94,000

 
94,000

__________
(1)
Represents a non-recurring fair value measurement.
The following table presents our activity for our investment in CBRE Strategic Partners Asia measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2015 and 2014, respectively (in thousands):
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
Investment in
CBRE Strategic
Partners Asia
Balance at January 1, 2015
 
$
6,870

Distributions
 
(1,385
)
Total Income on Fair Value Adjustment
 
762

Unrealized Loss in Fair Value Adjustment
 
(930
)
Balance at June 30, 2015
 
$
5,317

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

Total Loss on Fair Value Adjustment
 
(141
)
Balance at June 30, 2014
 
$
9,535

Disclosure of Fair Value Financial Instruments
For disclosure purposes only, the following table summarizes our notes payable and their estimated fair value at June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30, 2015
 
December 31, 2014
Financial Instrument
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Secured Notes Payable(1)
 
$
568,077

 
$
588,098

 
$
610,608

 
$
628,194

Unsecured Term Loan Facilities(1)
 
$
570,000

 
$
580,364

 
$
570,000

 
$
577,196

Unsecured Revolving Credit Facility(1)
 
$
240,044

 
$
240,044

 
$
200,044

 
$
200,044

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

29
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
13. Commitments and Contingencies
Ground Leases - We own a property that is subject to a long-term noncancellable ground lease obligation that contractually expires on November 30, 2032. We have three ten-year renewal options that will allow us to extend the expiration of the ground lease through November 30, 2062. The minimum commitment under the ground lease as of June 30, 2015 and thereafter is as follows (in thousands):
Remaining 2015
$
136

2016
273

2017
273

2018
276

2019
308

Thereafter
4,474

 
$
5,740

Litigation—From time to time, we and our properties may be subject to legal proceedings, which arise in the ordinary course of our business. Two putative class action lawsuits challenging the proposed merger between the Company and Gramercy have been filed in New York Supreme Court, New York County. A separate action asserting both class action and shareholder derivative claims challenging the proposed merger has been filed in the Circuit Court for Baltimore City, Maryland. The New York actions are captioned Berliner v. Gramercy Property Trust, et al., Index No. 652424/2015 (filed July 9, 2015) and Gensler v. Baum, et al., Index No. 157432/2015 (filed July 22, 2015) and the Maryland action is captioned Jobin v. DuGan, et al., Index No. 24-C-15-003942 (filed July 27, 2015). The lawsuits allege that the directors of Gramercy breached their fiduciary duties to Gramercy stockholders by agreeing to sell Gramercy for inadequate consideration and agreeing to improper deal protection terms in the Merger Agreement. The complaints further allege, among other things, that the Company and certain of its affiliates aided and abetted these purported breaches of fiduciary duties.  The lawsuits seek, among other things, an injunction barring the merger, rescission of the merger to the extent it is already implemented, and an award of damages. The defendants believe the lawsuits are without merit and will vigorously defend themselves in these actions.
Environmental Matters—We are not aware of any material environmental liability or any unasserted claim or assessment with respect to a material environmental liability that we believe would require additional disclosure or the recording of a loss contingency.
14. Segment Disclosure
We view our consolidated property operations as two reportable segments: Industrial Properties and Office Properties. In addition, we had one non-reportable segment, which was Retail Properties. However, during the third quarter ended September 30, 2014 we sold our last remaining retail property, therefore, eliminating the non-reportable segment from future reportable presentations. Management internally evaluates the operating performance and financial results of our segments based on net operating income. We also have certain general and administrative level activities including legal, accounting, tax preparation and shareholder servicing costs that are not considered separate operating segments.
We evaluate the performance of our segments based on net operating income, defined as: rental income, tenant reimbursements and other property income less property and related expenses (operating and maintenance and real estate taxes) and excludes other non-property income and expenses, interest expense, depreciation and amortization, and corporate general and administrative expenses.

30
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


The following table compares the net operating income for the three and six months ended June 30, 2015 and 2014 (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Industrial Properties
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Rental
$
18,568

 
$
13,980

 
$
36,954

 
$
28,125

Tenant Reimbursements
4,933

 
4,249

 
9,881

 
7,970

Other Property Income
250

 


 
448

 
—

Total Revenues
23,751

 
18,229

 
47,283

 
36,095

Property and Related Expenses:
 
 
 
 
 
 
 
Property Operating
1,359

 
1,215

 
3,231

 
2,706

Real Estate Taxes
3,884

 
3,601

 
7,716

 
6,730

Total Property and Related Expenses
5,243

 
4,816

 
10,947

 
9,436

Net Operating Income
$
18,508

 
$
13,413

 
$
36,336

 
$
26,659

Office Properties
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Rental
$
38,191

 
$
37,015

 
$
74,151

 
$
73,715

Tenant Reimbursements
9,899

 
10,300

 
21,390

 
21,776

Other Property Income
—

 
—

 
—

 
1,069

Total Revenues
48,090

 
47,315

 
95,541

 
96,560

Property and Related Expenses:
 
 
 
 
 
 
 
Property Operating
6,776

 
7,097

 
14,685

 
15,099

Real Estate Taxes
6,690

 
6,864

 
13,640

 
13,536

Total Property and Related Expenses
13,466

 
13,961

 
28,325

 
28,635

Net Operating Income
$
34,624

 
$
33,354

 
$
67,216

 
$
67,925

Non-Reportable Properties
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Rental
$
—

 
$
1,038

 
$
—

 
$
2,069

Tenant Reimbursements
—

 
46

 
—

 
69

Total Revenues
—

 
1,084

 
—

 
2,138

Property and Related Expenses:
 
 
 
 
 
 
 
Property Operating
—

 
80

 
—

 
140

Real Estate Taxes
—

 
—

 
—

 
—

Total Property and Related Expenses
—

 
80

 
—

 
140

Net Operating Income
$
—

 
$
1,004

 
$
—

 
$
1,998


31
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Reconciliation to Consolidated Net Income
 
 
 
 
 
 
 
Total Segment Net Operating Income
$
53,132

 
$
47,771

 
$
103,552

 
$
96,582

Expenses:
 
 
 
 
 
 
 
General and Administrative
11,697

 
5,953

 
21,570

 
12,817

Acquisition-Related
—

 
—

 
—

 
290

Depreciation and Amortization
27,933

 
27,126

 
55,853

 
54,364

Total Expenses
39,630

 
33,079

 
77,423

 
67,471

Income Before Other (Expenses) Income
13,502

 
14,692

 
26,129

 
29,111

Other Expenses and Income
 
 
 
 
 
 
 
Interest and Other Income
12

 
151

 
92

 
318

Interest Expense
(12,986
)
 
(13,907
)
 
(26,045
)
 
(27,968
)
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
26

 
(14
)
 
43

 
12

Gain on Sale of Real Estate
5,844

 
—

 
5,844

 
—

Income Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities
6,398

 
922

 
6,063

 
1,473

Provision for Income Taxes
(387
)
 
(381
)
 
(563
)
 
(439
)
Equity in Income of Unconsolidated Entities
3,676

 
4,612

 
10,181

 
7,438

Net Income
$
9,687

 
$
5,153

 
$
15,681

 
$
8,472

 
June 30,
 
December 31,
Assets
2015
 
2014
Industrial Properties
$
890,611

 
$
916,038

Office Properties
1,444,676

 
1,504,285

Non-Segment Assets(1)
465,376

 
449,485

Total Assets
$
2,800,663

 
$
2,869,808

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

32
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


15. Earnings per Share
The following table reconciles the numerator and denominator in computing the Company's basic and diluted per-share computations for net income for the three and six months ended June 30, 2015 and 2014 (in thousands except share data):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Numerator:
 
 
 
 
 
 
 
Net Income
$
9,687

 
$
5,153

 
$
15,681

 
$
8,472

Allocation to Participating Securities (Nonvested Restricted Shares and Vested RSUs)
(40
)
 
(125
)
 
(80
)
 
(252
)
Numerator for Basic and Diluted Net Income
$
9,647

 
$
5,028

 
$
15,601

 
$
8,220

Denominator:
 
 


 


 


Basic Weighted Average Shares Outstanding
236,900,677

 
237,000,613

 
236,922,064

 
236,793,334

Effect of Dilutive Securities - Non-Vested Time-Based RSU and PSUs
55,158

 
—

 
28,513

 
—

Diluted Weighted Average Shares Outstanding
236,955,835

 
237,000,613

 
236,950,577

 
236,793,334

Basic and Diluted Earnings Per Share:
 
 
 
 
 
 
 
Net Income per Share
$
0.04

 
$
0.02

 
$
0.07

 
$
0.03

16. Subsequent Events
Proposed Merger with Gramercy
On July 1, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Gramercy, and Columbus Merger Sub, LLC, a Maryland limited liability company and indirect wholly owned subsidiary of the Company (“Merger Sub” and together with the Company, the “Company Parties”), pursuant to which Gramercy will be merged with and into Merger Sub (the “Merger”), with Merger Sub continuing as the surviving entity of the Merger.
Pursuant to the terms and conditions in the Merger Agreement, at the effective time of the Merger, each share of Gramercy common stock issued and outstanding immediately prior to the effective time will be converted into the right to receive 3.1898 (the “Exchange Ratio”) validly issued, fully paid and nonassessable Company common shares of beneficial interest, par value $0.01 per share (the “Merger Consideration”). Additionally, each share of Gramercy’s 7.125% Series B Cumulative Redeemable Preferred Stock (“Gramercy Preferred Stock”) issued and outstanding prior to the effective time will be converted into a right to receive one newly issued share of 7.125% Series A Cumulative Redeemable Preferred Shares of the Company (“New Company Preferred Shares”), having preferences, rights and privileges substantially identical to the preferences, rights and privileges of the Gramercy Preferred Stock. Following the completion of the Merger, the Company will change its name to “Gramercy Property Trust” and it is anticipated that the Company’s common shares will cease to trade under its current ticker but rather trade on the New York Stock Exchange under the Gramercy ticker symbol “GPT”.
The Merger Agreement provides that, at the effective time of the Merger, Gramercy’s stock options, restricted stock awards, and restricted stock unit awards generally will convert upon the effective time of the Merger into share options, restricted share awards, and restricted share unit awards of the Company, as applicable, with respect to a number of Company common shares, after giving effect to appropriate adjustments to reflect the consummation of the Merger.
The Company Parties and Gramercy each made certain customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants by each party to conduct its business in all material respects in the ordinary course of business and use commercially reasonable efforts to preserve its business organization intact during the period between the execution of the Merger Agreement and the consummation of the Merger.

33
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


The parties’ obligations to consummate the Merger are subject to certain mutual conditions, including, without limitation, (i) the approval by the holders of a majority of the outstanding shares of Gramercy common stock entitled to vote on the adoption of the Merger Agreement at the special meeting of the Gramercy stockholders (the “Gramercy Stockholder Approval”), (ii) the approval by the holders of a majority of the Company common shares cast by the holders at the special meeting of the Company shareholders held to vote on the issuance of Company common shares in connection with the Merger (the “Company Shareholder Approval”), (iii) the absence of any law, order or injunction prohibiting the Merger, (iv) the effectiveness of the registration statement on Form S-4 to be filed by the Company for purposes of registering the Company common shares issuable in connection with the Merger and (v) the approval for listing on the New York Stock Exchange of the Company common shares to be issued in the Merger, the New Company Preferred Shares and Company common shares into which Gramercy’s 3.75% Exchangeable Senior Notes due 2019 may be converted. In addition, each party’s obligation to consummate the Merger is subject to certain other conditions, including, without limitation, (w) the accuracy of the other party’s representations and warranties (subject to customary materiality qualifiers) and the absence of any material adverse effect (as such term is defined in the Merger Agreement) with respect to the other party, (x) the other party’s compliance with its covenants and agreements contained in the Merger Agreement (subject to customary materiality qualifiers), (y) the receipt of opinions that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and (z) the receipt of customary opinions as to the qualification of the Company, Gramercy and certain subsidiaries of Gramercy as REITs under the Internal Revenue Code.
From the date of the Merger Agreement until the earlier of the effective time of the Merger and the termination of the Merger Agreement in accordance with its terms, the Company and Gramercy agree not to (and will cause their subsidiaries and their respective representatives not to) (i) solicit, initiate, knowingly encourage or facilitate any inquiries or the making of any proposal or offer with respect to a Competing Proposal (as defined in the Merger Agreement), (ii) engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any other person information in connection with or for the purpose of encouraging or facilitating, a Competing Proposal, (iii) approve, authorize or execute or enter into any letter of intent, option agreement, agreement or agreement in principle with respect to a Competing Proposal or (iv) propose or agree to do any of the foregoing. However, these restrictions are subject to customary “fiduciary-out” provisions which allow either the Company or Gramercy under certain circumstances to provide information to and participate in discussions with third parties with respect to unsolicited alternative acquisition proposals that the Company Board or the Gramercy Board (as applicable) has reasonably determined in good faith (after consultation with its outside legal counsel and independent financial advisors) is, or could reasonably be expected to lead to, a transaction more favorable to such party and its shareholders than the Merger and is reasonably likely to receive all required governmental approvals and financing on a timely basis and is otherwise capable of being completed on the terms proposed.
The Merger Agreement also contains certain termination rights for both the Company and Gramercy, including, but not limited to, if the Merger is not consummated on or before January 31, 2016 or if the Company Shareholder Approval or Gramercy Stockholder Approval are not obtained at the applicable stockholder meeting. The Merger Agreement further provides that, upon termination of the Merger Agreement under certain specified circumstances, including, but not limited to, termination of the Merger Agreement by the Company or Gramercy as a result of an adverse change in the recommendation of the Company Board or the Gramercy Board, as applicable, the Company may be required to pay to Gramercy a termination fee of $61,198,934, or Gramercy may be required to pay to the Company a termination fee of $43,505,889, in each case in addition to reimbursing $20 million of expenses of the other party.

34

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

35

•
our ability to refinance existing indebtedness or incur additional indebtedness;
•
ability to comply with our debt covenants;
•
unanticipated increases in financing and other costs, including a rise in interest rates;
•
the actual outcome of the resolution of any conflict;
•
material adverse actions or omissions by any of our joint venture partners;
•
our ability to operate as a self-managed company;
•
availability of and ability to retain our executive officers and other qualified personnel;
•
future terrorist attacks or epidemics in the United States or abroad;
•
the ability of CSP Operating Partnership, LP ("CSP OP") to qualify as a partnership for U.S. federal income tax purposes;
•
our ability to qualify as a real estate investment trust ("REIT") for U.S. federal income tax purposes;
•
foreign currency fluctuations;
•
changes to accounting principles and policies and guidelines applicable to REITs;
•
legislative or regulatory changes adversely affecting REITs and the real estate business;
•
environmental, regulatory and/or safety requirements;
•
our ability to obtain the required shareholder approval required to consummate the merger with Gramercy and the timing and closing of such merger, including the risks that a condition to closing would not be satisfied or that the closing of such merger will not occur;
•
the outcome of any legal proceedings that may be instituted against us and others related to the merger with Gramercy; and
•
other factors discussed under Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2014 and those factors that may be contained in any filing we make with the Securities and Exchange Commission (the "SEC"), including Part II, Item 1A of Form 10-Qs.
Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise. For a further discussion of these and other factors that could impact our future results, performance or transactions, see Item1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2014, and Item 1A,"Risk Factors" in this Quarterly Report on Form 10-Q.
Overview
We are a self-administered REIT focused on acquiring, owning and managing net leased industrial and office properties leased to creditworthy tenants. Our experienced management team manages our day-to-day operations, with certain services provided by third parties. All of our real estate investments are held directly by, or indirectly through wholly-owned subsidiaries of CSP OP of which we are the 100% owner and sole general partner. We have elected to be taxed as a REIT for U.S. federal income tax purposes.
We were formed in Maryland on March 30, 2004 and commenced operations in July 2004 following an initial private placement of our common shares. Since the Company was established, we have raised equity capital of approximately $2.5 billion in gross proceeds through two public offerings of our common shares to finance our real estate investment activities. On July 1, 2015, we entered into an Agreement and Plan of Merger with Gramercy, which agreement is further discussed below.
As of June 30, 2015, we owned, on a consolidated basis, 100 industrial (primarily warehouse/distribution) and office properties located in 18 U.S. states (Arizona, California, Colorado, Florida, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Texas and Virginia) and in the United Kingdom, encompassing approximately 24.9 million rentable square feet. Our consolidated properties were approximately 98.9% leased (based upon rentable square feet) as of June 30, 2015. As of June 30, 2015, 76 of our consolidated properties were net leased to single tenants, which encompassed approximately 20.2 million rentable square feet.
In addition, we owned, on an unconsolidated basis, 25 industrial (primarily warehouse/distribution) and office properties located in seven U.S. states (Arizona, Florida, Illinois, Indiana, Ohio, Tennessee and Texas) and in three European countries (France, Germany and the United

36

Kingdom) encompassing approximately 12.3 million rentable square feet. Our unconsolidated properties were approximately 99.9% leased (based upon rentable square feet) as of June 30, 2015. As of June 30, 2015, 20 of our unconsolidated properties were net leased to single tenants, which encompassed approximately 11.5 million rentable square feet.
Unless the context otherwise requires or indicates, references to the "Company," "we," "our" and "us" refer to the activities of and the assets and liabilities of the business and operations of Chambers Street Properties and its subsidiaries. References to unconsolidated properties include properties owned through unconsolidated joint ventures and do not include properties owned by CB Richard Ellis Strategic Partners Asia II-A, L.P. ("CBRE Strategic Partners Asia").
Proposed Merger Transaction with Gramercy
On July 1, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Gramercy, and Columbus Merger Sub, LLC, a Maryland limited liability company and indirect wholly owned subsidiary of the Company (“Merger Sub” and together with the Company, the “Company Parties”), pursuant to which Gramercy will be merged with and into Merger Sub (the “Merger”), with Merger Sub continuing as the surviving entity of the Merger.
Pursuant to the terms and conditions in the Merger Agreement, at the effective time of the Merger, each share of Gramercy common stock issued and outstanding immediately prior to the effective time will be converted into the right to receive 3.1898 (the “Exchange Ratio”) validly issued, fully paid and nonassessable Company common shares of beneficial interest, par value $0.01 per share (the “Merger Consideration”). Additionally, each share of Gramercy’s 7.125% Series B Cumulative Redeemable Preferred Stock (“Gramercy Preferred Stock”) issued and outstanding prior to the effective time will be converted into a right to receive one newly issued share of 7.125% Series A Cumulative Redeemable Preferred Shares of the Company (“New Company Preferred Shares”), having preferences, rights and privileges substantially identical to the preferences, rights and privileges of the Gramercy Preferred Stock. Following the completion of the Merger, the Company will change its name to “Gramercy Property Trust” and it is anticipated that the Company’s common shares will cease to trade under its current ticker but rather trade on the New York Stock Exchange under the Gramercy ticker symbol “GPT”.
The Merger Agreement provides that, at the effective time of the Merger, Gramercy’s stock options, restricted stock awards, and restricted stock unit awards generally will convert upon the effective time of the Merger into share options, restricted share awards, and restricted share unit awards of the Company, as applicable, with respect to a number of Company common shares, after giving effect to appropriate adjustments to reflect the consummation of the Merger.
The Company Parties and Gramercy each made certain customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants by each party to conduct its business in all material respects in the ordinary course of business and use commercially reasonable efforts to preserve its business organization intact during the period between the execution of the Merger Agreement and the consummation of the Merger.
The parties’ obligations to consummate the Merger are subject to certain mutual conditions, including, without limitation, (i) the approval by the holders of a majority of the outstanding shares of Gramercy common stock entitled to vote on the adoption of the Merger Agreement at the special meeting of the Gramercy stockholders (the “Gramercy Stockholder Approval”), (ii) the approval by the holders of a majority of the Company common shares cast by the holders at the special meeting of the Company shareholders held to vote on the issuance of Company common shares in connection with the Merger (the “Company Shareholder Approval”), (iii) the absence of any law, order or injunction prohibiting the Merger, (iv) the effectiveness of the registration statement on Form S-4 to be filed by the Company for purposes of registering the Company common shares issuable in connection with the Merger and (v) the approval for listing on the New York Stock Exchange of the Company common shares to be issued in the Merger, the New Company Preferred Shares and Company common shares into which Gramercy’s 3.75% Exchangeable Senior Notes due 2019 may be converted. In addition, each party’s obligation to consummate the Merger is subject to certain other conditions, including, without limitation, (w) the accuracy of the other party’s representations and warranties (subject to customary materiality qualifiers) and the absence of any material adverse effect (as such term is defined in the Merger Agreement) with respect to the other party, (x) the other party’s compliance with its covenants and agreements contained in the Merger Agreement (subject to customary materiality qualifiers), (y) the receipt of opinions that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986 (the "Internal Revenue Code"), as amended, and (z) the receipt of customary opinions as to the qualification of the Company, Gramercy and certain subsidiaries of Gramercy as REITs under the Internal Revenue Code.
From the date of the Merger Agreement until the earlier of the effective time of the Merger and the termination of the Merger Agreement in accordance with its terms, the Company and Gramercy agree not to (and will cause their subsidiaries and their respective representatives not to) (i) solicit, initiate, knowingly encourage or facilitate any inquiries or the making of any proposal or offer with respect to a Competing Proposal (as defined in the Merger Agreement), (ii) engage in, continue or otherwise participate in any discussions or negotiations regarding,

37

or furnish to any other person information in connection with or for the purpose of encouraging or facilitating, a Competing Proposal, (iii) approve, authorize or execute or enter into any letter of intent, option agreement, agreement or agreement in principle with respect to a Competing Proposal or (iv) propose or agree to do any of the foregoing. However, these restrictions are subject to customary “fiduciary-out” provisions which allow either the Company or Gramercy under certain circumstances to provide information to and participate in discussions with third parties with respect to unsolicited alternative acquisition proposals that the Company Board or the Gramercy Board (as applicable) has reasonably determined in good faith (after consultation with its outside legal counsel and independent financial advisors) is, or could reasonably be expected to lead to, a transaction more favorable to such party and its shareholders than the Merger and is reasonably likely to receive all required governmental approvals and financing on a timely basis and is otherwise capable of being completed on the terms proposed.
The Merger Agreement also contains certain termination rights for both the Company and Gramercy, including, but not limited to, if the Merger is not consummated on or before January 31, 2016 or if the Company Shareholder Approval or Gramercy Stockholder Approval are not obtained at the applicable stockholder meeting. The Merger Agreement further provides that, upon termination of the Merger Agreement under certain specified circumstances, including, but not limited to, termination of the Merger Agreement by the Company or Gramercy as a result of an adverse change in the recommendation of the Company Board or the Gramercy Board, as applicable, the Company may be required to pay to Gramercy a termination fee of $61,198,934, or Gramercy may be required to pay to the Company a termination fee of $43,505,889, in each case in addition to reimbursing $20 million of expenses of the other party.
This description of certain terms of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is filed as an exhibit to a Current Report on Form 8-K which was filed on July 1, 2015.
Additional Information And Where to Find It
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the transaction with Gramercy, the Company expects to file a registration statement on Form S-4 with the SEC containing a preliminary joint proxy statement of the Company and Gramercy that also constitutes a preliminary prospectus of the Company. After the registration statement is declared effective, Gramercy and the Company will mail a definitive proxy statement/prospectus to stockholders of Gramercy and shareholders of the Company. This material is not a substitute for the joint proxy statement/prospectus or registration statement or for any other document that Gramercy or the Company may file with the SEC and send to Gramercy’s stockholders and/or the Company’s shareholders in connection with the proposed transactions. INVESTORS AND SECURITY HOLDERS OF GRAMERCY AND THE COMPANY ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
Investors and security holders will be able to obtain free copies of the proxy statement/prospectus (when available) and other documents filed with the SEC by Gramercy or the Company through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Gramercy will be available free of charge on Gramercy’s website at www.gptreit.com, or by contacting Gramercy’s Investor Relations Department at (212) 297-1000. Copies of the documents filed with the SEC by the Company will be available free of charge on the Company’s website at www.chambersstreet.com or by contacting the Company’s Investor Relations Department at (609) 683-4900.
Gramercy, the Company, their respective directors/trustees and certain of their respective executive officers may be considered participants in the solicitation of proxies with respect to the proposed transactions under the rules of the SEC. Information about the directors and executive officers of Gramercy is set forth in its Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the SEC on March 9, 2015, its proxy statement for its 2015 annual meeting of stockholders, which was filed with the SEC on May 11, 2015, and other filings filed with the SEC. Information about the trustees and executive officers of the Company is set forth in its Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the SEC on March 2, 2015, the amendments thereto on Form 10-K/A, which were filed with the SEC on March 30, 2015 and April 30, 2015, and other filings filed with the SEC. These documents can be obtained free of charge from the sources indicated above. Additional information regarding the participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, will also be included in any proxy statement and other relevant materials to be filed with the SEC when they become available.
Business Strategy
We focus on investing in industrial and office properties that are primarily net leased to investment grade or creditworthy tenants on long-term leases through acquisitions of existing properties or build-to-suit projects. We believe the credit quality of many of our tenants, the length of our leases, the relatively modest capital expense requirements of our industrial properties and our single-tenant focus help us to enhance

38

shareholder value. We monitor the credit of our tenants to stay abreast of any material changes in credit quality. We monitor tenant credit by (1) reviewing the credit ratings of tenants (or their parent companies) that are rated by nationally recognized rating agencies, (2) reviewing financial statements that are publicly available or that are required to be delivered to us under the applicable lease, (3) monitoring news reports regarding our tenants and their underlying businesses and (4) monitoring the timeliness of rent collections. We also believe that our senior management team's extensive experience helps us to identify and consummate the acquisition and development of high-quality net leased properties. Our strategy has been to grow our portfolio with properties targeted to provide steady income, sustaining tenant relationships and enhancing the value of our existing properties, with a focus on the following, subject to the restrictions contained in the Merger Agreement:
Acquisitions. We believe high-quality industrial and office properties, which are net leased to tenants with strong credit profiles, represent attractive investments. We target acquisitions in markets with above-average projected rental growth, strong tenant demand and significant barriers to new construction. During the six months ended June 30, 2015, we acquired an 11.8 acre undeveloped parcel adjacent to Goodyear Crossing II in Phoenix, Arizona for approximately $1.7 million.
Build-to-Suit Opportunities. We may consider build-to-suit opportunities that have attractive development yields and leased to tenants with strong credit profiles on a long-term basis.
Maximize Cash Flow Through Internal Growth. We target investments with fixed rent escalations over long term leases that provide stable, increasing cash flow. We have typically structured our property acquisitions to achieve a positive spread between our cost of capital and the yields achieved on our investments. A majority of our existing leases typically have embedded rental rate growth as they provide for periodic increases in rent.
Capital Recycling. We consider selectively disposing of properties that are no longer consistent with our investment strategy or whose returns appear to have been maximized. During the six months ended June 30, 2015, consistent with our investment strategy to focus on single-tenant industrial and office properties, we sold an office property located in North Carolina and held in the Duke JV for approximately $20.6 million, of which our pro rata share was approximately $16.4 million and our pro rata gain was approximately $2.4 million. In addition, we sold two wholly-owned properties for approximately $57.3 million with a gain of of approximately $5.8 million, after closing and other transaction related costs.
Actively Manage a Strong and Flexible Capital Structure. We expect to maintain a prudent capital structure with access to multiple sources of equity and debt financing. We continue to stagger our debt maturities and utilize a balance of secured and unsecured borrowings. We continue to have a mix of fixed and floating-rate debt and intend to maintain modest total leverage. As a means to reduce our exposure to foreign currency fluctuations, we endeavor to retain debt in the local currency of our international properties.
During the six months ended June 30, 2015, we completed the following activities in order to maintain a prudent capital structure:
•
On February 2, 2015, we paid off the note payable secured by One Wayside Road in the amount of approximately $23.8 million prior to their maturity dates of August 1, 2015.
•
On June 3, 2015, we paid off the note payable secured by Lakeside Office Center in the amount of approximately $8.6 million prior to its maturity date of September 1, 2015.
Factors that May Influence the Results of Operations
Economic conditions, leasing activity and real estate capital availability all continue to improve. Industrial leasing activity has strengthened over the past few years with the improvement in economic drivers such as employment, industrial production, international trading volumes and consumer confidence. Office leasing activity is also improving with recovering employment, beginning in the tech and energy sectors, and now broadening across other sectors including business and financial services, and healthcare. Whereas industrial and office leasing activity in the immediately preceding years was substantially weighted toward large corporate tenants, starting in 2013, activity trended towards normalization in the market for smaller tenants.
In concert with this leasing activity, market rent trends remain positive in most major markets. Driven by market rent growth and investor demand, construction and development activity has begun to increase, including both single-tenant build-to-suit and speculative projects. Beginning in 2013, we observed speculative construction activity expanding to a wider selection of markets, although development still remains below long-term averages.
Debt and equity capital for commercial real estate investment is broadly available. While there has been increased competition to acquire properties, we are seeing transactions in many markets that are consistent with our strategy, particularly in the eastern part of the United

39

States. Rents have generally continued to grow and vacancies are trending downward. We are also seeing more attractive transactions that have shorter duration lease terms. E-commerce sales growth has been strong and continues to be a large driver of demand for warehouse/distribution space.
Leasing Activity
Our ability to maintain high occupancy rates is a principal driver of maintaining and increasing rental revenue. Our leasing activity for the three months ended June 30, 2015 is presented in the table below ($ in thousands):
 
 
 
Prior Lease (1)
New Lease (1)
 
 
 
Square Feet
 
Annualized Base Rent(2)
 
Annualized Base Rent(2)
 
Tenant
Improve-
ments
& Leasing
Commis-
sions(4)
 
Average Lease Term (in years)(5)
 
 
Cash
 
GAAP(3)
 
Cash
 
GAAP(3)
 
 
Industrial Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
115,000

 
$
453

 
$
436

 
$
411

 
$
444

 
$
5

 
1.72

New Tenants - Not Previously Leased Space(7)
76,459

 
—

 
—

 
234

 
241

 
3

 
1.18

Total Consolidated
191,459

 
453

 
436

 
645

 
685

 
8

 
1.52

Consolidated & Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
115,000

 
453

 
436

 
411

 
444

 
5

 
1.72

New Tenants - Not Previously Leased Space(7)
76,459

 
—

 
—

 
234

 
241

 
3

 
1.18

Total Consolidated & Unconsolidated
191,459

 
453

 
436

 
645

 
685

 
8

 
1.52

Office Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
22,981

 
407

 
360

 
403

 
408

 
156

 
2.78

Total Consolidated
22,981

 
407

 
360

 
403

 
408

 
156

 
2.78

Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
9,799

 
163

 
156

 
172

 
181

 
178

 
4.43

Total Unconsolidated
9,799

 
163

 
156

 
172

 
181

 
178

 
4.43

Consolidated & Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
32,780

 
570

 
516

 
575

 
589

 
334

 
3.27

Total Consolidated & Unconsolidated
32,780

 
570

 
516

 
575

 
589

 
334

 
3.27

Total Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
137,981

 
860

 
796

 
814

 
852

 
161

 
2.24

New Tenants - Not Previously Leased Space(7)
76,459

 
—

 
—

 
234

 
241

 
3

 
1.18

Total Consolidated
214,440

 
860

 
796

 
1,048

 
1,093

 
164

 
2.01

Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
9,799

 
163

 
156

 
172

 
181

 
178

 
4.43

Total Unconsolidated
9,799

 
163

 
156

 
172

 
181

 
178

 
4.43

Consolidated & Unconsolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewals
147,780

 
1,023

 
952

 
986

 
1,033

 
339

 
2.62

New Tenants - Not Previously Leased Space(7)
76,459

 
—

 
—

 
234

 
241

 
3

 
1.18

Total Consolidated & Unconsolidated
224,239

 
$
1,023

 
$
952

 
$
1,220

 
$
1,274

 
$
342

 
2.35

__________
(1)
Prior lease amounts represent rents in place at the time of expiration or termination. New lease amounts represent rents in place at the time of lease commencement. For certain leases, prior lease amounts are adjusted for comparability to new lease amounts (i.e. if a prior lease is gross and the new lease is net, the prior amounts are adjusted accordingly).
(2)
Cash Annualized Base Rent for each lease equals (i) 12 times the monthly cash base rent due as of June 30, 2015, or (ii) for any lease still in an initial free or reduced rent period as of June 30, 2015, 12 times the monthly cash base rent due upon expiration of the initial free or reduced rent period. U.S. Generally Accepted Accounting Principles ("GAAP") Annualized Base Rent includes the effect of straight-line rent. Cash and GAAP annualized base rent amounts for unconsolidated properties are included at pro rata share.
(3)
GAAP amounts for prior leases include above/below market rents if applicable.
(4)
Includes tenant improvement costs and lease commissions incurred to execute the lease and not necessarily paid in the current quarter.
(5)
Weighted average initial lease term (in years) weighted by annualized cash base rent.
(6)
Represents leases signed to new tenants for space that was previously leased since the later of (i) twelve months ago or (ii) the date we acquired the property.
(7)
Represents leases signed to new tenants for space that was not previously leased since the later of (i) twelve months ago or (ii) the date we acquired the property.

40

The following table sets forth percentage leased and average annual net effective rent information regarding our total portfolio of consolidated properties and unconsolidated properties as of June 30, 2015 and 2014. Percentage leased information is presented at 100% and average annual net effective rent information is presented at our pro-rata share for our unconsolidated properties (in thousands, except percentage data):
 
Total Square Feet
 
% of Total Square Feet
 
% Leased
 
Average Annual
Net Effective Rent(1)
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Consolidated Properties:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
7,188

 
7,559

 
28.9
%
 
32.7
%
 
98.8
%
 
96.7
%
 
$
148,996

 
$
148,538

Industrial
17,711

 
15,380

 
71.1
%
 
66.6
%
 
99.0
%
 
92.5
%
 
74,485

 
56,647

Other
—

 
144

 
—
%
 
0.7
%
 
—%

 
100.0
%
 
—

 
3,980

Total
24,899

 
23,083

 
100.0
%
 
100.0
%
 
98.9
%
 
93.9
%
 
$
223,481

 
$
209,165

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated Properties:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
667

 
1,202

 
5.4
%
 
9.4
%
 
98.9
%
 
94.3
%
 
$
9,023

 
$
20,172

Industrial
11,627

 
11,627

 
94.6
%
 
90.6
%
 
100.0
%
 
100.0
%
 
39,070

 
55,336

Total
12,294

 
12,829

 
100.0
%
 
100.0
%
 
99.9
%
 
99.5
%
 
$
48,093

 
$
75,508

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated and Unconsolidated Properties:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
7,855

 
8,761

 
21.1
%
 
24.4
%
 
98.9
%
 
96.4
%
 
$
158,019

 
$
168,710

Industrial
29,338

 
27,007

 
78.9
%
 
75.2
%
 
99.4
%
 
95.7
%
 
113,555

 
111,983

Other
—

 
144

 
—
%
 
0.4
%
 
—%

 
100.0
%
 
—

 
3,980

Total
37,193

 
35,912

 
100.0
%
 
100.0
%
 
99.3
%
 
95.9
%
 
$
271,574

 
$
284,673

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

41

Tenant Lease Expirations
Our ability to maintain occupancy rates, and net effective rents, primarily depends upon our continuing ability to re-lease expiring space. We have limited near term lease expirations with an average remaining lease term of 6.02 years as of June 30, 2015. In addition, approximately 87% of our base rent is scheduled to expire after 2016. The following table sets forth a schedule of expiring leases for our consolidated and unconsolidated properties as of June 30, 2015 (Expiring Net Rentable Square Feet and Expiring Base Rent in thousands):
 
Consolidated Properties
 
Unconsolidated
Properties(1)
 
Consolidated &
Unconsolidated
Properties(1)
 
Expiring
Net Rentable
Square Feet
 
Expiring
Base Rent
 
Expiring
Net Rentable
Square Feet
 
Expiring
Base Rent
 
Number Of
Expiring
Leases
 
Expiring
Net Rentable
Square Feet
 
Expiring
Base Rent
 
Percentage
of Expiring
Base Rent
Remaining 2015
639

 
$
3,695

 
17

 
$
309

 
11

 
656

 
$
4,004

 
1.4
%
2016
1,822

 
32,217

 
547

 
2,235

 
31

 
2,369

 
34,452

 
11.8
%
2017
1,858

 
16,368

 
873

 
4,064

 
25

 
2,731

 
20,432

 
7.0
%
2018
2,017

 
20,902

 
2,091

 
9,866

 
31

 
4,108

 
30,768

 
10.5
%
2019
3,843

 
26,554

 
2,815

 
10,932

 
27

 
6,658

 
37,486

 
12.8
%
2020
2,046

 
15,362

 
104

 
2,352

 
19

 
2,150

 
17,714

 
6.1
%
2021
4,834

 
38,115

 
2,167

 
8,667

 
21

 
7,001

 
46,782

 
16.0
%
2022
663

 
7,907

 
1,364

 
5,903

 
7

 
2,027

 
13,810

 
4.7
%
2023
3,353

 
30,432

 
1,188

 
4,852

 
19

 
4,541

 
35,284

 
12.1
%
2024
705

 
19,859

 
12

 
264

 
5

 
717

 
20,123

 
6.9
%
Thereafter
2,855

 
26,828

 
1,107

 
4,609

 
17

 
3,962

 
31,437

 
10.7
%
Total
24,635

 
$
238,239

 
12,285

 
$
54,053

 
213

 
36,920

 
$
292,292

 
100.0
%
Weighted Average Remaining Term (Years) (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Triple Net Single-Tenant Properties(3)
 
 
6.05

 
 
 
5.78

 
 
 
 
 
6.00

 
 
Multi-Tenant Properties
 
 
7.27

 
 
 
4.89

 
 
 
 
 
6.96

 
 
Other Single-Tenant Properties
 
 
3.66

 
 
 
4.50

 
 
 
 
 
3.76

 
 
Total Weighted Average Remaining Term (Years)(2)
 
 
6.12

 
 
 
5.61

 
 
 
 
 
6.02

 
 
__________
(1)
Expiring Net Rentable Square Feet for Unconsolidated Properties is at 100%. Expiring Base Rent for Unconsolidated Properties is at our pro rata share of effective ownership.
(2)
Weighted Average Remaining Term is the average remaining term weighted by Expiring Base Rent.
(3)
Triple Net Single-Tenant Properties include certain properties that have minimal secondary tenant(s).
The leases scheduled to expire during the remainder of 2015 and in 2016 represent approximately 3.0 million rentable square feet or 13.2% of our total expiring base rent. We believe that, on average, the current market rental rates are approximately 20% below the expiring cash rental rates and approximately 3% below the expiring GAAP rental rates for leases scheduled to expire during the remainder of 2015 and in 2016, although individual properties within any particular market presently may be leased either above, below, or at the current quoted market rates within that market, and the average rental rates for individual markets may be above, below, or at the average cash rental rate of our overall portfolio. Our ability to re-lease available space depends upon both general market conditions and the market conditions in the specific regions in which individual properties are located.

42

Property Portfolio Size
Our portfolio size at the end of each quarter since commencement of our initial public offering (October 24, 2006) through June 30, 2015 is as follows (Net Rentable Square Feet and Approximate Total Acquisition Cost in thousands):
 
 
Consolidated Properties
 
Unconsolidated Properties(1)
 
Consolidated &
Unconsolidated
Properties(1)
Cumulative
Property
Portfolio as of:
 
Properties
 
Net Rentable
Square Feet
 
Approximate
Total
Acquisition
Cost
 
Properties
 
Net Rentable
Square Feet
 
Approximate
Total
Acquisition
Cost
 
Properties
 
Net Rentable
Square Feet
 
Approximate
Total
Acquisition
Cost
12/31/2006
 
9

 
878

 
$
86,644

 
—

 
—

 
$
—

 
9

 
878

 
$
86,644

3/31/2007
 
9

 
878

 
86,644

 
—

 
—

 
—

 
9

 
878

 
86,644

6/30/2007
 
10

 
928

 
110,491

 
—

 
—

 
—

 
10

 
928

 
110,491

9/30/2007
 
42

 
5,439

 
348,456

 
—

 
—

 
—

 
42

 
5,439

 
348,456

12/31/2007
 
44

 
5,576

 
353,594

 
—

 
—

 
—

 
44

 
5,576

 
353,594

3/31/2008
 
47

 
6,257

 
426,856

 
—

 
—

 
—

 
47

 
6,257

 
426,856

6/30/2008
 
47

 
6,257

 
426,856

 
1

 
605

 
35,636

 
48

 
6,862

 
462,492

9/30/2008
 
49

 
6,483

 
486,777

 
6

 
3,307

 
193,773

 
55

 
9,790

 
680,550

12/31/2008
 
52

 
6,771

 
582,682

 
8

 
5,649

 
273,205

 
60

 
12,420

 
855,887

3/31/2009
 
52

 
6,771

 
582,717

 
8

 
5,649

 
273,130

 
60

 
12,420

 
855,847

6/30/2009
 
53

 
7,106

 
598,103

 
11

 
5,976

 
305,308

 
64

 
13,082

 
903,411

9/30/2009
 
57

 
7,805

 
719,822

 
11

 
5,976

 
305,202

 
68

 
13,781

 
1,025,024

12/31/2009
 
60

 
8,630

 
791,314

 
13

 
6,904

 
356,158

 
73

 
15,534

 
1,147,472

3/31/2010
 
58

 
8,407

 
748,835

 
18

 
7,392

 
418,818

 
76

 
15,799

 
1,167,653

6/30/2010
 
62

 
9,086

 
916,210

 
22

 
8,633

 
471,615

 
84

 
17,719

 
1,387,825

9/30/2010
 
63

 
9,295

 
983,810

 
22

 
8,633

 
471,615

 
85

 
17,928

 
1,455,425

12/31/2010
 
73

 
12,800

 
1,308,560

 
30

 
9,901

 
629,268

 
103

 
22,701

 
1,937,828

3/31/2011
 
73

 
12,800

 
1,308,560

 
43

 
11,950

 
903,508

 
116

 
24,750

 
2,212,068

6/30/2011
 
75

 
14,614

 
1,657,966

 
43

 
12,356

 
917,566

 
118

 
26,970

 
2,575,532

9/30/2011
 
74

 
13,906

 
1,689,048

 
43

 
12,355

 
918,771

 
117

 
26,261

 
2,607,819

12/31/2011
 
77

 
14,434

 
1,747,299

 
45

 
13,851

 
997,506

 
122

 
28,285

 
2,744,805

3/31/2012
 
78

 
15,784

 
1,824,403

 
46

 
13,997

 
1,007,753

 
124

 
29,781

 
2,832,156

6/30/2012
 
78

 
15,784

 
1,842,359

 
46

 
13,997

 
1,007,753

 
124

 
29,781

 
2,850,112

9/30/2012
 
78

 
16,831

 
1,920,218

 
46

 
13,997

 
1,008,246

 
124

 
30,828

 
2,928,464

12/31/2012
 
82

 
18,995

 
2,070,272

 
47

 
15,067

 
1,071,267

 
129

 
34,062

 
3,141,539

3/31/2013
 
99

 
22,314

 
2,572,995

 
30

 
11,748

 
713,722

 
129

 
34,062

 
3,286,717

6/30/2013
 
99

 
22,405

 
2,573,034

 
30

 
11,748

 
713,722

 
129

 
34,153

 
3,286,756

9/30/2013
 
101

 
22,791

 
2,630,692

 
30

 
11,748

 
713,722

 
131

 
34,539

 
3,344,414

12/31/2013
 
99

 
22,460

 
2,595,194

 
30

 
12,807

 
740,525

 
129

 
35,267

 
3,335,719

3/31/2014
 
100

 
23,082

 
2,625,394

 
29

 
12,702

 
728,205

 
129

 
35,785

 
3,353,599

6/30/2014
 
100

 
23,083

 
2,625,394

 
29

 
12,829

 
734,556

 
129

 
35,912

 
3,359,950

9/30/2014
 
100

 
23,453

 
2,618,304

 
29

 
12,829

 
734,556

 
129

 
36,282

 
3,352,860

12/31/2014
 
102

 
25,325

 
2,668,298

 
26

 
12,416

 
694,432

 
128

 
37,741

 
3,362,730

3/31/2015
 
102

 
25,325

 
2,669,973

 
25

 
12,294

 
676,432

 
127

 
37,619

 
3,346,405

6/30/2015
 
100

 
24,900

 
2,623,441

 
25

 
12,294

 
676,432

 
125

 
37,193

 
3,299,873

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

43

Critical Accounting Policies
Refer to our Annual Report on Form 10-K for the year ended December 31, 2014 for a discussion of our critical accounting policies. There have been no changes to these policies during the six months ended June 30, 2015.
Significant Tenants
The following table details our largest tenants as of June 30, 2015 ($ in thousands):
 
 
 
 
 
Credit Rating(1)
 
Consolidated &
Unconsolidated
Properties(2)
 
% of
Cash
An-nual-
ized
Base
Rent
 
Major Tenants(3)
 
Primary Industry
 
S&P
 
Moody's
 
Net
Rentable
Square
Feet
 
Annualized
Base Rent
 
 
 
 
 
 
Cash
 
GAAP(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1
Amazon.com
 
Internet Retail
 
 AA-
 
 Baa1
 
6,540,667

 
$
26,465

 
$
25,618

 
9.7
%
2
Barclay's Capital
 
Financial Services
 
 A
 
 A2
 
409,272

 
12,278

 
9,917

 
4.5
%
3
Raytheon Company
 
Defense and Aerospace
 
 A
 
 A3
 
666,290

 
10,582

 
11,248

 
3.9
%
4
Lord Abbett & Co.
 
Financial Services
 
—
 
—
 
405,630

 
10,069

 
10,370

 
3.7
%
5
U.S. General Services Administration
 
Government
 
 AA+
 
 Aa1
 
285,179

 
9,958

 
10,268

 
3.7
%
6
JP Morgan Chase
 
Financial Services
 
 A
 
 A3
 
396,179

 
6,212

 
6,626

 
2.3
%
7
Nuance Communications, Inc.
 
Software
 
 BB-
 
 Ba3
 
200,605

 
6,095

 
5,842

 
2.2
%
8
Endo Health Solutions Inc.
 
Pharmaceutical and Healthcare Related
 
—
 
—
 
299,809

 
5,846

 
7,771

 
2.1
%
9
Comcast of California
 
Telecommunications
 
 A-
 
 A3
 
219,631

 
5,205

 
5,042

 
1.9
%
10
Eisai, Inc.
 
Pharmaceutical and Healthcare Related
 
—
 
—
 
208,911

 
5,189

 
5,217

 
1.9
%
11
PPD Development LP
 
Pharmaceutical and Healthcare Related
 
 B
 
 B3
 
251,475

 
4,991

 
4,643

 
1.8
%
12
Charles Komar & Sons, Inc.
 
Apparel Retail
 
—
 
—
 
159,341

 
4,933

 
4,093

 
1.8
%
13
The Coleman Company, Inc.
 
Consumer Products
 
 BB
 
 Ba3
 
1,107,000

 
4,760

 
4,569

 
1.7
%
14
Deloitte LLP
 
Professional Services
 
—
 
—
 
175,000

 
4,740

 
4,660

 
1.7
%
15
Clorox International Co
 
Consumer Products
 
 BBB+
 
 Baa1
 
1,350,000

 
4,484

 
4,429

 
1.6
%
16
Unilever
 
Consumer Products
 
 A+
 
 A1
 
1,594,760

 
4,250

 
4,058

 
1.6
%
17
Nationwide Mutual Insurance Co
 
Insurance
 
 A+
 
 A1
 
315,102

 
3,884

 
3,761

 
1.4
%
18
Humana
 
Pharmaceutical and Healthcare Related
 
 BBB+
 
 Baa3
 
226,822

 
3,788

 
3,731

 
1.4
%
19
Carl Zeiss Meditec
 
Pharmaceutical and Healthcare Related
 
—
 
—
 
201,620

 
3,770

 
3,395

 
1.4
%
20
ConAgra Foods Packaged Foods, LLC
 
Food Service and Retail
 
 BBB-
 
 Baa2
 
741,860

 
3,423

 
3,408

 
1.3
%
21
Whirlpool Corporation
 
Consumer Products
 
 BBB
 
 Baa2
 
1,020,000

 
3,385

 
3,429

 
1.2
%
22
Kimberly-Clark Global Sales, Inc.
 
Consumer Products
 
 A
 
 A2
 
744,080

 
3,348

 
3,368

 
1.2
%
23
Space Exploration Technologies Corp
 
Defense and Aerospace
 
—
 
—
 
514,753

 
3,348

 
3,913

 
1.2
%
24
SBM Atlantia, Inc.
 
Petroleum and Mining
 
—
 
—
 
171,091

 
3,293

 
2,659

 
1.2
%
25
Prime Distribution Services
 
Logistics Distribution
 
—
 
—
 
1,200,420

 
3,256

 
3,038

 
1.2
%
26
Noxell Corporation
 
Consumer Products
 
—
 
—
 
800,797

 
3,240

 
3,274

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

 
3,201

 
2,794

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

 
3,098

 
3,154

 
1.1
%
29
Kellogg Sale Company
 
Consumer Products
 
 BBB+
 
 Baa2
 
1,142,400

 
3,033

 
2,854

 
1.1
%
30
Royal Caribbean Cruises Ltd
 
Travel/Leisure
 
 BB
 
 Ba1
 
128,540

 
2,951

 
2,462

 
1.1
%
31
Time Warner Cable Inc.
 
Telecommunications
 
 BBB
 
 Baa2
 
134,000

 
2,814

 
2,655

 
1.0
%
32
REMEC Defense and Space
 
Defense and Aerospace
 
—
 
—
 
132,685

 
2,736

 
2,753

 
1.0
%
33
Syngenta Seeds Inc
 
Agriculture
 
 A+
 
 A2
 
116,338

 
2,728

 
2,575

 
1.0
%
34
American Home Mortgage
 
Financial Services
 
—
 
—
 
182,700

 
2,713

 
2,676

 
1.0
%
35
Dr Pepper / Seven up, Inc.
 
Food Service and Retail
 
 BBB+
 
 Baa1
 
601,500

 
2,611

 
2,720

 
1.0
%
36
Disney Vacation Development
 
Travel/Leisure
 
 A
 
 A2
 
100,924

 
2,609

 
2,121

 
1.0
%
37
Mercy Health Partners of SW Ohio
 
Pharmaceutical and Healthcare Related
 
—
 
 A1
 
124,671

 
2,580

 
2,221

 
0.9
%
38
Citicorp North America, Inc.
 
Financial Services
 
 A-
 
 Baa2
 
175,695

 
2,574

 
2,551

 
0.9
%
39
Verizon Wireless
 
Telecommunications
 
 BBB+
 
 Baa1
 
180,147

 
2,519

 
2,408

 
0.9
%
40
Lear Operations Corporation
 
Vehicle Related Manufacturing
 
 BB+
 
 Ba2
 
477,263

 
2,448

 
2,203

 
0.9
%
 
Other (approx 142) tenants
 
12,377,402

 
73,175

 
71,800

 
26.8
%
 
 
 
 
 
 
 
 
 
36,919,777

 
$
272,582

 
$
266,294

 
100.0
%
__________
(1)
Credit rating is for our tenant, its guarantor or its parent company.
(2)
Includes unconsolidated properties held through our Duke/Hulfish, LLC joint venture (the "Duke JV"), our joint venture in Europe (the "European JV") and Goodman Princeton Holdings (Jersey) Limited joint venture (the "UK JV"). Net Rentable Square Feet is at 100% and annualized base rent is at our pro rata share of effective ownership.
(3)
In certain cases in which our tenant is a wholly-owned subsidiary of its parent company, the parent company is listed as our tenant.
(4)
Includes amortization of straight line rent, above-market leases and lease inducement. Excludes operating expense reimbursements.


44

Results of Operations
As of June 30, 2015, we owned and operated 100 consolidated office and industrial properties and 25 unconsolidated office and industrial properties. As of June 30, 2014, we owned and operated 100 consolidated office, industrial and other properties and 29 unconsolidated office and industrial properties. Our consolidated leased percentage as of June 30, 2015 and 2014 was 98.9% and 93.9%, respectively. Our unconsolidated leased percentage as of June 30, 2015 and 2014 was 99.9% and 99.5%, respectively.
We had no property acquisitions during the six months ended June 30, 2015. The properties acquired during 2014 are presented in the table below:
Property
 
Market
 
Date of
Acquisition
 
Property
Type
 
Purchase
Price ('000s)
 
Rentable
Square
Feet
2014 Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
445 Airtech Parkway
 
Indianapolis
 
IN
 
1/2/2014
 
Industrial
 
$
30,200

 
622,440

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

 
514,753

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

 
502,500

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

 
744,080

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

 
615,600

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

 
144,000

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

 
140,800

Total 2014 Wholly-Owned Property Acquisitions
 
 
 
$
203,600

 
3,284,173

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


45

Comparison of Three Months Ended June 30, 2015 to Three Months Ended June 30, 2014
The following table summarizes the historical results of operations of our portfolio for the three months ended June 30, 2015 and 2014 (in thousands):
 
For the Three Months Ended June 30,
 
 
 
 
 
2015
 
2014
 
$
Change
 
%
Change
 
 
 
 
 
 
 
 
Net Operating Income, as defined
$
53,132

 
$
47,771

 
$
5,361

 
11.2
 %
Expense:
 
 
 
 


 


General and Administrative
11,697

 
5,953

 
5,744

 
96.5
 %
Depreciation and Amortization
27,933

 
27,126

 
807

 
3.0
 %
Total Expenses
39,630

 
33,079

 
6,551

 
19.8
 %
Income Before Other (Expenses) Income
13,502

 
14,692

 
(1,190
)
 
(8.1
)%
Other Expenses and Income:
 
 
 
 
 
 
 
Interest and Other Income
12

 
151

 
(139
)
 
(92.1
)%
Interest Expense
(12,986
)
 
(13,907
)
 
921

 
(6.6
)%
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
26

 
(14
)
 
40

 
(285.7
)%
Gain on Sale of Real Estate
5,844

 
—

 
5,844

 
100.0
 %
Total Other Expenses
(7,104
)
 
(13,770
)
 
6,666

 
(48.4
)%
Income Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities
6,398

 
922

 
5,476

 
593.9
 %
Provision for Income Taxes
(387
)
 
(381
)
 
(6
)
 
1.6
 %
Equity in Income of Unconsolidated Entities
3,676

 
4,612

 
(936
)
 
(20.3
)%
Net Income
$
9,687

 
$
5,153

 
$
4,534

 
88.0
 %

46

The following tables summarize the Net Operating Income, as defined, for our total portfolio, excluding our unconsolidated properties, for the three months ended June 30, 2015 and 2014 (in thousands):
 
Three Months Ended June 30, 2015
 
Same
Office
Properties(1)
 
Same
Industrial
Properties(1)
 
Acquisition
Industrial
Properties(2)
 
Other (3)
 
Total
Rental Revenue
$
37,154

 
$
14,646

 
$
3,922

 
$
1,037

 
$
56,759

Tenant Reimbursement
9,738

 
4,143

 
790

 
161

 
14,832

Other Property Income
—

 
250

 
—

 
—

 
250

Total Revenues
46,892

 
19,039

 
4,712

 
1,198

 
71,841

Property Operating
6,685

 
996

 
309

 
145

 
8,135

Real Estate Taxes
6,505

 
3,358

 
477

 
234

 
10,574

Total Expenses
13,190

 
4,354

 
786

 
379

 
18,709

Net Operating Income
$
33,702

 
$
14,685

 
$
3,926

 
$
819

 
$
53,132

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2014
 
Same
Office
Properties(1)
 
Same
Industrial
Properties(1)
 
Acquisition
 Industrial
Properties(2)
 
Other (3)
 
Total
Rental Revenue
$
34,791

 
$
13,516

 
$
464

 
$
3,262

 
$
52,033

Tenant Reimbursement
9,771

 
4,166

 
83

 
575

 
14,595

Other Property Income
—

 
—

 
—

 
—

 
—

Total Revenues
44,562

 
17,682

 
547

 
3,837

 
66,628

Property Operating
6,630

 
1,094

 
44

 
624


8,392

Real Estate Taxes
6,514

 
3,495

 
36

 
420

 
10,465

Total Expenses
13,144

 
4,589

 
80

 
1,044

 
18,857

Net Operating Income
$
31,418

 
$
13,093

 
$
467

 
$
2,793

 
$
47,771

__________
(1)
Properties owned as of January 1, 2014 and still owned as of June 30, 2015.
(2)
Includes results, from the dates of acquisition through the periods presented, for the industrial properties acquired during 2014.
(3)
Includes results from properties sold during 2014 and 2015.
 
Three Months Ended June 30, 2015 as compared to the Three Months Ended June 30, 2014
 
Same Office
Properties
 
Same Industrial
Properties
 
Acquisition Industrial
Properties
 
Other
 
Total
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
Rental Revenue
$
2,363

 
6.8
 %
 
$
1,130

 
8.4
 %
 
$
3,458

 
745.3
%
 
$
(2,225
)
 
(68.2
)%
 
$
4,726

 
9.1
 %
Tenant Reimbursement
(33
)
 
(0.3
)%
 
(23
)
 
(0.6
)%
 
707

 
851.8
%
 
(414
)
 
(72.0
)%
 
237

 
1.6
 %
Other Property Income
—

 
—
 %
 
250

 
100.0
 %
 
—

 
—
%
 
—

 
—
 %
 
250

 
100.0
 %
Total Revenues
2,330

 
5.2
 %
 
1,357

 
7.7
 %
 
4,165

 
761.4
%
 
(2,639
)
 
(68.8
)%
 
5,213

 
7.8
 %
Property Operating
55

 
0.8
 %
 
(98
)
 
(9.0
)%
 
265

 
602.3
%
 
(479
)
 
(76.8
)%
 
(257
)
 
(3.1
)%
Real Estate Taxes
(9
)
 
(0.1
)%
 
(137
)
 
(3.9
)%
 
441

 
92.5
%
 
(186
)
 
(44.3
)%
 
109

 
1.0
 %
Total Expenses
46

 
0.3
 %
 
(235
)
 
(5.1
)%
 
706

 
882.5
%
 
(665
)
 
(63.7
)%
 
(148
)
 
(0.8
)%
Net Operating Income
$
2,284

 
7.3
 %
 
$
1,592

 
12.2
 %
 
$
3,459

 
740.7
%
 
$
(1,974
)
 
(70.7
)%
 
$
5,361

 
11.2
 %
Net Operating Income
Net Operating Income increased $5.4 million, or 11.2%, for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014 as a result of:
•
A net increase in revenues of $5.2 million which is primarily due to:
◦
$4.2 million from our Acquisition Industrial Properties for rental and tenant reimbursement revenue;

47

◦
$3.7 million from our Same Office Properties and Same Industrial Properties (collectively the "Same Properties") which is primarily a result of:
▪
an increase of $2.1 million in rental revenue and tenant reimbursement revenue due to higher occupancy
▪
and $0.3 million in lease termination revenue recognized (included in Other Property Revenue);
◦
partially offset by a reduction of $2.6 million due to the properties sold in 2014 and 2015;
•
And a net decrease of $0.1 million in property operating expenses and real estate taxes due to:
◦
a reduction of $0.7 million for the properties sold in 2014 and 2015;
◦
and a reduction of $0.1 million from our Same Industrial Properties due to slightly lower operating expenses and real estate taxes
◦
partially offset by an increase of $0.7 million from our Acquisition Industrial Properties.
Other Expenses and Income
General and Administrative
General and administrative expense increased $5.7 million, or 96.5%, to $11.7 million for the three months ended June 30, 2015 compared to $6.0 million for the three months ended June 30, 2014. The increase was primarily due to $5.7 million of expenses related to the proposed merger with Gramercy Property Trust Inc.
Depreciation and Amortization
Depreciation and amortization expense increased $0.8 million, or 3.0%, to $27.9 million for the three months ended June 30, 2015 as compared to $27.1 million for the three months ended June 30, 2014. The increase was primarily due to properties acquired during 2014.
Interest and Other Income
Interest and other income decreased $0.1 million, or 92.1%, to $12,000 for the three months ended June 30, 2015 compared to $0.2 million for the three months ended June 30, 2014.
Interest Expense
Interest expense decreased $0.9 million, or 6.6%, to $13.0 million for the three months ended June 30, 2015 compared to $13.9 million for the three months ended June 30, 2014 primarily as a result of a decrease in our outstanding debt balance.
Gain on Sale of Real Estate
During the three months ended June 30, 2015, we recognized a gain of $5.8 million related to the sale of two properties. We did not sell any properties during the three months ended June 30, 2014.
Equity in Income of Unconsolidated Entities
Equity in income of unconsolidated entities decreased $0.9 million, or 20.3%, to $3.7 million for the three months ended June 30, 2015 compared to $4.6 million for the three months ended June 30, 2014. During the three months ended June 30, 2015, we recognized $0.5 million reduction in the income from the Duke JV due to the disposition of five properties during 2014 and 2015. In addition, we recognized a $0.5 million reduction in the income from the European JV due to foreign currency fluctuations.


48

Comparison of Six Months Ended June 30, 2015 to Six Months Ended June 30, 2014
The following table summarizes the historical results of operations of our portfolio for the six months ended June 30, 2015 and the six months ended June 30, 2014 (in thousands):
 
For the Six Months Ended June 30,
 
 
 
 
 
2015
 
2014
 
$
Change
 
%
Change
 
 
 
 
 
 
 
 
Net Operating Income, as defined
$
103,552

 
$
96,582

 
$
6,970

 
7.2
 %
Expense:
 
 
 
 


 
 
General and Administrative
21,570

 
12,817

 
8,753

 
68.3
 %
Acquisition-Related
—

 
290

 
(290
)
 
(100.0
)%
Depreciation and Amortization
55,853

 
54,364

 
1,489

 
2.7
 %
Total Expenses
77,423

 
67,471

 
9,952

 
14.8
 %
Income Before Other (Expenses) Income
26,129

 
29,111

 
(2,982
)
 
(10.2
)%
Other Expenses and Income:
 
 
 
 
 
 
 
Interest and Other Income
92

 
318

 
(226
)
 
(71.1
)%
Interest Expense
(26,045
)
 
(27,968
)
 
1,923

 
(6.9
)%
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
43

 
12

 
31

 
258.3
 %
Gain on Sale of Real Estate
5,844

 
—

 
5,844

 
100.0
 %
Total Other Expenses
(20,066
)
 
(27,638
)
 
7,572

 
(27.4
)%
Income Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities
6,063

 
1,473

 
4,590

 
311.6
 %
Provision for Income Taxes
(563
)
 
(439
)
 
(124
)
 
28.2
 %
Equity in Income of Unconsolidated Entities
10,181

 
7,438

 
2,743

 
36.9
 %
Net Income
$
15,681

 
$
8,472

 
$
7,209

 
85.1
 %

49

The following tables summarize the Net Operating Income, as defined, for our total portfolio, excluding our unconsolidated properties, for the six months ended June 30, 2015 and 2014 (in thousands):
 
Six Months Ended June 30, 2015
 
Same
Office
Properties(1)
 
Same
Industrial
Properties(1)
 
Acquisition
Industrial
Properties(2)
 
Other (3)
 
Total
Rental Revenue
$
72,007

 
$
29,133

 
$
7,821

 
$
2,143

 
$
111,104

Tenant Reimbursement
21,121

 
8,203

 
1,678

 
270

 
31,272

Other Property Income
—

 
448

 
—

 
—

 
448

Total Revenues
93,128

 
37,784

 
9,499

 
2,413

 
142,824

Property Operating
14,487

 
2,237

 
734

 
458

 
17,916

Real Estate Taxes
13,259

 
6,600

 
973

 
524

 
21,356

Total Expenses
27,746

 
8,837

 
1,707

 
982

 
39,272

Net Operating Income
$
65,382

 
$
28,947

 
$
7,792

 
$
1,431

 
$
103,552

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2014
 
Same
Office
Properties(1)
 
Same
Industrial
Properties(1)
 
Acquisition
Industrial
Properties(2)
 
Other (3)
 
Total
Rental Revenue
$
69,192

 
$
27,185

 
$
940

 
$
6,592

 
$
103,909

Tenant Reimbursement
20,725

 
7,807

 
163

 
1,120

 
29,815

Other Property Income
1,069

 
—

 
—

 
—

 
1,069

Total Revenues
90,986

 
34,992

 
1,103

 
7,712

 
134,793

Property Operating
14,147

 
2,354

 
126

 
1,318

 
17,945

Real Estate Taxes
12,834

 
6,559

 
36

 
837

 
20,266

Total Expenses
26,981

 
8,913

 
162

 
2,155

 
38,211

Net Operating Income
$
64,005

 
$
26,079

 
$
941

 
$
5,557

 
$
96,582

__________
(1)
Properties owned as of January 1, 2014 and still owned as of June 30, 2015.
(2)
Includes results, from the dates of acquisition through the periods presented, for the industrial properties acquired during 2014.
(3)
Includes results from properties sold during 2014 and 2015.
 
Six Months Ended June 30, 2015 as compared to the Six Months Ended June 30, 2014
 
Same Office
Properties
 
Same Industrial
Properties
 
Acquisition Industrial
Properties
 
Other
 
Total
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
 
$ Change
 
% Change
Rental Revenue
$
2,815

 
4.1
%
 
$
1,948

 
7.2
 %
 
$
6,881

 
732.0
%
 
$
(4,449
)
 
(67.5
)%
 
$
7,195

 
6.9
 %
Tenant Reimbursement
396

 
1.9
%
 
396

 
5.1
 %
 
1,515

 
929.4
%
 
(850
)
 
(75.9
)%
 
1,457

 
4.9
 %
Other Property Income
(1,069
)
 
—
%
 
448

 
—
 %
 
—

 
—
%
 
—

 
—
 %
 
(621
)
 
100.0
 %
Total Revenues
2,142

 
2.4
%
 
2,792

 
8.0
 %
 
8,396

 
761.2
%
 
(5,299
)
 
(68.7
)%
 
8,031

 
6.0
 %
Property Operating
340

 
2.4
%
 
(117
)
 
(5.0
)%
 
608

 
482.5
%
 
(860
)
 
(65.3
)%
 
(29
)
 
(0.2
)%
Real Estate Taxes
425

 
3.3
%
 
41

 
0.6
 %
 
937

 
2,602.8
%
 
(313
)
 
(37.4
)%
 
1,090

 
5.4
 %
Total Expenses
765

 
2.8
%
 
(76
)
 
(0.9
)%
 
1,545

 
953.7
%
 
(1,173
)
 
(54.4
)%
 
1,061

 
2.8
 %
Net Operating Income
$
1,377

 
2.2
%
 
$
2,868

 
11.0
 %
 
$
6,851

 
728.1
%
 
$
(4,126
)
 
(74.2
)%
 
$
6,970

 
7.2
 %
Net Operating Income
Net Operating Income increased $7.0 million, or 7.2%, for the six months ended June 30, 2015 as compared to the six months ended June 30, 2014 as a result of:
•
A net increase in revenues of $8.0 million which is primarily due to:
◦
$8.4 million from our Acquisition Industrial Properties for rental and tenant reimbursement revenue;

50

◦
$4.9 million from our Same Properties which is primarily a result of:
▪
an increase of $5.4 million in rental revenue and tenant reimbursement revenue due to higher occupancy and
▪
a reduction of $0.6 million in lease termination revenue recognized (included in Other Property Revenue);
◦
partially offset by a reduction of $5.3 million due to the properties sold in 2014 and 2015;
•
And a net increase of $1.1 million in property operating expenses and real estate taxes due to:
◦
$1.5 million from our Acquisition Industrial Properties;
◦
a net increase of $0.7 million from our Same Properties which is primarily comprised of:
▪
an increase of $0.8 million in operating expenses and real estate taxes for our Same Office Properties and
▪
a slight decrease of $0.1 million in operating expenses for our Same Industrial Properties;
◦
partially offset by a reduction of $1.2 million due to the properties sold in 2014 and 2015.
Other Expenses and Income
General and Administrative
General and administrative expense increased $8.8 million, or 68.3%, to $21.6 million for the six months ended June 30, 2015 compared to $12.8 million for the six months ended June 30, 2014. The increase was primarily due to $4.2 million of severance and transition-related expenses due to the retirement of our president and chief executive officer incurred during the first quarter of 2015 and $5.7 million of expenses related to the proposed merger with Gramercy Property Trust Inc. incurred during the second quarter of 2015.
Acquisition-Related
Acquisition-related expenses decreased $0.3 million, or 100.0%, for the six months ended June 30, 2015 as compared to the six months ended June 30, 2014 since we did not have any property acquisitions during the six months ended June 30, 2015.
Depreciation and Amortization
Depreciation and amortization expense increased $1.5 million, or 2.7%, to $55.9 million for the six months ended June 30, 2015 as compared to $54.4 million for the six months ended June 30, 2014. The increase was primarily due to properties acquired during 2014.
Interest and Other Income
Interest and other income decreased $0.2 million, or 71.1%, to $0.1 million for the six months ended June 30, 2015 compared to $0.3 million for the six months ended June 30, 2014.
Interest Expense
Interest expense decreased $1.9 million, or 6.9%, to $26.0 million for the six months ended June 30, 2015 compared to $28.0 million for the six months ended June 30, 2014 primarily as a result of a decrease in our outstanding debt balance.
Gain on Sale of Real Estate
During the six months ended June 30, 2015, we had a gain of $5.8 million related to the sale of two properties. We did not sell any properties during the six months ended June 30, 2014.
Equity in Income of Unconsolidated Entities
Equity in income of unconsolidated entities increased $2.7 million, or 36.9%, to $10.2 million for the six months ended June 30, 2015 compared to $7.4 million for the six months ended June 30, 2014. The increase was primarily due to our pro rata gain of $2.4 million for the sale of a property held by the Duke JV during the six months ended June 30, 2015.

51

Liquidity and Capital Resources
Sources of Liquidity
Liquidity is a measurement of the ability to meet cash requirements, which principally include funding investments and ongoing commitments, to repay borrowings, to make distributions to our shareholders and other general business needs. Subject to the restrictions contained in the Merger Agreement, our sources of funds will primarily be property operating cash flows, borrowings, including under our unsecured revolving credit facility, term loans or other forms of secured or unsecured financing that we may enter into from time to time, and net proceeds from divestitures of properties. Other financing opportunities, subject to the restrictions contained in the Merger Agreement, could provide additional sources of funds, including the issuance of common equity (through our at-the-market offering program or otherwise), preferred equity or debt securities. Our ability to raise funds is dependent on general economic conditions, general market conditions for REITs, and our operating performance. We believe that these cash resources will be sufficient to satisfy our cash requirements and we do not anticipate a need to raise funds from other than these sources within the next twelve months. We believe that we have sufficient cash flow from operations to continue as a going concern for the next twelve months and into the foreseeable future. From time to time, we may consider strategic transactions, which may include a sale, merger, acquisition or other form of business combination or recapitalization.
While we may be able to anticipate and plan for certain liquidity needs, there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations. For example, we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties, thereby increasing our liquidity needs. Even if there are no material changes to our anticipated liquidity requirements, our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or needed. As of June 30, 2015, we had $94.3 million in cash as well as approximately$610.0 million available under our unsecured revolving credit facility. Of the $94.3 million in cash, approximately $0.7 million is held in a financial institution in the United Kingdom.
See the discussion above and in Note 16 to the consolidated financial statements included elsewhere herein regarding restrictions under the Merger Agreement to which the Company is subject.
Net Cash Flow from Operations
Cash flow from operations is our primary source of liquidity and is dependent upon the occupancy level of our portfolio, the net effective rental rates achieved on our leases, the collectability of rent and operating escalations and recoveries from our tenants and the level of operating and other costs. The properties in our portfolio are primarily located in markets throughout the United States. Positive or negative changes in economic or other conditions, adverse weather conditions and natural disasters in these markets may affect our overall performance.
Unsecured Term Loan Facilities
Subject to the restrictions contained in the Merger Agreement, we may enter into unsecured term loan facilities from time to time for general corporate purposes, to fund potential acquisitions and to potentially repay long-term debt.
The following table summarizes the balance and terms of our unsecured term loan facilities as of June 30, 2015 and December 31, 2014 (in thousands):
 
 
 
 
 
 
 
 
Outstanding Balance
 
 
Unswapped
Interest Rate
 
Effective
Interest Rate(1)
 
Maturity Date
 
June 30,
 
December 31,
Term Loan Facility
 
 
 
 
2015
 
2014
WF Term Loan #2(2)
 
LIBOR + 1.50%
 
2.49%
 
3/7/2018
 
$
200,000

 
$
200,000

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

 
200,000

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

 
50,000

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

 
120,000

Total Unsecured Term Loan Facilities
 
$
570,000

 
$
570,000

__________
(1)
Represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the effect of the interest rate swaps, excluding debt issuance costs.
(2)
As of June 30, 2015 and December 31, 2014, the applicable London Inter-Bank Offering Rate ("LIBOR") rate was 0.184% and 0.156%, respectively, for these loans.
(3)
As of June 30, 2015 and December 31, 2014, the applicable LIBOR rate was 0.184% and 0.155%, respectively, for this loan.

52

Unsecured Revolving Credit Facility
Subject to the restrictions contained in the Merger Agreement, we may borrow under our unsecured revolving credit facility from time to time for general corporate purposes, to fund potential acquisitions and to potentially repay long-term debt. The following table summarizes the balance and terms of our unsecured revolving credit facility as of June 30, 2015 and December 31, 2014, respectively (in thousands):
 
June 30,
 
December 31,
 
2015
 
2014
Outstanding Borrowings
$
240,044

 
$
200,044

Remaining Borrowing Capacity
609,956

 
649,956

Total Borrowing Capacity
$
850,000

 
$
850,000

Interest Rate(1)
1.49
%
 
1.46
%
Facility Fee(2)
30 bps

 
30 bps

Maturity Date(3)
January 15, 2018

 
January 15, 2018

_________
(1)
Calculated based on one-month LIBOR plus 1.30% as of June 30, 2015 and December 31, 2014.
(2)
The facility fee is based on the unsecured revolving credit facility's total borrowing capacity.
(3)
We may exercise an option to extend the maturity date by one year.
Secured Debt Financing
From time to time, we partially fund property acquisitions with secured mortgage financing. The following table details our encumbered and unencumbered properties as of June 30, 2015 (Approximate Acquisition Cost and Debt Balance in thousands):
 
Consolidated Properties
 
Unconsolidated Properties(1)
 
Consolidated &
Unconsolidated Properties(1)
 
Properties
 
Approximate
Acquisition Cost
 
Debt
Balance
 
Properties
 
Approximate
Acquisition Cost
 
Debt
Balance
 
Properties
 
Approximate
Acquisition Cost
 
Debt
Balance
Encumbered Properties
38

 
$
1,144,740

 
$
555,729

 
12

 
$
334,106

 
$
144,964

 
50

 
$
1,478,846

 
$
700,693

Unencumbered Properties
62

 
1,478,701

 
—

 
13

 
342,326

 
—

 
75

 
1,821,027

 
—

Total Properties
100

 
$
2,623,441

 
$
555,729

 
25

 
$
676,432

 
$
144,964

 
125

 
$
3,299,873

 
$
700,693

__________
(1)
Number of Properties at 100%. Approximate Acquisition Cost and Debt Balance for Unconsolidated Properties is at our pro rata share of effective ownership. Does not include our investment in CBRE Strategic Partners Asia.
Depending on market conditions, and subject to the restrictions contained in the Merger Agreement, our debt financing may be as much as approximately 65% of the value of the cost of our assets before non-cash reserves and depreciation. The amount of debt we place on an individual property, or the amount of debt incurred by an individual entity in which we invest, may be more or less than 65% of the value of such property or the value of the assets owned by such entity, depending on market conditions and other factors.
In fact, depending on market conditions and other factors, we may choose not to place debt on our portfolio or our assets and may choose not to borrow to finance our operations or to acquire properties. Any indebtedness we do incur will likely be subject to continuing covenants, and we will likely be required to make continuing representations and warranties in connection with such debt. Moreover, some or all of our debt may be secured by some or all of our assets. If we default in the payment of interest or principal on any such debt, breach any representation or warranty in connection with any borrowing or violate any covenant in any loan document, our lender may accelerate the maturity of such debt requiring us to immediately repay all outstanding principal. If we are unable to make such payment, our lender could foreclose on our assets that are pledged as collateral to such lender. The lender could also sue us or force us into bankruptcy.
Debt Covenants and Restrictions
As of June 30, 2015, we were in compliance with all financial debt covenants. See Note 6 "Debt" in the notes to our consolidated financial statements for additional information.

53

At-The-Market Offering
On November 6, 2013, we and CSP OP entered into four separate Equity Distribution Agreements with certain sales agents, pursuant to which we may sell, from time to time, subject to the restrictions contained in the Merger Agreement, our common shares having an aggregate offering price of up to $250.0 million. Sales of our common shares may be made in ordinary brokers' transactions on the NYSE, in negotiated transactions or transactions that are deemed to be "at the market" ("ATM") offerings, including sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices. We may use these proceeds and proceeds from the sale of debt securities to repay debt, including borrowings under our unsecured revolving credit facility, to make acquisitions of properties or portfolios of properties, or for general corporate purposes. As of June 30, 2015, there have been no sales of common shares under the ATM program.
Shelf Registration
On November 6, 2013, we filed an automatically effective shelf registration statement on Form S-3 with the SEC that may permit us, from time to time, subject to the restrictions contained in the Merger Agreement, to facilitate public offerings of our securities. We evaluate the capital markets on an ongoing basis for opportunities to raise capital, and, as circumstances warrant, we may issue securities of all of these types in one or more offerings at any time and from time to time on an opportunistic basis, depending upon, among other things, market conditions, available pricing and capital needs. However, there can be no assurance that we will be able to complete any such offerings of securities. We may use these proceeds to repay debt, including borrowings under our unsecured revolving credit facility, to make acquisitions of properties or portfolios of properties, or for general corporate purposes.
Sale of Real Estate Properties
We consider opportunities to dispose of non-strategic properties with the intent of using the proceeds generated from the dispositions to fund new strategic acquisitions, to repay long-term debt and for other general corporate purposes. The timing of any potential future dispositions will depend on market conditions and our capital needs. Our ability to dispose of such properties on favorable terms, or at all, is dependent upon a number of factors including the availability of credit to potential buyers to purchase properties at prices that we consider acceptable and also subject to the restrictions contained in the Merger Agreement.
Transactions with Unconsolidated Joint Ventures
Transactions with unconsolidated joint ventures may also provide a source of liquidity. Our unconsolidated joint ventures will from time to time obtain debt financing or sell properties and will then distribute to us, and our joint venture partners, all or a portion of the proceeds from such transactions.

54

Debt Composition
Our consolidated and pro rata share of unconsolidated debt is comprised of the following as of June 30, 2015 (amounts in thousands):
 
Consolidated Debt(1)
 
Unconsolidated Debt(2)
 
Consolidated &
Unconsolidated Debt(1)(2)
 
Scheduled
Amortization
 
Term
Maturities
 
Total
 
Scheduled
Amortization
 
Term
Maturities
 
Total
 
Scheduled
Amortization
 
Term
Maturities
 
Total
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Interest Rate Debt
$
66,989

 
$
1,058,740

 
$
1,125,729

 
$
6,555

 
$
138,409

 
$
144,964

 
$
73,544

 
$
1,197,149

 
$
1,270,693

Floating Interest Rate Debt
—

 
240,044

 
240,044

 
—

 
—

 
—

 
—

 
240,044

 
240,044

Total
$
66,989

 
$
1,298,784

 
$
1,365,773

 
$
6,555

 
$
138,409

 
$
144,964

 
$
73,544

 
$
1,437,193

 
$
1,510,737

Weighted Average Remaining Term (years):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Interest Rate Debt
 
 
 
 
3.38

 
 
 
 
 
4.44

 
 
 
 
 
3.50

Floating Interest Rate Debt
 
 
 
 
2.54

 
 
 
 
 
N/A

 
 
 
 
 
2.54

Total
 
 
 
 
3.23

 
 
 
 
 
4.44

 
 
 
 
 
3.35

Weighted Average Interest Rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Interest Rate Debt
 
 
 
 
4.16
%
 
 
 
 
 
3.44
%
 
 
 
 
 
4.08
%
Floating Interest Rate Debt
 
 
 
 
1.49
%
 
 
 
 
 
N/A

 
 
 
 
 
1.49
%
Total
 
 
 
 
3.69
%
 
 
 
 
 
3.44
%
 
 
 
 
 
3.67
%
__________
(1)
Consolidated debt amount includes a $240.0 million outstanding balance on our unsecured revolving credit facility as of June 30, 2015. The unsecured revolving credit facility may be extended for an additional year from January 2018 to January 2019. The annual facility fee of 0.30% is not reflected in the interest rate amounts included this table.
(2)
Unconsolidated debt amounts are at our pro rata share of effective ownership.
Contractual Obligations and Commitments
The following table provides information with respect to our contractual obligations as of June 30, 2015 (in thousands): 
Contractual Obligations
 
Less than
One Year
 
One to Three
Years
 
Three to Five
Years
 
More than
Five Years
 
Total
Principal Payments - Secured Notes Payable
 
$
91,438

 
$
181,434

 
$
181,336

 
$
101,521

 
$
555,729

Principal Payments - Unsecured Term Loan Facilities
 
—

 
—

 
400,000

 
170,000

 
570,000

Principal Payments - Unsecured Revolving Credit Facility
 
—

 
—

 
240,044

 
—

 
240,044

Principal Payments - Unconsolidated Debt at Pro Rata Share(1)
 
453

 
57,978

 
2,140

 
84,393

 
144,964

Interest Payments - Fixed-Rate Debt(2)
 
27,433

 
73,172

 
42,144

 
14,558

 
157,307

Interest Payments - Variable-Rate Debt(3)
 
1,782

 
7,130

 
149

 
—

 
9,061

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

 
1,171

 
4,560

 
4,351

 
3,749

 
13,831

Ground Lease Payments
 
136

 
546

 
584

 
4,474

 
5,740

Total
 
$
122,413

 
$
324,820

 
$
870,748

 
$
378,695

 
$
1,696,676

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

55

(2)
Amounts include the expected net payments due under our interest rate swap agreements where in each case we have swapped our variable interest rate payments due under the debt agreements for fixed rates of interest payments.
(3)
As of June 30, 2015, our variable rate debt consisted of amounts outstanding under our unsecured revolving credit facility. The variable interest rate payments are based on LIBOR plus a spread of 1.30%. As of June 30, 2015, LIBOR was 0.184%.
Debt Maturities
The following table details our consolidated and unconsolidated debt maturities as of June 30, 2015 (in thousands):
 
Consolidated Debt(1)
 
Unconsolidated Debt(2)
 
Consolidated &
Unconsolidated Debt(1)(2)
 
Weigh-
ted
Average
Interest
Rate(3)(4)
 
Scheduled
Amort
 
Term
Maturities
 
Total
 
Scheduled
Amort
 
Term
Maturities
 
Total
 
Scheduled
Amort
 
Term
Maturities
 
Total
 
Remaining 2015
$
7,739

 
$
83,699

 
$
91,438

 
$
453

 
$
—

 
$
453

 
$
8,192

 
$
83,699

 
$
91,891

 
4.25
%
2016
13,271

 
121,341

 
134,612

 
941

 
—

 
941

 
14,212

 
121,341

 
135,553

 
5.46
%
2017
12,495

 
34,327

 
46,822

 
990

 
56,047

 
57,037

 
13,485

 
90,374

 
103,859

 
3.78
%
2018
10,276

 
502,336

 
512,612

 
1,043

 
—

 
1,043

 
11,319

 
502,336

 
513,655

 
2.25
%
2019
7,982

 
300,786

 
308,768

 
1,097

 
—

 
1,097

 
9,079

 
300,786

 
309,865

 
2.58
%
2020
6,290

 
65,846

 
72,136

 
1,156

 
43,580

 
44,736

 
7,446

 
109,426

 
116,872

 
3.85
%
2021
3,743

 
190,449

 
194,192

 
875

 
38,782

 
39,657

 
4,618

 
229,231

 
233,849

 
4.78
%
2022
1,870

 
—

 
1,870

 
—

 
—

 
—

 
1,870

 
—

 
1,870

 
—
%
2023
1,987

 
—

 
1,987

 
—

 
—

 
—

 
1,987

 
—

 
1,987

 
—
%
2024
1,167

 
—

 
1,167

 
—

 
—

 
—

 
1,167

 
—

 
1,167

 
6.33
%
Thereafter
169

 
—

 
169

 
—

 
—

 
—

 
169

 
—

 
169

 
5.80
%
Total
$
66,989

 
$
1,298,784

 
$
1,365,773

 
$
6,555

 
$
138,409

 
$
144,964

 
$
73,544

 
$
1,437,193

 
$
1,510,737

 
3.67
%
__________
(1)
Consolidated debt amount includes a $240.0 million outstanding balance on the unsecured revolving credit facility as of June 30, 2015. The unsecured revolving credit facility expires January 15, 2018. We may exercise an option to extend the maturity date by one year.
(2)
Unconsolidated debt amounts are at our pro rata share of effective ownership.
(3)
Weighted average interest rate is calculated using the maturity date of our various debt.
(4)
Weighted average interest rate for 2018 debt maturity consists of 1.49% floating rate for the revolving credit facility and 2.93% of interest rate for all other fixed rate debt.
Distribution Policy
We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2004. As a REIT, we generally will not be subject to U.S. federal income tax on income that we distribute currently to our shareholders. Under the Internal Revenue Code, REITs are subject to numerous organizational and operational requirements, including a requirement that they generally distribute at least 90% of their annual net taxable income (excluding net capital gains) to their shareholders. If we fail to qualify for taxation as a REIT in any year, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify.
In order to qualify as a REIT under the Internal Revenue Code, we generally must make distributions to our shareholders each year in an amount at least equal to 90% of our REIT taxable income (as determined without regard to the dividends paid deduction and excluding net capital gain). Our distribution policy is subject to revision at the discretion of our Board of Trustees without notice to you or shareholder approval. All distributions will be made by us at the discretion of our Board of Trustees and will be based upon out Board of Trustee's evaluation of our assets, operating results, historical and projected cash flows (and source thereof), historical and projected equity offering proceeds from our offerings, historical and projected debt incurred, projected investments and capital requirements, the anticipated timing between receipt of our equity offering proceeds and investment of those proceeds, maintenance of REIT qualification, applicable provisions of Maryland law, general economic, market and industry conditions, and such other factors as our Board of Trustees deems relevant. The Merger Agreement contains limitations on our ability to make dividends and distributions. There can be no assurance that we will maintain the current monthly distribution level on our common shares.

56

It is anticipated that distributions generally will be taxable as ordinary income to our shareholders, although a portion of such distributions may be designated by us as a return of capital or as capital gain. We will furnish annually to each of our shareholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital or capital gains.
The following table presents total distributions declared and paid and distributions per share as well as the source of payment of such distributions, for the following periods (in thousands, except per share amounts):
2015 Quarter
First
 
Second
Total distributions declared and paid
$
30,210

 
$
30,205

Distributions per share
$
0.128

 
$
0.128

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

 
$
0.128

On February 20, 2015, our Board of Trustees approved a monthly distribution of $0.0425 per common share for each of the months of April, May and June of 2015. The April dividend will be paid on May 8, 2015 to all shareholders of record on April 30, 2015, the May dividend will be paid on June 8, 2015 to all shareholders of record on May 29, 2015, and the June dividend will be paid on July 9, 2015 to all shareholders of record on June 30, 2015.
On April 28, 2015, our Board of Trustees approved a monthly distribution of $0.0425 per common share for each of the months of July, August and September of 2015. The July dividend will be paid on August 10, 2015 to all shareholders of record on July 31, 2015, the August dividend will be paid on September 9, 2015 to all shareholders of record on August 31, 2015, and the September dividend will be paid on October 8, 2015 to all shareholders of record on September 30, 2015.
Historical Cash Flows
Our cash provided by operating activities increased by $4.3 million to $77.2 million for the six months ended June 30, 2015, compared to $72.9 million for the six months ended June 30, 2014. The increase was primarily due to Net Operating Income generated by the properties acquired since January 1, 2014.
Net cash provided by investing activities was $40.8 million for the six months ended June 30, 2015, compared to net cash used in investing activities of $12.2 million for the six months ended June 30, 2014. During the six months ended June 30, 2015 we had more dispositions than acquisitions as compared to the prior year period.
Net cash used in financing activities decreased by $24.3 million to $63.8 million for the six months ended June 30, 2015, compared to$88.1 million for the six months ended June 30, 2014. This was primarily due to net borrowings of $40.0 million under our unsecured revolving credit facility in the current year as compared to no net borrowings in the prior year period, offset by higher secured notes payable principal payments in the current period compared to prior year period.
Off-Balance Sheet Arrangements
As of June 30, 2015, we had four Investments in Unconsolidated Entities: (i) a 5.07% ownership interest in CBRE Strategic Partners Asia; (ii) an 80% ownership interest in the Duke JV; (iii) an 80% ownership interest in the UK JV; and (iv) an 80% ownership interest in the European JV. Our investments are discussed in Note 4 to the accompanying consolidated financial statements "Investments in Unconsolidated Entities."
Inflation
The real estate market has not been affected significantly by inflation in the past several years due to the relatively low inflation rate. We expect to include provisions in the majority of our tenant leases designed to protect us from the impact of inflation. We expect these provisions will include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements, or in some cases, annual reimbursement of operating expenses above a certain allowance. Due to the generally long-term nature of these leases, annual rent increases may not be sufficient to cover inflation and rent may be below market.
Non-GAAP Supplemental Financial Measures: FFO, Core FFO and AFFO
Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry analysts and investors consider presentations of operating results for REITs that use historical cost accounting to be insufficient. Consequently, the National

57

Association of Real Estate Investment Trusts ("NAREIT") created Funds from Operations ("FFO") as a supplemental measure of REIT operating performance.
FFO is a non-GAAP measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net income. FFO, as we define it, is presented as a supplemental financial measure. Management believes that FFO is a useful supplemental measure of REIT performance. FFO does not present, nor do we intend for it to present, a complete picture of our financial condition and/or operating performance. We believe that net income, as computed under GAAP, appropriately remains the primary measure of our performance and that FFO, when considered in conjunction with net income, improves the investing public's understanding of the operating results of REITs and makes comparisons of REIT operating results more meaningful.
We compute FFO in accordance with standards established by NAREIT. Modifications to the NAREIT calculation of FFO are common among REITs, as companies seek to provide financial measures that meaningfully reflect their business and provide greater transparency to the investing public as to how the management team considers their results of operations. As a result, our FFO may not be comparable to FFO as reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than we do. The revised NAREIT White Paper on FFO defines FFO as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, impairment charges and gains and losses from sales of depreciable operating property, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures.
Management believes that NAREIT's definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time, and that depreciation charges required by GAAP do not always reflect the underlying economic conditions. Likewise, the exclusion from NAREIT's definition of FFO of impairment charges and gains and losses from the sales of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT's activity and assists in comparing those operating results between periods. Thus, FFO provides a performance measure that, when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates and operating costs. Management also believes that FFO provides useful information to the investment community about our financial performance when compared to other REITs, since FFO is generally recognized as the industry standard for reporting the operations of REITs.
However, changes in the accounting and reporting rules under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that have been put into effect since the establishment of NAREIT's definition of FFO have prompted an increase in the non-cash and non-operating items included in FFO. We calculate Core FFO as FFO exclusive of the net effects of acquisition costs, interest rate swap gains/losses, transition and listing costs, and unrealized gain/loss in investments in unconsolidated entities. Core FFO is a useful measure to management's decision-making process. As discussed below, period to period fluctuations in the excluded items can be driven by short-term factors that are not particularly relevant to our long-term investment decisions, long-term capital structures or long-term tax planning and tax structuring decisions.
We believe that Core FFO appropriately presents our results of operations on a comparative basis. The items that we exclude from net income are subject to significant fluctuations from period to period that cause both positive and negative effects on our results of operations, often in inconsistent and unpredictable directions.
- Acquisition-related expenses: Acquisition-related expenses are primarily the result of the volume of our acquisitions completed during each period, and therefore we believe such acquisition costs are not reflective of our operating results during each period.
- Loss on early extinguishment of debt: Losses on early extinguishment of debt incurred in the current year are primarily a result of secured mortgage loan repayments typically associated with the sales of the underlying properties.
- Net change in fair value of non-qualifying derivative financial instruments and unrealized gains or losses on our investment in unconsolidated entities: Unrealized gains or losses that we have recognized during a given period are based primarily upon changes in the estimated fair market value of certain of our investments due to changes in market conditions and do not necessarily reflect the operating performance of these properties during the corresponding period.
- Other non-recurring expenses: Other non-recurring expenses such as company strategic planning, severance-related costs and costs related to the process of listing our common shares on the New York Stock Exchange and our modified “Dutch Auction” tender offer are not reflective of our operating results during each period.

58

We believe that Core FFO is useful to investors as a supplemental measure of operating performance. We believe that adjusting FFO to exclude acquisition costs provides investors a view of the performance of our portfolio over time, including if we cease to acquire properties on a frequent and regular basis and allows for a comparison of the performance of our portfolio with other REITs that are not currently engaging in acquisitions. We also believe that Core FFO may provide investors with a useful indication of our future performance, and of the sustainability of our current distribution policy. However, because Core FFO excludes acquisition costs, which are important components in an analysis of our historical performance, such supplemental measure should not be construed as a historical performance measure and may not be as useful a measure for estimating the value of our common shares.
We calculate AFFO as Core FFO exclusive of the net effects of (i) amortization associated with deferred financings costs; (ii) amortization of above- and below-market lease intangibles; (iii) amortization of premium on notes payable; (iv) amortization of deferred revenue related to tenant improvements, (v) deferred income taxes; (vi) share-based and other non-cash compensation expense; (vii) deferred straight-line rental revenue; and (viii) recurring capital expenditures.
FFO, Core FFO and AFFO measure cash generated from operating activities not in accordance with GAAP and should not be considered as alternatives to (i) net income (determined in accordance with GAAP), as indications of our financial performance, or (ii) to cash flow from operating activities (determined in accordance with GAAP) as measures of our liquidity, nor are they indicative of funds available to fund our cash needs, including our ability to make cash distributions. We believe that to further understand our performance, each of FFO, Core FFO and AFFO, should be compared with our reported net income and considered in addition to cash flows in accordance with GAAP, as presented in our Consolidated Financial Statements.
Not all REITs calculate FFO, Core FFO and AFFO (or an equivalent measure), in the same manner and therefore comparisons with other REITs may not be meaningful.

59

The following table presents our FFO, Core FFO and AFFO for the three and six months ended June 30, 2015 and 2014 (in thousands, except share data): 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Reconciliation of Net Income to FFO, Core FFO and AFFO
 
 
 
 
 
Net Income
$
9,687

 
$
5,153

 
$
15,681

 
$
8,472

Real Estate Depreciation and Amortization
27,794

 
27,010

 
55,574

 
54,141

Pro Rata Share of Real Estate Depreciation and Amortization from Unconsolidated Entities
6,503

 
8,238

 
13,142

 
17,009

Gain on Sale of Real Estate
(5,844
)
 
—

 
(5,844
)
 
—

Pro Rata Share of Gain on Sale from Unconsolidated Entities
(15
)
 
—

 
(2,431
)
 
—

Pro Rata Share of Realized Gain on Investment in CBRE Strategic Partners Asia
(762
)
 
—

 
(762
)
 
—

Funds from Operations
$
37,363

 
$
40,401

 
$
75,360

 
$
79,622

Acquisition-Related Expenses
—

 
—

 
—

 
290

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

 
—

 
58

 
—

Strategic Planning and Severance-Related Expense
5,803

 
—

 
9,820

 
—

Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
(26
)
 
14

 
(43
)
 
(12
)
Pro Rata Share of Unrealized Loss on Investment in CBRE Strategic Partners Asia
712

 
50

 
743

 
120

Core Funds from Operations
$
43,852

 
$
40,465

 
$
85,938

 
$
80,020

Amortization of Non-Cash Interest Expense
(447
)
 
(244
)
 
(827
)
 
(348
)
Pro Rata Share of Amortization of Non-Cash Interest Expense from Unconsolidated Entities
102

 
119

 
198

 
238

Amortization of Above and Below Market Leases
938

 
1,401

 
1,913

 
2,883

Pro Rata Share of Amortization of Above/Below Market Leases from Unconsolidated Entities
(46
)
 
(54
)
 
(96
)
 
(108
)
Amortization of Deferred Revenue Related to Tenant Improvements
(114
)
 
(199
)
 
(227
)
 
(475
)
Share-Based Compensation
592

 
912

 
1,327

 
1,924

Straight-line Rent Adjustments, Net
(1,735
)
 
(1,253
)
 
(3,403
)
 
(2,545
)
Pro Rata Share of Straight-Line Rent Adjustments, Net from Unconsolidated Entities
324

 
225

 
625

 
730

Recurring Capital Expenditures
(592
)
 
(3,066
)
 
(1,315
)
 
(4,917
)
Pro Rata Share of Recurring Capital Expenditures from Unconsolidated Entities
(326
)
 
(240
)
 
(1,020
)
 
(242
)
Adjusted Funds from Operations
$
42,548

 
$
38,066

 
$
83,113

 
$
77,160

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

$
0.04

 
$
0.02

 
$
0.07

 
$
0.03

Funds from Operations
$
0.16

 
$
0.17

 
$
0.32

 
$
0.34

Core Funds from Operations
$
0.19

 
$
0.17

 
$
0.36

 
$
0.34

Adjusted Funds from Operations
$
0.18

 
$
0.16

 
$
0.35

 
$
0.33


60

Subsequent Events
Proposed Merger with Gramercy
On July 1, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Gramercy, and Columbus Merger Sub, LLC, a Maryland limited liability company and indirect wholly owned subsidiary of the Company (“Merger Sub” and together with the Company, the “Company Parties”), pursuant to which Gramercy will be merged with and into Merger Sub (the “Merger”), with Merger Sub continuing as the surviving entity of the Merger.
Pursuant to the terms and conditions in the Merger Agreement, at the effective time of the Merger, each share of Gramercy common stock issued and outstanding immediately prior to the effective time will be converted into the right to receive 3.1898 (the “Exchange Ratio”) validly issued, fully paid and nonassessable Company common shares of beneficial interest, par value $0.01 per share (the “Merger Consideration”). Additionally, each share of Gramercy’s 7.125% Series B Cumulative Redeemable Preferred Stock (“Gramercy Preferred Stock”) issued and outstanding prior to the effective time will be converted into a right to receive one newly issued share of 7.125% Series A Cumulative Redeemable Preferred Shares of the Company (“New Company Preferred Shares”), having preferences, rights and privileges substantially identical to the preferences, rights and privileges of the Gramercy Preferred Stock. Following the completion of the Merger, the Company will change its name to “Gramercy Property Trust” and it is anticipated that the Company’s common shares will cease to trade under its current ticker but rather trade on the New York Stock Exchange under the Gramercy ticker symbol “GPT”.
The Merger Agreement provides that, at the effective time of the Merger, Gramercy’s stock options, restricted stock awards, and restricted stock unit awards generally will convert upon the effective time of the Merger into share options, restricted share awards, and restricted share unit awards of the Company, as applicable, with respect to a number of Company common shares, after giving effect to appropriate adjustments to reflect the consummation of the Merger.
The Company Parties and Gramercy each made certain customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants by each party to conduct its business in all material respects in the ordinary course of business and use commercially reasonable efforts to preserve its business organization intact during the period between the execution of the Merger Agreement and the consummation of the Merger.
The parties’ obligations to consummate the Merger are subject to certain mutual conditions, including, without limitation, (i) the approval by the holders of a majority of the outstanding shares of Gramercy common stock entitled to vote on the adoption of the Merger Agreement at the special meeting of the Gramercy stockholders (the “Gramercy Stockholder Approval”), (ii) the approval by the holders of a majority of the Company common shares cast by the holders at the special meeting of the Company shareholders held to vote on the issuance of Company common shares in connection with the Merger (the “Company Shareholder Approval”), (iii) the absence of any law, order or injunction prohibiting the Merger, (iv) the effectiveness of the registration statement on Form S-4 to be filed by the Company for purposes of registering the Company common shares issuable in connection with the Merger and (v) the approval for listing on the New York Stock Exchange of the Company common shares to be issued in the Merger, the New Company Preferred Shares and Company common shares into which Gramercy’s 3.75% Exchangeable Senior Notes due 2019 may be converted. In addition, each party’s obligation to consummate the Merger is subject to certain other conditions, including, without limitation, (w) the accuracy of the other party’s representations and warranties (subject to customary materiality qualifiers) and the absence of any material adverse effect (as such term is defined in the Merger Agreement) with respect to the other party, (x) the other party’s compliance with its covenants and agreements contained in the Merger Agreement (subject to customary materiality qualifiers), (y) the receipt of opinions that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and (z) the receipt of customary opinions as to the qualification of the Company, Gramercy and certain subsidiaries of Gramercy as REITs under the Internal Revenue Code.
From the date of the Merger Agreement until the earlier of the effective time of the Merger and the termination of the Merger Agreement in accordance with its terms, the Company and Gramercy agree not to (and will cause their subsidiaries and their respective representatives not to) (i) solicit, initiate, knowingly encourage or facilitate any inquiries or the making of any proposal or offer with respect to a Competing Proposal (as defined in the Merger Agreement), (ii) engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any other person information in connection with or for the purpose of encouraging or facilitating, a Competing Proposal, (iii) approve, authorize or execute or enter into any letter of intent, option agreement, agreement or agreement in principle with respect to a Competing Proposal or (iv) propose or agree to do any of the foregoing. However, these restrictions are subject to customary “fiduciary-out” provisions which allow either the Company or Gramercy under certain circumstances to provide information to and participate in discussions with third parties with respect to unsolicited alternative acquisition proposals that the Company Board or the Gramercy Board (as applicable) has reasonably determined in good faith (after consultation with its outside legal counsel and independent financial advisors) is, or could reasonably be expected to lead to, a transaction more favorable to such party and its shareholders than the Merger and is reasonably likely

61

to receive all required governmental approvals and financing on a timely basis and is otherwise capable of being completed on the terms proposed.
The Merger Agreement also contains certain termination rights for both the Company and Gramercy, including, but not limited to, if the Merger is not consummated on or before January 31, 2016 or if the Company Shareholder Approval or Gramercy Stockholder Approval are not obtained at the applicable stockholder meeting. The Merger Agreement further provides that, upon termination of the Merger Agreement under certain specified circumstances, including, but not limited to, termination of the Merger Agreement by the Company or Gramercy as a result of an adverse change in the recommendation of the Company Board or the Gramercy Board, as applicable, the Company may be required to pay to Gramercy a termination fee of $61,198,934, or Gramercy may be required to pay to the Company a termination fee of $43,505,889, in each case in addition to reimbursing $20 million of expenses of the other party.
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.
We may be exposed to the effects of interest rate changes primarily as a result of long-term debt used to maintain liquidity and fund expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we will borrow primarily at fixed rates or variable rates and, in some cases, with the ability to convert variable rates to fixed rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes.To illustrate the effect of movements in the interest rate markets, we performed a market sensitivity analysis on its outstanding hedging instruments. We applied various basis point spreads to the underlying interest rate curves of the derivative portfolio in order to determine the instruments’ change in fair value. The following tables summarize the results of the analysis performed for the six months ended June 30, 2015 and 2014, respectively (amounts in thousands):
 
 
 
 
 
 
Effects of Change in Interest Rates as of
Type of Instrument
 
Notional 
Amount
 
Maturity Date
 
June 30, 2015
-100 Basis
Points
 
-50 Basis
Points
 
+50 Basis
Points
 
+100 Basis
Points
 
 
 
 
 
 
 
 
 
 
 
 
 
Qualifying Interest Rate Swap on Point West I Debt
 
$
10,553

 
12/6/2016
 
(94
)
 
(65
)
 
74

 
148

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

 
3/7/2018
 
(4,246
)
 
(2,466
)
 
2,545

 
5,058

Qualifying Interest Rate Swap on Atrium I Debt
 
$
21,112

 
5/31/2018
 
(461
)
 
(266
)
 
282

 
563

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

 
1/15/2019
 
(6,267
)
 
(3,323
)
 
3,345

 
6,623

Qualifying Interest Rate Swap on Easton III Debt
 
$
6,187

 
1/31/2019
 
(187
)
 
(100
)
 
101

 
201

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

 
3/6/2020
 
(2,241
)
 
(1,129
)
 
1,060

 
2,108

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

 
1/31/2021
 
(6,375
)
 
(3,152
)
 
3,072

 
6,107


62

 
 
 
 
 
 
Effects of Change in Interest Rates as of
Type of Instrument
 
Notional 
Amount
 
Maturity Date
 
June 30, 2014
-100 Basis
Points
 
-50 Basis
Points
 
+50 Basis
Points
 
+100 Basis
Points
 
 
 
 
 
 
 
 
 
 
 
 
 
Qualifying Interest Rate Swap on Maskew Retail Park Debt(1)
 
$
23,909

 
8/10/2014
 
(7
)
 
(7
)
 
7

 
14

Qualifying Interest Rate Swap on Point West I Debt
 
$
10,879

 
12/6/2016
 
(156
)
 
(103
)
 
126

 
252

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

 
3/7/2018
 
(6,348
)
 
(3,471
)
 
3,461

 
6,849

Qualifying Interest Rate Swap on Parkcenter Circle
 
$
22,048

 
5/31/2018
 
(717
)
 
(372
)
 
385

 
760

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

 
1/15/2019
 
(8,730
)
 
(4,402
)
 
4,201

 
8,328

Qualifying Interest Rate Swap on Easton III debt
 
$
6,373

 
1/31/2019
 
(256
)
 
(129
)
 
132

 
258

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

 
3/6/2020
 
(2,692
)
 
(1,329
)
 
1,290

 
2,540

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

 
1/31/2021
 
(7,406
)
 
(3,670
)
 
3,691

 
7,126

__________
(1)
Based on three-month GBP-based LIBOR BBA Index with variable rate reset dates every 90 days during the term of the swaps.
The estimated fair value of our investment in CBRE Strategic Partners Asia is most sensitive to changes in capitalization rates for commercial properties in large urban areas in China, and among other factors, is also sensitive to currency exchange rate fluctuations and changes in the interest rates of China and the U.S., respectively. Decreases in capitalization rates and increases in interest rates generally increase the value of our investments. Changes in currency exchanges rates where the U.S. Dollar increases in value against the Chinese Yuan generally decrease the value of our investments.
Upon the maturity of our debt, there is a market risk as to the prevailing rates at the time of refinancing. Changes in market rates on our fixed-rate debt affect the fair market value of our debt but it has no impact on interest expense or cash flow. A 100 basis point increase or decrease in interest rates on our fixed rate debt would not increase or decrease our annual interest expense on our fixed rate debt.
A 100 basis point increase in interest rates would decrease the fair market value of our notes payable and unsecured term loan facilities by $36.4 million at June 30, 2015.
In addition to changes in interest rates, the value of our real estate is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of lessees, which may affect our ability to refinance our debt if necessary.
ITEM 4.    CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We have formally adopted a policy for disclosure controls and procedures that provides guidance on the evaluation of disclosure controls and procedures and is designed to ensure that all corporate disclosure is complete and accurate in all material respects and that all information required to be disclosed in the periodic reports submitted by us under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods and in the manner specified in the Securities and Exchange Commission's rules and forms and that disclosure controls and procedures were effective to ensure that the information required to be disclosed by us is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within our Company to disclose material information otherwise required to be set forth in our periodic reports.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, as required by the Securities Exchange Act Rule 13(a)-15(e), our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

63

Changes in Internal Controls Over Financial Reporting
No changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

64

PART II.
OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS
Two putative class action lawsuits challenging the proposed merger between the Company and Gramercy have been filed in New York Supreme Court, New York County. A separate action asserting both class action and shareholder derivative claims challenging the proposed merger has been filed in the Circuit Court for Baltimore City, Maryland. The New York actions are captioned Berliner v. Gramercy Property Trust, et al., Index No. 652424/2015 (filed July 9, 2015) and Gensler v. Baum, et al., Index No. 157432/2015 (filed July 22, 2015) and the Maryland action is captioned Jobin v. DuGan, et al., Index No. 24-C-15-003942 (filed July 27, 2015). The lawsuits allege that the directors of Gramercy breached their fiduciary duties to Gramercy stockholders by agreeing to sell Gramercy for inadequate consideration and agreeing to improper deal protection terms in the Merger Agreement. The complaints further allege, among other things, that the Company and certain of its affiliates aided and abetted these purported breaches of fiduciary duties.  The lawsuits seek, among other things, an injunction barring the merger, rescission of the merger to the extent it is already implemented, and an award of damages. The defendants believe the lawsuits are without merit and will vigorously defend themselves in these actions.
ITEM 1A.    RISK FACTORS
Our Annual Report on Form 10-K for the year ended December 31, 2014 includes detailed discussions of our risk factors under the heading “Part I, Item 1A. Risk Factors.” Set forth below are certain risk factors in addition to those previously disclosed in our Annual Report on Form 10-K, which we are including in this Quarterly Report on Form 10-Q as a result of our entering into the Merger Agreement on July 1, 2015, as further described above. You should carefully consider the risk factors discussed in our Annual Report on Form 10-K and those set forth below, as well as the other information in this report, which could materially harm our business, financial condition, results of operations, or the value of our common shares. Terms not otherwise defined below are as defined in this Quarterly Report on Form 10-Q.
Risks Relating to the Proposed Merger
The exchange ratio is generally fixed and will not be adjusted in the event of any change in the share prices of either Chambers or Gramercy.
Upon the closing of the Merger, each share of Gramercy common stock will be converted into the right to receive 3.1898 of newly issued Chambers common shares, with cash paid in lieu of fractional shares. The exchange ratio was generally fixed in the Merger Agreement, and while it will be adjusted in the event of any stock split, reverse stock split, stock dividend (including any dividend or other distribution of securities convertible into Gramercy stock) reorganization, recapitalization, reclassification, combination, exchange of shares or other similar transaction involving Chambers or Gramercy, the exchange ratio will not be adjusted for changes in the market price of either Chambers common shares or Gramercy common stock. Changes in the price of Chambers common shares prior to the Merger will affect the market value of the merger consideration that Gramercy stockholders will receive on the closing date of the Merger. Share price changes may result from a variety of factors (many of which are beyond our control), including the following factors:
•
changes in the respective businesses, operations, assets, liabilities and prospects of Chambers and Gramercy;
•
changes in market assessments of the business, operations, financial position and prospects of either company or the combined company;
•
market assessments of the likelihood that the Merger will be completed;
•
interest rates, general market and economic conditions and other factors generally affecting the price of Chambers common shares and Gramercy common stock; and
•
federal, state and local legislation, governmental regulation and legal developments in the businesses in which Chambers and Gramercy operate.
The price of Chambers common shares at the closing of the Merger may vary from the price on the date the Merger Agreement was executed and thereafter. As a result, the market value of the merger consideration represented by the exchange ratio will also vary.
Therefore, while the number of Chambers common shares to be issued per share of Gramercy common stock is fixed, Gramercy stockholders cannot be sure of the market value of the consideration they will receive upon completion of the Merger.

65

Failure to complete the Merger could negatively affect the share price and the future business and financial results of Chambers.
If the Merger is not completed, the ongoing business of Chambers may be adversely affected and Chambers will be subject to numerous risks associated with the failure to complete the Merger, including the following:
•
Chambers being required, under certain circumstances, to pay Gramercy a termination fee of $61,198,934 and/or reimburse Gramercy for $20 million of its expenses in connection with the Merger;
•
Chambers having to pay certain costs relating to the proposed Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees;
•
the management of Chambers focused on the Merger instead of on pursuing other opportunities that could be beneficial to Chambers without realizing any of the benefits of the Merger having been completed; and
•
the failure of Chambers to retain key employees during the pendency of the Merger.
If the Merger is not completed, there can be no assurance these risks will not materialize and will not materially affect the business, financial results and share price of Chambers.
The Merger Agreement contains provisions that could discourage a potential acquirer of Chambers or could result in any acquisition proposal being at a lower price than it might otherwise be.
The Merger Agreement contains provisions that, subject to limited exceptions, restrict the ability of Chambers to solicit, encourage, facilitate or discuss third-party proposals to acquire all or a significant part of Chambers. Further, even if the Chambers Board of Trustees withdraws or modifies its recommendation of the Merger, it will still be required to submit the matter to a vote of its shareholders at its annual meeting. In addition, Chambers generally has an opportunity to offer to modify the terms of the proposed Merger Agreement in response to any acquisition proposal that may be made to Gramercy before the Board of Trustees may withdraw or modify its recommendation in response to such acquisition proposal. In certain circumstances, on termination of the Merger Agreement, Chambers may be required to pay a substantial termination fee to Gramercy.
These provisions could discourage a potential acquirer that might have an interest in acquiring all or a significant part of Chambers from considering or proposing such an acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than that market value proposed to be received or realized in the Merger, or might result in a potential acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances under the Merger Agreement.
If the Merger is not consummated by January 31, 2016, either Chambers or Gramercy may terminate the Merger Agreement.
Either Chambers or Gramercy may terminate the Merger Agreement if the Merger has not been consummated by January 31, 2016. However, the right to terminate the Merger Agreement will not be available to any party whose breach of any representation, warranty, covenant or agreement set forth in the Merger Agreement has been the cause of, or resulted in, the failure to consummate the Merger prior to January 31, 2016.
The pendency of the Merger could adversely affect the business and operations of Chambers.
In connection with the pending Merger, some customers or vendors of Chambers may delay or defer decisions, which could negatively affect the revenues, earnings, cash flows and expenses of Chambers, regardless of whether the Merger is completed. Similarly, current and prospective employees of Chambers may experience uncertainty about their future roles with the combined company following the Merger, which may materially adversely affect the ability of Chambers to attract or retain key personnel during the pendency of the Merger. In addition, due to operating covenants in the Merger Agreement, Chambers may be unable, during the pendency of the Merger, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue certain other actions, even if such actions would prove beneficial.
Risks Relating to the Combined Company
If the proposed Merger closes, we will face various additional risks.
If the proposed Merger closes, the combined company will face various additional risks, including, among others, the following:

66

•
the combined company expects to incur substantial expenses related to the Merger;
•
following the Merger, the combined company may be unable to integrate the businesses of Chambers and Gramercy successfully and realize the anticipated synergies and other benefits of the Merger or do so within the anticipated timeframe;
•
following the Merger, the combined company may be unable to implement its future plans to dispose of certain assets and reposition its portfolio;
•
following the Merger, the combined company may be unable to retain key employees;
•
the future results of the combined company will suffer if the combined company does not effectively manage its expanded operations following the Merger; and
•
counterparties to certain agreements with Chambers or Gramercy may exercise contractual rights under such agreements in connection with the Merger.
Any of these risks could adversely affect the business and financial results of the combined company.
If the proposed Merger closes, there will be additional risks relating to an investment in our common shares.
The results of operations of the combined company, as well as the market price of the common shares of the combined company, after the Merger may be affected by other factors in addition to those currently affecting Chambers’ results of operations and the market prices of Chambers common shares. Such factors include:
•
there will be a greater number of shares of the combined company outstanding as compared to the number of currently outstanding shares of Chambers;
•
there will be different shareholders;
•
there will be different businesses;
•
there will be different assets and capitalizations;
•
the market price of the combined company’s common shares may decline as a result of the Merger;
•
the combined company may not pay dividends at or above the rate currently paid by Chambers;
•
the combined company will have a substantial amount of indebtedness and may need to refinance existing indebtedness or incur additional indebtedness in the future;
•
the combined company would succeed to, and may incur, adverse tax consequences if Chambers or Gramercy has failed or fails to qualify as a REIT for U.S. federal income tax purposes; and
•
in certain circumstances, even if the combined company qualifies as a REIT, it and its subsidiaries may be subject to certain U.S. federal, state, and other taxes, which would reduce the combined company’s cash available for distribution to its shareholders.
Any of these factors could adversely affect Chambers’ common share price and financial results. Accordingly, the historical market prices and financial results of Chambers may not be indicative of these matters for the combined company after the Merger.
In connection with the announcement of the Merger Agreement, several lawsuits have been filed and are pending, as of the filing date of this Quarterly Report on Form 10-Q, seeking, among other things, to enjoin the Merger and rescind the Merger Agreement, and an adverse judgment in any of the lawsuits may prevent the Merger from being effective or from becoming effective within the expected timeframe.
As of the filing date of this Quarterly Report on Form 10-Q, Chambers, Gramercy, Merger Sub and/or members of the Gramercy board of directors have each been named as defendants in several lawsuits brought by holders of Gramercy common stock challenging the Merger. Plaintiffs seek, among other things, an injunction barring the Merger, rescission of the Merger to the extent it is already implemented, declaratory relief, and an award of damages. If the plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Merger on the agreed upon terms, the injunction may prevent the completion of the Merger in the expected timeframe (if at all).

67

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Securities and Repurchases of Securities
None.
Use of Proceeds from Sale of Registered Securities
None.
ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.    MINE SAFETY DISCLOSURE
None. 
ITEM 5.    OTHER INFORMATION
None.
ITEM 6.    EXHIBITS
Exhibit No.
 
2.1
Agreement and Plan of Merger, dated as of July 1, 2015, by and among Chambers Street Properties, Gramercy Property Trust Inc. and Columbus Merger Sub, LLC (Previously filed as Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-35933) filed July 1, 2015 and incorporated herein by reference).
 
 
3.1
Fourth Amended and Restated Bylaws of Chambers Street Properties (Previously filed as Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-35933) filed June 26, 2013 and incorporated herein by reference).
 
 
3.2
Amendment No. 1 to Fourth Amended and Restated Bylaws of Chambers Street Properties (Previously filed as Exhibit 3.2 to the Current Report on Form 8-K (File No. 001-35933) filed July 1, 2015 and incorporated herein by reference).
 
 
31.1
Certification by the Interim President and Chief Executive Officer, and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 
32.1
Certification by the Interim President and Chief Executive Officer, and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 
101
The following materials from Chambers Street Properties' Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity and (vi) the Notes to the Consolidated Financial Statements, filed herewith.


68

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
 
 
CHAMBERS STREET PROPERTIES
 
 
 
Date: August 7, 2015
 
By:
/s/    MARTIN A. REID        
 
 
Name:
Martin A. Reid
 
 
Title:
Interim President and Chief Executive Officer, and Chief Financial Officer


69

EXHIBIT INDEX
Exhibit No.
 
2.1
Agreement and Plan of Merger, dated as of July 1, 2015, by and among Chambers Street Properties, Gramercy Property Trust Inc. and Columbus Merger Sub, LLC (Previously filed as Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-35933) filed July 1, 2015 and incorporated herein by reference).
 
 
3.1
Fourth Amended and Restated Bylaws of Chambers Street Properties (Previously filed as Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-35933) filed June 26, 2013 and incorporated herein by reference).
 
 
3.2
Amendment No. 1 to Fourth Amended and Restated Bylaws of Chambers Street Properties (Previously filed as Exhibit 3.2 to the Current Report on Form 8-K (File No. 001-35933) filed July 1, 2015 and incorporated herein by reference).
 
 
31.1
Certification by the Interim President and Chief Executive Officer, and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 
32.1
Certification by the Interim President and Chief Executive Officer, and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 
101
The following materials from Chambers Street Properties' Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity and (vi) the Notes to the Consolidated Financial Statements, filed herewith.


Gramercy Property Trust Reports

Also read