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EX-99.1 - RATIO OF EARNINGS TO FIXED CHARGES - COLUMBIA PROPERTY TRUST, INC.cxp2016q2earningstofixedch.htm
EX-32.1 - CERTIFICATION - COLUMBIA PROPERTY TRUST, INC.cxp2016q2_ex321.htm
EX-31.2 - CERTIFICATION - COLUMBIA PROPERTY TRUST, INC.cxp2016q2_ex312.htm
EX-31.1 - CERTIFICATION - COLUMBIA PROPERTY TRUST, INC.cxp2016q2_ex311.htm

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________ 
FORM 10-Q
 __________________________________ 
(Mark One)
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended June 30, 2016
OR
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 001-36113
COLUMBIA PROPERTY TRUST, INC.
(Exact name of registrant as specified in its charter)
  __________________________________
Maryland
 
20-0068852
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
One Glenlake Parkway, Suite 1200
Atlanta, GA 30328
(Address of principal executive offices)
(Zip Code)
(404) 465-2200
(Registrant's telephone number, including area code)

(Former name, former address, and former fiscal year, if changed since last report)
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 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 (Do not check if a smaller reporting company)
Smaller reporting company
o
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

Number of shares outstanding of the registrant's
only class of common stock, as of July 25, 2016: 123,471,082 shares
 
 
 
 
 



FORM 10-Q
COLUMBIA PROPERTY TRUST, INC.
TABLE OF CONTENTS
 
Page No.
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.



Page 2


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q of Columbia Property Trust, Inc. ("Columbia Property Trust," "the Company," "we," "our," or "us") other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in those acts. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "estimate," "believe," "continue," or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the U.S. Securities and Exchange Commission ("SEC"). We make no representations or warranties (express or implied) about the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Any such forward-looking statements are subject to risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual conditions, our ability to accurately anticipate results expressed in such forward-looking statements, including our ability to generate positive cash flow from operations, make distributions to stockholders, and maintain the value of our real estate properties, may be significantly hindered. See Item 1A in Columbia Property Trust's Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of some of the risks and uncertainties that could cause actual results to differ materially from those presented in our forward-looking statements. The risk factors described in our Annual Report are not the only ones we face, but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also harm our business.

Page 3


PART I.
FINANCIAL INFORMATION
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The information furnished in the accompanying consolidated balance sheets, and related consolidated statements of operations, comprehensive income, equity, and cash flows, reflects all normal and recurring adjustments that are, in management's opinion, necessary for a fair and consistent presentation of the aforementioned financial statements. The accompanying consolidated financial statements should be read in conjunction with the condensed notes to Columbia Property Trust's financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q, and with audited consolidated financial statements and the related notes for the year ended December 31, 2015. Columbia Property Trust's results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the operating results expected for the full year.


Page 4


COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per-share amounts) 
 
(Unaudited)
 
June 30,
2016
 
December 31,
2015
Assets:
 
 
 
Real estate assets, at cost:
 
 
 
Land
$
844,495

 
$
896,467

Buildings and improvements, less accumulated depreciation of $603,088 and $613,639, as of June 30, 2016 and December 31, 2015, respectively
2,741,929

 
2,897,431

Intangible lease assets, less accumulated amortization of $235,121 and $250,085, as of
June 30, 2016 and December 31, 2015, respectively
236,580

 
259,136

Construction in progress
14,176

 
31,847

Real estate assets held for sale, less accumulated depreciation and amortization of $9,897 as of June 30, 2016
43,246

 

Total real estate assets
3,880,426

 
4,084,881

Investment in unconsolidated joint venture
123,919

 
118,695

Cash and cash equivalents
23,803

 
32,645

Tenant receivables, net of allowance for doubtful accounts of $614 and $8 as of
June 30, 2016 and December 31, 2015, respectively
11,210

 
11,670

Straight-line rent receivable
113,921

 
109,062

Prepaid expenses and other assets
35,230

 
35,848

Intangible lease origination costs, less accumulated amortization of $161,994 and $181,482, as of June 30, 2016 and December 31, 2015, respectively
65,775

 
77,190

Deferred lease costs, less accumulated amortization of $41,626 and $40,817, as of
June 30, 2016 and December 31, 2015, respectively
87,182

 
88,127

Investment in development authority bonds
120,000

 
120,000

Other assets held for sale
10

 

Total assets
$
4,461,476

 
$
4,678,118

Liabilities:
 
 
 
Line of credit and notes payable, net of unamortized deferred financing costs of $3,675 and $4,492, as of June 30, 2016 and December 31, 2015, respectively
$
1,056,690

 
$
1,130,571

Bonds payable, net of discounts of $870 and $1,020 and unamortized deferred financing costs of $3,311 and $3,721, as of June 30, 2016 and December 31, 2015, respectively
595,819

 
595,259

Accounts payable, accrued expenses, and accrued capital expenditures
86,010

 
98,759

Dividends payable

 
37,354

Deferred income
23,793

 
24,814

Intangible lease liabilities, less accumulated amortization of $85,547 and $81,496, as of
June 30, 2016 and December 31, 2015, respectively
49,396

 
57,167

Obligations under capital leases
120,000

 
120,000

Liabilities held for sale
132

 

Total liabilities
1,931,840

 
2,063,924

Commitments and Contingencies (Note 7)

 

Equity:
 
 
 
Common stock, $0.01 par value, 225,000,000 shares authorized, 123,463,608 and 124,363,073 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
1,234

 
1,243

Additional paid-in capital
4,564,729

 
4,588,303

Cumulative distributions in excess of earnings
(2,027,012
)
 
(1,972,916
)
Cumulative other comprehensive loss
(9,315
)
 
(2,436
)
Total equity
2,529,636

 
2,614,194

Total liabilities and equity
$
4,461,476

 
$
4,678,118

See accompanying notes.

Page 5


COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
 
(Unaudited)
 
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Rental income
$
93,567

 
$
112,916

 
$
193,153

 
$
225,725

Tenant reimbursements
18,708

 
26,519

 
38,461

 
54,768

Hotel income
6,551

 
6,964

 
11,214

 
11,957

Other property income
9,104

 
1,725

 
11,681

 
3,217

 
127,930

 
148,124

 
254,509

 
295,667

Expenses:
 
 
 
 
 
 
 
Property operating costs
40,242

 
48,083

 
81,578

 
97,837

Hotel operating costs
5,038

 
5,147

 
9,369

 
9,738

Asset and property management fees
341

 
503

 
671

 
900

Depreciation
28,450

 
33,813

 
57,739

 
67,820

Amortization
14,932

 
23,738

 
31,007

 
46,957

General and administrative
7,761

 
7,080

 
18,251

 
15,124

Acquisition expenses

 

 

 
1,995

 
96,764

 
118,364

 
198,615

 
240,371

Real estate operating income
31,166

 
29,760

 
55,894

 
55,296

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(17,380
)
 
(22,765
)
 
(35,277
)
 
(44,249
)
Interest and other income
1,808

 
1,807

 
3,613

 
3,640

Loss on interest rate swaps

 
(2
)
 

 
(8
)
Loss on early extinguishment of debt
(92
)
 

 
(92
)
 
(477
)
 
(15,664
)
 
(20,960
)
 
(31,756
)
 
(41,094
)
Income before income taxes, unconsolidated joint venture, and loss on sale of real estate
15,502

 
8,800

 
24,138

 
14,202

Income tax benefit (expense)
(245
)
 
(91
)
 
(322
)
 
105

Loss from unconsolidated joint venture
(1,952
)
 

 
(3,504
)
 

Income before loss on sale of real estate
13,305


8,709


20,312


14,307

Loss on sale of real estate
(19
)
 

 
(329
)
 

Net income
$
13,286


$
8,709


$
19,983


$
14,307

Per-share information – basic:

 

 
 
 
 
Net income
$
0.11

 
$
0.07

 
$
0.16

 
$
0.11

Weighted-average common shares outstanding – basic
123,206

 
124,925

 
123,299

 
124,914

Per-share information – diluted:
 
 
 
 
 
 
 
Net income
$
0.11

 
$
0.07

 
$
0.16

 
$
0.11

Weighted-average common shares outstanding – diluted
123,294

 
125,017

 
123,357

 
124,981

Dividends per share
$
0.30

 
$
0.30

 
$
0.60

 
$
0.60


See accompanying notes.

Page 6


COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

 
(Unaudited)
 
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
13,286

 
$
8,709

 
$
19,983

 
$
14,307

Market value adjustments to interest rate swaps
(2,022
)
 
436

 
(6,879
)
 
595

Comprehensive income
$
11,264

 
$
9,145

 
$
13,104

 
$
14,902


See accompanying notes.



Page 7


COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015 (UNAUDITED)
(in thousands, except per-share amounts)

 
Equity
 
Common Stock
 
Additional
Paid-In
Capital
 
Cumulative
Distributions
in Excess of
Earnings
 
Cumulative
Other
Comprehensive
Loss
 
Total
Equity
 
Shares
 
Amount
 
 
 
 
Balance, December 31, 2015
124,363

 
$
1,243

 
$
4,588,303

 
$
(1,972,916
)
 
$
(2,436
)
 
$
2,614,194

Repurchases of common stock
(1,105
)
 
(11
)
 
(24,989
)
 

 

 
(25,000
)
Common stock issued to employees and directors, and amortized (net of income tax witholdings)
206

 
2

 
1,415

 

 

 
1,417

Distributions to common stockholders ($0.60 per share)

 

 

 
(74,079
)
 

 
(74,079
)
Net income

 

 

 
19,983

 

 
19,983

Market value adjustment to interest rate swap

 

 

 

 
(6,879
)
 
(6,879
)
Balance, June 30, 2016
123,464

 
$
1,234

 
$
4,564,729

 
$
(2,027,012
)
 
$
(9,315
)
 
$
2,529,636

 
Equity
 
Common Stock
 
Additional
Paid-In
Capital
 
Cumulative
Distributions
in Excess of
Earnings
 
Cumulative
Other
Comprehensive
Income (Loss)
 
Total
 Equity
 
Shares
 
Amount
 
 
 
 
Balance, December 31, 2014
124,973

 
$
1,249

 
$
4,601,808

 
$
(1,867,611
)
 
$
(1,968
)
 
$
2,733,478

Common stock issued to employees and directors, and amortized (net of income tax witholdings)
102

 
1

 
1,299

 

 

 
1,300

Distributions to common stockholders ($0.60 per share)

 

 

 
(75,046
)
 

 
(75,046
)
Net income

 

 

 
14,307

 

 
14,307

Market value adjustment to interest rate swap

 

 

 

 
595

 
595

Balance, June 30, 2015
125,075

 
$
1,250

 
$
4,603,107

 
$
(1,928,350
)
 
$
(1,373
)
 
$
2,674,634

See accompanying notes.

Page 8


COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
(Unaudited)
 
Six Months Ended
June 30,
 
2016
 
2015
Cash Flows from Operating Activities:
 
 
 
Net income
$
19,983

 
$
14,307

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Straight-line rental income
(16,622
)
 
(5,884
)
Depreciation
57,739

 
67,820

Amortization
28,057

 
42,005

Noncash interest expense
1,927

 
1,986

Loss on early extinguishment of debt
92

 
477

Gain on interest rate swaps

 
(2,633
)
Loss from unconsolidated joint venture
3,504

 

Loss on sale of real estate
329

 

Stock-based compensation expense
2,595

 
2,029

Changes in assets and liabilities, net of acquisitions:
 
 
 
Decrease (increase) in tenant receivables, net
2,035

 
(2,526
)
Increase in prepaid expenses and other assets
(27
)
 
(1,231
)
Decrease in accounts payable and accrued expenses
(9,191
)
 
(6,019
)
Decrease in deferred income
(983
)
 
(1,393
)
Net cash provided by operating activities
89,438

 
108,938

Cash Flows from Investing Activities:
 
 
 
Net proceeds from the sale of real estate
159,387

 

Real estate acquisitions

 
(551,277
)
Capital improvements
(22,792
)
 
(41,653
)
Deferred lease costs paid
(13,692
)
 
(9,892
)
Investments in unconsolidated joint venture
(8,728
)
 

Net cash provided by (used in) investing activities
114,175

 
(602,822
)
Cash Flows from Financing Activities:
 
 
 
Financing costs paid
(139
)
 
(4,025
)
Proceeds from lines of credit and notes payable
215,000

 
710,000

Repayments of lines of credit and notes payable
(289,697
)
 
(601,878
)
Proceeds from issuance of bonds payable

 
349,507

Distributions paid to stockholders
(111,433
)
 
(75,046
)
Repurchases of common stock
(26,186
)
 
(722
)
Net cash provided by (used in) financing activities
(212,455
)
 
377,836

Net decrease in cash and cash equivalents
(8,842
)
 
(116,048
)
Cash and cash equivalents, beginning of period
32,645

 
149,790

Cash and cash equivalents, end of period
$
23,803

 
$
33,742

See accompanying notes.

Page 9


COLUMBIA PROPERTY TRUST, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2016
(unaudited)
1.
Organization
Columbia Property Trust, Inc. ("Columbia Property Trust") (NYSE: CXP) is a Maryland corporation that operates as a real estate investment trust ("REIT") for federal income tax purposes and owns and operates commercial real estate properties. Columbia Property Trust was incorporated in 2003, commenced operations in 2004, and conducts business primarily through Columbia Property Trust Operating Partnership, L.P. ("Columbia Property Trust OP"), a Delaware limited partnership. Columbia Property Trust is the general partner and sole owner of Columbia Property Trust OP and possesses full legal control and authority over its operations. Columbia Property Trust OP acquires, develops, owns, leases, and operates real properties directly, through wholly owned subsidiaries, or through joint ventures. References to Columbia Property Trust, "we," "us," or "our" herein shall include Columbia Property Trust and all subsidiaries of Columbia Property Trust, direct and indirect, and any unconsolidated joint ventures.
Columbia Property Trust typically invests in high-quality, income-generating office properties. As of June 30, 2016, Columbia Property Trust owned 26 office properties and one hotel, containing approximately 13.3 million square feet of commercial space, located in 12 states and the District of Columbia. All of the properties are wholly owned, except for one property, which is owned through an unconsolidated joint venture, as described in Note 4, Unconsolidated Joint Venture. As of June 30, 2016, the operational office properties, including Columbia Property Trust's share of the unconsolidated joint venture, were approximately 90.6% leased.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements of Columbia Property Trust have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"), including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by U.S. generally accepted accounting principles ("GAAP") for complete financial statements. In the opinion of management, the statements for these unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Results for these interim periods are not necessarily indicative of a full year's results. Columbia Property Trust's consolidated financial statements include the accounts of Columbia Property Trust, Columbia Property Trust OP, and any variable interest entity in which Columbia Property Trust or Columbia Property Trust OP was deemed the primary beneficiary. With respect to entities that are not variable interest entities, Columbia Property Trust's consolidated financial statements also include the accounts of any entity in which Columbia Property Trust, Columbia Property Trust OP, or their subsidiaries own a controlling financial interest and any limited partnership in which Columbia Property Trust, Columbia Property Trust OP, or their subsidiaries own a controlling general partnership interest. All intercompany balances and transactions have been eliminated in consolidation. For further information, refer to the financial statements and footnotes included in Columbia Property Trust's Annual Report on Form 10-K for the year ended December 31, 2015 (the "2015 Form 10-K").
Fair Value Measurements
Columbia Property Trust estimates the fair value of its assets and liabilities (where currently required under GAAP) consistent with the provisions of Accounting Standard Codification ("ASC") 820, Fair Value Measurements ("ASC 820"). Under this standard, fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date, under current market conditions. While various techniques and assumptions can be used to estimate fair value depending on the nature of the asset or liability, the accounting standard for fair value measurements and disclosures provides the following fair value technique parameters and hierarchy, depending upon availability:
Level 1 – Assets or liabilities for which the identical term is traded on an active exchange, such as publicly traded instruments or futures contracts.
Level 2 – Assets or liabilities valued based on observable market data for similar instruments.
Level 3 – Assets or liabilities for which significant valuation assumptions are not readily observable in the market. Such assets or liabilities are valued based on the best available data, some of which may be internally developed. Significant assumptions may include risk premiums that a market participant would consider.

Page 10


Real Estate Assets
Columbia Property Trust is required to make subjective assessments as to the useful lives of its depreciable assets. Columbia Property Trust considers the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of its assets by class are as follows:
Buildings
  
40 years
Building and site improvements
  
5-25 years
Tenant improvements
  
Shorter of economic life or lease term
Intangible lease assets
  
Lease term
Evaluating the Recoverability of Real Estate Assets
Columbia Property Trust continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets, of both operating properties and properties under construction, in which Columbia Property Trust has an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present that suggest that the carrying amounts of real estate assets and related intangible assets and liabilities may not be recoverable, Columbia Property Trust assesses the recoverability of these assets and liabilities by determining whether the respective carrying values will be recovered through the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying values, Columbia Property Trust adjusts the carrying value of the real estate assets and related intangible assets and liabilities to the estimated fair values, pursuant to the property, plant, and equipment accounting standard for the impairment or disposal of long-lived assets, and recognizes an impairment loss. Estimated fair values are calculated based on the following information, in order of preference, depending upon availability: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of future cash flows, including estimated residual value. Certain of Columbia Property Trust's assets may be carried at more than an amount that could be realized in a current disposition transaction. Columbia Property Trust has determined that there is no impairment in the carrying values of our real estate assets and related intangible assets as of June 30, 2016.
Projections of expected future operating cash flows require that Columbia Property Trust estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. The subjectivity of assumptions used in the future cash flow analysis, including discount rates, could result in an incorrect assessment of the property's fair value and could result in the misstatement of the carrying value of Columbia Property Trust's real estate assets and related intangible assets and liabilities and net income.
Assets Held for Sale
Columbia Property Trust classifies assets as held for sale according to ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets ("ASC 360"). According to ASC 360, assets are considered held for sale when the following criteria are met:
Management, having the authority to approve the action, commits to a plan to sell the property.
The property is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such property.
An active program to locate a buyer and other actions required to complete the plan to sell the property have been initiated.
The sale of the property is probable, and transfer of the property is expected to qualify for recognition as a completed sale, within one year.
The property is being actively marketed for sale at a price that is reasonable in relation to its current fair value.
Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
At such time that a property is determined to be held for sale, its carrying amount is adjusted to the lower of its depreciated book value or its estimated fair value, less costs to sell, and depreciation is no longer recognized; and assets and liabilities are required to be classified as held for sale on the accompanying consolidated balance sheet. As of June 30, 2016, the 800 North Frederick Property was subject to a binding sale contract and, thus, is classified as held for sale in the accompanying consolidated balance sheet as of that date. This transaction closed in the third quarter of 2016 (see Note 3, Real Estate Transactions).

Page 11


The major classes of assets and liabilities classified as held for sale as of June 30, 2016, are provided below (in thousands):
 
June 30, 2016
Real estate assets held for sale:
 
Real estate assets, at cost:
 
Land
$
20,195

Buildings and improvements, less accumulated depreciation of $9,897
23,051

Total real estate assets held for sale
$
43,246

Other assets held for sale:
 
Prepaid expenses and other assets
$
10

Total other assets held for sale, net
$
10

Liabilities held for sale:
 
Accounts payable, accrued expenses, and accrued capital expenditures
$
132

Total liabilities held for sale
$
132

Intangible Assets and Liabilities Arising from In-Place Leases where Columbia Property Trust Is the Lessor
Upon the acquisition of real properties, Columbia Property Trust allocates the purchase price of the properties to tangible assets, consisting of land, building, site improvements, and identified intangible assets and liabilities, including the value of in-place leases, based in each case on Columbia Property Trust's estimate of their fair values in accordance with ASC 820 (see Fair Value Measurements section above for additional detail). As of June 30, 2016 and December 31, 2015, Columbia Property Trust had the following gross intangible in-place lease assets and liabilities (in thousands):
 
 
Intangible Lease Assets
 
Intangible
Lease
Origination
Costs
 
Intangible
Below-Market
In-Place Lease
Liabilities
 
Above-Market
In-Place
Lease Assets
 
Absorption
Period Costs
 
June 30, 2016
Gross
$
47,513

 
$
283,270

 
$
227,769

 
$
134,943

 
Accumulated Amortization
(36,441
)
 
(179,737
)
 
(161,994
)
 
(85,547
)
 
Net
$
11,072

 
$
103,533

 
$
65,775

 
$
49,396

December 31, 2015
Gross
$
50,463

 
$
317,841

 
$
258,672

 
$
138,663

 
Accumulated Amortization
(37,971
)
 
(194,446
)
 
(181,482
)
 
(81,496
)
 
Net
$
12,492

 
$
123,395

 
$
77,190

 
$
57,167

For the three and six months ended June 30, 2016 and 2015, Columbia Property Trust recognized the following amortization of intangible lease assets and liabilities (in thousands):
 
Intangible Lease Assets
 
Intangible
Lease
Origination
Costs
 
Intangible
Below-Market
In-Place Lease
Liabilities
Above-Market
In-Place
Lease Assets
 
Absorption
Period Costs
 
For the three months ended June 30, 2016
$
626

 
$
7,918

 
$
4,772

 
$
3,745

For the three months ended June 30, 2015
$
1,388

 
$
12,436

 
$
8,121

 
$
5,145

For the six months ended June 30, 2016
$
1,420

 
$
16,447

 
$
10,041

 
$
7,426

For the six months ended June 30, 2015
$
2,755

 
$
24,798

 
$
16,278

 
$
10,556


Page 12


The remaining net intangible assets and liabilities, as of June 30, 2016, will be amortized as follows (in thousands):
 
Intangible Lease Assets
 
Intangible
Lease
Origination
Costs
 
Intangible
Below-Market
In-Place Lease
Liabilities
Above-Market
In-Place
Lease Assets
 
Absorption
Period Costs
 
For the remainder of 2016
$
1,133

 
$
12,136

 
$
7,480

 
$
5,502

For the years ending December 31:
 
 
 
 
 
 
 
2017
1,370

 
18,503

 
12,315

 
8,237

2018
1,028

 
14,732

 
10,099

 
6,309

2019
1,028

 
12,904

 
9,134

 
5,632

2020
1,028

 
10,974

 
8,085

 
4,495

2021
1,028

 
7,089

 
4,143

 
2,831

Thereafter
4,457

 
27,195

 
14,519

 
16,390

 
$
11,072

 
$
103,533

 
$
65,775

 
$
49,396

Intangible Assets and Liabilities Arising from In-Place Leases where Columbia Property Trust Is the Lessee
Columbia Property Trust is the lessee on certain in-place ground leases. Intangible above-market and below-market in-place lease values are recorded as intangible lease liabilities and assets, respectively, and are amortized as an adjustment to property operating cost over the remaining term of the respective leases. Columbia Property Trust had gross below-market lease assets of approximately
$140.9 million as of June 30, 2016 and December 31, 2015, and recognized amortization of these assets of approximately $0.6 million for the three months ended June 30, 2016 and 2015, and approximately $1.3 million for the six months ended June 30, 2016 and 2015.

As of June 30, 2016, the remaining net below-market intangible lease assets will be amortized as follows (in thousands):
For the remainder of 2016
$
1,274

For the years ending December 31:
 
2017
2,549

2018
2,549

2019
2,549

2020
2,549

2021
2,549

Thereafter
107,956

 
$
121,975

Interest Rate Swap Agreements
Columbia Property Trust enters into interest rate swap contracts to mitigate its interest rate risk on the related financial instruments. Columbia Property Trust does not enter into derivative or interest rate swap transactions for speculative purposes; however, certain of its derivatives may not qualify for hedge accounting treatment. Columbia Property Trust records the fair value of its interest rate swaps either as prepaid expenses and other assets or as accounts payable, accrued expenses, and accrued capital expenditures. Changes in the fair value of the effective portion of interest rate swaps that are designated as cash flow hedges are recorded as other comprehensive income, while changes in the fair value of the ineffective portion of a cash flow hedge, if any, are recognized currently in earnings. All changes in the fair value of interest rate swaps that do not qualify for hedge accounting treatment are recorded as gain (loss) on interest rate swaps. Amounts received or paid under interest rate swap agreements are recorded as interest expense for contracts that qualify for hedge accounting treatment and as gain (loss) on interest rate swaps for contracts that do not qualify for hedge accounting treatment. The following tables provide additional information related to Columbia Property Trust's interest rate swaps (in thousands):

Page 13


 
 
 
 
Estimated Fair Value as of
Instrument Type
 
Balance Sheet Classification
 
June 30,
2016
 
December 31,
2015
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Interest rate contracts
 
Accounts payable
 
$
(9,315
)
 
$
(2,436
)
Columbia Property Trust applied the provisions of ASC 820 in recording its interest rate swaps at fair value. The fair values of the interest rate swaps, classified under Level 2, were determined using a third-party proprietary model that is based on prevailing market data for contracts with matching durations, current and anticipated London Interbank Offered Rate ("LIBOR") information, and reasonable estimates about relevant future market conditions. Columbia Property Trust has determined that the fair value, as determined by the third party, is reasonable.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Market value adjustment to interest rate swaps designated as hedging instruments and included in other comprehensive income
$
(2,022
)
 
$
436

 
$
(6,879
)
 
$
595

Loss on interest rate swap recognized through earnings
$

 
$
(2
)
 
$

 
$
(8
)
During the periods presented, there was no hedge ineffectiveness required to be recognized into earnings on the interest rate swaps that qualified for hedge accounting treatment.
Income Taxes
Columbia Property Trust has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), and has operated as such beginning with its taxable year ended December 31, 2003. To qualify as a REIT, Columbia Property Trust must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its REIT taxable income, as defined by the Code, to its stockholders. As a REIT, Columbia Property Trust generally is not subject to income tax on income it distributes to stockholders. Columbia Property Trust's stockholder distributions typically exceed its taxable income due to the inclusion of noncash expenses, such as depreciation, in taxable income. As a result, Columbia Property Trust typically does not incur federal income taxes other than as described in the following paragraph. Columbia Property Trust is, however, subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in the accompanying consolidated financial statements.
Columbia Property Trust TRS, LLC ("Columbia Property Trust TRS"), Columbia KCP TRS, LLC ("Columbia KCP TRS"), and Columbia Energy TRS, LLC ("Columbia Energy TRS") (collectively, the "TRS Entities") are wholly owned subsidiaries of Columbia Property Trust, are organized as Delaware limited liability companies, and operate, among other things, office properties that Columbia Property Trust does not intend to hold long term and a full-service hotel. Columbia Property Trust has elected to treat the TRS Entities as taxable REIT subsidiaries. Columbia Property Trust may perform certain additional, noncustomary services for tenants of its buildings through the TRS Entities; however, any earnings related to such services are subject to federal and state income taxes. In addition, for Columbia Property Trust to continue to qualify as a REIT, Columbia Property Trust must limit its investments in taxable REIT subsidiaries to 25% of the value of the total assets. The TRS Entities' deferred tax assets and liabilities represent temporary differences between the financial reporting basis and the tax basis of assets and liabilities based on the enacted rates expected to be in effect when the temporary differences reverse. If applicable, Columbia Property Trust records interest and penalties related to uncertain tax positions as general and administrative expense in the accompanying consolidated statements of operations.
Recent Accounting Pronouncement
In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, Leases ("ASU 2016-02"), which amends the existing standards for lease accounting by requiring lessees to recognize most leases on their balance sheets, and making targeted changes to lessor accounting and reporting. The new standard will require lessees to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months, and classify such leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method (finance leases), or on a straight-line basis over the term of the lease (operating leases). Leases with a term of 12 months or less will be accounted for similar to existing

Page 14


guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance as applies to sales-type leases, direct financing leases, and operating leases. ASU 2016-02 supersedes previous leasing standards. ASU 2016-02 is effective for Columbia Property Trust for reporting periods beginning after December 15, 2018, with early adoption permitted. Columbia Property Trust is evaluating the impact ASU 2016-02 will have on its financial position and results of operations.
3.
Real Estate Transactions
Acquisitions
During the six months ended June 30, 2016, Columbia Property Trust did not acquire any properties. During 2015, Columbia Property Trust acquired the following properties (in thousands):
 
 
315 Park Avenue
South Building
 
1881 Campus Commons Building
 
116 Huntington
Avenue Building
 
229 West 43rd Street Building
Location
 
New York, NY

 
Reston, VA

 
Boston, MA

 
New York, NY

Date Acquired
 
January 7, 2015

 
January 7, 2015

 
January 8, 2015

 
August 4, 2015

Purchase price:
 
 
 
 
 
 
 
 
Land
 
$
119,633

 
$
7,179

 
$

 
$
207,233

Building and improvements
 
232,598

 
49,273

 
108,383

 
265,952

Intangible lease assets
 
16,912

 
4,643

 
7,907

 
27,039

Intangible below market ground lease assets
 

 

 
30,244

 

Intangible lease origination costs
 
4,148

 
1,603

 
2,669

 
10,059

Intangible below market lease liability
 
(7,487
)
 
(97
)
 
(1,878
)
 

Total purchase price
 
$
365,804

 
$
62,601

 
$
147,325

 
$
510,283

Note 2, Summary of Significant Accounting Policies, provides a discussion of the estimated useful life for each asset class.
315 Park Avenue South Building & 1881 Campus Commons Building
On January 7, 2015, Columbia Property Trust acquired two assets, 315 Park Avenue South, a 327,000-square-foot office building in New York, New York (the "315 Park Avenue South Building"), and 1881 Campus Commons, a 244,000-square-foot office building in Reston, Virginia (the "1881 Campus Commons Building"). This portfolio was acquired for $436.0 million, exclusive of transaction costs and purchase price adjustments, using proceeds from the issuance of $350.0 million bonds payable due in 2025, proceeds from the Revolving Credit Facility, as described in Note 5, Line of Credit and Notes Payable, and cash on hand.
As of the acquisition date, the 315 Park Avenue South Building was 94.9% leased to nine tenants, including Credit Suisse (74%). For the period from January 7, 2015 to June 30, 2015, Columbia Property Trust recognized revenues of $12.9 million and a net loss of $2.6 million from the 315 Park Avenue South Building. The net loss includes acquisition expenses of $1.2 million.
As of the acquisition date, the 1881 Campus Commons Building was 78.0% leased to 15 tenants, including SOS International (15%) and Siemens (12%). For the period from January 7, 2015 to June 30, 2015, Columbia Property Trust recognized revenues of $3.0 million and a net loss of $1.1 million from the 1881 Campus Commons Building. The net loss includes acquisition expenses of $0.5 million.
116 Huntington Avenue Building
On January 8, 2015, Columbia Property Trust acquired a 271,000-square-foot office building in Boston, Massachusetts (the "116 Huntington Avenue Building"), for $152.0 million, inclusive of capital credits, using proceeds from the issuance of $350.0 million bonds payable due in 2025, proceeds from the Revolving Credit Facility, and cash on hand. As of the acquisition date, the 116 Huntington Avenue Building was 78.0% leased to 17 tenants, including American Tower (21%), GE Healthcare (13%), and Brigham and Women's (12%). For the period from January 8, 2015 to June 30, 2015, Columbia Property Trust recognized revenues of $5.6 million and a net loss of $0.4 million from the 116 Huntington Avenue Building. The net loss includes acquisition expenses of $0.3 million.
229 West 43rd Street Building
On August 4, 2015, Columbia Property Trust acquired the 481,000-square-foot office portion of the 229 West 43rd Street building, a 16-story,732,000-square-foot building located in the Times Square sub-market of Manhattan in New York, New York (the "229 West 43rd Street Building"), for $516.0 million, exclusive of transaction costs and purchase price adjustments. This acquisition was funded with the $300 Million Bridge Loan, as described in Note 5, Line of Credit and Notes Payable, and borrowings on the

Page 15


Revolving Credit Facility. As of the acquisition date, the 229 West 43rd Street Building was 98% leased to nine tenants, including Yahoo! (40%), Snapchat (13%), Collective, Inc. (12%), and MongoDB (10%).
Proforma Financial Information
The following unaudited pro forma statements of operations presented for the three and six months ended June 30, 2015, have been prepared for Columbia Property Trust to give effect to the acquisitions of the 315 Park Avenue South Building, the 1881 Campus Commons Building, the 116 Huntington Avenue Building, and the 229 West 43rd Street Building as if the acquisitions occurred on January 1, 2014. Other than 1881 Campus Commons, which was sold in December 2015, Columbia Property Trust owned these buildings for the entirety of the three and six months ended June 30, 2016. The following unaudited pro forma financial results for Columbia Property Trust have been prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had these acquisitions been consummated as of January 1, 2014 (in thousands).
 
Three Months Ended
June 30, 2015
 
Six Months Ended
June 30, 2015
Revenues
$
154,831

 
$
309,795

Net income
$
7,936

 
$
14,659

Net income per share - basic
$
0.06

 
$
0.12

Net income per share - diluted
$
0.06

 
$
0.12

Dispositions
During 2016 and 2015, Columbia Property Trust closed on the following transactions:
800 North Frederick Property
On July 8, 2016, Columbia Property Trust sold the 800 North Frederick Property in suburban Maryland for $48.0 million, before purchase price adjustments, and will recognize a gain of approximately $2.1 million on the sale in the third quarter of 2016. The net sale proceeds of $45.4 million were used to reduce the outstanding balance of the Revolving Credit Facility.
100 East Pratt Property
On March 31, 2016, Columbia Property Trust sold the 100 East Pratt Property in Baltimore, Maryland, for $187.0 million, before purchase price adjustments, and recognized a $0.3 million loss on the sale. The net sale proceeds of $159.4 million were used to repay $119.0 million remaining on the $300 Million Bridge Loan on April 1, 2016, and to reduce the outstanding balance of the Revolving Credit Facility.
1881 Campus Commons Building
On December 10, 2015, Columbia Property Trust sold the 1881 Campus Commons Building in Reston, Virginia, for $65.0 million, exclusive of purchase price adjustments and closing costs, yielding a gain of $0.5 million. The proceeds from the sale of the 1881 Campus Commons Building were used to reduce the outstanding balance of the $300 Million Bridge Loan.
Market Square Buildings - Partial Sale
On October 28, 2015, Columbia Property Trust transferred the Market Square Buildings and the related $325.0 million mortgage note to a joint venture (the "Market Square Joint Venture") and sold a 49% interest in the Market Square Joint Venture to Blackstone Property Partners ("Blackstone") for approximately $120.0 million of net proceeds, which were used to repay a portion of the $300 Million Bridge Loan. As a result of this transaction, Columbia Property Trust recognized a gain on real estate of $3.1 million and retains a 51% interest in the Market Square Joint Venture. The Market Square Joint Venture owns and operates the Market Square Buildings through a REIT ("Market Square REIT East & West, LLC"). See Note 4, Unconsolidated Joint Venture, for additional information.

Page 16


11 Property Sale
On July 1, 2015, Columbia Property Trust sold 11 properties to an unaffiliated third party for $433.3 million, exclusive of closing costs (the "11 Property Sale"), which resulted in a gain of $20.2 million. The proceeds for 10 of the properties were available on July 1, 2015, and the remaining proceeds were available on August 3, 2015. For the period from January 1, 2015 through July 1, 2015, the aggregate net income, excluding the gain on sale, for the properties included in the 11 Property Sale was $6.5 million. The following properties make up the 11 Property Sale:
170 Park Avenue
Bannockburn Lake III
Acxiom
180 Park Avenue
544 Lakeview
215 Diehl Road
Robbins Road
Highland Landmark III
1580 West Nursery
550 King Street
The Corridors III
 
4.    Unconsolidated Joint Venture
Columbia Property Trust owns a majority interest of 51% in the Market Square Joint Venture, and Blackstone owns the remaining 49% interest in the joint venture. The Market Square Joint Venture owns and operates the Market Square Buildings through Market Square REIT East & West, LLC, which operates as a REIT. The Market Square Buildings are two, 13-story office buildings containing 698,000 square feet of office space in Washington, D.C. Columbia Property Trust shares substantive participation rights with Blackstone, including management selection and termination, and the approval of material operating and capital decisions. As such, Columbia Property Trust uses the equity method of accounting to record its investment in the Market Square Joint Venture. Under the equity method, the investment in the joint venture is recorded at cost and adjusted for cash contributions and distributions, and allocations of income (loss). Cash distributions and earnings are allocated according to the provisions of the joint venture agreement, which are consistent with the ownership percentages for the Market Square Joint Venture.
Columbia Property Trust evaluates the recoverability of its investment in unconsolidated joint venture in accordance with accounting standards for equity investments by first reviewing the investment for any indicators of impairment. If indicators are present, Columbia Property Trust estimates the fair value of the investment. If the carrying value of the investment is greater than the estimated fair value, management makes an assessment of whether the impairment is "temporary" or "other-than-temporary." In making this assessment, management considers the following: (1) the length of time and the extent to which fair value has been less than cost, and (2) Columbia Property Trust's intent and ability to retain its interest long enough for a recovery in market value.
As of June 30, 2016, the outstanding balance on the interest-only Market Square mortgage note is $325.0 million, bearing interest at 5.07%. The Market Square mortgage note matures on July 1, 2023. On October 28, 2015, Columbia Property Trust entered into a guaranty of a $25.0 million portion of the Market Square mortgage note, the amount of which has been reduced to $23.3 million as of June 30, 2016, as a result of leasing at the Market Square Buildings. The amount of the guaranty will continue to be reduced as space is leased.
Condensed balance sheet information for the Market Square Joint Venture is as follows (in thousands):
 
June 30, 2016
 
December 31, 2015
Total assets
$
578,416

 
$
573,073

Total debt
$
324,629

 
$
324,603

Total equity
$
238,156

 
$
230,060

Columbia Property Trust's investment
$
123,919

 
$
118,695

Condensed income statement information for the Market Square Joint Venture is as follows (in thousands). The Market Square Joint Venture was formed subsequent to June 30, 2015.
 
Three Months Ended
June 30, 2016
 
Six Months Ended June 30, 2016
Total revenues
$
9,776

 
$
21,439

Net loss
$
(3,827
)
 
$
(6,870
)
Columbia Property Trust's share
$
(1,952
)
 
$
(3,504
)

Page 17


Columbia Property Trust provides property and asset management services to the Market Square Joint Venture. Under these agreements, Columbia Property Trust oversees the day-to-day operations of the Market Square Joint Venture and the Market Square Buildings, including property management, property accounting, and other property services. Columbia Property Trust receives property management fees equal to 3.0% of the gross revenue of the Market Square Buildings and reimbursements of property operating costs, payable monthly, and receives asset management fees of $1.0 million annually, payable in equal quarterly installments. During the three and six months ended June 30, 2016, Columbia Property Trust earned $0.6 million and $1.3 million, respectively, in fees related to these asset and property management services, which are included in other property income on the accompanying consolidated statement of operations. The Market Square Joint Venture was formed in October 2015, so similar fees were not earned during the six months ended June 30, 2015. As of June 30, 2016, $0.1 million in property management fees were due from the Market Square Joint Venture, and included in prepaid expenses and other assets on the accompanying consolidated balance sheet.
5.    Line of Credit and Notes Payable
As of June 30, 2016 and December 31, 2015, Columbia Property Trust had the following line of credit and notes payable indebtedness (excluding bonds payable; see Note 6, Bonds Payable) in thousands:
Facility
 
June 30,
2016
 
December 31,
2015
Revolving Credit Facility
 
$
333,000

 
$
247,000

$300 Million Term Loan
 
300,000

 
300,000

$150 Million Term Loan
 
150,000

 
150,000

650 California Street Building mortgage note
 
127,547

 
128,785

221 Main Street Building mortgage note
 
73,000

 
73,000

263 Shuman Boulevard Building mortgage note
 
49,000

 
49,000

One Glenlake Building mortgage note
 
27,818

 
29,278

$300 Million Bridge Loan
 

 
119,000

SanTan Corporate Center mortgage notes
 

 
39,000

Less: Deferred financing costs related to term loans and notes payable, net of accumulated amortization
 
(3,675
)
 
(4,492
)
Total indebtedness
 
$
1,056,690

 
$
1,130,571

Fair Value of Debt
The estimated fair value of Columbia Property Trust's line of credit and notes payable as of June 30, 2016 and December 31, 2015, was approximately $1,065.4 million and $1,140.1 million, respectively. The related carrying value of the line of credit and notes payable as of June 30, 2016 and December 31, 2015, was $1,060.4 million and $1,135.1 million, respectively. Columbia Property Trust estimated the fair value of the $300 Million Term Loan (the "$300 Million Term Loan") and the Revolving Credit Facility (the "Revolving Credit Facility") by obtaining estimates for similar facilities from multiple market participants as of the respective reporting dates. Therefore, the fair values determined are considered to be based on observable market data for similar instruments (Level 2). The fair values of all other debt instruments were estimated based on discounted cash flow analyses using the current incremental borrowing rates for similar types of borrowing arrangements as of the respective reporting dates. The discounted cash flow method of assessing fair value results in a general approximation of value, and such value may never actually be realized.
Interest Paid and Capitalized and Debt Covenants
During the six months ended June 30, 2016 and 2015, Columbia Property Trust made interest payments totaling approximately $15.2 million and $30.7 million, respectively, of which approximately $0.1 million and $0.2 million were capitalized during the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016, Columbia Property Trust believes it was in compliance with the restrictive financial covenants on its term loans, the Revolving Credit Facility, and notes payable obligations.
Debt Repayments
On June 30, 2016, Columbia Property Trust used borrowings on the Revolving Credit Facility to repay the $39.0 million SanTan Corporate Center mortgage notes, which were scheduled to mature on October 11, 2016. In the second quarter of 2016, Columbia Property Trust wrote-off approximately $10,000 of related unamortized financing costs, which are included in loss on early extinguishment in the accompanying statements of operations.

Page 18


On April 1, 2016, Columbia Property Trust repaid the $119.0 million remaining on its $300 million, six-month unsecured loan, which was used to finance a portion of the 229 West 43rd Street Building acquisition in August of 2015 (the "$300 Million Bridge Loan"). The $300 Million Bridge Loan was scheduled to mature on August 4, 2016. Columbia Property Trust recognized a loss on early extinguishment of debt of $82,000 related to unamortized deferred financing costs.
6.    Bonds Payable
In March 2015, Columbia Property Trust OP issued $350.0 million of ten-year, unsecured 4.150% senior notes at 99.859% of their face value (the "2025 Bonds Payable"), which are guaranteed by Columbia Property Trust. Columbia Property Trust OP received proceeds from the 2025 Bonds Payable, net of fees, of $347.2 million. The 2025 Bonds Payable require semi-annual interest payments in April and October based on a contractual annual interest rate of 4.150%. In the accompanying consolidated balance sheets, the 2025 Bonds Payable are shown net of the initial issuance discount of approximately $0.5 million, which will be amortized to interest expense over the term of the 2025 Bonds Payable using the effective interest method. The principal amount of the 2025 Bonds Payable is due and payable on the maturity date, April 1, 2025.
In 2011, Columbia Property Trust OP issued $250.0 million of seven-year, unsecured 5.875% senior notes at 99.295% of their face value (the "2018 Bonds Payable"), which are guaranteed by Columbia Property Trust. Columbia Property Trust OP received proceeds from the 2018 Bonds Payable, net of fees, of $246.7 million. The 2018 Bonds Payable require semi-annual interest payments in April and October based on a contractual annual interest rate of 5.875%, which is subject to adjustment in certain circumstances. In the accompanying consolidated balance sheets, the 2018 Bonds Payable are shown net of the initial issuance discount of approximately $1.8 million, which is amortized to interest expense over the term of the 2018 Bonds Payable using the effective interest method. The principal amount of the 2018 Bonds Payable is due and payable on the maturity date, April 1, 2018.
Interest payments of $14.6 million were made on the 2018 Bonds Payable and the 2025 Bonds Payable during the six months ended June 30, 2016; and interest payments of $7.3 million were made on the 2018 Bonds Payable during the six months ended June 30, 2015. Columbia Property Trust is subject to substantially similar covenants under the 2025 Bonds Payable and the 2018 Bonds Payable. As of June 30, 2016, Columbia Property Trust believes it was in compliance with the restrictive financial covenants on the 2025 Bonds Payable and the 2018 Bonds Payable.
As of June 30, 2016 and December 31, 2015, the estimated fair value of the 2025 Bonds Payable and the 2018 Bonds Payable was approximately $602.1 million and $602.3 million, respectively. The related carrying value of the bonds payable, net of discounts, as of June 30, 2016 and December 31, 2015, was $599.1 million and $599.0 million, respectively. The fair value of the bonds payable was estimated based on discounted cash flow analyses using the current incremental borrowing rates for similar types of borrowings as the 2025 Bonds Payable and the 2018 Bonds Payable arrangements as of the respective reporting dates (Level 2). The discounted cash flow method of assessing fair value results in a general approximation of value, and such value may never actually be realized.
7.
Commitments and Contingencies
Commitments Under Existing Lease Agreements
Certain lease agreements include provisions that, at the option of the tenant, may obligate Columbia Property Trust to expend capital to expand an existing property or provide other expenditures for the benefit of the tenant. As of June 30, 2016, Columbia Property Trust is committed, under a recently signed lease, to contribute approximately $70.1 million toward leasehold improvements at our 222 East 41st Street Property, which is expected to be paid during 2016 and 2017.
Guaranty of Debt of Unconsolidated Joint Venture
Upon entering into the Market Square Joint Venture in October 2015, Columbia Property Trust entered into a guaranty of a $25.0 million portion of the Market Square mortgage note, the amount of which is reduced as space is leased. As a result of leasing to date, the guaranty has been reduced to $23.3 million as of June 30, 2016. Columbia Property Trust believes that the likelihood of making a payment under this guaranty is remote; therefore, no liability has been recorded related to this guaranty as of June 30, 2016.
Litigation
Columbia Property Trust is subject to various legal proceedings, claims, and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any reasonably possible loss relating to these matters using the latest information available. Columbia Property Trust records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, Columbia

Page 19


Property Trust accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, Columbia Property Trust accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, Columbia Property Trust discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, Columbia Property Trust discloses the nature and estimate of the possible loss of the litigation. Columbia Property Trust does not disclose information with respect to litigation where the possibility of an unfavorable outcome is considered to be remote. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business, or financial condition of Columbia Property Trust. Columbia Property Trust is not currently involved in any legal proceedings of which management would consider the outcome to be reasonably likely to have a material adverse effect on the results of operations, liquidity, or financial condition of Columbia Property Trust.
8.
Stockholders' Equity
Common Stock Repurchase Program
Columbia Property Trust's board of directors has authorized the repurchase of up to an aggregate of $200 million of its common stock, par value $0.01 per share, through September 4, 2017 (the "Stock Repurchase Program"). Since this program commenced on September 4, 2015, Columbia Property Trust has spent a total of $41.3 million to acquire 1.8 million shares at an average price of $22.60 per share. As of June 30, 2016, $158.7 million remains available for repurchases under the Stock Repurchase Program. Common stock repurchases are charged against equity as incurred, and the repurchased shares are retired. Columbia Property Trust will continue to evaluate the purchase of shares, primarily through open market transactions which are subject to market conditions and other factors.
Long-Term Incentive Plan
Columbia Property Trust maintains a shareholder approved, long-term incentive plan that provides for grants of up to 2.0 million shares of stock to be made to certain employees and independent directors of Columbia Property Trust (the "LTIP"). On January 21, 2016, Columbia Property Trust granted 231,015 shares of common stock to employees, net of 20,842 shares repurchased to fund income tax witholdings, under the LTIP (the "2015 LTIP Employee Grant"), of which 25% vested upon grant, and the remaining shares will vest in three equal increments on January 31, 2017, 2018, and 2019. Employees will receive quarterly dividends related to their entire grant, including the unvested shares, on each dividend payment date. A summary of the activity for the employee stock grants under the LTIP for the six months ended June 30, 2016 follows:
 
 
For the Six Months Ended
June 30, 2016
 
 
Shares
(in thousands)
 
Weighted-Average
Grant-Date
Fair Value
(1)
Unvested shares - beginning of period
 
151

 
$
24.59

Granted
 
247

 
$
21.79

Vested
 
(138
)
 
$
23.32

Forfeited
 
(3
)
 
$
21.90

Unvested shares - end of period(2)
 
257

 
$
22.62

(1) 
Columbia Property Trust determined the weighted-average grant-date fair value using the market closing price on the date of the respective grants.
(2) 
As of June 30, 2016, we expect approximately 244,000 of the 257,000 unvested shares to ultimately vest, assuming a forfeiture rate of 5.0%, which was determined based on peer company data, adjusted for the specifics of the LTIP.

Page 20


During the six months ended June 30, 2016 and 2015, Columbia Property Trust paid quarterly installments of the independent directors' annual equity retainers by granting shares to the independent directors, which vested at the time of grant. A summary of these grants, made under the LTIP, follows:
Date of Grant
 
Shares
 
Grant-Date Fair Value
2016 Director Grants:
 
 
 
 
January 4, 2016
 
7,439

 
$
23.00

April 1, 2016
 
8,120

 
$
21.89

2015 Director Grants:
 
 
 
 
January 2, 2015
 
5,850

 
$
25.75

April 1, 2015
 
4,995

 
$
27.16

For the three and six months ended June 30, 2016 and 2015, Columbia Property Trust incurred the stock-based compensation expense related to the following events (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Amortization of unvested LTIP awards
$
689

 
$
364

 
$
1,540

 
$
927

Future employee awards(1)
346

 
516

 
706

 
816

Issuance of shares to independent directors
178

 
135

 
349

 
286

Total stock-based compensation expense
$
1,213

 
$
1,015

 
$
2,595

 
$
2,029

(1) 
These future employee awards relate to service during the period, to be granted in January of the subsequent year, with 25% vesting on the date of grant, and the remaining 75% vesting ratably on January 31st of each of the following three years.
These expenses are included in general and administrative expenses in the accompanying consolidated statements of operations. As of June 30, 2016 and December 31, 2015, there was $4.4 million and $2.2 million, respectively, of unrecognized compensation costs related to unvested awards under the LTIP. This amount will be amortized over the respective vesting period, ranging from one to three years at the time of grant.
9.     Supplemental Disclosures of Noncash Investing and Financing Activities
Outlined below are significant noncash investing and financing activities for the six months ended June 30, 2016 and 2015 (in thousands): 
 
Six Months Ended
June 30,
 
2016
 
2015
Investments in real estate funded with other assets
$

 
$
27,000

Other assets assumed at acquisition
$

 
$
6,119

Other liabilities assumed at acquisition
$

 
$
3,572

Discount on issuance of bonds payable
$

 
$
494

Amortization of net discounts (premiums) on debt
$
151

 
$
(169
)
Market value adjustments to interest rate swaps that qualify for hedge accounting treatment
$
(6,879
)
 
$
595

Accrued capital expenditures and deferred lease costs
$
7,505

 
$
15,218

Accrued deferred financing costs
$

 
$
19

Common stock issued to employees and directors, and amortized (net of income tax witholdings)
$
1,417

 
$
1,300

 
10.    Earnings Per Share
For the three and six months ended June 30, 2016 and 2015, in computing the basic and diluted earnings-per-share, net income has been reduced for the dividends paid on unvested shares related to unvested awards under the LTIP. The following table reconciles

Page 21


the numerator for the basic and diluted earnings-per-share computations shown on the consolidated statements of income for the three and six months ended June 30, 2016 and 2015 (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
13,286

 
$
8,709

 
$
19,983

 
$
14,307

Distributions paid on unvested shares
 
(77
)
 
(45
)
 
(159
)
 
(94
)
Net income used to calculate basic and diluted earnings per share
 
$
13,209

 
$
8,664


$
19,824


$
14,213

The following table reconciles the denominator for the basic and diluted earnings-per-share computations shown on the consolidated statements of income for the three and six months ended June 30, 2016 and 2015, respectively (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2016
 
2015
 
2016
 
2015
Weighted-average common shares - basic
 
123,206

 
124,925

 
123,299

 
124,914

Plus incremental weighted-average shares from time-vested conversions, less assumed share repurchases:
 
 
 
 
 
 
 
 
Previously granted LTIP awards, unvested
 
43

 
37

 
26

 
26

Future LTIP awards for the current year
 
45

 
55

 
32

 
41

Weighted-average common shares - diluted
 
123,294

 
125,017

 
123,357

 
124,981

11.     Financial Information for Parent Guarantor, Issuer Subsidiary, and Non-Guarantor Subsidiaries
The 2025 Bonds Payable and the 2018 Bonds Payable (see Note 6, Bonds Payable) were issued by Columbia Property Trust OP, and are guaranteed by Columbia Property Trust. In accordance with SEC Rule 3-10(c), Columbia Property Trust includes herein condensed consolidating financial information in lieu of separate financial statements of the subsidiary issuer (Columbia Property Trust OP), as defined in the bond indentures, because all of the following criteria are met:
(1)
The subsidiary issuer (Columbia Property Trust OP) is 100% owned by the parent company guarantor (Columbia Property Trust);
(2)
The guarantee is full and unconditional; and
(3)
No other subsidiary of the parent company guarantor (Columbia Property Trust) guarantees the 2025 Bonds Payable or the 2018 Bonds Payable.
Columbia Property Trust uses the equity method with respect to its investment in subsidiaries included in its condensed consolidating financial statements. Set forth below are Columbia Property Trust's condensed consolidating balance sheets as of June 30, 2016 and December 31, 2015 (in thousands), as well as its condensed consolidating statements of operations and its condensed consolidating statements of comprehensive income for the three and six months ended June 30, 2016 and 2015 (in thousands); and its condensed consolidating statements of cash flows for the six months ended June 30, 2016 and 2015 (in thousands).

Page 22


Condensed Consolidating Balance Sheets (in thousands)
 
As of June 30, 2016
 
Columbia Property Trust
(Parent)
(Guarantor)
 
Columbia
 Property
Trust OP 
(the Issuer)
 
Non-
Guarantors
 
Consolidating
adjustments
 
Columbia Property Trust
(Consolidated)
Assets:
 
 
 
 
 
 
 
 
 
Real estate assets, at cost:
 
 
 
 
 
 
 
 
 
Land
$

 
$
6,241

 
$
838,254

 
$

 
$
844,495

Buildings and improvements, net

 
28,927

 
2,713,002

 

 
2,741,929

Intangible lease assets, net

 

 
236,580

 

 
236,580

Construction in progress

 
396

 
13,780

 

 
14,176

Real estate assets held for sale, net

 

 
43,246

 

 
43,246

Total real estate assets

 
35,564

 
3,844,862

 

 
3,880,426

Investment in unconsolidated joint venture

 
123,919

 

 

 
123,919

Cash and cash equivalents
1,270

 
10,441

 
12,092

 

 
23,803

Investment in subsidiaries
2,211,139

 
2,018,419

 

 
(4,229,558
)
 

Tenant receivables, net of allowance

 
28

 
11,182

 

 
11,210

Straight-line rent receivable

 
1,471

 
112,450

 

 
113,921

Prepaid expenses and other assets
317,228

 
263,543

 
26,360

 
(571,901
)
 
35,230

Intangible lease origination costs, net

 

 
65,775

 

 
65,775

Deferred lease costs, net

 
1,992

 
85,190

 

 
87,182

Investment in development authority bonds

 

 
120,000

 

 
120,000

Other assets held for sale

 

 
10

 

 
10

Total assets
$
2,529,637

 
$
2,455,377

 
$
4,277,921

 
$
(4,801,459
)
 
$
4,461,476

Liabilities:
 
 
 
 
 
 
 
 
 
Line of credit and notes payable
$

 
$
780,366

 
$
845,767

 
$
(569,443
)
 
$
1,056,690

Bonds payable, net

 
595,819

 

 

 
595,819

Accounts payable, accrued expenses, and accrued capital expenditures
1

 
19,687

 
66,322

 

 
86,010

Due to affiliates

 
31

 
2,427

 
(2,458
)
 

Deferred income

 
69

 
23,724

 

 
23,793

Intangible lease liabilities, net

 

 
49,396

 

 
49,396

Obligations under capital leases

 

 
120,000

 

 
120,000

Liabilities held for sale

 

 
132

 

 
132

Total liabilities
1

 
1,395,972

 
1,107,768

 
(571,901
)
 
1,931,840

Equity:
 
 
 
 
 
 
 
 
 
Total equity
2,529,636

 
1,059,405

 
3,170,153

 
(4,229,558
)
 
2,529,636

Total liabilities and equity
$
2,529,637

 
$
2,455,377

 
$
4,277,921

 
$
(4,801,459
)
 
$
4,461,476





Page 23


Condensed Consolidating Balance Sheets (in thousands)
 
As of December 31, 2015
 
Columbia Property Trust
(Parent)
(Guarantor)
 
Columbia
Property
Trust OP 
(the Issuer)
 
Non-
Guarantors
 
Consolidating
adjustments
 
Columbia Property Trust
(Consolidated)
Assets:
 
 
 
 
 
 
 
 
 
Real estate assets, at cost:
 
 
 
 
 
 
 
 
 
Land
$

 
$
6,241

 
$
890,226

 
$

 
$
896,467

Building and improvements, net

 
28,913

 
2,868,518

 

 
2,897,431

Intangible lease assets, net

 

 
259,136

 

 
259,136

Construction in progress

 
917

 
30,930

 

 
31,847

Total real estate assets

 
36,071

 
4,048,810

 

 
4,084,881

Investment in unconsolidated joint venture

 
118,695

 

 

 
118,695

Cash and cash equivalents
989

 
14,969

 
16,687

 

 
32,645

Investment in subsidiaries
2,333,408

 
1,901,581

 

 
(4,234,989
)
 

Tenant receivables, net of allowance

 
52

 
11,618

 

 
11,670

Straight-line rent receivable

 
1,311

 
107,751

 

 
109,062

Prepaid expenses and other assets
317,151

 
265,615

 
26,153

 
(573,071
)
 
35,848

Intangible lease origination costs, net

 

 
77,190

 

 
77,190

Deferred lease costs, net

 
2,055

 
86,072

 

 
88,127

Investment in development authority bonds

 

 
120,000

 

 
120,000

Total assets
$
2,651,548

 
$
2,340,349

 
$
4,494,281

 
$
(4,808,060
)
 
$
4,678,118

Liabilities:
 
 
 
 
 
 
 
 
 
Lines of credit, term loans, and notes payable
$

 
$
812,836

 
$
888,340

 
$
(570,605
)
 
$
1,130,571

Bonds payable, net

 
595,259

 

 

 
595,259

Accounts payable, accrued expenses, and accrued capital expenditures

 
13,313

 
85,446

 

 
98,759

Distributions payable
37,354

 

 

 

 
37,354

Due to affiliates

 
21

 
2,445

 
(2,466
)
 

Deferred income

 
200

 
24,614

 

 
24,814

Intangible lease liabilities, net

 

 
57,167

 

 
57,167

Obligations under capital leases

 

 
120,000

 

 
120,000

Total liabilities
37,354

 
1,421,629

 
1,178,012

 
(573,071
)
 
2,063,924

Equity:
 
 
 
 
 
 
 
 
 
Total equity
2,614,194

 
918,720

 
3,316,269

 
(4,234,989
)
 
2,614,194

Total liabilities and equity
$
2,651,548

 
$
2,340,349

 
$
4,494,281

 
$
(4,808,060
)
 
$
4,678,118





Page 24


Consolidating Statements of Operations (in thousands)
 
For the Three Months Ended June 30, 2016
 
Columbia Property Trust
(Parent)
(Guarantor)
 
Columbia
 Property
Trust OP 
(the Issuer)
 
Non-
Guarantors
 
Consolidating
adjustments
 
Columbia Property Trust
(Consolidated)
Revenues:
 
 
 
 
 
 
 
 
 
Rental income
$

 
$
863

 
$
92,796

 
$
(92
)
 
$
93,567

Tenant reimbursements

 
455

 
18,253

 

 
18,708

Hotel income

 

 
6,551

 

 
6,551

Other property income
245

 

 
8,955

 
(96
)
 
9,104

 
245

 
1,318

 
126,555

 
(188
)
 
127,930

Expenses: