CPT 10-Q 2013.6.30
Table of Contents


 
 
 
 
 
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, 2013
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 000-51262
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
o
Accelerated filer
o
Non-accelerated filer
x (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 31, 2013: 537,048,293 shares
 
 
 
 
 

Table of Contents


FORM 10-Q
COLUMBIA PROPERTY TRUST, INC.
TABLE OF CONTENTS
 
Page No.
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2013 (unaudited) and 2012 (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.




Page 2
Table of Contents


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q of Columbia Property Trust, Inc. ("Columbia Property Trust," "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, 2012 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
Table of Contents


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 Columbia Property Trust's Annual Report on Form 10-K filed for the year ended December 31, 2012. Columbia Property Trust's results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the operating results expected for the full year.



Page 4
Table of Contents


COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per-share amounts)
 
 
(Unaudited)
 
 
 
June 30, 2013
 
December 31, 2012
Assets:
 
 
 
Real estate assets, at cost:
 
 
 
Land
$
786,336

 
$
789,237

Buildings and improvements, less accumulated depreciation of $635,280 and $580,334, as of June 30, 2013 and December 31, 2012, respectively
3,370,152

 
3,468,218

Intangible lease assets, less accumulated amortization of $332,936 and $315,840, as of
June 30, 2013 and December 31, 2012, respectively
317,232

 
341,460

Construction in progress
6,781

 
12,680

Total real estate assets
4,480,501

 
4,611,595

Cash and cash equivalents
61,667

 
53,657

Tenant receivables, net of allowance for doubtful accounts of $892 and $117, as of
June 30, 2013 and December 31, 2012, respectively
139,473

 
134,099

Prepaid expenses and other assets
33,208

 
29,373

Deferred financing costs, less accumulated amortization of $10,081 and $8,527, as of
June 30, 2013 and December 31, 2012, respectively
8,952

 
10,490

Intangible lease origination costs, less accumulated amortization of $247,781 and $230,930, as of June 30, 2013 and December 31, 2012, respectively
186,986

 
206,927

Deferred lease costs, less accumulated amortization of $29,119 and $24,222, as of
June 30, 2013 and December 31, 2012, respectively
106,652

 
98,808

Investment in development authority bonds
586,000

 
586,000

Total assets
$
5,603,439

 
$
5,730,949

Liabilities:
 
 
 
Line of credit and notes payable
$
1,409,245

 
$
1,401,618

Bonds payable, net of discount of $1,196 and $1,322, as of June 30, 2013 and
December 31, 2012, respectively
248,804

 
248,678

Accounts payable, accrued expenses, and accrued capital expenditures
97,929

 
102,858

Due to affiliates
18,006

 
1,920

Deferred income
22,243

 
28,071

Intangible lease liabilities, less accumulated amortization of $89,592 and $84,326, as of
June 30, 2013 and December 31, 2012, respectively
90,867

 
98,298

Obligations under capital leases
586,000

 
586,000

Total liabilities
2,473,094

 
2,467,443

Commitments and Contingencies (Note 6)
—

 
—

Redeemable Common Stock
121,752

 
99,526

Equity:
 
 
 
Common stock, $0.01 par value, 900,000,000 shares authorized, 542,288,114 and 547,603,642 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively
5,423

 
5,476

Additional paid-in capital
4,867,077

 
4,897,782

Cumulative distributions in excess of earnings
(1,739,568
)
 
(1,634,531
)
Redeemable common stock
(121,752
)
 
(99,526
)
Other comprehensive loss
(2,587
)
 
(5,221
)
Total equity
3,008,593

 
3,163,980

Total liabilities, redeemable common stock, and equity
$
5,603,439

 
$
5,730,949

See accompanying notes.


Page 5
Table of Contents


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,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
Rental income
$
116,949

 
$
109,857

 
$
232,070


$
220,043

Tenant reimbursements
24,451

 
24,193

 
49,883


49,273

Hotel income
6,562

 
6,463

 
11,516

 
10,838

Other property income
1,258

 
458

 
1,546

 
2,157

 
149,220

 
140,971

 
295,015

 
282,311

Expenses:
 
 
 
 
 
 
 
Property operating costs
43,130

 
40,023

 
86,842

 
81,261

Hotel operating costs
4,820

 
4,996

 
9,081

 
9,093

Asset and property management fees:
 
 
 
 

 
 
Related-party
—

 
8,671

 
5,541

 
17,493

Other
680

 
651

 
1,380

 
1,350

Depreciation
30,608

 
27,982

 
60,860

 
55,867

Amortization
22,327

 
26,751

 
44,237

 
52,470

Impairment loss on real estate assets
—

 
—

 
16,867

 
—

General and administrative
9,113

 
6,614

 
46,020

 
11,484

 
110,678

 
115,688

 
270,828

 
229,018

Real estate operating income
38,542

 
25,283

 
24,187

 
53,293

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(27,175
)
 
(26,526
)
 
(54,435
)
 
(52,807
)
Interest and other income
9,274

 
10,012

 
18,385

 
20,028

Gain (loss) on interest rate swaps
164

 
(13
)
 
221

 
(89
)
 
(17,737
)
 
(16,527
)
 
(35,829
)
 
(32,868
)
Income (loss) before income tax expense
20,805

 
8,756

 
(11,642
)
 
20,425

Income tax expense
(325
)
 
(398
)
 
(228
)
 
(301
)
Income (loss) from continuing operations
20,480

 
8,358

 
(11,870
)
 
20,124

Discontinued operations:
 
 
 
 
 
 
 
Operating income (loss) from discontinued operations
121

 
2,494

 
(151
)
 
4,978

Gains on disposition of discontinued operations
—

 
62

 
10,014

 
16,947

Income from discontinued operations
121

 
2,556

 
9,863

 
21,925

Net income (loss)
20,601

 
10,914

 
(2,007
)
 
42,049

Less: net income attributable to nonredeemable noncontrolling interests
—

 
—

 
—

 
(4
)
Net income (loss) attributable to the common stockholders of Columbia Property Trust, Inc.
$
20,601

 
$
10,914

 
$
(2,007
)
 
$
42,045

Per-share information – basic and diluted:

 

 
 
 
 
Income (loss) from continuing operations
$
0.04

 
$
0.02

 
$
(0.02
)
 
$
0.04

Income from discontinued operations
$
0.00

 
$
0.00

 
$
0.02

 
$
0.04

Net income (loss) attributable to the common stockholders of Columbia Property Trust, Inc.
$
0.04

 
$
0.02

 
$
0.00

 
$
0.08

Weighted-average common shares outstanding – basic and diluted
543,262

 
546,134

 
544,664

 
545,867

Distributions per share
$
0.095

 
$
0.125

 
$
0.190

 
$
0.250

See accompanying notes.


Page 6
Table of Contents


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

 
(Unaudited)
 
(Unaudited)
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
Net income (loss) attributable to the common stockholders of Columbia Property Trust, Inc.
$
20,601

 
$
10,914

 
$
(2,007
)
 
$
42,045

Foreign currency translation adjustment realized in discontinued operations
—

 
—

 
(83
)
 
—

Market value adjustment to interest rate swap
2,168

 
(4,016
)
 
2,717

 
(3,408
)
Comprehensive income attributable to the common stockholders of Columbia Property Trust, Inc.
22,769

 
6,898

 
627

 
38,637

Comprehensive income attributable to noncontrolling interests
—

 
—

 
—

 
4

Comprehensive income
$
22,769

 
$
6,898

 
$
627

 
$
38,641


See accompanying notes.




Page 7
Table of Contents


COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2013 (UNAUDITED)
(in thousands, except per-share amounts)

 
Stockholders' Equity
 
Common Stock
 
Additional
Paid-In
Capital
 
Cumulative
Distributions
in Excess of
Earnings
 
Redeemable
Common
Stock
 
Other
Comprehensive
Income (Loss)
 
Total
Equity
 
Shares
 
Amount
 
 
 
 
 
Balance, December 31, 2012
547,604

 
$
5,476

 
$
4,897,782

 
$
(1,634,531
)
 
$
(99,526
)
 
$
(5,221
)
 
$
3,163,980

Issuance of common stock
6,629

 
66

 
46,336

 
—

 
—

 
—

 
46,402

Redemptions of common stock
(11,945
)
 
(119
)
 
(76,914
)
 
—

 
—

 
—

 
(77,033
)
Increase in redeemable common stock
—

 
—

 
—

 
—

 
(22,226
)
 
—

 
(22,226
)
Distributions to common stockholders
($0.190 per share)
—

 
—

 
—

 
(103,030
)
 
—

 
—

 
(103,030
)
Offering costs
—

 
—

 
(127
)
 
—

 
—

 
—

 
(127
)
Net loss attributable to the common stockholders of Columbia Property Trust, Inc.
—

 
—

 
—

 
(2,007
)
 
—

 
—

 
(2,007
)
Foreign currency translation adjustment
—

 
—

 
—

 
—

 
—

 
(83
)
 
(83
)
Market value adjustment to interest rate swap
—

 
—

 
—

 
—

 
—

 
2,717

 
2,717

Balance, June 30, 2013
542,288

 
$
5,423

 
$
4,867,077

 
$
(1,739,568
)
 
$
(121,752
)
 
$
(2,587
)
 
$
3,008,593



Page 8
Table of Contents


COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2012 (UNAUDITED)
(in thousands, except per-share amounts)
 
Stockholders' Equity
 
 
 
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Cumulative
Distributions
in Excess of
Earnings
 
Redeemable
Common
Stock
 
Other
Comprehensive
Income
 
Total Columbia Property Trust, Inc.
Stockholders'
Equity
 
Nonredeemable
Noncontrolling
Interests
 
Total
Equity
 
Shares
 
Amount
 
 
 
 
 
 
 
Balance, December 31, 2011
546,198

 
$
5,462

 
$
4,880,806

 
$
(1,426,550
)
 
$
(113,147
)
 
$
84

 
$
3,346,655

 
$
317

 
$
3,346,972

Issuance of common stock
8,796

 
88

 
62,634

 
—

 
—

 
—

 
62,722

 
—

 
62,722

Redemptions of common stock
(7,735
)
 
(77
)
 
(50,755
)
 
—

 
—

 
—

 
(50,832
)
 
—

 
(50,832
)
Increase in redeemable common stock
—

 
—

 
—

 
—

 
(38,308
)
 
—

 
(38,308
)
 
—

 
(38,308
)
Distributions to common stockholders
($0.250 per share)
—

 
—

 
—

 
(135,984
)
 
—

 
—

 
(135,984
)
 
—

 
(135,984
)
Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(15
)
 
(15
)
Acquisition of noncontrolling interest in consolidated joint ventures
—

 
—

 
5

 
—

 
—

 
—

 
5

 
(306
)
 
(301
)
Net income attributable to common stockholders of Columbia Property Trust, Inc.
—

 
—

 
—

 
42,045

 
—

 
—

 
42,045

 
—

 
42,045

Net income attributable to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
4

 
4

Market value adjustment to interest rate swap
—

 
—

 
—

 
—

 
—

 
(3,408
)
 
(3,408
)
 
—

 
(3,408
)
Balance, June 30, 2012
547,259

 
$
5,473

 
$
4,892,690

 
$
(1,520,489
)
 
$
(151,455
)
 
$
(3,324
)
 
$
3,222,895

 
$
—

 
$
3,222,895

See accompanying notes.


Page 9
Table of Contents


COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
(Unaudited)
 
Six months ended
June 30,
 
2013
 
2012
Cash Flows from Operating Activities:
 
 
 
Net income (loss)
$
(2,007
)
 
$
42,049

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Straight-line rental income
(13,121
)
 
(845
)
Depreciation
61,235

 
60,357

Amortization
43,100

 
53,330

Impairment losses on real estate assets
16,867

 
—

Noncash interest expense
1,720

 
1,897

Gain on interest rate swaps
(3,461
)
 
(527
)
Gain on sale of discontinued operations
(10,014
)
 
(16,947
)
Changes in assets and liabilities, net of acquisitions:
 
 
 
Decrease in tenant receivables, net
5,872

 
2,164

Decrease (increase) in prepaid expenses and other assets
(3,989
)
 
2,257

Decrease in accounts payable and accrued expenses
(4,422
)
 
(3,000
)
Increase (decrease) in due to affiliates
16,205

 
(1,744
)
Decrease in deferred income
(5,664
)
 
(5,343
)
Net cash provided by operating activities
102,321

 
133,648

Cash Flows from Investing Activities:
 
 
 
Net proceeds from the sale of real estate
65,928

 
57,747

Investment in real estate
(22,495
)
 
(14,439
)
Deferred lease costs paid
(9,816
)
 
(15,839
)
Net cash provided by investing activities
33,617

 
27,469

Cash Flows from Financing Activities:
 
 
 
Financing costs paid
(240
)
 
(3,112
)
Proceeds from lines of credit and notes payable
120,000

 
479,000

Repayments of lines of credit and notes payable
(112,227
)
 
(490,998
)
Issuance of common stock
46,402

 
62,722

Redemptions of common stock
(78,609
)
 
(51,256
)
Distributions paid to stockholders
(56,628
)
 
(73,262
)
Distributions paid to stockholders and reinvested in shares of our common stock
(46,402
)
 
(62,722
)
Offering costs paid
(121
)
 
—

Redemption of noncontrolling interest
—

 
(301
)
Distributions paid to nonredeemable noncontrolling interests
—

 
(15
)
Net cash used in financing activities
(127,825
)
 
(139,944
)
Net increase in cash and cash equivalents
8,113

 
21,173

Effect of foreign exchange rate on cash and cash equivalents
(103
)
 
(23
)
Cash and cash equivalents, beginning of period
53,657

 
39,468

Cash and cash equivalents, end of period
$
61,667

 
$
60,618

See accompanying notes.


Page 10
Table of Contents


COLUMBIA PROPERTY TRUST, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013
(unaudited)
1.
Organization
Columbia Property Trust, Inc. ("Columbia Property Trust") is a Maryland corporation that operates in a manner as to qualify as a real estate investment trust ("REIT") for federal income tax purposes and engages in the acquisition and ownership of commercial real estate properties, including properties that have operating histories, are newly constructed, or are under construction. 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 consolidated joint ventures.
Columbia Property Trust typically invests in high-quality, income-generating office properties leased to creditworthy companies and governmental entities. As of June 30, 2013, Columbia Property Trust owned controlling interests in 60 office properties and one hotel, which includes 82 operational buildings. These properties are comprised of approximately 20.8 million square feet of commercial space and are located in 19 states and the District of Columbia. As of June 30, 2013, 59 of the office properties were wholly owned and the remaining property was owned through a consolidated subsidiary; the office properties were approximately 93.0% leased.
From inception through February 27, 2013, Columbia Property Trust operated as an externally advised REIT pursuant to an advisory agreement under which a subsidiary of Wells Real Estate Funds ("WREF"), Columbia Property Trust Advisory Services, LLC ("Columbia Property Trust Advisory Services"), performed certain key functions on behalf of Columbia Property Trust, including, among others, managing the day-to-day operations, investing capital proceeds, and arranging financings. Also during this period of time, a subsidiary of WREF, Columbia Property Trust Services, LLC ("Columbia Property Trust Services"), provided the personnel necessary to carry out property management services on behalf of Wells Management Company, Inc. ("Wells Management") and its affiliates pursuant to a property management agreement. The advisory agreement and property management agreement are described in Note 8, Related-Party Transactions and Agreements. 
On February 28, 2013, Columbia Property Trust became a self-managed company by terminating the above-mentioned advisory agreement and property management agreement, and acquiring Columbia Property Trust Advisory Services and Columbia Property Trust Services. As a result, the contractual services described above are now performed by employees of Columbia Property Trust (except for certain investor services). Contemporaneous with this transaction, Columbia Property Trust entered into a consulting agreement and an investor services agreement with WREF for the remainder of 2013. While no fees were paid to execute these acquisitions, Columbia Property Trust will pay fees to WREF for consulting and investor services for the remainder of 2013. For additional details about this transaction and the related agreements, please refer to Note 8, Related-Party Transactions and Agreements.
At present, Columbia Property Trust is preparing for a stockholder liquidity event and believes that listing on a national exchange will provide the most flexible means by which to maximize its long-term value. Thus, Columbia Property Trust is taking steps to position the company to be able to list its shares later this year, should market conditions support that strategy. In the event that Columbia Property Trust's stock is not listed on a national securities exchange by October 2015, Columbia Property Trust must either seek stockholder approval to extend or amend this listing deadline or seek stockholder approval to begin liquidating investments and distributing the resulting proceeds to the stockholders. If Columbia Property Trust seeks stockholder approval to extend or amend this listing date and does not obtain it, Columbia Property Trust would then be required to seek stockholder approval to liquidate. In this circumstance, if Columbia Property Trust seeks and does not obtain approval to liquidate, Columbia Property Trust would not be required to list or liquidate and could continue to operate indefinitely as an unlisted company.

From December 2003 through June 2010, Columbia Property Trust raised proceeds through three uninterrupted public offerings of shares of its common stock. Through July 7, 2013, Columbia Property Trust offered shares of its common stock to its current investors through its distribution reinvestment plan ("DRP") pursuant to a registration statement on Form S-3. As of June 30, 2013, Columbia Property Trust had raised gross offering proceeds from the sale of common stock under its public offerings of approximately $6.2 billion. After deductions from such gross offering proceeds for selling commissions and dealer-manager fees of approximately $509.5 million, acquisition fees of approximately $116.8 million, other organization and offering expenses of approximately $76.1 million, and common stock redemptions pursuant to its share redemption program (the "SRP") of


Page 11
Table of Contents


approximately $774.3 million, Columbia Property Trust had received aggregate net offering proceeds of approximately $4.7 billion. Substantially all of Columbia Property Trust's net offering proceeds have been invested in real estate. In preparation for listing, Columbia Property Trust terminated the SRP effective July 31, 2013.
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 its 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, 2012.
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. 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 and 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.
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 improvements
  
5-25 years
 
Site improvements
  
15 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 (liabilities) may not be recoverable, Columbia Property Trust assesses the recoverability of these assets by determining


Page 12
Table of Contents


whether the respective carrying values will be recovered through the estimated undiscounted future operating 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 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 salvage value. Certain of our assets may be carried at more than an amount that could be realized in a current disposition transaction.
Projections of expected future operating cash flows require that Columbia Property Trust estimates 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 our real estate assets and related intangible assets and net income (loss).
In connection with furthering its portfolio repositioning efforts, in the first quarter of 2013, Columbia Property Trust initiated a process to market for sale a group of 18 properties. Pursuant to the accounting policy outlined above, Columbia Property Trust evaluated the recoverability of the carrying values of each of the properties in this group and determined that the 120 Eagle Rock property in East Hanover, New Jersey and the 333 & 777 Republic Drive property in Allen Park, Michigan are no longer recoverable due to shortening the respective expected property holding periods in connection with these repositioning efforts. As a result, Columbia Property Trust reduced the carrying value of the 120 Eagle Rock property and the 333 & 777 Republic Drive property to reflect their respective fair values estimated based on projected discounted future cash flows and recorded corresponding property impairment losses of $11.7 million and $5.2 million, respectively, in the first quarter of 2013.
The fair value measurements used in this evaluation of nonfinancial assets are considered to be Level 3 valuations within the fair value hierarchy outlined above, as there are significant unobservable inputs. Examples of inputs that were utilized in the fair value calculations include estimated holding periods, discount rates, market capitalization rates, expected lease rental rates, and potential sales prices. The table below represents the detail of the adjustments recognized for the six months ended June 30, 2013 (in thousands) using Level 3 inputs. There were no adjustments recognized during the six months ended June 30, 2012.
Property
 
Net Book Value
 
Impairment Loss Recognized
 
Fair Value
120 Eagle Rock

$
23,808

 
$
(11,708
)
 
$
12,100

333 & 777 Republic Drive
 
$
13,359

 
$
(5,159
)
 
$
8,200

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 reduced to the lower of its depreciated book value or its estimated fair value, less costs to sell, and depreciation is no longer recognized. As of June 30, 2013, none of Columbia Property Trust's properties met the criteria to be classified as held for sale in the accompanying balance sheet.


Page 13
Table of Contents


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 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, 2013 and December 31, 2012, 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, 2013
Gross
$
85,204

 
$
454,291

 
$
434,767

 
$
180,459

 
Accumulated Amortization
(57,905
)
 
(263,015
)
 
(247,781
)
 
(89,592
)
 
Net
$
27,299

 
$
191,276

 
$
186,986

 
$
90,867

December 31, 2012
Gross
$
86,696

 
$
459,931

 
$
437,857

 
$
182,624

 
Accumulated Amortization
(56,259
)
 
(248,600
)
 
(230,930
)
 
(84,326
)
 
Net
$
30,437

 
$
211,331

 
$
206,927

 
$
98,298

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, 2013
$
1,453

 
$
9,919

 
$
10,017

 
$
3,705

For the three months ended June 30, 2012
$
2,254

 
$
12,608

 
$
10,498

 
$
4,174

For the six months ended June 30, 2013
$
3,138

 
$
20,054

 
$
19,941

 
$
7,431

For the six months ended June 30, 2012
$
4,688

 
$
25,980

 
$
21,145

 
$
8,415

The remaining net intangible assets and liabilities as of June 30, 2013 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 six months ending December 31, 2013
$
2,954

 
$
19,442

 
$
19,767

 
$
7,363

For the years ending December 31:
 
 
 
 
 
 
 
2014
5,581

 
35,447

 
36,815

 
14,362

2015
4,580

 
31,399

 
32,938

 
12,828

2016
3,848

 
24,761

 
25,907

 
10,398

2017
1,979

 
18,366

 
19,297

 
8,306

2018
1,168

 
13,457

 
13,760

 
7,557

Thereafter
7,189

 
48,404

 
38,502

 
30,053

 
$
27,299

 
$
191,276

 
$
186,986

 
$
90,867

Intangible Assets and Liabilities Arising from In-Place Leases where Columbia Property Trust is the Lessee
In-place ground leases where Columbia Property Trust is the lessee may have value associated with effective contractual rental rates that are above or below market rates at the time of execution or assumption. Such values are calculated based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place lease and (ii) management's estimate of fair market lease rates for the corresponding in-place lease at the time of execution or assumption, measured over a period equal to the remaining terms of the leases. The capitalized above-market and below-market in-place lease values are recorded as intangible lease liabilities and assets, respectively,


Page 14
Table of Contents


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 $110.7 million as of June 30, 2013 and December 31, 2012, and recognized amortization of these assets of approximately $0.5 million for the three months ended June 30, 2013 and 2012 and $1.0 million for the six months ended June 30, 2013 and 2012.
As of June 30, 2013, the remaining net below-market lease asset will be amortized as follows (in thousands):
For the six months ending December 31, 2013
$
1,034

For the years ending December 31:
 
2014
2,069

2015
2,069

2016
2,069

2017
2,069

2018
2,069

Thereafter
87,794

 
$
99,173

Prepaid Expenses and Other Assets
Prepaid expenses and other assets primarily are comprised of escrow accounts held by lenders to pay future real estate taxes, insurance and tenant improvements, notes receivable, nontenant receivables, prepaid taxes, insurance and operating costs, certain corporate assets, hotel inventory, and deferred tax assets. Prepaid expenses and other assets will be expensed as incurred or reclassified to other asset accounts upon being put into service in future periods.     
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 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 hedge, if any, is recognized currently in earnings. 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):
 
 
 
 
Estimated Fair Value as of
Instrument Type
 
Balance Sheet Classification
 
June 30, 2013
 
December 31, 2012
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Interest rate contracts
 
Accounts payable
 
$
(2,587
)
 
$
(5,305
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Interest rate contracts
 
Accounts payable
 
$
(9,648
)
 
$
(13,109
)

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. The fair value of Columbia Property Trust's interest rate swaps were $(12.2) million and $(18.4) million at June 30, 2013 and December 31, 2012, respectively.


Page 15
Table of Contents


 
Six months ended
June 30,
 
2013
 
2012
Market value adjustment to interest rate swaps designated as hedging instruments and included in
  other comprehensive income
$
2,717

 
$
(3,408
)
Gain (loss) on interest rate swap recognized through earnings
$
221

 
$
(89
)
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"), formerly Wells TRS II, LLC; Columbia KCP TRS, LLC ("Columbia KCP TRS"), formerly Wells KCP TRS, LLC; and Wells Energy TRS, LLC ("Wells 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, 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.
3.
Real Estate and Other Transactions
Acquisitions
Columbia Property Trust did not acquire any real properties during the six months ended June 30, 2013.
As described in Note 1, Organization, Columbia Property Trust acquired Columbia Property Trust Advisory Services and Columbia Property Trust Services on February 28, 2013. The following unaudited pro forma statements of operations presented for the six months ended June 30, 2013 and the three and six months ended June 30, 2012 have been prepared for Columbia Property Trust to give effect to the acquisitions of Columbia Property Trust Advisory Services and Columbia Property Trust Services as if the acquisitions occurred on January 1, 2012. 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 the acquisitions of Columbia Property Trust Advisory Services and Columbia Property Trust Services been consummated as of January 1, 2012 (in thousands).
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2012
 
2013
 
2012
Revenues
 
$
142,775

 
$
296,244

 
$
286,076

Net income attributable to common stockholders
 
$
18,919

 
$
31,770

 
$
23,719



Page 16
Table of Contents


Dispositions
On March 21, 2013, Columbia Property Trust closed on the sale of the Dvintsev Business Center - Tower B building in Moscow, Russia and its holding entity, Landlink Ltd., which was 100% owned by Columbia Property Trust, for $67.5 million, exclusive of transaction costs, resulting in a gain on disposition of discontinued operations in the accompanying consolidated statement of operations of $10.0 million.
4.
Line of Credit and Notes Payable
As of June 30, 2013 and December 31, 2012, Columbia Property Trust had the following line of credit and notes payable indebtedness outstanding (excluding bonds payable; see Note 5, Bonds Payable) in thousands:
Facility
 
June 30, 2013
 
December 31, 2012
$450 Million Term Loan
 
$
450,000

 
$
450,000

Market Square Buildings mortgage note
 
325,000

 
325,000

333 Market Street Building mortgage note
 
207,936

 
208,308

100 East Pratt Street Building mortgage note
 
105,000

 
105,000

Wildwood Buildings mortgage note
 
90,000

 
90,000

JPMorgan Chase Credit Facility
 
51,000

 
42,000

263 Shuman Boulevard Building mortgage note
 
49,000

 
49,000

SanTan Corporate Center mortgage notes
 
39,000

 
39,000

One Glenlake Building mortgage note
 
35,977

 
37,204

Three Glenlake Building mortgage note
 
26,423

 
26,264

215 Diehl Road Building mortgage note
 
21,000

 
21,000

544 Lakeview Building mortgage note
 
8,909

 
8,842

Total indebtedness
 
$
1,409,245

 
$
1,401,618

The estimated fair value of Columbia Property Trust's line of credit and notes payable as of June 30, 2013 and December 31, 2012 was approximately $1,420.5 million and $1,433.1 million, respectively. Columbia Property Trust estimated the fair value of its line of credit 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. During the six months ended June 30, 2013 and 2012, Columbia Property Trust made interest payments of approximately $30.4 million and $24.5 million, respectively. There was no interest capitalized in either period. As of June 30, 2013, Columbia Property Trust believes it was in compliance with the restrictive covenants on its term loan, outstanding line of credit, and notes payable obligations.
5.
Bonds Payable
In 2011, Columbia Property Trust issued $250.0 million of seven-year, unsecured 5.875% senior notes at 99.295% of their face value (the "2018 Bonds Payable"). Columbia Property Trust 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 $7.3 million were made on the 2018 Bonds Payable during the six months ended June 30, 2013. As of June 30, 2013, Columbia Property Trust believes it was in compliance with the restrictive covenants on the 2018 Bonds Payable.
The estimated fair value of the 2018 Bonds Payable as of June 30, 2013 and December 31, 2012 was approximately $251.0 million and $250.9 million, respectively. The fair value of the 2018 Bonds Payable was estimated based on discounted cash flow analyses using the current incremental borrowing rates for similar types of borrowing as 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.


Page 17
Table of Contents


6.
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, 2013, no such options have been exercised that had not been materially satisfied.
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 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 or financial condition of Columbia Property Trust.
7.     Supplemental Disclosures of Noncash Investing and Financing Activities
Outlined below are significant noncash investing and financing activities for the six months ended June 30, 2013 and 2012 (in thousands): 
 
Six months ended
June 30,
 
2013
 
2012
Other assets assumed at acquisition
$
741

 
$
—

Other liabilities assumed at acquisition
$
741

 
$
—

Other liabilities settled at disposition
$
872

 
$
—

Interest accruing to notes payable
$
159

 
$
152

Amortization of discounts (premiums) on debt
$
(304
)
 
$
193

Market value adjustment to interest rate swaps that qualify for hedge accounting treatment
$
2,717

 
$
(3,408
)
Accrued capital expenditures and deferred lease costs
$
13,408

 
$
5,432

Accrued deferred financing costs
$
—

 
$
10

Accrued offering costs
$
6

 
$
—

Accrued redemptions of common stock
$
2,079

 
$
1,216

Increase in redeemable common stock
$
22,226

 
$
38,308

 
8.
Related-Party Transactions and Agreements
Advisory Agreement
From December 2003 through February 28, 2013, Columbia Property Trust was party to uninterrupted advisory agreements with affiliates of WREF (the "Advisor"), pursuant to which the Advisor acted as Columbia Property Trust's external advisor and performed certain key functions on behalf of Columbia Property Trust, including, among others, the investment of capital proceeds and management of day-to-day operations (the "Advisory Agreement"). As discussed in detail below, in connection with Columbia Property Trust's transition to a self-managed structure, the most recent advisory agreement was terminated effective February 28, 2013.


Page 18
Table of Contents


Under the terms of the Advisory Agreement most recently in place, Columbia Property Trust incurred fees and reimbursements payable to the Advisor for services as described below:
•
Asset management fees were incurred monthly at one-twelfth of 0.625% of the lesser of (i) gross cost, as defined, of all properties of Columbia Property Trust (other than those that failed to meet specified occupancy thresholds) and investments in joint ventures, or (ii) the aggregate value of Columbia Property Trust's interest in the properties and joint ventures as established with the most recent asset-based valuation, until the monthly payment equals $2.5 million (or $30.5 million annualized), as of the last day of each preceding month. Columbia Property Trust paid fees at the cap in January and February 2013. With respect to (ii) above, Columbia Property Trust's published net asset-based valuations did not impact asset management fees incurred due to continued applicability of the cap described above.
•
Reimbursement for all costs and expenses the Advisor incurred in fulfilling its duties as the asset portfolio manager, generally included (i) wages and salaries and other employee-related expenses of the Advisor's employees, who performed a full range of real estate services for Columbia Property Trust, including management, administration, operations, and marketing, and are billed to Columbia Property Trust based on the amount of time spent on Columbia Property Trust by such personnel, provided that such expenses are not reimbursed if incurred in connection with services for which the Advisor received a disposition fee (described below) or an acquisition fee; and (ii) amounts paid for an individual retirement account, or "IRA," custodial service costs allocated to Columbia Property Trust accounts. The Advisory Agreement limited the amount of reimbursements to the Advisor of "portfolio general and administrative expenses" and "personnel expenses," as defined, to the extent they would exceed $18.2 million and $10.0 million, respectively, during 2013.
•
Acquisition fees were incurred at 1.0% of property purchase price (excluding acquisition expenses); however, in no event could total acquisition fees for the calendar year exceed 2.0% of total gross offering proceeds. Columbia Property Trust also reimbursed the Advisor for expenses it paid to third parties in connection with acquisitions or potential acquisitions. Per the Transition Services Agreement discussed below, acquisition fees payable to the Advisor for 2012 and 2013 had an aggregate cap of $1.5 million. Columbia Property Trust paid acquisition fees of $1.5 million related to the acquisition on the 333 Market Street Building in San Francisco, California, in December 2012. As a result, no acquisition fees will be paid to the Advisor during 2013.
•
The disposition fee payable for the sale of any property for which the Advisor provided substantial services was the lesser of (i) 0.3% or (ii) the broker fee paid to a third-party broker in connection with the sale.
•
Reimbursement of organization and offering costs paid by the Advisor on behalf of Columbia Property Trust, not to exceed 2.0% of gross offering proceeds.
•
For January and February 2013 Columbia Property Trust paid occupancy costs of $42,000 to the Advisor's for use of dedicated office space.
Transition Services Agreement
For the period from July 1, 2012 through December 31, 2013, Columbia Property Trust, Columbia Property Trust Advisory Services, and WREF are parties to an agreement under which WREF provides services to support the transition of Columbia Property Trust from an externally advised management platform to a self-managed structure (the "Transition Services Agreement"). Pursuant to the Transition Services Agreement, (i) WREF was required to transfer the assets and employees necessary to provide the services under the Advisory Agreement (other than investor services and property management) to Columbia Property Trust Advisory Services by January 1, 2013; provided that if WREF was not able to transfer certain assets by then, WREF was required to use its commercially reasonable best efforts to transfer such delayed assets as promptly as possible, but no later than June 30, 2013; and (ii) Columbia Property Trust had the option to acquire Columbia Property Trust Advisory Services from WREF at any time during 2013 (the "Columbia Property Trust Advisory Services Assignment Option"). The Columbia Property Trust Advisory Services Assignment Option closed as of February 28, 2013, and all assets were transferred by June 30, 2013. No payment was associated with the assignment; however, Columbia Property Trust is required to pay WREF for the work required to transfer sufficient employees, proprietary systems and processes, and assets to Columbia Property Trust Advisory Services to prepare for a successful transition to a self-managed structure a total of $6.0 million payable in 12 monthly installments of $0.5 million commencing on July 31, 2012. In addition, Columbia Property Trust and WREF will each pay half of any out-of-pocket and third-party costs and expenses incurred in connection with providing these services, provided that Columbia Property Trust's obligation to reimburse WREF for such expenses is limited to approximately $250,000 in the aggregate. Pursuant to the Transition Services Agreement at the close of the Columbia Property Trust Advisory Services Assignment Option, Columbia Property Trust entered into a consulting services agreement with WREF as described below.
On December 28, 2012, the Transition Services Agreement was amended and Wells Management and Columbia Property Trust Services were made parties to the agreement. Pursuant to the amendment, Columbia Property Trust could acquire Columbia


Page 19
Table of Contents


Property Trust Services, the entity that provided personnel to carry out property management services on behalf of Wells Management and its affiliates, in connection with exercising the Columbia Property Trust Advisory Services Assignment Option.  Columbia Property Trust exercised this option on February 28, 2013. No payment was associated with this assignment; however, Columbia Property Trust is obligated to pay a fee to WREF of  approximately $2.8 million in monthly installments from July 2013 through December 2013. The fees paid under the Transition Services Agreement are included in general and administrative expense in the accompanying consolidated statement of operations. The Transition Services Agreement is terminable if there is a material breach by WREF that is not cured, or if WREF is in an insolvency proceeding. Otherwise, if Columbia Property Trust elects to terminate the agreement early, all remaining payments due under the agreement will be accelerated.
Investor Services Agreement
Columbia Property Trust and WREF entered into an investor services agreement, effective January 1, 2013 through February 28, 2013, that required WREF to provide certain investor and transfer agent support services to Columbia Property Trust, which were previously provided under the advisory agreement dated March 30, 2011 (the "Investor Services Agreement"). As the sole consideration for these services, Columbia Property Trust reimbursed WREF for expenses incurred in connection with carrying out such services, subject to the cap on "portfolio general and administrative expenses" and "personnel expenses" included in the Advisory Agreement and, thus, did not incur a separate fee.
2013 Investor Services Agreement
Effective February 28, 2013, upon the effective date of the Columbia Property Trust Advisory Services Assignment Option, Columbia Property Trust entered into an agreement with WREF, which requires WREF to provide the investor and transfer agent support services to Columbia Property Trust that were previously provided for under the Investor Services Agreement (the "2013 Investor Services Agreement"). The 2013 Investor Services Agreement requires Columbia Property Trust to compensate WREF for these services by reimbursing the related expenses and payroll costs, plus a premium.
Consulting Services Agreement
On February 28, 2013, the Columbia Property Trust Advisory Services Assignment Option and Columbia Property Trust Services Assignment Option closed, and in connection therewith, the Advisory Agreement and Investor Services Agreement terminated and Columbia Property Trust entered into a consulting services agreement with WREF (the "Consulting Services Agreement"). Under the Consulting Services Agreement, WREF will provide consulting services with respect to the same matters that the Advisor provided services under the most recently effective advisory agreement. Payments under the Consulting Services Agreement are monthly fees in the same amount as the asset management fee that would have been paid under the most recently effective advisory agreement, if the most recently effective advisory agreement was not terminated. No acquisition or disposition fees are payable under the Consulting Services Agreement. The Consulting Services Agreement will terminate on December 31, 2013. If Columbia Property Trust elects to terminate the Consulting Services Agreement early for cause, Columbia Property Trust would not be required to make further payments under the agreement other than fees earned by WREF and unpaid at the time of termination. If Columbia Property Trust terminates the Consulting Services Agreement other than for cause, Columbia Property Trust would be required to make a fee acceleration payment, which is calculated as the fees incurred in the last month prior to termination, adjusted for partial months, multiplied by the number of months remaining between the time of termination and December 31, 2013. The fees incurred under the Consulting Services Agreement are included in general and administrative expense in the accompanying consolidated statement of operations.
Property Management Agreement
Columbia Property Trust was party to master property management, leasing, and construction agreements (the "Property Management Agreement") with affiliates of WREF (the "Property Manager") until February 28, 2013, on which date Columbia Property Trust terminated the Property Management Agreement contemporaneous with acquiring Columbia Property Trust Services. As a result, property management services are now performed by employees of Columbia Property Trust. While no fee was paid to execute this acquisition, Columbia Property Trust is obligated to pay a fee to WREF totaling $2.8 million from July through December 2013 for the transition of property management services to Columbia Property Trust Services.
During January and February 2013, the Property Manager received the following fees and reimbursements in consideration for supervising the management, leasing, and construction of certain Columbia Property Trust properties:
•
Property management fees in an amount equal to a percentage negotiated for each property managed by the Property Manager of the gross monthly income collected for that property for the preceding month;
•
Leasing commissions for new, renewal, or expansion leases entered into with respect to any property for which the Property Manager serves as leasing agent equal to a percentage as negotiated for that property of the total base rental and


Page 20
Table of Contents


operating expenses to be paid to Columbia Property Trust during the applicable term of the lease, provided, however, that no commission shall be payable as to any portion of such term beyond ten years;
•
Initial lease-up fees for newly constructed properties under the agreement, generally equal to one month's rent;
•
Fees equal to a specified percentage of up to 5.0% of all construction build-out funded by Columbia Property Trust, given as a leasing concession, and overseen by the Property Manager; and
•
Other fees as negotiated with the addition of each specific property covered under the agreement.
Related-Party Costs
Pursuant to the terms of the agreements described above, Columbia Property Trust incurred the following related-party costs for the three and six months ended June 30, 2013 and 2012, respectively (in thousands):
 
Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Investor services
$
278

 
$
—

 
$
369

 
$
—

Administrative reimbursements, net(1)
70

 
2,839

 
1,891

 
5,591

Other
20

 
—

 
69

 
—

Consulting fees(2)
—

 
—

 
25,417

 
—

Transition services(3)
—

 
—

 
5,750

 
—

Asset management fees
—

 
8,125

 
5,083

 
16,250

Property management fees
—

 
1,053

 
523

 
2,279

Construction fees(4)
—

 
20

 
139

 
61

Total
$
368

 
$
12,037

 
$
39,241

 
$
24,181

(1)
Administrative reimbursements are presented net of reimbursements from tenants of approximately $1.1 million for the three months ended June 30, 2012 and approximately $0.7 million and $2.2 million for the six months ended June 30, 2013 and 2012, respectively.
(2) 
$10.2 million of the $25.4 million of consulting fees incurred were paid during the six months ended June 30, 2013. The remaining $15.2 million will be paid ratably over the remainder of 2013.
(3) 
$3.0 million of the $5.8 million of transition services fees incurred were paid during the six months ended June 30, 2013; $1.5 million will be paid in the third quarter of 2013; and the remaining $1.3 million will be paid in the fourth quarter of 2013.
(4) 
Construction fees are capitalized to real estate assets as incurred.
Columbia Property Trust incurred no related-party commissions, dealer-manager fees, offering costs, incentive fees, listing fees, acquisition fees, disposition fees, or leasing commissions during the three and six months ended June 30, 2013 or the three and six months ended June 30, 2012.
Due to Affiliates
The detail of amounts due to WREF and its affiliates as of June 30, 2013 and December 31, 2012 (in thousands) are provided below: 
 
June 30, 2013
 
December 31, 2012
Consulting fees
$
15,250

 
$
—

Transition services
2,750

 
—

Administrative reimbursements
6

 
1,360

Asset and property management fees
—

 
560

Total
$
18,006

 
$
1,920



Page 21
Table of Contents


9.
Discontinued Operations
The historical operating results and gains from the disposition of certain assets, including assets "held for sale" and operating properties sold, are required to be reflected in a separate section ("discontinued operations") in the consolidated statements of operations for all periods presented. As a result, the revenues and expenses of Dvintsev Business Center - Tower B (see Note 3, Real Estate and Other Transactions); the properties included in the portfolio disposition that closed in December 2012 (the "Nine Property Sale"), consisting of the One West Fourth Street, 180 E 100 South, Baldwin Point, Tampa Commons, Lakepointe 5, Lakepointe 3, 11950 Corporate Boulevard, Edgewater Corporate Center, and 2000 Park Lane properties, which closed for $260.5 million, resulting in a net gain of $3.2 million; and 5995 Opus Parkway and Emerald Point, which closed in January 2012 for $60.1 million, resulting in total gains of $16.9 million, are included in income from discontinued operations in the accompanying consolidated statements of operations for all periods presented.
The following table shows the revenues and expenses of the above-described discontinued operations (in thousands):
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
Rental income
$
2

 
$
8,983

 
$
1,309

 
$
19,372

Tenant reimbursements
7

 
505

 
184

 
1,419

 
9

 
9,488

 
1,493

 
20,791

Expenses:
 
 
 
 
 
 
 
Property operating costs
7

 
3,131

 
184

 
6,613

Asset and property management fees
—

 
674

 
223

 
1,373

Depreciation
—

 
2,250

 
375

 
4,490

Amortization
—

 
1,208

 
37

 
2,545

General and administrative
(119
)
 
(837
)
 
828

 
(351
)
Total expenses
(112
)
 
6,426

 
1,647

 
14,670

Real estate operating income (loss)
121

 
3,062

 
(154
)
 
6,121

Other income (expense):
 
 
 
 
 
 
 
Interest expense
—

 
(568
)
 
—

 
(1,143
)
Interest and other income
—

 
—

 
3

 
—

Operating income (loss) from discontinued operations
121

 
2,494

 
(151
)
 
4,978

Gain on disposition of discontinued operations
—

 
62

 
10,014

 
16,947

Income from discontinued operations
$
121

 
$
2,556

 
$
9,863

 
$
21,925

10.     Financial Information for Parent Guarantor, Other Guarantor Subsidiaries and Non-Guarantor Subsidiaries
The 2018 Bonds Payable (see Note 5, Bonds Payable) are guaranteed by Columbia Property Trust and certain direct and indirect subsidiaries of each of Columbia Property Trust and Columbia Property Trust OP. Columbia Property Trust Advisory Services and Columbia Property Trust Services, were added to the non-guarantor grouping upon acquisition in February 2013. In March 2013, as a result of closing of the Nine Property Sale, Columbia Property Trust added four subsidiaries as guarantors to the $450.0 Million Term Loan, the JPMorgan Chase Credit Facility, and the 2018 Bonds Payable, which resulted in the reclassification of prior-period amounts between the guarantor and non-guarantor groupings within the condensed consolidating financial statements to conform with the current period presentation. In accordance with SEC Rule 3-10(d), Columbia Property Trust includes herein condensed consolidating financial information in lieu of separate financial statements of the subsidiary issuer (Columbia Property Trust OP) and Subsidiary Guarantors, as defined in the bond indenture, because all of the following criteria are met:
(1)
The subsidiary issuer (Columbia Property Trust OP) and all Subsidiary Guarantors are 100% owned by the parent company guarantor (Columbia Property Trust);
(2)
The guarantees are full and unconditional; and
(3)
The guarantees are joint and several.
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, 2013


Page 22
Table of Contents


and December 31, 2012 (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, 2013 and 2012 (in thousands); and its condensed consolidating statements of cash flows for the six months ended June 30, 2013 and 2012 (in thousands).
Condensed Consolidating Balance Sheets (in thousands)
 
As of June 30, 2013
 
Columbia Property Trust
(Parent)
 
Columbia
 Property
Trust OP 
(the Issuer)
 
Guarantors
 
Non-
Guarantors
 
Consolidating
adjustments
 
Columbia Property Trust
(Consolidated)
Assets:
 
 
 
 
 
 
 
 
 
 
 
Real estate assets, at cost:
 
 
 
 
 
 
 
 
 
 
 
Land
$
—

 
$
6,241

 
$
270,261

 
$
509,834

 
$
—

 
$
786,336

Buildings and improvements, net
—

 
23,275

 
1,782,978

 
1,563,899

 
—

 
3,370,152

Intangible lease assets, net
—

 
—

 
134,093

 
183,139

 
—

 
317,232

Construction in progress
—

 
713

 
3,725

 
2,343

 
—

 
6,781

Total real estate assets
—

 
30,229

 
2,191,057

 
2,259,215

 
—

 
4,480,501

Cash and cash equivalents
21,945

 
3,486

 
20,295

 
15,941

 
—

 
61,667

Investment in subsidiaries
2,931,767

 
2,638,923

 
—

 
—

 
(5,570,690
)
 
—

Tenant receivables, net of allowance
—

 
28

 
80,511

 
63,213

 
(4,279
)
 
139,473

Prepaid expenses and other assets
178,711

 
151,742

 
2,406

 
25,011

 
(324,662
)
 
33,208

Deferred financing costs, net
—

 
7,145

 
—

 
1,807

 
—

 
8,952

Intangible lease origination costs, net
—

 
—

 
117,184

 
69,802

 
—

 
186,986

Deferred lease costs, net
—

 
55

 
63,159

 
43,438

 
—

 
106,652

Investment in development authority bonds
—

 
—

 
466,000

 
120,000

 
—

 
586,000

Total assets
$
3,132,423

 
$
2,831,608

 
$
2,940,612

 
$
2,598,427

 
$
(5,899,631
)
 
$
5,603,439

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Line of credit and notes payable
$
—

 
$
501,000

 
$
145,045

 
$
1,086,145

 
$
(322,945
)
 
$
1,409,245

Bonds payable, net
—

 
248,804

 
—

 
—

 
—

 
248,804

Accounts payable, accrued expenses, and accrued capital expenditures
2,078

 
9,691

 
39,915

 
50,524

 
(4,279
)
 
97,929

Due to affiliates
—

 
18,029

 
1,598

 
96

 
(1,717
)
 
18,006

Deferred income
—

 
—

 
10,202

 
12,041

 
—

 
22,243

Intangible lease liabilities, net
—

 
—

 
40,923

 
49,944

 
—

 
90,867

Obligations under capital leases
—

 
—

 
466,000

 
120,000

 
—

 
586,000

Total liabilities
2,078

 
777,524

 
703,683

 
1,318,750

 
(328,941
)
 
2,473,094

Redeemable Common Stock
121,752

 
—

 
—

 
—

 
—

 
121,752

Equity:
 
 
 
 
 
 
 
 
 
 
 
Total equity
3,008,593

 
2,054,084

 
2,236,929

 
1,279,677

 
(5,570,690
)
 
3,008,593

Total liabilities, redeemable common stock, and equity
$
3,132,423

 
$
2,831,608

 
$
2,940,612

 
$
2,598,427

 
$
(5,899,631
)
 
$
5,603,439






Page 23
Table of Contents


Condensed Consolidating Balance Sheets (in thousands)
 
As of December 31, 2012
 
Columbia Property Trust
(Parent)
 
Columbia
Property
Trust OP 
(the Issuer)
 
Guarantors
 
Non-
Guarantors
 
Consolidating
adjustments
 
Columbia Property Trust
(Consolidated)
Assets:
 
 
 
 
 
 
 
 
 
 
 
Real estate assets, at cost:
 
 
 
 
 
 
 
 
 
 
 
Land
$
—

 
$
6,241

 
$
271,757

 
$
511,239

 
$
—

 
$
789,237

Building and improvements, net
—

 
16,513

 
1,812,882

 
1,638,823

 
—

 
3,468,218

Intangible lease assets, net
—

 
—

 
146,448

 
195,012

 
—

 
341,460

Construction in progress
—

 
5,252

 
2,505

 
4,923

 
—

 
12,680

Total real estate assets
—

 
28,006

 
2,233,592

 
2,349,997

 
—

 
4,611,595

Cash and cash equivalents
20,914

 
4,822

 
13,673

 
14,248

 
—

 
53,657

Investment in subsidiaries
3,068,106

 
2,679,950

 
—

 
—

 
(5,748,056
)
 
—

Tenant receivables, net of allowance
—

 
22

 
72,283

 
66,017

 
(4,223
)
 
134,099

Prepaid expenses and other assets
178,131

 
203,589

 
1,531

 
26,806

 
(380,684
)
 
29,373

Deferred financing costs, net
—

 
8,498

 
—

 
1,992

 
—

 
10,490

Intangible lease origination costs, net
—

 
—

 
129,947

 
76,980

 
—

 
206,927

Deferred lease costs, net
—

 
68

 
54,900

 
43,840

 
—

 
98,808

Investment in development authority bonds
—

 
—

 
466,000

 
120,000

 
—

 
586,000

Total assets
$
3,267,151

 
$
2,924,955

 
$
2,971,926

 
$
2,699,880

 
$
(6,132,963
)
 
$
5,730,949

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Lines of credit and notes payable
$
—

 
$
492,000

 
$
145,974

 
$
1,142,644

 
$
(379,000
)
 
$
1,401,618

Bonds payable, net
—

 
248,678

 
—

 
—

 
—

 
248,678

Accounts payable, accrued expenses, and accrued capital expenditures
3,645

 
12,417

 
39,834

 
51,185

 
(4,223
)
 
102,858

Due to affiliates
—

 
960

 
1,593

 
1,051

 
(1,684
)
 
1,920

Deferred income
—

 
81

 
16,748

 
11,242

 
—

 
28,071

Intangible lease liabilities, net
—

 
—

 
44,201

 
54,097

 
—

 
98,298

Obligations under capital leases
—

 
—

 
466,000

 
120,000

 
—

 
586,000

Total liabilities
3,645

 
754,136

 
714,350

 
1,380,219

 
(384,907
)
 
2,467,443

Redeemable Common Stock
99,526

 
—

 
—

 
—

 
—

 
99,526

Equity:
 
 
 
 
 
 
 
 
 
 
 
Total equity
3,163,980

 
2,170,819

 
2,257,576

 
1,319,661

 
(5,748,056
)
 
3,163,980

Total liabilities, redeemable common stock, and equity
$
3,267,151

 
$
2,924,955

 
$
2,971,926

 
$
2,699,880

 
$
(6,132,963
)
 
$
5,730,949






Page 24
Table of Contents


Consolidating Statements of Operations (in thousands)
 
For the three months ended June 30, 2013
 
Columbia Property Trust
(Parent)
 
Columbia
 Property
Trust OP 
(the Issuer)
 
Guarantors
 
Non-
Guarantors
 
Consolidating
adjustments
 
Columbia Property Trust
(Consolidated)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
—

 
$
101

 
$
66,239

 
$
51,638

 
$
(1,029
)
 
$
116,949

Tenant reimbursements
—

 
(20
)
 
14,174

 
10,854

 
(557
)
 
24,451

Hotel income
—

 
—

 
—

 
6,562

 
—

 
6,562

Other property income
—

 
—

 
863

 
4,200

 
(3,805
)
 
1,258

 
—

 
81

 
81,276

 
73,254

 
(5,391
)
 
149,220

Expenses:
 
 
 
 
 
 
 
 
 
 
 
Property operating costs
—

 
594

 
21,828

 
21,500

 
(792
)
 
43,130

Hotel operating costs
—

 
—

 
—

 
5,749

 
(929
)
 
4,820

Asset and property management fees:
 
 
 
 
 
 
 
 
 
 
 
Related-party
—

 
4

 
1,104

 
1,254

 
(2,362
)
 
—

Other
—

 
—

 
10

 
670

 
—

 
680

Depreciation
—

 
328

 
16,211

 
14,069

 
—

 
30,608

Amortization
—

 
7

 
12,856

 
9,464

 
—

 
22,327

Impairment loss on real estate assets
—

 
—

 
—

 
—

 
—

 
—

General and administrative
—

 
4,046

 
226

 
6,153

 
(1,312
)
 
9,113

 
—

 
4,979

 
52,235

 
58,859

 
(5,395
)
 
110,678

Real estate operating (loss) income
—

 
(4,898
)
 
29,041

 
14,395

 
4

 
38,542

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
—

 
(8,148
)
 
(10,029
)
 
(13,721
)
 
4,723

 
(27,175
)
Interest and other income (expense)
2,002

 
2,723

 
7,309

 
1,963

 
(4,723
)
 
9,274

Gain on interest rate swaps
—

 
—

 
—

 
164

 
—

 
164

Income (loss) from equity investment
18,599

 
26,693

 
—

 
—

 
(45,292
)
 
—

 
20,601

 
21,268

 
(2,720
)
 
(11,594
)
 
(45,292
)
 
(17,737
)
Income (loss) before income tax benefit (expense)
20,601

 
16,370

 
26,321

 
2,801

 
(45,288
)
 
20,805

Income tax benefit (expense)
—

 
(1
)
 
(62
)
 
(262
)
 
—

 
(325
)
Income (loss) from continuing operations
20,601

 
16,369

 
26,259

 
2,539

 
(45,288
)
 
20,480

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Operating income from discontinued operations
—

 
—

 
(24
)
 
145

 
—

 
121

Gain on disposition of discontinued operations
—

 
—

 
—

 
—

 
—

 
—

Income from discontinued operations
—

 
—

 
(24
)
 
145

 
—

 
121

Net income (loss) attributable to the common stockholders of
Columbia Property Trust, Inc.
$
20,601

 
$
16,369

 
$
26,235

 
$
2,684

 
$
(45,288
)
 
$
20,601









Page 25
Table of Contents


Consolidating Statements of Operations (in thousands)

 
For the three months ended June 30, 2012
 
Columbia Property Trust
(Parent)
 
Columbia
 Property
Trust OP 
(the Issuer)
 
Guarantors
 
Non-
Guarantors
 
Consolidating
adjustments
 
Columbia Property Trust
(Consolidated)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
—

 
$
90

 
$
56,466

 
$
54,111

 
$
(810
)
 
$
109,857

Tenant reimbursements
—

 
51

 
9,672

 
15,814

 
(1,344
)
 
24,193

Hotel income
—

 
—

 
—

 
6,463

 
—

 
6,463

Other property income
—

 
38

 
201

 
417

 
(198
)
 
458

 
—

 
179

 
66,339

 
76,805

 
(2,352
)
 
140,971

Expenses:
 
 
 
 
 
 
 
 
 
 
 
Property operating costs
—

 
464

 
16,084

 
24,979

 
(1,504
)
 
40,023

Hotel operating costs
—

 
—

 
—

 
5,806

 
(810
)
 
4,996

Asset and property management fees:
 
 
 
 
 
 
 
 
 
 
 
Related-party
7,569

 
4

 
421

 
717

 
(40
)
 
8,671

Other
—

 
—

 
394

 
257

 
—

 
651

Depreciation
—

 
177

 
13,201

 
14,604

 
—

 
27,982

Amortization
—

 
6

 
13,943

 
12,802

 
—

 
26,751

General and administrative
—

 
4,559

 
1,611

 
442

 
2

 
6,614

 
7,569

 
5,210

 
45,654

 
59,607

 
(2,352
)
 
115,688

Real estate operating income (loss)
(7,569
)
 
(5,031
)
 
20,685

 
17,198

 
—

 
25,283

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
—

 
(8,084
)
 
(10,064
)
 
(13,134
)
 
4,756

 
(26,526
)
Interest and other income (expense)
1,997

 
2,759

 
7,307

 
2,705

 
(4,756
)
 
10,012

Loss on interest rate swaps
—

 
—

 
—

 
(13
)
 
—

 
(13
)
Income (loss) from equity investment
16,486

 
23,306

 
—

 
—

 
(39,792
)
 
—

 
18,483

 
17,981

 
(2,757
)
 
(10,442
)
 
(39,792
)
 
(16,527
)
Income (loss) before income tax benefit (expense)
10,914

 
12,950

 
17,928

 
6,756

 
(39,792
)
 
8,756

Income tax benefit (expense)
—

 
(3
)
 
(51
)
 
(344
)
 
—

 
(398
)
Income (loss) from continuing operations
10,914

 
12,947

 
17,877

 
6,412

 
(39,792
)
 
8,358

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Operating loss from discontinued operations
—

 
1,708

 
578

 
208

 
—

 
2,494

Gain on disposition of discontinued operations
—

 
—

 
—

 
62

 
—

 
62

Income from discontinued operations
—


1,708

 
578

 
270

 
—

 
2,556

Net income (loss) attributable to the common stockholders of
Columbia Property Trust, Inc.
$
10,914

 
$
14,655

 
$
18,455

 
$
6,682

 
$
(39,792
)
 
$
10,914






Page 26
Table of Contents


Consolidating Statements of Operations (in thousands)

 
For the six months ended June 30, 2013
 
Columbia Property Trust
(Parent)
 
Columbia
Property
Trust OP 
(the Issuer)
 
Guarantors
 
Non-
Guarantors
 
Consolidating
adjustments
 
Columbia Property Trust
(Consolidated)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
—

 
$
202

 
$
130,852

 
$
103,059

 
$
(2,043
)
 
$
232,070

Tenant reimbursements
—

 
83

 
29,135

 
21,900

 
(1,235
)
 
49,883

Hotel income
—

 
—

 
—

 
11,516

 
—

 
11,516

Other property income
—

 
17

 
863

 
5,881

 
(5,215
)
 
1,546

 
—

 
302

 
160,850

 
142,356

 
(8,493
)
 
295,015

Expenses:
 
 
 
 
 
 
 
 
 
 
 
Property operating costs
—

 
1,069

 
44,284

 
43,139

 
(1,650
)
 
86,842

Hotel operating costs
—

 
—

 
—

 
10,941

 
(1,860
)
 
9,081

Asset and property management fees:
 
 
 
 
 
 
 
 
 
 
 
Related-party
5,018

 
7

 
1,927

 
2,232

 
(3,643
)
 
5,541

Other
—

 
—

 
272

 
1,108

 
—

 
1,380

Depreciation
—

 
561

 
32,343

 
27,956

 
—

 
60,860

Amortization
—

 
14

 
25,638

 
18,585

 
—

 
44,237

Impairment loss on real estate asset
—

 
—

 
5,159

 
11,708

 
—

 
16,867

General and administrative
—

 
37,751

 
1,163

 
8,943

 
(1,837
)
 
46,020

 
5,018

 
39,402

 
110,786

 
124,612

 
(8,990
)
 
270,828

Real estate operating income (loss)
(5,018
)
 
(39,100
)
 
50,064

 
17,744

 
497

 
24,187

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
—

 
(16,325
)
 
(20,067
)
 
(27,494
)
 
9,451

 
(54,435
)
Interest and other income (expense)
3,999

 
5,455

 
14,616

 
3,766

 
(9,451
)
 
18,385

Loss on interest rate swaps
—

 
—

 
—

 
221

 
—

 
221

Income (loss) from equity investment
(988
)
 
44,994

 
—

 
—

 
(44,006
)
 
—

 
3,011

 
34,124

 
(5,451
)
 
(23,507
)
 
(44,006
)
 
(35,829
)
Income (loss) before income tax expense
(2,007
)
 
(4,976
)
 
44,613

 
(5,763
)
 
(43,509
)
 
(11,642
)
Income tax expense
—

 
(2
)
 
(124
)
 
(102
)
 
—

 
(228
)
Income (loss) from continuing operations
(2,007
)
 
(4,978
)
 
44,489

 
(5,865
)
 
(43,509
)
 
(11,870
)
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Operating loss from discontinued operations
—

 
658

 
(5
)
 
(804
)
 
—

 
(151
)
Gain on disposition of discontinued operations
—

 
—

 
—

 
10,014

 
—

 
10,014

Income from discontinued operations
—

 
658

 
(5
)
 
9,210

 
—

 
9,863

Net income (loss) attributable to the common stockholders of
Columbia Property Trust, Inc.
$
(2,007
)
 
$
(4,320
)
 
$
44,484

 
$
3,345

 
$
(43,509
)
 
$
(2,007
)





Page 27
Table of Contents


Consolidating Statements of Operations (in thousands)

 
For the six months ended June 30, 2012
 
Columbia Property Trust
(Parent)
 
Columbia
Property
Trust OP 
(the Issuer)
 
Guarantors
 
Non-
Guarantors
 
Consolidating
adjustments
 
Columbia Property Trust
(Consolidated)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
—

 
$
1,450

 
$
111,999

 
$
108,154

 
$
(1,560
)
 
$
220,043

Tenant reimbursements
—

 
66

 
19,349

 
31,202

 
(1,344
)
 
49,273

Hotel income
—

 
—

 
—

 
10,838

 
—

 
10,838

Other property income
—

 
76

 
403

 
2,021

 
(343
)
 
2,157

 
—

 
1,592

 
131,751

 
152,215

 
(3,247
)
 
282,311

Expenses:
 
 
 
 
 
 
 
 
 
 
 
Property operating costs
—

 
1,006

 
31,859

 
50,007

 
(1,611
)
 
81,261

Hotel operating costs
—

 
—

 
—

 
10,653

 
(1,560
)
 
9,093

Asset and property management fees:
 
 
 
 
 
 
 
 
 
 
 
Related-party
15,125

 
47

 
851

 
1,546

 
(76
)
 
17,493

Other
—

 
—

 
813

 
537

 
—

 
1,350

Depreciation
—

 
350

 
26,326

 
29,191

 
—

 
55,867

Amortization
—

 
344

 
25,936

 
26,190

 
—

 
52,470

General and administrative
—

 
8,914

 
1,800

 
770

 
—

 
11,484

 
15,125

 
10,661

 
87,585

 
118,894

 
(3,247
)
 
229,018

Real estate operating income (loss)
(15,125
)
 
(9,069
)
 
44,166

 
33,321

 
—

 
53,293

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
—

 
(15,887
)
 
(20,136
)
 
(26,301
)
 
9,517

 
(52,807
)
Interest and other income (expense)
3,994

 
5,526

 
14,615

 
5,410

 
(9,517
)
 
20,028

Loss on interest rate swaps
—

 
—

 
—

 
(89
)
 
—

 
(89
)
Income (loss) from equity investment
53,176

 
66,971

 
—

 
—

 
(120,147
)
 
—

 
57,170

 
56,610

 
(5,521
)
 
(20,980
)
 
(120,147
)
 
(32,868
)
Income (loss) before income tax benefit (expense)
42,045

 
47,541

 
38,645

 
12,341

 
(120,147
)
 
20,425

Income tax benefit (expense)
—

 
(14
)
 
(101
)
 
(186
)
 
—

 
(301
)
Income (loss) from continuing operations
42,045

 
47,527

 
38,544

 
12,155

 
(120,147
)
 
20,124

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Operating loss from discontinued operations
—

 
3,407

 
1,242

 
329

 
—

 
4,978

Gain on disposition of discontinued operations
—

 
—

 
—

 
16,947

 
—

 
16,947

Income from discontinued operations
—

 
3,407

 
1,242

 
17,276

 
—

 
21,925

Net income (loss)
42,045

 
50,934

 
39,786

 
29,431

 
(120,147
)
 
42,049

Less: Net loss (income) attributable to noncontrolling interest
—

 
—

 
—

 
(4
)
 
—

 
(4
)
Net income (loss) attributable to the common stockholders of
Columbia Property Trust, Inc.
$
42,045

 
$
50,934

 
$
39,786

 
$
29,427

 
$
(120,147
)
 
$
42,045







Page 28
Table of Contents


Consolidating Statements of Comprehensive Income (in thousands)
 
For the three months ended June 30, 2013
 
Columbia Property Trust
(Parent)
 
Columbia
Property
Trust OP 
(the Issuer)
 
Guarantors
 
Non-
Guarantors
 
Consolidating
adjustments
 
Columbia Property Trust
(Consolidated)
Net income (loss) attributable to the common stockholders of
Columbia Property Trust, Inc.
$
20,601

 
$
16,369

 
$
26,235

 
$
2,684

 
$
(45,288
)
 
$
20,601

Market value adjustment to interest rate swap
2,168

 
2,168

 
—

 
—

 
(2,168
)
 
2,168

Comprehensive income (loss)
$
22,769

 
$
18,537

 
$
26,235

 
$
2,684

 
$
(47,456
)
 
$
22,769

 
For the three months ended June 30, 2012
 
Columbia Property Trust
(Parent)
 
Columbia
 Property
Trust OP 
(the Issuer)
 
Guarantors
 
Non-
Guarantors
 
Consolidating
adjustments
 
Columbia Property Trust
(Consolidated)
Net income (loss) attributable to the common stockholders of
Columbia Property Trust, Inc.
$
10,914

 
$
14,655

 
$
18,455

 
$
6,682

 
$
(39,792
)
 
$
10,914

Market value adjustment to interest rate swap
(4,016
)
 
(4,016
)
 
—

 
—

 
4,016

 
(4,016
)
Comprehensive income (loss)
$
6,898

 
$
10,639

 
$
18,455

 
$
6,682

 
$
(35,776
)
 
$
6,898

 
For the six months ended June 30, 2013
 
Columbia Property Trust
(Parent)
 
Columbia
 Property
Trust OP 
(the Issuer)
 
Guarantors
 
Non-
Guarantors
 
Consolidating
adjustments
 
Columbia Property Trust
(Consolidated)
Net income (loss) attributable to the common stockholders of
Columbia Property Trust, Inc.
$
(2,007
)
 
$
(4,320
)
 
$
44,484

 
$
3,345

 
$
(43,509
)
 
$
(2,007
)
Foreign currency translation adjustment
(83
)
 
—

 
—

 
(83
)
 
83

 
(83
)
Market value adjustment to interest rate swap
2,717

 
2,717

 
—

 
—

 
(2,717
)
 
2,717

Comprehensive income (loss)
$
627

 
$
(1,603
)
 
$
44,484

 
$
3,262

 
$
(46,143
)
 
$
627

 
For the six months ended June 30, 2012
 
Columbia Property Trust
(Parent)
 
Columbia
Property
Trust OP 
(the Issuer)
 
Guarantors
 
Non-
Guarantors
 
Consolidating
adjustments
 
Columbia Property Trust
(Consolidated)
Net income (loss) attributable to the common stockholders of
Columbia Property Trust, Inc.
$
42,045

 
$
50,934

 
$
39,786

 
$
29,427

 
$
(120,147
)
 
$
42,045

Market value adjustment to interest rate swap
(3,408
)
 
(3,408
)
 
—

 
—

 
3,408

 
(3,408
)
Comprehensive income (loss) attributable to the common stockholders of
Columbia Property Trust, Inc.
38,637

 
47,526

 
39,786

 
29,427

 
(116,739
)
 
38,637

Comprehensive income attributable to noncontrolling interests
—

 
—

 
—

 
4

 
—

 
4

Comprehensive income (loss)
$
38,637

 
$
47,526

 
$
39,786

 
$
29,431

 
$
(116,739
)
 
$
38,641



Page 29
Table of Contents


Consolidating Statements of Cash Flows (in thousands)

 
For the six months ended June 30, 2013
 
Columbia Property Trust
(Parent)
 
Columbia Property Trust OP
(the Issuer)
 
Guarantors
 
Non-
Guarantors
 
Columbia Property Trust
(Consolidated)
Cash flows from operating activities:
$
—

 
$
(41,902
)
 
$
96,132

 
$
48,091

 
$
102,321

 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Net proceeds from sale of real estate
—

 
65,928

 
—

 
—

 
65,928

Investment in real estate and related assets
—

 
(3,355
)
 
(12,007
)
 
(16,949
)
 
(32,311
)
Net cash provided by (used in) investing activities
—

 
62,573

 
(12,007
)
 
(16,949
)
 
33,617

 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Borrowings, net of fees
—

 
119,801

 
—

 
(41
)
 
119,760

Repayments
—

 
(111,000
)
 
—

 
(1,227
)
 
(112,227
)
Issuance of common stock, net of redemptions and fees
(32,328
)
 
—

 
—

 
—

 
(32,328
)
Distributions
(103,030
)
 
—

 
—

 
—

 
(103,030
)
Intercompany transfers, net
136,389

 
(30,808
)
 
(77,503
)
 
(28,078
)
 
—

Net cash provided by (used in) financing activities
1,031

 
(22,007
)
 
(77,503
)
 
(29,346
)
 
(127,825
)
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
1,031

 
(1,336
)
 
6,622

 
1,796

 
8,113

Effect of foreign exchange rate on cash and cash equivalents
—

 
—

 
—

 
(103
)
 
(103
)
Cash and cash equivalents, beginning of period
20,914

 
4,822

 
13,673

 
14,248

 
53,657

Cash and cash equivalents, end of period
$
21,945

 
$
3,486

 
$
20,295

 
$
15,941

 
$
61,667




Page 30
Table of Contents


Consolidating Statements of Cash Flows (in thousands)

 
For the six months ended June 30, 2012
 
Columbia Property Trust
(Parent)
 
Columbia Property Trust OP
(the Issuer)
 
Guarantors
 
Non-
Guarantors
 
Columbia Property Trust
(Consolidated)
Cash flows from operating activities:
$
—

 
$
(40,251
)
 
$
111,220

 
$
62,679

 
$
133,648

 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Net proceeds from sale of real estate
—

 
57,747

 
—

 
—

 
57,747

Investment in real estate and related assets
—

 
(883
)
 
(12,369
)
 
(17,026
)
 
(30,278
)
Net cash provided by (used in) investing activities
—

 
56,864

 
(12,369
)
 
(17,026
)
 
27,469

 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Borrowings, net of fees
—

 
475,888

 
—

 
—

 
475,888

Repayments
—

 
(456,000
)
 
—

 
(34,998
)
 
(490,998
)
Issuance of common stock, net of redemptions and fees
11,466

 
—

 
—

 
—

 
11,466

Distributions
(135,984
)
 
—

 
—

 
(15
)
 
(135,999
)
Intercompany transfers
149,143

 
(42,623
)
 
(100,564
)
 
(5,956
)
 
—

Redemption of noncontrolling interest
—

 
—

 
—

 
(301
)
 
(301
)
Net cash provided by (used in) financing activities
24,625

 
(22,735
)
 
(100,564
)
 
(41,270
)
 
(139,944
)
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
24,625

 
(6,122
)
 
(1,713
)
 
4,383

 
21,173

Effect of foreign exchange rate on cash and cash equivalents
—

 
—

 
—

 
(23
)
 
(23
)
Cash and cash equivalents, beginning of period
11,291

 
10,597

 
9,134

 
8,446

 
39,468

Cash and cash equivalents, end of period
$
35,916

 
$
4,475

 
$
7,421

 
$
12,806

 
$
60,618


11.
Subsequent Event
Columbia Property Trust has evaluated subsequent events in connection with the preparation of the consolidated financial statements and notes thereto included in this report on Form 10-Q and noted the following items in addition to those disclosed elsewhere in this report:
Listing Preparations
In preparation for a potential listing, the DRP was suspended effective July 7, 2013 and the SRP was terminated effective July 31, 2013.
Debt Maturity
On July 31, 2013, Columbia Property Trust used cash on hand and proceeds from the line of credit to fully repay the Three Glenlake Building mortgage note of $26.4 million and the related swap at maturity.




Page 31
Table of Contents


ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements (and notes thereto) and the "Cautionary Note Regarding Forward-Looking Statements" preceding Part I of this report, as well as our consolidated financial statements (and the notes thereto) and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2012.
Overview
We have evaluated various liquidity options and believe that listing our shares on a national exchange will provide the most flexible means by which to maximize our long-term value. In addition to providing an opportunity for our shareholders to monetize their investment, a listing would give the company access to more efficient sources of capital, which can be invested toward long-term value growth and to enhance income to support dividends. We are, therefore, taking steps to position the company to be able to list its shares later this year, should market conditions remain favorable.
Over the past year, we have transitioned from an externally advised management structure to a self-managed team, which culminated on February 28, 2013 upon terminating the advisory agreement and property management agreements, and acquiring Columbia Property Trust Advisory Services and Columbia Property Trust Services, which included the employees necessary to perform the functions previously performed by our external advisor and property manager. See Note 8, Related-Party Transactions and Agreements, to the accompanying consolidated financial statements.
We are continuing to focus on our strategic investment objective of refining our portfolio in an effort to enhance the REIT's value potential and, consequently, its attractiveness to current and future investors. We are seeking to optimize the allocation between our traditional, stabilized core investments, and growth-oriented, core-plus, and value-added investments, which we believe have upside potential for net operating income and value over the intermediate term. We are also working to improve our market concentration by growing our economic presence in key markets through the pursuit of strategic investment opportunities, and by divesting of properties that are situated in outlying markets or face more challenging appreciation prospects. Recently, we initiated a process to market for sale a group of 18 additional properties with an aggregate carrying value of approximately $514 million, the disposition of which would meaningfully improve our geographical concentration and strengthen the underlying real estate fundamentals of our portfolio.
Liquidity and Capital Resources
Overview
In 2012 and 2013, we actively managed our real estate portfolio with an emphasis on leasing and re-leasing space, and pursuing and closing on strategic acquisitions and dispositions to concentrate our market focus. During this period, we also enhanced our capital structure by raising net equity proceeds through our DRP, improving the composition, maturities and capacity of our debt portfolio while lowering our overall borrowing costs, accessing new sources of capital, and identifying additional sources of future capital.
In determining how and when to allocate cash resources, we initially consider the source of the cash. We reserve a portion of operating cash flows to fund capital expenditures for our existing portfolio. The amount of distributions that we pay to our common stockholders based on our operations is determined by our board of directors and is dependent upon a number of factors, including the funds available for distribution to common stockholders based on our operations, our financial condition, our capital expenditure requirements, our expectations of future sources of liquidity, and the annual distribution requirements necessary to maintain our status as a REIT under the Code. We have used cash on hand and DRP proceeds to fund share redemptions (subject to the limitations of our former share redemption program).
Short-term Liquidity and Capital Resources
During the six months ended June 30, 2013, we generated net cash flows from operating activities of $102.3 million, which consists primarily of receipts from tenants for rent and reimbursements, reduced by payments for operating costs, administrative expenses, and interest expense. During the same period, we paid total distributions to stockholders of $103.0 million, which includes $46.4 million reinvested in our common stock pursuant to our DRP. In the event that distributions exceed current-period and prior-period accumulated operating cash flow, borrowings may be used to pay stockholder distributions. We expect to use the majority of our future net cash flow from operating activities to fund distributions to stockholders and capital improvements to our existing assets.
During the six months ended June 30, 2013, we sold the Dvintsev Business Center - Tower B for net proceeds of $65.9 million and generated net proceeds from the sale of common stock under our DRP of $46.4 million. We used these proceeds, along with


Page 32
Table of Contents


cash on hand, to fund share redemptions of $78.6 million, capital expenditures of $32.3 million, and net debt repayments of $7.8 million.
We believe that we have adequate liquidity and capital resources to meet our current obligations as they come due. As of July 31, 2013, we had access to the borrowing capacity under the JPMorgan Chase Credit Facility of $394.0 million. Further, we are taking steps to prepare the company to list its shares on a national exchange should market conditions remain favorable. We believe that listing our shares would give us access to additional and more efficient sources of capital in the future.
Long-term Liquidity and Capital Resources
Over the long term, we expect that our primary sources of capital will include operating cash flows, proceeds from secured or unsecured borrowings from third-party lenders, and, if and when deemed appropriate, proceeds from strategic property sales. We expect that our primary uses of capital will continue to include stockholder distributions; capital expenditures, such as building improvements, tenant improvements, and leasing costs; repaying or refinancing debt; and selective property acquisitions, either directly or through investments in joint ventures.
Consistent with our financing objectives and operational strategy, we continue to maintain low debt levels, historically less than 40% of the cost of our assets. This conservative leverage goal could reduce the amount of current income we can generate for our stockholders, but it also reduces their risk of loss. We believe that preserving investor capital while generating stable current income is in the best interest of our stockholders. Our debt-to-real-estate-asset ratio is calculated using the outstanding debt balance and real estate at cost. As of June 30, 2013, our debt-to-real-estate-asset ratio was approximately 29.1%.
Our board of directors elected to maintain the distribution rate of $0.095 for the second quarter of 2013. We are continuing to monitor our cash flows and market conditions and to assess their impact on our future earnings and distribution decisions.
Debt Covenants  
Our portfolio debt instruments, the $450 Million Term Loan, the JPMorgan Chase Credit Facility, and the unsecured senior notes, contain certain covenants and restrictions that require us to meet certain financial ratios, including the following key financial covenants and respective covenant levels as of June 30, 2013:
 
 
 
Covenant Level
 
Actual Performance
June 30, 2013
JP Morgan Chase Credit Facility and $450 Million Term Loan:
 
 
 
 
Total debt to total asset value ratio
 
Less than 50%
 
33
%
Secured debt to total asset value ratio
 
Less than 40% 
 
19
%
Fixed charge coverage ratio
 
Greater than 1.75x
 
4.26x

Unencumbered interest coverage ratio
 
Greater than 2.0x
 
6.48x

Unencumbered asset coverage ratio
 
Greater than 2.0x
 
3.47x

Unsecured Senior Notes due 2018:
 
 
 
 

Aggregate debt test
 
Less than 60%
 
28
%
Debt service test
 
Greater than 1.5x
 
3.85x

Secured debt test
 
Less than 40%
 
15
%
Maintenance of total unencumbered assets
 
Greater than 150%
 
550
%
We were in compliance with all of our debt covenants as of June 30, 2013. Currently, we expect to continue to meet the requirements of our debt covenants over the short and long term.


Page 33
Table of Contents


Contractual Commitments and Contingencies
As of June 30, 2013, our contractual obligations will become payable in the following periods (in thousands):
Contractual Obligations
 
Total
 
2013
 
2014-2015
 
2016-2017
 
Thereafter
Debt obligations
 
$
1,657,999

 
$
27,687

 
$
362,035

 
$
670,102

 
$
598,175

Interest obligations on debt(1)
 
349,180

 
36,401

 
133,989

 
82,579

 
96,211

Capital lease obligations(2)
 
586,000

 
466,000

 
—

 
—

 
120,000

Operating lease obligations
 
219,912

 
1,279

 
5,114

 
5,259

 
208,260

Total
 
$
2,813,091

 
$
531,367

 
$
501,138

 
$
757,940

 
$
1,022,646

(1) 
Interest obligations on variable-rate debt are measured at the rate at which they are effectively fixed with interest rate swap agreements (where applicable), a portion of which is reflected as gain (loss) on interest rate swaps in our accompanying consolidated statements of operations. Interest obligations on all other debt are measured at the contractual rate. See Item 3, Quantitative and Qualitative Disclosure About Market Risk, for more information regarding our interest rate swaps.
(2) 
Amounts include principal obligations only. We made interest payments on these obligations of $18.2 million during the six months ended June 30, 2013, all of which was funded with interest income earned on the corresponding investments in development authority bonds. These obligations will be fully satisfied at maturity with equivalent investments in development authority bonds.
Results of Operations
Overview
As of June 30, 2013, we owned controlling interests in 60 office properties, which were approximately 93.0% leased, and one hotel. Our real estate operating results have decreased for the six months ended June 30, 2013, as compared to the same periods in 2012, primarily due to fees payable to WREF incurred in the first quarter of 2013, included in general and administrative expense in our accompanying statement of operations, and impairment losses recorded in the first quarter of 2013. In the near term, absent future acquisitions or dispositions, we expect future real estate operating income to fluctuate primarily based on leasing activities for our portfolio.
Comparison of the three months ended June 30, 2013 versus the three months ended June 30, 2012
Rental income was $116.9 million for the three months ended June 30, 2013, which represents an increase as compared to $109.9 million for the three months ended June 30, 2012, primarily due to the acquisition of the 333 Market Street Building in December 2012 and the impact of 2012 leasing activity. Absent changes to our portfolio or the leases currently in place at our properties, future rental income is expected to remain at similar levels in the near term.
Tenant reimbursements remained stable at $24.5 million for the three months ended June 30, 2013, as compared to $24.2 million for the three months ended June 30, 2012. Property operating costs, however, increased to $43.1 million for the three months ended June 30, 2013, as compared to $40.0 million for the three months ended June 30, 2012, primarily due to increases in property taxes, resulting from annual reassessments and association dues, and construction work related to a prospective tenant. Tenant reimbursements of the additional 2013 property operating costs were neutralized by the impact of concessions offered with new and modified leases. Absent changes to our portfolio, over the near term, tenant reimbursements and property operating costs are expected to fluctuate in a similar manner based on leasing activities.
Hotel income, net of hotel operating costs, was $1.7 million for the three months ended June 30, 2013, which represents an increase as compared to $1.5 million for the three months ended June 30, 2012, due to increased room rates. Hotel income and hotel operating costs are primarily driven by the local economic conditions and, as a result, are expected to fluctuate in the future primarily based on changes in the supply of, and demand for, hotel and banquet space in Cleveland, Ohio, similar to that offered by the Key Center Marriott hotel.
Other property income was $1.3 million for the three months ended June 30, 2013, which represents an increase as compared to $0.5 million for the three months ended June 30, 2012, primarily due to fees earned in connection with lease restructuring activities during second quarter of 2013. Future other property income fluctuations are expected to primarily relate to future lease restructuring and termination activities.
Asset and property management fees were $0.7 million for the three months ended June 30, 2013, which represents a decrease as compared to $9.3 million for the three months ended June 30, 2012, due to terminating the Advisory Agreement effective


Page 34
Table of Contents


February 28, 2013 as further discussed in Note 8, Related-Party Transactions and Agreements. Thus, going forward, no related-party asset management fees will be incurred, as such services will be performed by employees of Columbia Property Trust.
Depreciation was $30.6 million for the three months ended June 30, 2013, which represents an increase as compared to $28.0 million for the three months ended June 30, 2012, primarily due to the acquisition of the 333 Market Street building in December 2012. Excluding the impact of acquisitions, dispositions, and changes to the leases currently in place at our properties, depreciation is expected to continue to increase in future periods, as compared to historical periods, due to ongoing capital improvements to our properties.
Amortization was $22.3 million for the three months ended June 30, 2013, which represents a decrease as compared to $26.8 million for the three months ended June 30, 2012, primarily due to a lease termination, a lease extension, and the expiration of in-place leases at our properties in 2012 and 2013, partially offset by the acquisition of 333 Market Street in December 2012. Future amortization is expected to fluctuate, primarily based on the expiration of additional in-place leases, offset by amortization of deferred lease costs incurred in connection with recent leasing activity and in-place leases at acquired properties.
General and administrative expenses were $9.1 million for the three months ended June 30, 2013, which represents an increase as compared to $6.6 million for the three months ended June 30, 2012, primarily due to expenses incurred in connection with transitioning to a self-managed platform. Quarterly general and administrative expenses are expected to increase in the near term due to non-recurring expenses related to our listing preparations.
Interest expense was $27.2 million for the three months ended June 30, 2013, which represents a slight increase as compared to $26.5 million for the three months ended June 30, 2012, primarily due to the 333 Market Street Building mortgage note assumed at acquisition in December 2012, partially offset by lowering our weighted-average cost of borrowing upon executing the $450 Million Term Loan and the settlement of the development authority bonds and the related obligation under capital lease related to One Glenlake Parkway Building in December 2012. Absent acquisition activity, interest expense is expected to remain at comparable levels in the near term, and decrease over the longer term, as $466.0 million of our $586.0 million total capital lease obligations mature in December 2013.
Interest and other income was $9.3 million for the three months ended June 30, 2013, which represents a slight decrease as compared to $10.0 million for the three months ended June 30, 2012, due to the settlement of the development authority bonds and the related obligation under capital lease related to One Glenlake Parkway Building in December 2012. Interest income is expected to remain at comparable levels in the near term, as the majority of this activity consists of interest income earned on investments in development authority bonds with a weighted-average remaining term of approximately 2.4 years as of June 30, 2013, and decrease significantly over the longer term, as $466.0 million of our $586.0 million total development authority bonds mature in December 2013. Interest income earned on investments in development authority bonds is entirely offset by interest expense incurred on the corresponding capital leases.
We recognized a gain (loss) on interest rate swaps that do not qualify for hedge accounting treatment of approximately $164,000 for the three months ended June 30, 2013, compared to $(13,000) for the three months ended June 30, 2012. We anticipate future gains and losses on interest rate swaps that do not qualify for hedge accounting treatment will fluctuate, primarily due to changes in the estimated fair value of our interest rate swaps relative to then-current market conditions. Market value adjustments to swaps that qualify for hedge accounting treatment are recorded directly to equity, and therefore do not impact net income.
Income from discontinued operations was approximately $0.1 million for the three months ended June 30, 2013 and $2.6 million for the three months ended June 30, 2012. As further explained in Note 9, Discontinued Operations, to the accompanying consolidated financial statements, properties meeting certain criteria for disposal are classified as "discontinued operations" in the accompanying consolidated statements of operations for all periods presented. For the periods presented, discontinued operations include Dvintsev Business Center - Tower B, which closed in March 2013 for a net gain of $10.0 million; the Nine Property Sale, which closed in December 2012 for a net gain of $3.2 million after recognizing an $18.5 million impairment loss on the 180 E 100 South Building, one of the properties in the Nine Property Sale; and 5995 Opus Parkway and Emerald Point, which both closed in January 2012 for total gains of $16.9 million.
Net income (loss) attributable to Columbia Property Trust was $20.6 million, or $0.04 per share, for the three months ended June 30, 2013, which represents an increase as compared to $10.9 million, or $0.02 per share, for the three months ended June 30, 2012. The increase is primarily due to the transition to in-house management of the majority of our properties, as a result of the acquisition of Columbia Property Trust Services, and lower amortization expense due to expiring and restructuring of in place leases, partially offset by increased expenses resulting from our transition to a self-managed platform, and selling properties in 2012 and early 2013. We expect earnings to fluctuate in the near term based on disposition and acquisition activity. Should the U.S. economic recovery remain sluggish, or the U.S. real estate markets remain depressed for a prolonged period of time, the


Page 35
Table of Contents


creditworthiness of our tenants and our ability to achieve market rents comparable to the leases currently in place at our properties may suffer and could lead to a decline in net income over the long term.
Comparison of the six months ended June 30, 2013 versus the six months ended June 30, 2012
Rental income was $232.1 million for the six months ended June 30, 2013, which represents an increase as compared to $220.0 million for the six months ended June 30, 2012, primarily due to the acquisition of the 333 Market Street Building in December 2012 and the impact of 2012 leasing activity. Absent changes to our portfolio or the leases currently in place at our properties, future rental income is expected to remain at similar levels in the near term.
Tenant reimbursements remained stable at $49.9 million for the six months ended June 30, 2013, as compared to $49.3 million for the six months ended June 30, 2012. Property operating costs, however, increased to $86.8 million for the six months ended June 30, 2013, as compared to $81.3 million for the six months ended June 30, 2012, primarily due to increases in property taxes, resulting from annual reassessments and increased administrative costs primarily driven by non-capital project initiatives. Tenant reimbursements of the additional 2013 property operating costs were neutralized by the impact of concessions offered with new and modified leases. Absent changes to our portfolio, over the near term, tenant reimbursements and property operating costs are expected to fluctuate in a similar manner based on leasing activities.
Hotel income, net of hotel operating costs, was $2.4 million for the six months ended June 30, 2013, which represents an increase as compared to $1.7 million for the six months ended June 30, 2012, due to stable occupancy rates and increased room rates. Hotel income and hotel operating costs are primarily driven by the local economic conditions and, as a result, are expected to fluctuate in the future primarily based on changes in the supply of, and demand for, hotel and banquet space in Cleveland, Ohio, similar to that offered by the Key Center Marriott hotel.
Other property income was $1.5 million for the six months ended June 30, 2013, which represents a decrease as compared to $2.2 million for the six months ended June 30, 2012, primarily due to fees earned in connection with lease terminations in the first quarter of 2012, offset by fees earned in connection with lease restructuring activities during the second quarter of 2013. Future other property income fluctuations are expected to primarily relate to future lease restructuring and termination activities.
Asset and property management fees were $6.9 million for the six months ended June 30, 2013, which represents a decrease as compared to $18.8 million for the six months ended June 30, 2012, due to terminating the Advisory Agreement effective February 28, 2013 as further discussed in Note 8, Related-Party Transactions and Agreements. Thus, going forward, no related-party asset management fees will be incurred, as such services will be performed by employees of Columbia Property Trust.
Depreciation was $60.9 million for the six months ended June 30, 2013, which represents an increase as compared to $55.9 million for the six months ended June 30, 2012, primarily due to the acquisition of the 333 Market Street building in December 2012. Excluding the impact of acquisitions, dispositions, and changes to the leases currently in place at our properties, depreciation is expected to continue to increase in future periods, as compared to historical periods, due to ongoing capital improvements to our properties.
Amortization was $44.2 million for the six months ended June 30, 2013, which represents a decrease as compared to $52.5 million for the six months ended June 30, 2012, primarily due to a lease termination, lease restructuring, and the expiration of in-place leases at our properties in 2012 and 2013. Future amortization is expected to fluctuate, primarily based on the expiration of additional in-place leases, offset by amortization of deferred lease costs incurred in connection with recent leasing activity and in-place leases at acquired properties.
We recognized an impairment loss of $16.9 million in the first quarter of 2013 to reduce the carrying values of the 120 Eagle Rock and 333 & 777 Republic Drive properties to their estimated fair values in connection with refining our disposition strategy for these assets as a result of initiating a process to market for sale a group of 18 properties. We expect future impairment losses on real estate assets to be dependent upon the nature and timing of future disposition activities.
General and administrative expenses were $46.0 million for the six months ended June 30, 2013, which represents an increase as compared to $11.5 million for the six months ended June 30, 2012, primarily due to the contractual impact of transitioning to a self-managed platform (see Note 8, Related-Party Transactions and Agreements for details). As a result, for the first six months of 2013, general and administrative expenses include all of the fees payable under the Consulting Service Agreement and the Transition Services Agreement, as amended, during 2013. General and administrative expenses are expected to decrease in the near term as we do not expect to incur additional fees under either agreement going forward.  The decrease will be slightly offset by non-recurring fees related to our listing preparations.


Page 36
Table of Contents


Interest expense was $54.4 million for the six months ended June 30, 2013, which represents a slight increase as compared to $52.8 million for the six months ended June 30, 2012, primarily due to the 333 Market Street Building mortgage note assumed at acquisition in December 2012, partially offset by the settlement of the development authority bonds and the related obligation under capital lease related to One Glenlake Parkway Building in December 2012. Absent acquisition activity, interest expense is expected to remain at comparable levels in the near term, and decrease over the longer term, as $466.0 million of our $586.0 million total capital lease obligations mature in December 2013.
Interest and other income was $18.4 million for the six months ended June 30, 2013, which represents a slight decrease as compared to $20.0 million for the six months ended June 30, 2012, due to the settlement of the development authority bonds and the related obligation under capital lease related to One Glenlake Parkway Building in December 2012. Interest income is expected to remain at comparable levels in the near term, as the majority of this activity consists of interest income earned on investments in development authority bonds with a weighted-average remaining term of approximately 2.4 years as of June 30, 2013, and decrease significantly over the longer term, as $466.0 million of our $586.0 million total development authority bonds mature in December 2013. Interest income earned on investments in development authority bonds is entirely offset by interest expense incurred on the corresponding capital leases.
We recognized a gain (loss) on interest rate swaps that do not qualify for hedge accounting treatment of approximately $0.2 million for the six months ended June 30, 2013, compared to $(0.1) million for the six months ended June 30, 2012. We anticipate future gains and losses on interest rate swaps that do not qualify for hedge accounting treatment will fluctuate, primarily due to changes in the estimated fair value of our interest rate swaps relative to then-current market conditions. Market value adjustments to swaps that qualify for hedge accounting treatment are recorded directly to equity, and therefore do not impact net income.
Income from discontinued operations was approximately $9.9 million for the six months ended June 30, 2013 and $21.9 million for the six months ended June 30, 2012. As further explained in Note 9, Discontinued Operations, to the accompanying consolidated financial statements, properties meeting certain criteria for disposal are classified as "discontinued operations" in the accompanying consolidated statements of operations for all periods presented. For the periods presented, discontinued operations include Dvintsev Business Center - Tower B, which closed in March 2013 for a net gain of $10.0 million; the Nine Property Sale, which closed in December 2012 for a net gain of $3.2 million after recognizing an $18.5 million impairment loss on the 180 E 100 South Building, one of the properties in the Nine Property Sale; and 5995 Opus Parkway and Emerald Point, which both closed in January 2012 for total gains of $16.9 million.
Net income (loss) attributable to Columbia Property Trust was $(2.0) million, or $0.00 per share, for the six months ended June 30, 2013, which represents a decrease as compared to $42.0 million, or $0.08 per share, for the six months ended June 30, 2012. The decrease is primarily due to incurring $28.6 million under the Transition Services Agreement and the Consulting Services Agreement (as described in Note 8, Related-Party Transactions and Agreements, of the accompanying consolidated financial statements), and changes in disposition activity between the periods presented. We expect future earnings to improve due to the nonrecurring transition services and consulting fees incurred during the six months ended June 30, 2013. Should the U.S. economic recovery remain sluggish, or the U.S. real estate markets remain depressed for a prolonged period of time, the creditworthiness of our tenants and our ability to achieve market rents comparable to the leases currently in place at our properties may suffer and could lead to a decline in net income over the long term.
Funds From Operations
Funds from operations (“FFO”) is a non-GAAP measure used by many investors and analysts that follow the real estate industry to measure the performance of an equity REIT. We consider FFO a useful measure of our performance because it principally adjusts for the effects of GAAP depreciation and amortization of real estate assets, which assume that the value of real estate diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, we believe that FFO provides a meaningful supplemental measure of our performance. We believe that the use of FFO, combined with the required GAAP presentations, is beneficial in improving our investors' understanding of our operating results and allowing for comparisons among other companies who define FFO as we do.
FFO, as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), represents net income (computed in accordance with GAAP), excluding gains (losses) on sales of real estate and impairments of real estate assets, plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. We compute FFO in accordance with NAREIT's definition, which may differ from the methodology for calculating FFO, or similarly titled measures, used by other companies and this may not be comparable to those presentations.
FFO does not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments and uncertainties, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make distributions. Our presentation of FFO should not be considered as an alternative to net income


Page 37
Table of Contents


(computed in accordance with GAAP) as an indicator of the Company's financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of its liquidity.
Reconciliations of net income to FFO (in thousands):
 
Three Months Ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
Reconciliation of Net Income to Funds From Operations and Adjusted Funds From Operations:
 
 
 
 
 
 
 
Net income (loss) attributable to the common stockholders of
Columbia Property Trust, Inc.
$
20,601

 
$
10,914

 
$
(2,007
)
 
$
42,045

Adjustments:
 
 
 
 
 
 
 
Depreciation of real estate assets
30,608

 
30,232

 
61,235

 
60,357

Amortization of lease-related costs
22,327

 
27,959

 
44,274

 
55,015

Impairment loss on real estate assets
—

 
—

 
16,867

 
—

Gain on disposition of discontinued operations
—

 
(62
)
 
(10,014
)
 
(16,947
)
Total Funds From Operations adjustments
52,935

 
58,129

 
112,362

 
98,425

Funds From Operations
$
73,536

 
$
69,043

 
$
110,355

 
$
140,470

Election as a REIT
We have elected to be taxed as a REIT under the Code, and have operated as such beginning with our taxable year ended December 31, 2003. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our adjusted taxable income, as defined in the Code, to our stockholders, computed without regard to the dividends-paid deduction and by excluding our net capital gain. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income for that year and for the four years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially affect our net income and net cash available for distribution to our stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT for federal income tax purposes.
Columbia Property Trust TRS, Columbia KCP TRS, and Wells Energy TRS are wholly owned subsidiaries of Columbia Property Trust and are organized as Delaware limited liability companies and include the operations of, among other things, a full-service hotel. We have elected to treat the TRS Entities as taxable REIT subsidiaries. We may perform certain additional, noncustomary services for tenants of our buildings through the the TRS Entities; however, any earnings related to such services are subject to federal and state income taxes. In addition, for us to continue to qualify as a REIT, we must limit our investments in taxable REIT subsidiaries to 25% of the value of our total assets. Deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted rates expected to be in effect when the temporary differences reverse.
No provisions for federal income taxes have been made in our accompanying consolidated financial statements, other than the provisions relating to Columbia Property Trust TRS, Columbia KCP TRS, and Wells Energy TRS, as we made distributions in excess of taxable income for the periods presented. We are subject to certain state and local taxes related to property operations in certain locations, which have been provided for in our accompanying consolidated financial statements.
Inflation
We are exposed to inflation risk, as income from long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that are intended to protect us from, and mitigate the risk of, the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per-square-foot basis, or in some cases, annual reimbursement of operating expenses above a certain per-square-foot allowance. However, due to the long-term nature of the leases, the leases may not reset frequently enough to fully cover inflation.


Page 38
Table of Contents


Application of Critical Accounting Policies
Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.
Investment in Real Estate Assets
We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider 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 our assets by class are as follows:
 
Buildings
  
40 years
 
Building improvements
  
5-25 years
 
Site improvements
  
15 years
 
Tenant improvements
  
Shorter of economic life or lease term
 
Intangible lease assets
  
Lease term
Evaluating the Recoverability of Real Estate Assets
We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate and related intangible assets of both operating properties and properties under construction, in which we have 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 (liabilities) may not be recoverable, we assess the recoverability of these assets by determining whether the respective carrying values will be recovered through the estimated undiscounted future operating 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, we adjust the carrying value of the real estate assets and related intangible assets to the estimated fair values, pursuant to the property, plant, and equipment accounting standard for the impairment or disposal of long-lived assets, and recognize 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 salvage value. Certain of our assets may be carried at more than an amount that could be realized in a current disposition transaction.
Projections of expected future operating cash flows require that we 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 our real estate assets and related intangible assets and net income (loss).
In connection with furthering our portfolio repositioning efforts, in the first quarter of 2013, we began to market for sale a group of 18 properties. Pursuant to the accounting policy outlined above, we evaluated the recoverability of the carrying values of each of the properties in this group and determined that the 120 Eagle Rock property in East Hanover, New Jersey and the 333 & 777 Republic Drive property in Allen Park, Michigan are no longer recoverable due to shortening the respective expected property holding periods in connection with these repositioning efforts. As a result, we reduced the carrying value of the 120 Eagle Rock property and the 333 & 777 Republic Drive property to reflect their respective fair values estimated based on projected discounted future cash flows and recorded corresponding property impairment losses of $11.7 million and $5.2 million, respectively, in the first quarter of 2013.


Page 39
Table of Contents


The fair value measurements used in this evaluation of nonfinancial assets are considered to be Level 3 valuations within the fair value hierarchy outlined above, as there are significant unobservable inputs. Examples of inputs that were utilized in the fair value calculations include estimated holding periods, discount rates, market capitalization rates, expected lease rental rates, and potential sales prices. The table below represents the detail of the adjustments recognized for the six months ended June 30, 2013 (in thousands) using Level 3 inputs. There were no adjustments recognized in the six months ended June 30, 2012.
Property
 
Net Book Value
 
Impairment Loss Recognized
 
Fair Value
120 Eagle Rock
 
$
23,808

 
$
(11,708
)
 
$
12,100

333 & 777 Republic Drive
 
$
13,359

 
$
(5,159
)
 
$
8,200

Assets Held for Sale
We classify assets as held for sale according to 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 reduced to the lower of its depreciated book value or its estimated fair value, less costs to sell, and depreciation is no longer recognized. As of June 30, 2013, none of our properties met the criteria to be classified as held for sale in the accompanying balance sheet.
Allocation of Purchase Price of Acquired Assets
Upon the acquisition of real properties, we allocate the purchase price of properties to tangible assets, consisting of land and building, site improvements, and identified intangible assets and liabilities, including the value of in-place leases, based in each case on our estimate of their fair values.
The fair values of the tangible assets of an acquired property (which includes land and building) are determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to land and building based on our determination of the relative fair value of these assets. We determine the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors we consider in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases, including leasing commissions and other related costs. In estimating carrying costs, we include real estate taxes, insurance, and other operating expenses during the expected lease-up periods based on current market demand.
Intangible Assets and Liabilities Arising from In-Place Leases where We are the Lessor
As further described below, in-place leases where we are the lessor may have values related to direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease, tenant relationships, and effective contractual rental rates that are above or below market rates:
•
Direct costs associated with obtaining a new tenant, including commissions, tenant improvements, and other direct costs, are estimated based on management's consideration of current market costs to execute a similar lease. Such direct costs are included in intangible lease origination costs in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.
•
The value of opportunity costs associated with lost rentals avoided by acquiring an in-place lease is calculated based on the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. Such opportunity costs are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.


Page 40
Table of Contents


•
The value of tenant relationships is calculated based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. Values associated with tenant relationships are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.
•
The value of effective rental rates of in-place leases that are above or below the market rates of comparable leases is calculated based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be received pursuant to the in-place leases and (ii) management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining terms of the leases. The capitalized above-market and below-market lease values are recorded as intangible lease assets or liabilities and amortized as an adjustment to rental income over the remaining terms of the respective leases.
Evaluating the Recoverability of Intangible Assets and Liabilities
The values of intangible lease assets and liabilities are determined based on assumptions made at the time of acquisition and have defined useful lives, which correspond with the lease terms. There may be instances in which intangible lease assets and liabilities become impaired and we are required to write-off the remaining asset or liability immediately or over a shorter period of time. Lease restructurings, including lease terminations and lease extensions, may impact the value and useful life of in-place leases. In-place leases that are terminated, partially terminated, or modified will be evaluated for impairment if the original in-place lease terms have been modified. In the event that the discounted cash flows of the original in-place lease stream do not exceed the discounted modified in-place lease stream, we adjust the carrying value of the intangible lease assets to the discounted cash flows and recognize an impairment loss. For in-place lease extensions that are executed more than one year prior to the original in-place lease expiration date, the useful life of the in-place lease will be extended over the new lease term with the exception of those in-place lease components, such as lease commissions and tenant allowances, which have been renegotiated for the extended term. Renegotiated in-place lease components, such as lease commissions and tenant allowances, will be amortized over the shorter of the useful life of the asset or the new lease term.
Intangible Assets and Liabilities Arising from In-Place Leases where We are the Lessee
In-place ground leases where we are the lessee may have value associated with effective contractual rental rates that are above or below market rates. Such values are calculated based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place lease and (ii) management's estimate of fair market lease rates for the corresponding in-place lease, measured over a period equal to the remaining terms of the leases. The capitalized above-market and below-market in-place lease values are recorded as intangible lease liabilities or assets and amortized as an adjustment to property operating cost over the remaining term of the respective leases.
Related Parties Transactions and Agreements
During the periods presented, we were party to agreements with our former advisor, and its affiliates, whereby we incurred and paid fees and reimbursements for certain advisory services and property management services. On February 28, 2013, we terminated the related agreements and acquired Columbia Property Trust Advisory Services and Columbia Property Trust Services, including the employees necessary to perform the corporate and property management functions previously performed by our former advisor and property manager. See Note 8, Related-Party Transition and Agreements, of our accompanying consolidated financial statements for details of our related-party transactions, agreements, and fees.
Commitments and Contingencies
We are subject to certain commitments and contingencies with regard to certain transactions. Refer to Note 6, Commitments and Contingencies, of our accompanying consolidated financial statements for further explanation. Examples of such commitments and contingencies include:
•
obligations under operating leases;
•
obligations under capital leases;
•
commitments under existing lease agreements; and
•
litigation.


Page 41
Table of Contents


Subsequent Events
We have evaluated subsequent events in connection with the preparation of our consolidated financial statements and notes thereto included in this report on Form 10-Q and noted the following items in addition to those disclosed elsewhere in this report:
Listing Preparations
In preparation for a potential listing, the DRP was suspended effective July 7, 2013 and the SRP was terminated effective July 31, 2013.
Debt Maturity
On July 31, 2013, we used cash on hand and proceeds from the line of credit to fully repay the Three Glenlake Building mortgage note of $26.4 million and the related swap at maturity.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of our debt facilities, we are exposed to interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flow primarily through a low to moderate level of overall borrowings. However, we currently have a substantial amount of debt outstanding. We manage our ratio of fixed- to floating-rate debt with the objective of achieving a mix that we believe is appropriate in light of anticipated changes in interest rates. We closely monitor interest rates and will continue to consider the sources and terms of our borrowing facilities to determine whether we have appropriately guarded ourselves against the risk of increasing interest rates in future periods.
Additionally, we have entered into interest rate swaps, and may enter into other interest rate swaps, caps, or other arrangements to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes; however, certain of our derivatives may not qualify for hedge accounting treatment. All of our debt was entered into for other-than-trading purposes.
Our financial instruments consist of both fixed-rate and variable-rate debt. Our variable-rate borrowings consist of the JPMorgan Chase Credit Facility, the $450 Million Term Loan, the 333 Market Street Building mortgage note, and the Three Glenlake Building mortgage note. However, only the JPMorgan Chase Credit Facility bears interest at an effectively variable rate, as the variable rates on the $450.0 Million Term Loan, the 333 Market Street Building mortgage note, and the Three Glenlake Building mortgage note have been effectively fixed through the interest rate swap agreements described below.
As of June 30, 2013, we had $51.0 million outstanding under the JPMorgan Chase Credit Facility; $450.0 million outstanding on the $450 Million Term Loan; $207.9 million outstanding on the 333 Market Street Building mortgage note; $26.4 million outstanding on the Three Glenlake Building mortgage note; $248.8 million in 5.875% bonds outstanding; and $673.9 million outstanding on fixed-rate, term mortgage loans. The weighted-average interest rate of all of our debt instruments was 4.47% as of June 30, 2013.
Approximately $1,607.0 million of our total debt outstanding as of June 30, 2013, is subject to fixed rates, either directly or when coupled with an interest rate swap agreement. As of June 30, 2013, these balances incurred interest expense at an average interest rate of 4.54% and have expirations ranging from 2013 through 2023. A change in the market interest rate impacts the net financial instrument position of our fixed-rate debt portfolio; however, it has no impact on interest incurred or cash flows. The amounts outstanding on our variable-rate debt facility in the future will largely depend upon future acquisition and disposition activity.
We do not believe there is any exposure to increases in interest rates related to the capital lease obligations of $586.0 million at June 30, 2013, as the obligations are at fixed interest rates.
ITEM 4.
CONTROLS AND PROCEDURES
Management's Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods in SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management,


Page 42
Table of Contents


including our Principal Executive Officer and our Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in our internal control over financial reporting during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II.
OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
From time to time, we are party to legal proceedings, which arise in the ordinary course of our business. We are not currently involved in any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by governmental authorities.
ITEM 1A.
RISK FACTORS
There have been no material changes from the risk factors disclosed in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2012.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)
All equity securities sold by us in the quarter ended June 30, 2013 were sold in an offering registered under the Securities Act of 1933.
(b)
Not applicable.
(c)
During the quarter ended June 30, 2013, we redeemed shares as follows (in thousands, except per-share amounts):
Period
 
Total Number
of Shares
Purchased(1)
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (2)
 
Approximate Dollar
Value of  Shares
Available That May
Yet Be Redeemed
Under the Program(3) 
April 2013
 
2,108

 
$
6.56

 
2,108

 
N/A
May 2013
 
1,888

 
$
6.58

 
1,888

 
N/A
June 2013
 
1,752

 
$
6.57

 
1,752

 
N/A
During the quarter ended June 30, 2013, we redeemed all of the shares eligible and properly submitted for redemption prior to the redemption payment date in June 2013. Redemption requests for the period were funded with cash on hand, along with proceeds from the sale of common stock under our DRP.
(1) 
All purchases of our equity securities by us in the three months ended June 30, 2013 were made pursuant to our SRP.
(2) 
We announced the commencement of the program on December 10, 2003, and amendments to the program on April 22, 2004; March 28, 2006; May 11, 2006; August 10, 2006; August 8, 2007; November 13, 2008; March 31, 2009; August 13, 2009; February 18, 2010; July 21, 2010; September 23, 2010; July 19, 2011; August 12, 2011; November 8, 2011; December 12, 2011; February 28, 2013; and June 27, 2013.
(3) 
The SRP terminated on July 31, 2013.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
(a)
There have been no defaults with respect to any of our indebtedness.
(b)
Not applicable.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.


Page 43
Table of Contents


ITEM 5.
OTHER INFORMATION
(a)
On April 15, 2013, the compensation committee of our board of directors approved an annual cash incentive compensation program (the “Cash Incentive Program”) pursuant to which cash incentive compensation for our named executive officers and certain other key employees will be determined. In establishing the terms of the Cash Incentive Program as well as other components of our executive compensation program, the compensation committee worked with an independent compensation consultant who provided competitive market compensation data for a group of 12 of our peers and made recommendations for pay levels for each component of our executive compensation. In establishing the total compensation amounts for our executive officers, the committee did not target compensation levels at any specific point or percentile against the peer group data, however, it did look to ensure that overall compensation levels did not exceed the market median, based on the peer groups presented by the independent compensation consultant, unless substantial performance occurs. The peer group considered by our compensation committee consisted of 12 public REITs primarily focused in the office REIT sector, with the majority focused in suburban office. At the time of the study, the peer group companies ranged in size, defined by total capitalization, from approximately $1.5 billion to $8.7 billion, with a median capitalization of $4.7 billion.  Columbia Property Trust's total capitalization of approximately  $5.7 billion placed it within the 75th percentile of the group. The peer group consisted of the following: BioMed Realty Trust, Inc., Brandywine Realty Trust, Corporate Office Properties Trust, Cousins Properties Incorporated, Douglas Emmett, Inc., Duke Realty Corporation, Highwoods Properties, Inc., Kilroy Realty Corporation, Liberty Property Trust, Mack-Cali Realty Corporation, Piedmont Office Realty Trust, Inc., and Washington Real Estate Investment Trust.
The Cash Incentive Program provides for the payment of cash compensation based on employee performance. Each eligible employee will be evaluated based on performance goals that fall within three general categories: corporate, business unit, and individual. The weight given to each of these categories will vary by position, with our Chief Executive Officer and Chief Financial Officer weighted 67%, 0%, and 33%, respectively and Senior Vice Presidents weighted 33%, 33%, and 34%, respectively. Performance goals include both quantitative performance measures such as our adjusted funds from operations per share, net asset value, revenue and expense control as well as more subjective elements. Members of the compensation committee will determine compensation amounts by assessing performance against annually established performance targets, and any payouts under the Cash Incentive Program are in the discretion of the compensation committee.
Under the Cash Incentive Program, target payout opportunities are expressed as a percentage of base salary, with threshold, target and high payout opportunities expressed as a percentage of the target award (actual cash incentive compensation may range anywhere between the threshold and high amounts). Target opportunities are grouped by organizational hierarchy with the target for the Chief Executive Officer being 100% of base salary, the Chief Financial Officer being 90% of base salary (for 2014 and after), and Senior Vice Presidents being 65-75% of base salary. The threshold payout opportunity is 50% of the target and the high payout opportunity is 150% of the target. No cash incentive compensation will be paid if threshold performance is not achieved.
(b)
There are no material changes to the procedures by which stockholders may recommend nominees to our board of directors since the filing of our Schedule 14A.
ITEM 6.
EXHIBITS
The exhibits required to be filed with this report are set forth on the Exhibit Index to this quarterly report attached hereto.


Page 44
Table of Contents


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.
 
 
 
COLUMBIA PROPERTY TRUST, INC.
(Registrant)
 
 
 
 
Dated:
August 6, 2013
By:
/s/ WENDY W. GILL
 
 
 
Wendy W. Gill
Chief Accounting Officer, Treasurer and Principal Financial Officer




Page 45
Table of Contents



EXHIBIT INDEX TO
SECOND QUARTER 2013 FORM 10-Q OF
COLUMBIA PROPERTY TRUST, INC.
The following documents are filed as exhibits to this report. Exhibits that are not required for this report are omitted.
 
Ex.
Description
3.1
Second Amended and Restated Articles of Incorporation as Amended by the First Articles of Amendment (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the Commission on March 1, 2013).
3.2
Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K filed with the Commission on March 1, 2013).
4.1
Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K filed with the Commission on March 1, 2013).
4.2
Third Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K filed with the Commission on March 1, 2013).
10.1
2013 Long-Term Incentive Plan incorporated by reference to Exhibit A to the Company's Definitive Proxy Statement in Schedule 14A filed with the Commission on April 25, 2013.
31.1*
Certification of the Principal Executive Officer of the Company, pursuant to Securities Exchange Act Rules 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of the Principal Financial Officer of the Company, pursuant to Securities Exchange Act Rules 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of the Principal Executive Officer and Principal Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**
XBRL Instance Document.
101.SCH**
XBRL Taxonomy Extension Schema.
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase.
101.DEF**
XBRL Taxonomy Extension Definition Linkbase.
101.LAB**
XBRL Taxonomy Extension Label Linkbase.
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase.
 
 
*
Filed herewith.
**
Furnished with this Form 10-Q.




Page 46