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Section 1: 10-Q (FORM 10-Q)

2015.03.31 10-Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM 10-Q
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission File Number: 001-35933
 
 
 
 
CHAMBERS STREET PROPERTIES
(Exact name of registrant as specified in its charter)
 
 
 
 

Maryland
56-2466617
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
47 Hulfish Street, Suite 210, Princeton, New Jersey 08542
(Address of principal executive offices) (Zip Code)
(609) 683-4900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x   NO  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x
 
Accelerated filer  o
 
Non-accelerated filer  o
 
Smaller reporting company  o
 
 
 
 
(do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  o    NO  x
The number of shares outstanding of the registrant's common shares of beneficial ownership, $0.01 par value, was 236,860,895 as of May 7, 2015.




CHAMBERS STREET PROPERTIES
INDEX

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



Table of Contents

PART I.
FINANCIAL INFORMATION
ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CHAMBERS STREET PROPERTIES
Consolidated Balance Sheets
as of March 31, 2015 and December 31, 2014
(In Thousands, Except Share Data)
 
March 31,
 
December 31,
 
2015
 
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Investments in Real Estate:
 
 
 
Land
$
630,783

 
$
630,840

Land Available for Expansion
24,992

 
23,368

Buildings and Improvements
1,685,019

 
1,674,955

 
2,340,794

 
2,329,163

Less: Accumulated Depreciation and Amortization
(257,510
)
 
(239,973
)
Net Investments in Real Estate
2,083,284

 
2,089,190

Investments in Unconsolidated Entities
394,738

 
423,693

Cash and Cash Equivalents
44,658

 
40,139

Restricted Cash
15,186

 
14,718

Tenant and Other Receivables, Net
11,676

 
11,216

Deferred Rent
41,071

 
39,429

Deferred Leasing Costs and Intangible Assets, Net
208,614

 
220,490

Deferred Financing Costs, Net
8,555

 
9,321

Prepaid Expenses and Other Assets
19,385

 
21,612

Total Assets
$
2,827,167

 
$
2,869,808

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
LIABILITIES
 
 
 
Secured Notes Payable, Net
$
581,706

 
$
610,608

Unsecured Term Loan Facilities
570,000

 
570,000

Unsecured Revolving Credit Facility
235,044

 
200,044

Accounts Payable, Accrued Expenses and Other Liabilities
74,786

 
76,421

Intangible Liabilities, Net
25,067

 
26,248

Prepaid Rent and Security Deposits
16,939

 
15,569

Distributions Payable
10,075

 
9,951

Total Liabilities
1,513,617

 
1,508,841

COMMITMENTS AND CONTINGENCIES (NOTE 13)


 


SHAREHOLDERS' EQUITY
 
 
 
Common Shares of Beneficial Interest, $0.01 par value, 990,000,000 shares authorized; 236,861,496 and 236,920,675 issued and outstanding as of March 31, 2015 and December 31, 2014, respectively
2,366

 
2,364

Additional Paid-in-Capital
2,073,109

 
2,071,526

Accumulated Deficit
(713,877
)
 
(689,654
)
Accumulated Other Comprehensive Loss
(48,048
)
 
(23,269
)
Total Shareholders' Equity
1,313,550

 
1,360,967

Total Liabilities and Shareholders' Equity
$
2,827,167

 
$
2,869,808


See accompanying notes to consolidated financial statements.
1

Table of Contents

CHAMBERS STREET PROPERTIES
Consolidated Statements of Operations
For the Three Months Ended March 31, 2015 and 2014 (unaudited)
(In Thousands, Except Share and per Share Data)
 
Three Months Ended
 
March 31,
 
2015
 
2014
REVENUES
 
 
 
Rental
$
54,346

 
$
51,876

Tenant Reimbursements
16,439

 
15,220

Other Property Income
198

 
1,069

Total Revenues
70,983

 
68,165

EXPENSES
 
 
 
Property Operating
9,781

 
9,553

Real Estate Taxes
10,782

 
9,801

General and Administrative
9,873

 
6,864

Acquisition-Related

 
290

Depreciation and Amortization
27,920

 
27,238

Total Expenses
58,356

 
53,746

Income Before Other (Expenses) Income
12,627

 
14,419

OTHER EXPENSES AND INCOME
 
 
 
Interest and Other Income
80

 
167

Interest Expense
(13,059
)
 
(14,061
)
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
17

 
26

Total Other (Expenses)
(12,962
)
 
(13,868
)
(Loss) Income Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities
(335
)
 
551

Provision For Income Taxes
(176
)
 
(58
)
Equity in Income of Unconsolidated Entities
6,505

 
2,826

NET INCOME
5,994

 
3,319

Basic and Diluted Net Income per Share
$
0.03

 
$
0.01

Weighted Average Common Shares Outstanding - Basic
236,940,134

 
236,583,752

Weighted Average Common Shares Outstanding - Diluted
236,963,354

 
236,583,752

Dividends Declared per Common Share
$
0.128

 
$
0.126


See accompanying notes to consolidated financial statements.
2

Table of Contents

CHAMBERS STREET PROPERTIES
Consolidated Statements of Comprehensive Income (Loss)
For the Three Months Ended March 31, 2015 and 2014 (unaudited)
(In Thousands)
 
 
Three Months Ended
 
March 31,
 
2015
 
2014
NET INCOME
$
5,994

 
$
3,319

Foreign Currency Translation (Loss) Gain
(18,736
)
 
823

Swap Fair Value Adjustments
(6,043
)
 
(2,761
)
COMPREHENSIVE (LOSS) INCOME
(18,785
)
 
1,381


See accompanying notes to consolidated financial statements.
3

Table of Contents

CHAMBERS STREET PROPERTIES
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2015 and 2014 (unaudited)
(In Thousands)
 
Three Months Ended
 
March 31,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net Income
$
5,994

 
$
3,319

Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities:
 
 
 
Equity in Income of Unconsolidated Entities
(6,505
)
 
(2,826
)
Distributions from Unconsolidated Entities
10,225

 
10,076

Gain on Interest Rate Swaps
(17
)
 
(26
)
Prepaid Tenant Improvement Amortization
(365
)
 

Lease Inducement Amortization
252

 

Depreciation and Amortization
27,920

 
27,238

Amortization of Non-Cash Interest Expense
(380
)
 
(104
)
Amortization of Above and Below Market Leases
975

 
1,482

Share-Based Compensation
4,038

 
1,012

Straight-Line Rent Adjustment
(1,668
)
 
(1,291
)
Changes in Operating Assets and Liabilities:
 
 
 
Tenant and Other Receivables
(465
)
 
(1,297
)
Prepaid Expenses and Other Assets
102

 
337

Accounts Payable, Accrued Expenses and Other Liabilities
(3,874
)
 
(6,185
)
Net Cash Flows Provided by Operating Activities
36,232

 
31,735

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Acquisition of Real Property
(1,715
)
 
(27,450
)
Distributions from Unconsolidated Entities
7,407

 
10,186

Restricted Cash
(468
)
 
3,021

Lease Commissions
(322
)
 
(1,396
)
Improvements to Investments in Real Estate
(10,446
)
 
(398
)
Net Cash Flows Used in Investing Activities
(5,544
)
 
(16,037
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Repurchase and Cancellation of Vested Shares
(3,240
)
 
(247
)
Payment of Distributions
(30,093
)
 
(29,797
)
Borrowings on Unsecured Revolving Credit Facility
35,000

 
10,000

Principal Payments on Unsecured Revolving Credit Facility

 
(10,000
)
Principal Payments on Secured Notes Payable
(27,757
)
 
(23,991
)
Payment of Financing Costs

 
(62
)
Net Cash Flows Used in Financing Activities
(26,090
)
 
(54,097
)
EFFECT OF FOREIGN CURRENCY TRANSLATION
(79
)
 
(43
)
Net Increase (Decrease) in Cash and Cash Equivalents
4,519

 
(38,442
)
Cash and Cash Equivalents, Beginning of the Period
40,139

 
83,007

Cash and Cash Equivalents, End of the Period
$
44,658

 
$
44,565

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
Cash Paid During the Period for Interest
$
13,694

 
$
14,298

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Distributions Declared and Payable
$
10,075

 
$
9,954

Accounts Payable and Accrued Expenses—Construction In Progress
$
3,715

 
$
58

Deferred Revenue Due to Cash Trap Provision
$
377

 
$

Reserve for Cash Held by Lenders
$
839

 
$


See accompanying notes to consolidated financial statements.
4

Table of Contents

CHAMBERS STREET PROPERTIES
Consolidated Statements of Equity
For the Three Months Ended March 31, 2015 and 2014 (unaudited)
(In Thousands, Except Share Data)

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

 
$
2,364

 
$
2,071,526

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

Net Income

 

 

 
5,994

 

 
5,994

Other Comprehensive Loss

 

 

 

 
(24,779
)
 
(24,779
)
Share-Based Compensation
350,000

 
6

 
3,328

 

 

 
3,334

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

 

 
(3,240
)
Non-Cash Amortization of Share-Based Compensation

 

 
1,491

 

 

 
1,491

Distributions Declared ($0.128 per share)

 

 

 
(30,217
)
 

 
(30,217
)
Balance at March 31, 2015
236,861,496

 
$
2,366

 
$
2,073,109

 
$
(713,877
)
 
$
(48,048
)
 
$
1,313,550


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

 
$
2,359

 
$
2,067,008

 
$
(589,313
)
 
$
4,596

 
$
1,484,650

Net Income

 

 

 
3,319

 

 
3,319

Other Comprehensive Loss

 

 

 

 
(1,938
)
 
(1,938
)
Share-Based Compensation
578,425

 
1

 
1,011

 

 

 
1,012

Repurchase and Cancellation of Vested Shares
(31,959
)
 

 
(247
)
 

 

 
(247
)
Distributions Declared ($0.126 per share)

 

 

 
(29,820
)
 

 
(29,820
)
Balance at March 31, 2014
237,010,447

 
$
2,360

 
$
2,067,772

 
$
(615,814
)
 
$
2,658

 
$
1,456,976


See accompanying notes to consolidated financial statements.
5

Table of Contents

CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Nature of Business
Chambers Street Properties (NYSE: CSG) is a self-administered real estate investment trust ("REIT") that focuses on acquiring, owning and managing net leased industrial and office properties leased to creditworthy tenants. We were formed under the laws of the state of Maryland on March 30, 2004, and have elected to be taxed as a REIT under sections 856 through 860 of the Internal Revenue Code of 1986 (the "Internal Revenue Code") beginning with the taxable period ended December 31, 2004.
We operate in an umbrella partnership REIT structure in which our operating partnership, CSP Operating Partnership, LP ("CSP OP"), indirectly owns substantially all of the properties acquired on our behalf. CSP OP was formed in Delaware on March 30, 2004, and we are the 100% owner and sole general partner. For each interest in our common shares of beneficial interest $0.01 par value (the "common shares"), that we issue, an equal interest in the limited partnership units of CSP OP is issued to us in exchange for the cash proceeds from the issuance of the interest in our common shares. As of March 31, 2015, we owned 100% of the limited partnership units of CSP OP directly or indirectly through a wholly-owned taxable REIT subsidiary.
As of March 31, 2015, we owned, on a consolidated basis, 102 industrial (primarily warehouse/distribution) and office properties located in 18 U.S. states (Arizona, California, Colorado, Florida, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Texas and Virginia) and in the United Kingdom, encompassing approximately 25.3 million rentable square feet. Our consolidated properties were approximately 97.6% leased (based upon rentable square feet) as of March 31, 2015. As of March 31, 2015, 77 of our consolidated properties were net leased to single tenants, which encompassed approximately 20.6 million rentable square feet.
We had ownership interests in four unconsolidated entities that, as of March 31, 2015, owned interests in 28 properties. Excluding those properties owned through our investment in CB Richard Ellis Strategic Partners Asia II-A, L.P. ("CBRE Strategic Partners Asia"), we owned, on an unconsolidated basis, 25 industrial (primarily warehouse/distribution) and office properties located in seven U.S. states (Arizona, Florida, Illinois, Indiana, Ohio, Tennessee and Texas) and three countries in Europe (France, Germany and the United Kingdom), encompassing approximately 12.3 million rentable square feet. Our unconsolidated properties were approximately 99.9% leased (based upon rentable square feet) as of March 31, 2015. As of March 31, 2015, 20 of our unconsolidated properties were net leased to single tenants, which encompassed approximately 11.5 million rentable square feet.
Unless the context otherwise requires or indicates, references to the "Company," "we," "our" and "us" refer to the activities of and the assets and liabilities of the business and operations of Chambers Street Properties and its subsidiaries. References to unconsolidated properties include properties owned through unconsolidated joint ventures and do not include properties owned by CBRE Strategic Partners Asia. See Note 4 "Investments in Unconsolidated Entities."

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Table of Contents
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") and reflect the accounts of the Company, CSP OP and its consolidated subsidiaries. The Company consolidates its wholly-owned properties and joint ventures it controls through either 1) voting rights or similar rights or 2) by means other than voting rights if the Company is deemed to be the primary beneficiary of a variable interest entity. All intercompany accounts and transactions are eliminated in consolidation.
Certain information and footnotes required for annual financial statement presentation have been condensed or excluded pursuant to Securities and Exchange Commission (the "SEC") rules and regulations. Accordingly, our interim financial statements do not include all of the information and disclosures required under GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary in all material respects to present fairly our financial position, results of our operations and cash flows as of and for the three months ended March 31, 2015 have been made. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results of operations to be expected for the entire year. The consolidated financial statements and notes thereto should be read in conjunction with our current Annual Report on Form 10-K, which contains the latest available audited consolidated financial statements and notes thereto, which are as of and for the year ended December 31, 2014.
Use of Estimates
The preparation of financial statements, in conformity with GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Segment Information
We currently operate our consolidated properties in two geographic areas, the United States and the United Kingdom. We view our consolidated property operations as two reportable segments, Industrial Properties and Office Properties, which participate in the acquisition, development, ownership, and operation of high quality real estate in their respective segments.
Revenue Recognition and Valuation of Receivables
All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is recorded as deferred rent. In connection with various leases, we have received irrevocable stand-by letters of credit totaling $20.3 million as security for such leases at March 31, 2015 and December 31, 2014.
Reimbursements from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes, insurance and other recoverable costs, are recognized as revenue in the period the expenses are incurred. Tenant reimbursements are recognized and presented on a gross basis, when we are the primary obligor with respect to incurring expenses and with respect to having the credit risk.
Tenant receivables and deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and deferred rent. Management's determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, individual receivables, current economic conditions, and other relevant factors. The allowances are increased or decreased through the provision for bad debts. The allowance for uncollectible rent receivable was $18,000 and $62,000 as of March 31, 2015 and December 31, 2014, respectively.
Translation of Non-U.S. Currency Amounts
The financial statements and transactions of our United Kingdom properties are recorded in their functional currency, namely the Great Britain Pound ("GBP") and are then translated into U.S. dollars ("USD").

7

Table of Contents
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Assets and liabilities of these properties are denominated in the functional currency and are then translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rate for the reporting period. Translation adjustments are reported in "Accumulated Other Comprehensive Income (Loss)," a component of Shareholders' Equity.
The carrying value of our United Kingdom assets and liabilities fluctuate due to changes in the exchange rate between the USD and the GBP. The exchange rate of the USD to the GBP was $1.4819 and $1.5576 at March 31, 2015 and December 31, 2014, respectively. The profit and loss average exchange rate of the USD to the GBP was approximately $1.5357 and $1.6586 for the three months ended March 31, 2015 and 2014, respectively.
The carrying value of our assets and liabilities held within our joint venture in Europe (the "European JV") fluctuate due to changes in the exchange rate between the USD and the Euro ("EUR"). The exchange rate of the USD to the EUR was $1.0732 and $1.2099 at March 31, 2015 and December 31, 2014. The profit and loss average exchange rate of the USD to the EUR was approximately $1.1513 and $1.3679 for the three months ended March 31, 2015 and 2014, respectively.
Income Taxes
We elected to be taxed as a REIT under the Internal Revenue Code commencing with our taxable year ended December 31, 2004. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we generally distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding net capital gain). It is our current intention to adhere to these requirements and maintain our REIT qualification. As a REIT, we generally will not be subject to corporate level U.S. federal income tax on net income we distribute currently to our shareholders. If we fail to qualify as a REIT in any taxable year, then we will be subject to U.S. federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. We believe that we have met all the REIT organizational and operational requirements for the three months ended March 31, 2015, and we were not subject to any U.S. federal income taxes, other than U.S. federal income taxes on income generated by our Taxable REIT Subsidiary. As such, we have not provided for income taxes other than as addressed below.
ASC 740-10 Income Taxes requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary difference, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
No deferred tax assets or liabilities were recorded as of March 31, 2015, other than as mentioned below related to the United Kingdom net operating losses. In addition, we believe that any current or deferred tax liability associated with our Taxable REIT Subsidiary would be de minimus.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
We did not have any uncertain tax positions which would require us to record any unrecognized tax benefits or additional tax liabilities as of March 31, 2015.
Even if we qualify for taxation as a REIT, we may be subject to certain state, foreign, and local taxes on our income and property and to U.S. federal income and excise taxes on our undistributed taxable income, if any.

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


Included as a component of our tax provision, we have incurred income and other taxes (franchise, local and state government and international) related to our continuing operations in the amount of $176,000 and $58,000 during the three months ended March 31, 2015 and 2014, respectively.
The United Kingdom taxes real property operating results at a statutory rate of 20%. The properties we own (or hold interest in) in the United Kingdom have operated at a taxable loss to date and have generated a deferred tax asset of approximately $0.6 million consisting of these net operating loss carryforwards. We have provided for a full valuation allowance of $0.6 million as of March 31, 2015 on deferred tax assets because it is not likely that future operating profits in the United Kingdom would be sufficient to absorb the net operating losses.
The tax years from 2010 through 2014 remain open to examination by the taxing jurisdictions to which the Company is subject.
Fair Value of Financial Instruments and Investments
We generally determine or calculate the fair value of financial instruments using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments and our estimates for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow. The Investment Manager of CBRE Strategic Partners Asia applies valuation techniques for our investment carried at fair value based upon the application of the income approach, the direct market comparison approach, the replacement cost approach or third party appraisals to the underlying assets held in the unconsolidated entity in determining the net asset value attributable to our ownership interest therein. As of March 31, 2015, the financial assets and liabilities recorded at fair value in our consolidated financial statements are our derivative instruments and our investment in CBRE Strategic Partners Asia.
The remaining financial assets and liabilities which are only disclosed at fair value are comprised of all other notes payable, the unsecured line of credit and other debt instruments. We determined the fair value of our secured notes payable and other debt instruments by performing discounted cash flow analyses using an appropriate market discount rate. We calculate the market discount rate by obtaining period-end treasury rates for fixed-rate debt, or London Inter-Bank Offering Rate ("LIBOR") rates for variable-rate debt, for maturities that correspond to the maturities of our debt and then adding an appropriate credit spread derived from information obtained from third-party financial institutions. These credit spreads take into account factors such as our credit standing, the maturity of the debt, whether the debt is secured or unsecured, and the loan-to-value ratios of the debt.
The carrying amounts of our cash and cash equivalents, restricted cash, tenant and other receivables and accounts payable approximate fair value due to their short-term maturities.
Share-based Compensation
For share-based awards for which there is no pre-established performance period, we recognize compensation costs over the service vesting period, which represents the requisite service period, on a straight-line basis.
For share-based awards with service or market conditions, we record the cost of the awards based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. For share-based awards in which the performance period precedes the grant date, we recognize compensation costs straight-lined over the requisite service period, which includes both the performance and service vesting periods.
During the performance period for a share-based award program, we estimate the total compensation cost of the potential future awards. We then record compensation costs equal to the portion of the requisite service period that has elapsed through the end of the reporting period.
For share-based awards granted by the Company, CSP OP issues a number of common units equal to the number of common shares ultimately granted by us in respect of such awards.

9

Table of Contents
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


New Accounting Standards
In May 2014, the FASB and IASB issued their final standard on revenue from contracts with customers. The standard, issued by the FASB as ASU 2014-09, outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including the guidance on real estate derecognition for most transactions. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in ASU 2014-09. For public entities, the ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early application is not permitted. We are assessing the impact of this guidance on our consolidated financial statements and notes to our consolidated financial statements.
In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The ASU is a part of the Simplification Initiative, to identify, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to the users of financial statements. The new standard eliminates the requirements for reporting entities to consider whether an underlying event or transaction is extraordinary but retains the presentation and disclosure guidance for items that are unusual in nature and occur infrequently. The ASU applies to all entities and is effective for fiscal years beginning after December 15, 2015, and interim periods thereafter, with early adoption permitted. The adoption of this guidance is not anticipated to have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, Consolidated (Topic 810): Amendments to the Consolidation Analysis. The ASU changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Key amendments under the new standard include the following: evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; elimination of the presumption that a general partner should consolidate a limited partnership; consolidation analysis of reporting entities that are involved with variable interest entities (VIEs), particularly those that have fee arrangements and related party relationship; addition of scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements similar to those for registered money market funds. The ASU applies to all reporting entities that are required to evaluate whether they should consolidate certain legal entities and is effective for fiscal years beginning after December 15, 2015, and interim periods thereafter, with early adoption permitted. We are still assessing the impact of this guidance on our consolidated financial statements and notes to our consolidated financial statements.
In April 7, 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU addresses balance sheet presentation requirements for debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding debt liability. This will make the presentation of debt issuance costs consistent with the presentation of debt discounts or premiums. The recognition and measurement guidance for debt issuance costs is not affected. The guidance is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, it is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Upon adoption, an entity must apply the new guidance retrospectively to all prior periods presented in the financial statements. An entity is also required in the year of adoption (and in interim periods within that year) to provide certain disclosures about the change in accounting principle, including the nature of and reason for the change, the transition method, a description of the prior-period information that has been retrospectively adjusted and the effect of the change on the financial statement line items (that is, debt issuance cost asset and the debt liability). We are still assessing the impact of this guidance on our consolidated financial statements and notes to our consolidated financial statements.
3. Investment in Real Estate Activity
Wholly-Owned Acquisitions
During the three months ended March 31, 2015, we acquired an 11.8 acre undeveloped parcel in Phoenix, Arizona for approximately $1.7 million. The undeveloped parcel is situated immediately adjacent to our Goodyear Crossing II property.


10

Table of Contents
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


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

 
14

European JV
80.0%
 
9

 
9

UK JV
80.0%
 
3

 
3

CBRE Strategic Partners Asia
5.07%
 
3

 
3

 
 
 
28

 
29

Investments in unconsolidated entities at March 31, 2015 and December 31, 2014 consist of the following (in thousands):
 
March 31,
 
December 31,
 
2015
 
2014
Duke JV
$
230,861

 
$
239,376

European JV
125,853

 
144,141

UK JV
31,223

 
33,189

Afton Ridge
117

 
117

CBRE Strategic Partners Asia
6,684

 
6,870

 
$
394,738

 
$
423,693

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

 
$
514,802

Contributions

 
7,625

Company's Equity in Net Income (including adjustments for basis differences)
6,505

 
28,823

Other Comprehensive Loss of Unconsolidated Entities
(17,828
)
 
(22,342
)
Distributions
(17,632
)
 
(105,215
)
Investment Balance, End of Period
$
394,738

 
$
423,693


11

Table of Contents
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


The following are the balance sheets of our investments in unconsolidated entities at March 31, 2015 (in thousands):
 
Duke JV
 
European JV
 
Other (2)
 
Total
 
 
 
 
Assets
 
 
 
 
 
 
 
Investments in Real Estate(1)
$
319,663

 
$
241,518

 
$
184,245

 
$
745,426

Other Assets
32,886

 
42,108

 
10,379

 
85,373

Total Assets
$
352,549

 
$
283,626

 
$
194,624

 
$
830,799

Liabilities and Equity
 
 
 
 
 
 
 
Secured Notes Payable, net
$
56,948

 
$
119,897

 
$

 
$
176,845

Other Liabilities
7,581

 
6,413

 
20,150

 
34,144

Total Liabilities
64,529

 
126,310

 
20,150

 
210,989

CSP Equity
230,861

 
125,853

 
38,024

 
394,738

Other Investors' Equity
57,159

 
31,463

 
136,450

 
225,072

Total Liabilities and Equity
$
352,549

 
$
283,626

 
$
194,624

 
$
830,799

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

 
$
274,128

 
$
186,360

 
$
783,724

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

 

 

 
17,230

Other Assets
32,474

 
49,435

 
11,553

 
93,462

Total Assets
$
372,940

 
$
323,563

 
$
197,913

 
$
894,416

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

 
$

 
$

 
$
11,048

Secured Notes Payable, net
57,222

 
135,173

 

 
192,395

Other Liabilities
6,013

 
8,214

 
17,093

 
31,320

Total Liabilities
74,283

 
143,387

 
17,093

 
234,763

CSP Equity
239,376

 
144,141

 
40,176

 
423,693

Other Investors' Equity
59,281

 
36,035

 
140,644

 
235,960

Total Liabilities and Equity
$
372,940

 
$
323,563

 
$
197,913

 
$
894,416

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

12

Table of Contents
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


The following are the statements of operations for our investments in unconsolidated entities for the three months ended March 31, 2015 and March 31, 2014 (in thousands):
 
Three Months Ended
 
March 31, 2015
 
March 31, 2014
 
Duke JV
 
European JV
 
Other (1)
 
Total
 
Duke JV
 
European JV
 
Other (2)
 
Total
Total Revenue
$
12,631

 
$
6,573

 
$
(2,334
)
 
$
16,870

 
$
14,660

 
$
7,336

 
$
(399
)
 
$
21,597

Operating Expenses
3,423

 
1,215

 
618

 
5,256

 
5,036

 
1,129

 
745

 
6,910

Net Operating Income
9,208

 
5,358

 
(2,952
)
 
11,614

 
9,624

 
6,207

 
(1,144
)
 
14,687

Depreciation and Amortization
5,214

 
2,601

 
484

 
8,299

 
7,516

 
2,929

 
523

 
10,968

Interest Expense
794

 
957

 

 
1,751

 
1,040

 
1,133

 

 
2,173

Gain on Sale of Real Estate
3,020

 

 

 
3,020

 

 

 

 

Loss on Extinguishment of Debt
(73
)
 

 

 
(73
)
 

 

 

 

Net Income (Loss)
6,147

 
1,800

 
(3,436
)
 
4,511

 
1,068

 
2,145

 
(1,667
)
 
1,546

Company Share in Net Income
4,917

 
1,439

 
175

 
6,531

 
854

 
1,716

 
287

 
2,857

Adjustments for REIT basis
(26
)
 

 

 
(26
)
 
(31
)
 

 

 
(31
)
CSP Equity in Net Income
$
4,891

 
$
1,439

 
$
175

 
$
6,505

 
$
823

 
$
1,716

 
$
287

 
$
2,826

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

13

Table of Contents
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


5. Deferred Leasing Costs and Intangible Assets and Liabilities
The following table summarizes our deferred leasing costs and intangible assets, including acquired above-market leases, acquired in-place leases and other intangible assets and intangible liabilities, including acquired below-market leases and acquired above-market ground lease obligations (in thousands):
 
March 31,
 
December 31,
 
2015
 
2014
Deferred Leasing Costs and Intangible Assets, Net:
 
 
 
Deferred Leasing Costs
$
22,848

 
$
22,481

Accumulated Amortization
(4,961
)
 
(4,218
)
Deferred Leasing Costs, Net
17,887

 
18,263

Above-Market Leases
63,566

 
63,566

Accumulated Amortization
(32,449
)
 
(30,311
)
Above-Market Leases, Net
31,117

 
33,255

In-Place Leases
300,124

 
300,124

Accumulated Amortization
(141,740
)
 
(132,414
)
In-Place Leases, Net
158,384

 
167,710

Other Intangible Assets
1,425

 
1,425

Accumulated Amortization

(199
)
 
(163
)
Other Intangible Assets, Net
1,226

 
1,262

Total Deferred Leasing Costs and Intangible Assets, Net
$
208,614

 
$
220,490

 
 
 
 
Intangible Liabilities, Net:
 
 
 
Below-Market Leases
$
51,653

 
$
51,653

Accumulated Amortization
(27,838
)
 
(26,675
)
Below-Market Leases, Net
23,815

 
24,978

Above-Market Ground Lease Obligation
1,501

 
1,501

Accumulated Amortization
(249
)
 
(231
)
Above-Market Ground Lease Obligation, Net
1,252

 
1,270

Total Intangible Liabilities, Net
$
25,067

 
$
26,248


14

Table of Contents
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


The following table sets forth amortization related to intangible assets and liabilities for the three months ended March 31, 2015 and 2014 (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Deferred Leasing Costs(1)
$
749

 
$
354

Above-Market Leases(2)
2,138

 
2,515

In-Place Leases(1)
9,326

 
9,469

Other Intangible Assets(1)
36

 

Below-Market Leases(2)
(1,163
)
 
(1,033
)
Above-Market Ground Lease Obligation(3)
(18
)
 
(18
)
__________
(1)
The amortization of deferred leasing costs, in-place leases and other intangible assets are recorded to depreciation and amortization expense in the consolidated statements of operations for the periods presented.
(2)
The amortization of above-market leases and below-market leases are recorded as reductions and additions to rental income, respectively, in the consolidated statements of operations for the periods presented.
(3)
The amortization of the above-market ground lease obligation is recorded as a decrease to property operating expense in the consolidated statements of operations for the periods presented.
The following is a schedule of future amortization of deferred leasing costs, intangible assets and liabilities as of March 31, 2015 (in thousands):
 
Intangible Assets
 
Intangible Liabilities
 
Deferred Leasing Costs
 
Acquired
Above-Market
Leases
 
Acquired
In-Place
 Leases
 
Other Intangible Assets
 
Acquired
Below-Market
Leases
 
Above-Market
Ground Lease
Obligations
Remaining 2015
$
1,424

 
$
6,327

 
$
27,236

 
$
108

 
$
3,368

 
$
53

2016
1,750

 
5,557

 
29,727

 
144

 
3,590

 
71

2017
1,604

 
4,466

 
25,254

 
144

 
3,098

 
71

2018
1,531

 
3,862

 
21,050

 
144

 
2,825

 
71

2019
1,332

 
3,300

 
17,284

 
144

 
2,604

 
71

Thereafter
10,246

 
7,605

 
37,833

 
542

 
8,330

 
915

 
$
17,887

 
$
31,117

 
$
158,384

 
$
1,226

 
$
23,815

 
$
1,252


15

Table of Contents
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


6. Debt
Secured Debt
Secured notes payable are summarized as follows (in thousands):
Property
 
Stated
Interest Rate
 
Effective Interest Rate(1)
 
Maturity Date
 
Outstanding Balance
 
 
 
 
March 31,
 
December 31,
 
 
 
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
Lakeside Office Center
 
6.03%
 
6.03%
 
9/1/2015
 
$
8,585

 
$
8,617

Celebration Office Center III(2)
 
4.25%
 
2.50%
 
12/1/2015
 
8,770

 
8,817

22535 Colonial Pkwy(2)
 
4.25%
 
2.50%
 
12/1/2015
 
7,847

 
7,889

Northpoint III(2)
 
4.25%
 
2.50%
 
12/1/2015
 
10,155

 
10,209

Goodyear Crossing II(2)
 
4.25%
 
2.50%
 
12/1/2015
 
19,386

 
19,489

3900 North Paramount Parkway(2)
 
4.25%
 
2.50%
 
12/1/2015
 
7,616

 
7,656

3900 South Paramount Parkway(2)
 
4.25%
 
2.50%
 
12/1/2015
 
7,616

 
7,656

1400 Perimeter Park Drive(2)
 
4.25%
 
2.50%
 
12/1/2015
 
2,308

 
2,320

Miramar I(2)
 
4.25%
 
2.50%
 
12/1/2015
 
9,047

 
9,095

Miramar II(2)
 
4.25%
 
2.50%
 
12/1/2015
 
12,185

 
12,250

70 Hudson Street (3)
 
5.65%
 
5.15%
 
4/11/2016
 
113,570

 
114,108

Point West I - Swapped to Fixed
 
3.41%
 
3.41%
 
12/6/2016
 
10,635

 
10,716

100 Tice Blvd
 
5.97%
 
4.38%
 
9/15/2017
 
18,808

 
18,960

100 Tice Blvd
 
5.97%
 
4.38%
 
9/15/2017
 
18,808

 
18,960

4701 Gold Spike Drive(4)
 
4.45%
 
4.45%
 
3/1/2018
 
9,908

 
9,958

1985 International Way(4)
 
4.45%
 
4.45%
 
3/1/2018
 
6,883

 
6,920

3660 Deerpark Boulevard(4)
 
4.45%
 
4.45%
 
3/1/2018
 
7,117

 
7,153

Tolleson Commerce Park II(4)
 
4.45%
 
4.45%
 
3/1/2018
 
4,280

 
4,301

20000 S. Diamond Lake Road(4)
 
4.45%
 
4.45%
 
3/1/2018
 
6,233

 
6,265

Atrium I - Swapped to Fixed
 
3.78%
 
3.78%
 
5/31/2018
 
21,346

 
21,580

McAuley Place
 
3.98%
 
3.50%
 
9/1/2018
 
12,771

 
12,865

Easton III - Swapped to Fixed
 
3.95%
 
3.95%
 
1/31/2019
 
6,234

 
6,280

90 Hudson Street
 
5.66%
 
5.26%
 
5/1/2019
 
102,880

 
103,301

Fairforest Bldg. 6
 
5.42%
 
6.50%
 
6/1/2019
 
1,664

 
1,751

North Rhett I
 
5.65%
 
6.50%
 
8/1/2019
 
1,843

 
1,958

Kings Mountain II
 
5.47%
 
6.50%
 
1/1/2020
 
3,318

 
3,467

1 Rocket Road
 
6.60%
 
4.00%
 
8/1/2020
 
18,413

 
18,516

North Rhett II
 
5.20%
 
6.50%
 
10/1/2020
 
1,372

 
1,425

Mount Holly Bldg.
 
5.20%
 
6.50%
 
10/1/2020
 
1,372

 
1,425

Orangeburg Park Bldg.
 
5.20%
 
6.50%
 
10/1/2020
 
1,395

 
1,449

Kings Mountain I
 
5.27%
 
6.50%
 
10/1/2020
 
1,189

 
1,235

Ten Parkway North
 
4.75%
 
4.75%
 
1/1/2021
 
11,388

 
11,469

Union Cross Bldg. II
 
5.53%
 
6.50%
 
6/1/2021
 
5,570

 
5,755

Union Cross Bldg. I
 
5.50%
 
6.50%
 
7/1/2021
 
1,832

 
1,892


16

Table of Contents
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Property
 
Stated
Interest Rate
 
Effective Interest Rate(1)
 
Maturity Date
 
Outstanding Balance
 
 
 
 
March 31,
 
December 31,
 
 
 
 
2015
 
2014
Norman Pointe I
 
5.24%
 
3.50%
 
10/1/2021
 
20,091

 
20,177

Norman Pointe II
 
5.24%
 
3.50%
 
10/1/2021
 
22,119

 
22,214

The Landings I
 
5.24%
 
3.50%
 
10/1/2021
 
15,120

 
15,185

The Landings II
 
5.24%
 
3.50%
 
10/1/2021
 
13,336

 
13,393

Fairforest Bldg. 5
 
6.33%
 
6.50%
 
2/1/2024
 
7,522

 
7,678

North Rhett IV
 
5.80%
 
6.50%
 
2/1/2025
 
7,719

 
7,862

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

 
12,938

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

 
10,854

Total Secured Notes Payable
 
 
 
 
 
 
 
568,251

 
596,008

Plus Premium
 
 
 
 
 
 
 
14,291

 
15,494

Less Discount
 
 
 
 
 
 
 
(836
)
 
(894
)
Total Secured Notes Payable, Net
 
 
 
 
 
 
 
$
581,706

 
$
610,608

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

 
$
200,000

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

 
200,000

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

 
50,000

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

 
120,000

Total Unsecured Term Loan Facilities
 
 
 
 
 
 
 
$
570,000

 
$
570,000

__________
(1)
Represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the effect of the interest rate swaps, excluding debt issuance costs.
(2)
As of March 31, 2015 and December 31, 2014, the applicable LIBOR rate was 0.172% and 0.156%, respectively, for these loans.
(3)
As of March 31, 2015 and December 31, 2014, the applicable LIBOR rate was 0.172% and 0.155%, respectively, for this loan.

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


Unsecured Revolving Credit Facility
The terms of our unsecured revolving credit facility are set forth in the table below (in thousands):
 
March 31,
 
December 31,
 
2015
 
2014
Outstanding Borrowings
$
235,044


$
200,044

Remaining Borrowing Capacity
614,956


649,956

Total Borrowing Capacity
$
850,000


$
850,000

Interest Rate(1)
1.47
%

1.46
%
Facility Fee(2)
30 bps


30 bps

Maturity Date(3)
January 15, 2018


January 15, 2018

__________
(1)
Calculated based on one-month LIBOR plus 1.30% as of March 31, 2015 and December 31, 2014.
(2)
The facility fee is based on the unsecured revolving credit facility's total borrowing capacity.
(3)
We may exercise an option to extend the maturity date by one year.
Debt Covenants and Restrictions
Certain of our secured notes payable are subject to financial covenants (interest coverage and loan to value ratio).
As of March 31, 2015, our unsecured term loan facilities and revolving credit facility were subject to certain financial covenants that require, among other things: the maintenance of (i) a leverage ratio of not more than 0.60; (ii) a fixed charge coverage ratio of at least 1.50; (iii) a secured leverage ratio of not more than (a) 0.45 prior to September 30, 2014 for the Capital One Term Loan, September 26, 2015 for WF Term Loan #2, WF Term Loan #3, and unsecured revolving credit facility, or March 6, 2015 for the TD Term Loan, or (b) 0.40 thereafter; (iv) an unencumbered leverage ratio of not more than 0.60; (v) minimum tangible net worth of $1.5 billion plus 85% of the net proceeds of certain future equity issuances; (vi) unencumbered asset value of at least $400.0 million; and (vii) a minimum of 10 Eligible Properties. In addition, our unsecured term loan facilities and revolving credit facility contain a number of customary non-financial covenants including those restricting liens, mergers, sales of assets, certain investments in unimproved land and mortgage receivables, intercompany transfers, transactions with affiliates and distributions. The Company has provided guarantees in connection with our unsecured term loan facilities and revolving credit facility. As of March 31, 2015, we were in compliance with all financial debt covenants.
The minimum principal payments due for our secured notes payable, unsecured term loan facilities and unsecured revolving credit facility are as follows as of March 31, 2015 (in thousands):
Remaining 2015
$
103,960

2016
134,612

2017
46,822

2018
507,612

2019
308,768

Thereafter
271,521

 
$
1,373,295


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


7. Risk Management and Use of Financial Instruments
Risk Management
In the course of our ongoing business operations, we encounter economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. We are subject to interest rate risk on our interest-bearing liabilities. Credit risk is primarily the risk of inability or unwillingness of tenants to make contractually required payments and of counterparties on derivatives contracts to fulfill their obligations. Market risk is the risk of declines in the value of our properties due to changes in rental rates, interest rates, supply and demand of similar products and other market factors affecting the valuation of properties.
Derivative Financial Instruments
We utilize interest rate swaps to mitigate the effects of interest rate fluctuations on our variable-rate loans. Our strategy is to use a swap to convert the floating-rate borrowing (usually a secured note payable or an unsecured term loan facility) where LIBOR is consistently applied into a fixed-rate obligation with the only variable piece remaining is the spread between different reset dates when/if the swap and debt are not lined up. We generally enter into an interest rate swap agreement concurrently with the origination of the variable-rate loan for an equivalent principal amount for a period covering the term of the loan, which effectively converts our variable-rate debt to a fixed-rate loan. Our use of derivative instruments, including swaps, is limited by policy to hedging or mitigating commercial risk and we do not use derivative instruments for speculative, trading or investment purposes.
The following table sets forth the terms of our interest rate swaps at March 31, 2015 and December 31, 2014 (amounts in thousands):
 
Notional Amount
 
Fair Value
 
Rate
 
 
 
 
Type of Instrument
March 31,
 
December 31,
 
March 31,
 
December 31,
 
March 31,
 
December 31,
 
Index
 
Maturity 
Date
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
 
Interest Rate Swap(1)
$
10,635

 
$
10,716

 
$
(146
)
 
$
(135
)
 
1.2
%
 
1.3
%
 
LIBOR
 
12/6/2016
Interest Rate Swap(2)
200,000

 
200,000

 
(116
)
 
1,467

 
0.8
%
 
0.8
%
 
LIBOR
 
3/7/2018
Interest Rate Swap(1)
21,346

 
21,580

 
(478
)
 
(354
)
 
1.6
%
 
1.6
%
 
LIBOR
 
5/31/2018
Interest Rate Swap
200,000

 
200,000

 
(3,497
)
 
(1,540
)
 
1.5
%
 
1.5
%
 
LIBOR
 
1/15/2019
Interest Rate Swap(1)
6,234

 
6,280

 
(177
)
 
(127
)
 
1.8
%
 
1.8
%
 
LIBOR
 
1/31/2019
Interest Rate Swap(2)
50,000

 
50,000

 
(399
)
 
266

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

 
120,000

 
(7,179
)
 
(5,543
)
 
2.4
%
 
2.4
%
 
LIBOR
 
1/31/2021
__________
(1)
We assumed this swap in connection with the purchase of the Duke Portfolio on March 1, 2013. This swap is considered a hedging instrument under ASC 815-20 as of March 31, 2015. The swap was not considered a hedging instrument under ASC 815-20 during the period from March 1, 2013 to March 31, 2013.
(2)
We entered into these swaps in connection with the origination of the TD Term Loan and WF Term Loan #1 in March 2013. These swaps are considered hedging instruments under ASC 815-20 as of March 31, 2015. These swaps were not considered hedging instruments under ASC 815-20 during the period from March 11, 2013 and March 12, 2013, respectively, to May 29, 2013.

19

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


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

 
$
1,733

 
Accounts Payable, Accrued Expenses and Other Liabilities
 
$
11,992

 
$
7,699

The table below presents the effect of our derivative instruments on our consolidated statement of operations and consolidated statement of comprehensive income for the three months ended March 31, 2015 and 2014 (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Derivatives Designated as Cash Flow Hedges:
 
 
 
Gain (Loss) Recognized in Other Comprehensive Income (OCI) (Effective Portion)
$
(8,188
)
 
$
(5,089
)
Loss Reclassified from AOCI into Interest Expense (Effective Portion)
(2,145
)
 
(2,328
)
Net Change in Fair Value of Derivative Financial Instruments (Ineffective Portion and Amount Excluded from Effectiveness Testing)
17

 
26

At March 31, 2015, the Company expects that the hedged forecasted transactions, for each of the outstanding qualifying cash flow hedging relationships, remains probable of occurring. During the next twelve months we anticipate reclassifying $7.5 million of amounts currently recorded in accumulated other comprehensive income to earnings.
Concentration of Credit Risk
Our credit risk relates primarily to cash, restricted cash, and interest rate swap agreements. Cash accounts at each U.S. institution are insured by the Federal Deposit Insurance Corporation up to $250,000 through December 31, 2015.
We have not experienced any losses to date on our invested cash and restricted cash. The interest rate swap agreements create credit risk. Credit risk arises from the potential failure of counterparties to perform in accordance with the terms of their contracts. Our risk management policies define parameters of acceptable market risk and limit exposure to credit risk. Credit exposure resulting from derivative financial instruments is represented by their fair value amounts, increased by an estimate of potential adverse position exposure arising from changes over time in interest rates, maturities, and other relevant factors. We do not anticipate nonperformance by any of our counterparties.
Our consolidated properties are located throughout the United States and in the United Kingdom. The ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory, and social factors affecting the communities in which the tenants operate. In addition, we do not have any tenant whose rents exceeds 10% of our total rental revenue.

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


8. Future Minimum Rents
The following is a schedule of future minimum rents to be received on non-cancelable operating leases from consolidated properties as of March 31, 2015 (in thousands):
Remaining 2015
$
162,143

2016
197,435

2017
185,133

2018
168,162

2019
149,110

Thereafter
463,068

 
$
1,325,051

9. Related Party Transactions
As required by the Transitional Services Agreement, we and the former investment advisor have agreed on a list of unacquired real estate investments for which the former investment advisor has performed certain acquisition related consulting services prior to the termination of the Transitional Service Agreement (a "Qualifying Property"). If any Qualifying Property is acquired by us within the nine months following the termination of the Transitional Services Agreement then we shall pay an acquisition consulting fee equal to 0.75% of (i) the contract purchase price of the real estate investments (including debt), or (ii) when we make an investment indirectly through another entity, such investment's pro rata share of the gross asset value of real estate investments held by that entity to the former investment advisor.
During the year ended December 31, 2014, we acquired one Qualifying Property and paid the former investment advisor $0.2 million in acquisition consulting fees. There are no further Qualifying Properties under the Transitional Services Agreement and we do not anticipate paying the former investment advisor any further acquisition consulting fees.
Additionally, until June 30, 2017, if we attempt to effect certain types of transactions, including, but not limited to, a merger, consolidation or sale of 10% of more of our business, assets or voting securities (excluding the sale of any securities pursuant to a registration statement filed pursuant to the Securities Act of 1933, as amended), we have agreed under our Transition to Self-Management Agreement, by and among CB Richard Ellis Realty Trust, CBRE Operating Partnership, L.P., CBRE Global Investors, LLC and CBRE Advisors LLC, dated April 27, 2012 (the “Transition to Self-Management Agreement”) to engage CBRE Global Investors, LLC, our former sponsor, or an affiliate of our former sponsor to provide financial advice and assistance in connection therewith provided that such entity continues to have the sufficient expertise and resources to provide such financial advice and assistance.  The transactional financial advisory fee payable by the Company to CBRE Global Investors or its affiliate upon the closing of a transaction will be equal to one-quarter of one percent (0.25%) of the consideration in the transaction, as defined in the Transition to Self-Management Agreement, plus the reimbursement of reasonable expenses.
10. Equity Incentive Plan and Performance Bonus Plan
Equity Incentive Plan
At our annual shareholders' meeting held on May 31, 2013, our shareholders approved the 2013 Equity Incentive Plan. Our key employees, directors, trustees, officers, advisors, consultants or other personnel of ours and our subsidiaries or other persons expected to provide significant services to us or our subsidiaries would be eligible to be granted incentive share options, non-qualified share options, share appreciation rights, restricted shares, restricted share units, dividend equivalent rights and other equity-based awards as contemplated in the 2013 Equity Incentive Plan. As of March 31, 2015, there were 3,330,631 common shares available for grant under the 2013 Equity Incentive Plan.

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


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

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

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

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


as well as its current dividend yield as of March 13, 2015. The expected life of the PSUs is equal to the remaining 2.8 year vesting period as of March 13, 2015.
Retirement of Mr. Cuneo
On March 5, 2015, Mr. Cuneo stepped down as President and Chief Executive Officer of the Company and resigned from the Board of Trustees of the Company. Pursuant to his Memorandum of Retirement dated November 9, 2014, Mr. Cuneo remained employed by the Company in a non-officer position through March 16, 2015. As part of his 2014 performance bonus, Mr. Cuneo received 75,000 Time-Based RSUs and 75,000 PSUs, which became fully vested upon his retirement. We recognized cash compensation of approximately $187,000 and non-cash compensation of approximately $3.3 million related to Mr. Cuneo’s retirement in 2015.
2014 Awards
On January 29, 2014, our Board's independent trustees, Messrs. Black, Brugger, Francis, Orphanides and Salvatore, were awarded equity grants under our 2013 Equity Incentive Plan on the following terms: (i) (x) Mr. Black's award was for 20,000 common shares, (y) Messrs. Orphanides and Salvatore each were awarded 5,000 common shares and (z) Messrs. Brugger and Francis each were awarded 1,550 common shares, for a total of 33,100 common shares awarded to trustees and (ii) each award vested in its entirety, upon issuance. We recorded compensation expense based upon the $7.87 price per share on January 29, 2014.
On February 26, 2014, the Company and Operating Partnership entered into an amendment to Martin A. Reid's employment agreement, effective as of January 1, 2013, increasing Mr. Reid's annual target Long Term Incentive Award to 90,000 restricted common shares of the Company.
On March 15, 2014, a total of 401,875 restricted common shares were granted to our named executive officers (Messrs. Cuneo, Kianka and Reid) based on each executive's achievement of performance objectives during 2013, as determined at the discretion of our Compensation Committee. Additionally, 25 of our employees were granted 143,450 restricted common shares, in the aggregate, on March 15, 2014. One-third of the restricted shares granted to our named executive officers and employees will vest on each of the first three anniversaries of grant if the grantee is employed by the Company on such anniversary. We recorded compensation expense based upon the $7.74 price per share on March 15, 2014. Compensation expense is recognized on a straight-line basis over the service vesting period of three years. We recognized share-based compensation expense of $171,000 and $66,000 during the three and three months ended March 31, 2015 and 2014 as a result of granting the awards to our named executive officers and our employees.
On July 31, 2014, the Compensation Committee of the Board of Trustees of the Company (the “Compensation Committee”) adopted and approved an incentive bonus plan, a form of restricted share award agreement, and a form of restricted share unit award agreement that may be used in connection with awards made pursuant to the 2013 Equity Incentive Plan from time to time to the Company’s trustees, executive officers and other employees.
The incentive bonus plan is intended to provide additional incentive for key employees of the Company to perform to the best of their abilities, to further the growth, development and financial success of the Company, and to enable us to attract and retain qualified and talented individuals. Restricted shares are awarded to grantees based on a time-based vesting formula. Restricted share units represent a contingent commitment of the Company to issue shares to a grantee based on certain performance-based goals determined by the Compensation Committee.

23

Table of Contents
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Summary of Time-Based Restricted Common Shares
A summary of our Time-Based Restricted Common Shares from January 1, 2015 through March 31, 2015 is presented below:
 
Nonvested Restricted Stock
 
Common Shares
 
Weighted-Average
Grant Date
Fair Value
per Share
Outstanding at January 1, 2015
800,699

 
$
8.68

Granted(1)
200,000

 
8.10

Vested(1)(2)
(728,963
)
 
8.50

Outstanding at March 31, 2015
271,736

 
$
8.53

__________
(1)
Shares granted to Mr. Cuneo were fully vested upon his retirement.
(2)
Total shares vested include 331,485 common shares that were tendered in accordance with the terms of our 2013 Equity Incentive Plan to satisfy minimum state tax withholding requirements related to the restricted common shares that have vested. We accept the return of shares at the current quoted closing share price of the Company's common shares on the NYSE to satisfy tax obligations.
Summary of Time-Based Restricted Share Units
A summary of our Time-Based Restricted Share Units from January 1, 2015 through March 31, 2015 is presented below:
 
Nonvested RSUs
 
 
 
 
 
Amount
 
Weighted-Average Grant Date Fair Value Per Share
 
Vested RSUs
 
Total RSUs
Outstanding at January 1, 2015

 
$

 

 

Granted
237,422

 
7.78

 

 
237,422

Vested 
(75,000
)
 
7.78

 
75,000

 

Settled(1)

 

 
(75,000
)
 
(75,000
)
Outstanding at March 31, 2015
162,422

 
$
7.78

 

 
162,422

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

24

Table of Contents
CHAMBERS STREET PROPERTIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Summary of Performance Share Units
A summary of our Performance Share Units from January 1, 2015 through March 31, 2015 is presented below:
 
Nonvested PSUs
 
 
 
 
 
Amount
 
Weighted-Average Grant Date Fair Value Per Share
 
Vested PSUs
 
Total PSUs
Outstanding at January 1, 2015

 
$

 

 

Granted
237,440

 
6.56

 

 
237,440

Vested 
(75,000
)
 
7.78

 
75,000

 

Settled(1)

 

 
(75,000
)
 
(75,000
)
Outstanding at March 31, 2015
162,440

 
$
6.00

 

 
162,440

__________
(1)
Represents vested PSUs that were settled in shares of the Company's common shares. Total shares settled include 38,888 shares that were tendered in accordance with the terms of our 2013 Equity Incentive Plan to satisfy minimum state tax withholding requirements related to the PSU settled. We accept the return of shares at the current quoted closing share price of the Company's common shares on the NYSE to satisfy tax obligations.
 
2015
 
2014