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

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 September 30, 2015
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission File Number: 001-35933
 
 
 
 
CHAMBERS STREET PROPERTIES
(Exact name of registrant as specified in its charter)
 
 
 
 

Maryland
56-2466617
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
47 Hulfish Street, Suite 210, Princeton, New Jersey 08542
(Address of principal executive offices) (Zip Code)
(609) 683-4900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x   NO  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x
 
Accelerated filer  o
 
Non-accelerated filer  o
 
Smaller reporting company  o
 
 
 
 
(do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  o    NO  x
The number of shares outstanding of the registrant's common shares of beneficial ownership, $0.01 par value, was 236,855,738 as of November 4, 2015.




CHAMBERS STREET PROPERTIES
INDEX

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



Table of Contents

PART I.
FINANCIAL INFORMATION
ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CHAMBERS STREET PROPERTIES
Consolidated Balance Sheets
as of September 30, 2015 and December 31, 2014
(In Thousands, Except Share Data)
 
September 30,
 
December 31,
 
2015
 
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Investments in Real Estate:
 
 
 
Land
$
617,867

 
$
630,840

Land Available for Expansion
24,218

 
23,368

Buildings and Improvements
1,652,766

 
1,674,955

 
2,294,851

 
2,329,163

Less: Accumulated Depreciation and Amortization
(284,579
)
 
(239,973
)
Net Investments in Real Estate
2,010,272

 
2,089,190

Investments in Unconsolidated Entities
385,220

 
423,693

Cash and Cash Equivalents
53,955

 
40,139

Restricted Cash
18,909

 
14,718

Tenant and Other Receivables, Net
11,553

 
11,216

Deferred Rent
45,072

 
39,429

Deferred Leasing Costs and Intangible Assets, Net
194,109

 
220,490

Deferred Financing Costs, Net
7,237

 
9,321

Prepaid Expenses and Other Assets
19,963

 
21,612

Total Assets
$
2,746,290

 
$
2,869,808

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
LIABILITIES
 
 
 
Secured Notes Payable, Net
$
478,739

 
$
610,608

Unsecured Term Loan Facilities
570,000

 
570,000

Unsecured Revolving Credit Facility
290,044

 
200,044

Accounts Payable, Accrued Expenses and Other Liabilities
86,352

 
76,421

Intangible Liabilities, Net
21,759

 
26,248

Prepaid Rent and Security Deposits
16,255

 
15,569

Distributions Payable
10,117

 
9,951

Total Liabilities
1,473,266

 
1,508,841

COMMITMENTS AND CONTINGENCIES (NOTE 13)


 


SHAREHOLDERS' EQUITY
 
 
 
Common Shares of Beneficial Interest, $0.01 par value, 990,000,000 shares authorized; 236,855,738 and 236,920,675 issued and outstanding as of September 30, 2015 and December 31, 2014, respectively
2,366

 
2,364

Additional Paid-in-Capital
2,074,326

 
2,071,526

Accumulated Deficit
(758,611
)
 
(689,654
)
Accumulated Other Comprehensive Loss
(45,057
)
 
(23,269
)
Total Shareholders' Equity
1,273,024

 
1,360,967

Total Liabilities and Shareholders' Equity
$
2,746,290

 
$
2,869,808


See accompanying notes to consolidated financial statements.
1

Table of Contents

CHAMBERS STREET PROPERTIES
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)
(In Thousands, Except Share and per Share Data)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
REVENUES
 
 
 
 
 
 
 
Rental
$
54,915

 
$
52,391

 
$
166,020

 
$
156,300

Tenant Reimbursements
15,646

 
15,219

 
46,917

 
45,034

Other Property Income
1,072

 
537

 
1,520

 
1,606

Total Revenues
71,633

 
68,147

 
214,457

 
202,940

EXPENSES
 
 
 
 
 
 
 
Property Operating
8,488

 
9,113

 
26,404

 
27,058

Real Estate Taxes
10,694

 
9,927

 
32,050

 
30,193

General and Administrative
9,935

 
7,230

 
31,505

 
20,047

Acquisition-Related

 
265

 

 
555

Depreciation and Amortization
28,489

 
27,208

 
84,342

 
81,572

Total Expenses
57,606

 
53,743

 
174,301

 
159,425

Income Before Other (Expenses) Income
14,027

 
14,404

 
40,156

 
43,515

OTHER EXPENSES AND INCOME
 
 
 
 
 
 
 
Interest and Other Income
52

 
255

 
144

 
573

Interest Expense
(12,352
)
 
(13,685
)
 
(38,397
)
 
(41,653
)
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments
23

 
68

 
66

 
80

Gain on Sale of Real Estate

 
13,175

 
5,844

 
13,175

Total Other Expenses
(12,277
)
 
(187
)
 
(32,343
)
 
(27,825
)
Income Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities
1,750

 
14,217

 
7,813

 
15,690

Benefit (Provision) For Income Taxes
42

 
(140
)
 
(521
)
 
(579
)
Equity in Income of Unconsolidated Entities
4,238

 
4,391

 
14,419

 
11,829

NET INCOME
$
6,030

 
$
18,468

 
$
21,711

 
$
26,940

Basic and Diluted Net Income per Share
$
0.03

 
$
0.08

 
$
0.09

 
$
0.11

Weighted Average Common Shares Outstanding - Basic
236,902,841

 
236,954,218

 
236,915,614

 
236,847,551

Weighted Average Common Shares Outstanding - Diluted
236,913,294

 
236,954,218

 
236,951,537

 
236,847,551

Dividends Declared per Common Share
$
0.128

 
$
0.126

 
$
0.384

 
$
0.378


See accompanying notes to consolidated financial statements.
2

Table of Contents

CHAMBERS STREET PROPERTIES
Consolidated Statements of Comprehensive Income (Loss)
For the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)
(In Thousands)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
NET INCOME
$
6,030

 
$
18,468

 
$
21,711

 
$
26,940

Foreign Currency Translation Loss
(1,586
)
 
(15,946
)
 
(12,573
)
 
(13,793
)
Swap Fair Value Adjustments
(6,549
)
 
3,805

 
(9,215
)
 
(4,086
)
COMPREHENSIVE (LOSS) INCOME
$
(2,105
)
 
$
6,327

 
$
(77
)
 
$
9,061


See accompanying notes to consolidated financial statements.
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Table of Contents

CHAMBERS STREET PROPERTIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2015 and 2014 (unaudited)
(In Thousands)
 
Nine Months Ended
 
September 30,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net Income
$
21,711

 
$
26,940

Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities:
 
 
 
Equity in Income of Unconsolidated Entities
(14,419
)
 
(11,829
)
Distributions from Unconsolidated Entities
32,061

 
36,891

Gain on Interest Rate Swaps
(66
)
 
(80
)
Gain on Sale of Real Estate
(5,844
)
 
(13,175
)
Prepaid Tenant Improvement Amortization
(1,097
)
 
(1,085
)
Lease Inducement Amortization
758

 
338

Depreciation and Amortization
84,342

 
81,572

Amortization of Non-Cash Interest Expense
(1,656
)
 
(660
)
Amortization of Above and Below Market Leases
2,932

 
4,056

Share-Based Compensation
5,285

 
3,452

Straight-Line Rent Adjustment
(5,847
)
 
(4,641
)
Changes in Operating Assets and Liabilities:
 
 
 
Tenant and Other Receivables
(341
)
 
(3,760
)
Prepaid Expenses and Other Assets
(605
)
 
(2,196
)
Accounts Payable, Accrued Expenses and Other Liabilities
3,766

 
7,024

Net Cash Flows Provided by Operating Activities
120,980

 
122,847

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Acquisition of Real Property
(1,715
)
 
(55,424
)
Proceeds from Sale of Real Estate
55,119

 
61,100

Investments in Unconsolidated Entities

 
(7,624
)
Distributions from Unconsolidated Entities
8,793

 
22,469

Restricted Cash
(3,693
)
 
864

Lease Commissions
(11,339
)
 
(3,210
)
Improvements to Investments in Real Estate
(22,386
)
 
(7,125
)
Net Cash Flows Provided by Investing Activities
24,779

 
11,050

CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Repurchase and Cancellation of Vested Shares
(3,270
)
 
(747
)
Payment of Distributions
(90,502
)
 
(89,516
)
Borrowings on Unsecured Revolving Credit Facility
90,000

 
10,000

Principal Payments on Unsecured Revolving Credit Facility

 
(10,000
)
Principal Payments on Secured Notes Payable
(128,129
)
 
(67,329
)
Payment of Financing Costs

 
(464
)
Net Cash Flows Used in Financing Activities
(131,901
)
 
(158,056
)
EFFECT OF FOREIGN CURRENCY TRANSLATION
(42
)
 
(302
)
Net Increase (Decrease) in Cash and Cash Equivalents
13,816

 
(24,461
)
Cash and Cash Equivalents, Beginning of the Period
40,139

 
83,007

Cash and Cash Equivalents, End of the Period
$
53,955

 
$
58,546

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
Cash Paid During the Period for Interest
$
40,135

 
$
42,203

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Distributions Declared and Payable
$
10,117

 
$
9,951

Accounts Payable and Accrued Expenses
$
4,321

 
$
563

Notes Payable Assumed on Acquisitions of Real Estate
$

 
$
20,611

Lease Inducement
$
658

 
$
316


See accompanying notes to consolidated financial statements.
4

Table of Contents

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

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

 
$
2,364

 
$
2,071,526

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

Net Income

 

 

 
21,711

 

 
21,711

Other Comprehensive Loss

 

 

 

 
(21,788
)
 
(21,788
)
Share-Based Compensation
348,798

 
6

 
6,066

 

 

 
6,072

Repurchase and Cancellation of Vested Shares
(413,735
)
 
(4
)
 
(3,266
)
 

 

 
(3,270
)
Distributions Declared ($0.384 per share)

 

 

 
(90,668
)
 

 
(90,668
)
Balance at September 30, 2015
236,855,738

 
$
2,366

 
$
2,074,326

 
$
(758,611
)
 
$
(45,057
)
 
$
1,273,024


 
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

 

 

 
26,940

 

 
26,940

Other Comprehensive Loss

 

 

 

 
(17,879
)
 
(17,879
)
Share-Based Compensation
555,508

 
4

 
3,448

 

 

 
3,452

Repurchase and Cancellation of Vested Shares
(95,313
)
 
(1
)
 
(746
)
 

 

 
(747
)
Distributions Declared ($0.378 per share)

 

 

 
(89,536
)
 

 
(89,536
)
Balance at September 30, 2014
236,924,176

 
$
2,362

 
$
2,069,710

 
$
(651,909
)
 
$
(13,283
)
 
$
1,406,880


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") focused on acquiring, owning and managing net leased industrial and office properties leased to creditworthy tenants. We were formed under the laws of the state of Maryland on March 30, 2004, and have elected to be taxed as a REIT under sections 856 through 860 of the Internal Revenue Code of 1986 (the "Internal Revenue Code") beginning with the taxable period ended December 31, 2004. On July 1, 2015, we entered into an Agreement and Plan of Merger with Gramercy Property Trust Inc. ("Gramercy") (See Note 13).
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% direct and indirect 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 September 30, 2015, we owned 100% of the limited partnership units of CSP OP directly or indirectly through a wholly-owned taxable REIT subsidiary. However, in connection with the proposed merger with Gramercy such subsidiary will cease to be a taxable REIT subsidiary and will become disregarded as an entity separate from us for U.S. federal income tax purposes.
As of September 30, 2015, we owned, on a consolidated basis, 100 industrial (primarily warehouse/distribution) and office properties located in 18 U.S. states (Arizona, California, Colorado, Florida, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Texas and Virginia) and in the United Kingdom, encompassing approximately 24.9 million rentable square feet. Our consolidated properties were approximately 97.6% leased (based upon rentable square feet) as of September 30, 2015. As of September 30, 2015, 76 of our consolidated properties were net leased to single tenants, which encompassed approximately 20.2 million rentable square feet.
We had ownership interests in four unconsolidated entities that, as of September 30, 2015, owned interests in 27 properties. Excluding those properties owned through our investment in CB Richard Ellis Strategic Partners Asia II-A, L.P. ("CBRE Strategic Partners Asia"), we owned, on an unconsolidated basis, 25 industrial (primarily warehouse/distribution) and office properties located in seven U.S. states (Arizona, Florida, Illinois, Indiana, Ohio, Tennessee and Texas) and three countries in Europe (France, Germany and the United Kingdom), encompassing approximately 12.3 million rentable square feet. Our unconsolidated properties were approximately 99.9% leased (based upon rentable square feet) as of September 30, 2015. As of September 30, 2015, 20 of our unconsolidated properties were net leased to single tenants, which encompassed approximately 11.5 million rentable square feet.
Unless the context otherwise requires or indicates, references to the "Company," "we," "our" and "us" refer to the activities of and the assets and liabilities of the business and operations of Chambers Street Properties and its subsidiaries. References to unconsolidated properties include properties owned through unconsolidated joint ventures and do not include properties owned by CBRE Strategic Partners Asia. See Note 4 "Investments in Unconsolidated Entities."

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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 and nine months ended September 30, 2015 have been made. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results of operations to be expected for the entire year. The consolidated financial statements and notes thereto should be read in conjunction with our current Annual Report on Form 10-K, which contains the latest available audited consolidated financial statements and notes thereto, which are as of and for the year ended December 31, 2014.
Use of Estimates
The preparation of financial statements, in conformity with GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Segment Information
We currently operate our consolidated properties in two geographic areas, the United States and the United Kingdom. We view our consolidated property operations as two reportable segments, Industrial Properties and Office Properties, which participate in the acquisition, development, ownership, and operation of high quality real estate in their respective segments.
Revenue Recognition and Valuation of Receivables
All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is recorded as deferred rent. In connection with various leases, we have received irrevocable stand-by letters of credit totaling $20.6 million and $20.3 million as security for such leases at September 30, 2015 and December 31, 2014, respectively.
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 $108,000 and $62,000 as of September 30, 2015 and December 31, 2014, respectively.
Translation of Non-U.S. Currency Amounts
The financial statements and transactions of our United Kingdom properties are recorded in their functional currency, namely the Great Britain Pound ("GBP") and are then translated into U.S. dollars ("USD").

7

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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 $1.5129 and $1.5576 at September 30, 2015 and December 31, 2014, respectively. The profit and loss average exchange rate of the USD to the GBP was approximately $1.5559 and $1.6862 for the three months ended September 30, 2015 and 2014, respectively; and $1.5354 and $1.6737 for the nine months ended September 30, 2015 and 2014, respectively.
The carrying value of our assets and liabilities held within our joint venture in Europe (the "European JV") fluctuate due to changes in the exchange rate between the USD and the Euro ("EUR"). The exchange rate of the USD to the EUR was $1.1178 and $1.2099 at September 30, 2015 and December 31, 2014. The profit and loss average exchange rate of the USD to the EUR was approximately $1.1114 and $1.3402 for the three months ended September 30, 2015 and 2014, respectively; and $1.1197 and $1.3611 for the nine months ended September 30, 2015 and 2014, respectively.
Income Taxes
We elected to be taxed as a REIT under the Internal Revenue Code commencing with our taxable year ended December 31, 2004. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we generally distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding net capital gain). It is our current intention to adhere to these requirements and maintain our REIT qualification. As a REIT, we generally will not be subject to corporate level U.S. federal income tax on net income we distribute 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 nine months ended September 30, 2015, and we were not subject to any U.S. federal income taxes, other than U.S. federal income taxes on income generated by our Taxable REIT Subsidiary. As such, we have not provided for income taxes other than as addressed below.
ASC 740-10 Income Taxes requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary difference, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
No deferred tax assets or liabilities were recorded as of September 30, 2015, other than as mentioned below related to the United Kingdom net operating losses. In addition, we believe that any current or deferred tax liability associated with our Taxable REIT Subsidiary would be de minimus.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
We did not have any uncertain tax positions which would require us to record any unrecognized tax benefits or additional tax liabilities as of September 30, 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 (benefit) provision, we have incurred income and other taxes (franchise, local and state government and international) related to our continuing operations in the amount of $(42,000) and $140,000 during the three months ended September 30, 2015 and 2014, respectively; and $521,000 and $579,000 for the nine months ended September 30, 2015 and 2014, respectively.
The United Kingdom taxes real property operating results at a statutory rate of 20% . The properties we own (or hold interest in) in the United Kingdom have operated at a taxable loss to date and have generated a deferred tax asset of approximately $0.3 million consisting of these net operating loss carryforwards. We have provided for a full valuation allowance of $0.3 million as of September 30, 2015 on deferred tax assets because it is not likely that future operating profits in the United Kingdom would be sufficient to absorb the net operating losses.
The tax years from 2010 through 2014 remain open to examination by the taxing jurisdictions to which the Company is subject.
Fair Value of Financial Instruments and Investments
We generally determine or calculate the fair value of financial instruments using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments and our estimates for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow. The Investment Manager of CBRE Strategic Partners Asia applies valuation techniques for our investment carried at fair value based upon the application of the income approach, the direct market comparison approach, the replacement cost approach or third party appraisals to the underlying assets held in the unconsolidated entity in determining the net asset value attributable to our ownership interest therein. As of September 30, 2015, the financial assets and liabilities recorded at fair value in our consolidated financial statements are our derivative instruments and our investment in CBRE Strategic Partners Asia.
The remaining financial assets and liabilities which are only disclosed at fair value are comprised of all other notes payable, the unsecured line of credit and other debt instruments. We determined the fair value of our secured notes payable and other debt instruments by performing discounted cash flow analyses using an appropriate market discount rate. We calculate the market discount rate by obtaining period-end treasury rates for fixed-rate debt, or London Inter-Bank Offering Rate ("LIBOR") rates for variable-rate debt, for maturities that correspond to the maturities of our debt and then adding an appropriate credit spread derived from information obtained from third-party financial institutions. These credit spreads take into account factors such as our credit standing, the maturity of the debt, whether the debt is secured or unsecured, and the loan-to-value ratios of the debt.
The carrying amounts of our cash and cash equivalents, restricted cash, tenant and other receivables and accounts payable approximate fair value due to their short-term maturities.
Share-based Compensation
For share-based awards for which there is no pre-established performance period, we recognize compensation costs over the service vesting period, which represents the requisite service period, on a straight-line basis.
For share-based awards with service or market conditions, we record the cost of the awards based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. For share-based awards in which the performance period precedes the grant date, we recognize compensation costs straight-lined over the requisite service period, which includes both the performance and service vesting periods.
During the performance period for a share-based award program, we estimate the total compensation cost of the potential future awards. We then record compensation costs equal to the portion of the requisite service period that has elapsed through the end of the reporting period.
For share-based awards granted by the Company, CSP OP issues a number of common units equal to the number of common shares ultimately granted by us in respect of such awards.


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


Reclassifications
We have reclassified certain amounts in our previously issued consolidated statements of cash flows to conform to current period presentation. On our September 30, 2014 statement of cash flows, we reclassified $1.1 million and $0.4 million from "Accounts Payable, Accrued Expenses and Other Liabilities" and "Prepaid Expenses and Other Assets," respectively, to "Prepaid Tenant Improvement Amortization" and "Lease Inducement Amortization", respectively, which represent newly created line items. None of the reclassifications reflect corrections to any amounts.
New Accounting Standards
In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The ASU is a part of the Simplification Initiative, to identify, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to the users of financial statements. The new standard eliminates the requirements for reporting entities to consider whether an underlying event or transaction is extraordinary but retains the presentation and disclosure guidance for items that are unusual in nature and occur infrequently. The ASU applies to all entities and is effective for fiscal years beginning after December 15, 2015, and interim periods thereafter, with early adoption permitted. The adoption of this guidance is not anticipated to have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, Consolidated (Topic 810): Amendments to the Consolidation Analysis. The ASU changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Key amendments under the new standard include the following: evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; elimination of the presumption that a general partner should consolidate a limited partnership; consolidation analysis of reporting entities that are involved with variable interest entities (VIEs), particularly those that have fee arrangements and related party relationship; addition of scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements similar to those for registered money market funds. The ASU applies to all reporting entities that are required to evaluate whether they should consolidate certain legal entities and is effective for fiscal years beginning after December 15, 2015, and interim periods thereafter, with early adoption permitted. We are still assessing the impact of this guidance on our consolidated financial statements and notes to our consolidated financial statements.
In April 7, 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU addresses balance sheet presentation requirements for debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding debt liability. This will make the presentation of debt issuance costs consistent with the presentation of debt discounts or premiums. The recognition and measurement guidance for debt issuance costs is not affected. The guidance is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, it is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Upon adoption, an entity must apply the new guidance retrospectively to all prior periods presented in the financial statements. An entity is also required in the year of adoption (and in interim periods within that year) to provide certain disclosures about the change in accounting principle, including the nature of and reason for the change, the transition method, a description of the prior-period information that has been retrospectively adjusted and the effect of the change on the financial statement line items (that is, debt issuance cost asset and the debt liability). We are still assessing the impact of this guidance on our consolidated financial statements and notes to our consolidated financial statements.
In July 2015, the FASB deferred the effective date of ASU No. 2014-09, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including the guidance on real estate derecognition for most transactions. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in ASU 2014-09. For public entities, the ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017, with early adoption permitted. We are assessing the impact of this guidance on our consolidated financial statements and notes to our consolidated financial statements.

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


In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805). This ASU requires an acquirer in a business combination to recognize adjustments to estimated amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer must record the effect of the adjustments on earnings as if the accounting had been completed at the acquisition date and the acquirer must disclose in its financial statements the portion of the amounts recorded in each line item of current-period earnings that would have been recorded in previous periods if the adjustments to estimated amounts had been recognized as of the acquisition date. For public entities, this guidance is effective for fiscal years beginning after December 15, 2015, including interim periods with those fiscal years, with early adoption permitted. Application of the guidance is prospective. 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 nine months ended September 30, 2015, we acquired an 11.8 acre undeveloped parcel in Phoenix, Arizona for approximately $1.7 million. The undeveloped parcel is situated immediately adjacent to our Goodyear Crossing II property.
Dispositions
During the nine months ended September 30, 2015, we completed the sale of 300 Constitution Drive, a 330,000 square foot distribution warehouse located in Boston, Massachusetts. The industrial property was sold for a gross sales price of $20.3 million, resulting in a gain of approximately $3.5 million, after closing and other transaction related costs. We also completed the sale of 225 Summit Avenue, a 142,500 square foot office building located in Northern New Jersey. The office property was sold for a gross sales price of $37.0 million, resulting in a gain of approximately $2.3 million, after closing and other transaction related costs.

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


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

 
14

European JV
80.0%
 
9

 
9

UK JV
80.0%
 
3

 
3

CBRE Strategic Partners Asia
5.07%
 
2

 
3

 
 
 
27

 
29

Investments in unconsolidated entities at September 30, 2015 and December 31, 2014 consist of the following (in thousands):
 
September 30,
 
December 31,
 
2015
 
2014
Duke JV
$
221,716

 
$
239,376

European JV
127,135

 
144,141

UK JV
31,175

 
33,189

Afton Ridge

 
117

CBRE Strategic Partners Asia
5,194

 
6,870

 
$
385,220

 
$
423,693

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

 
$
514,802

Contributions

 
7,625

Company's Equity in Net Income (including adjustments for basis differences)
14,419

 
28,823

Other Comprehensive Loss of Unconsolidated Entities
(12,038
)
 
(22,342
)
Distributions
(40,854
)
 
(105,215
)
Investment Balance, End of Period
$
385,220

 
$
423,693


12

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 September 30, 2015 (in thousands):
 
Duke JV
 
European JV
 
Other (2)
 
Total
 
 
 
 
Assets
 
 
 
 
 
 
 
Investments in Real Estate(1)
$
312,494

 
$
248,204

 
$
147,646

 
$
708,344

Other Assets
28,523

 
40,130

 
13,910

 
82,563

Total Assets
$
341,017

 
$
288,334

 
$
161,556

 
$
790,907

Liabilities and Equity
 
 
 
 
 
 
 
Secured Notes Payable, net
$
56,390

 
$
124,884

 
$

 
$
181,274

Other Liabilities
8,025

 
4,531

 
16,285

 
28,841

Total Liabilities
64,415

 
129,415

 
16,285

 
210,115

CSP Equity
221,716

 
127,135

 
36,369

 
385,220

Other Investors' Equity
54,886

 
31,784

 
108,902

 
195,572

Total Liabilities and Equity
$
341,017

 
$
288,334

 
$
161,556

 
$
790,907

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

 
$
274,128

 
$
186,360

 
$
783,724

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

 

 

 
17,230

Other Assets
32,474

 
49,435

 
11,553

 
93,462

Total Assets
$
372,940

 
$
323,563

 
$
197,913

 
$
894,416

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

 
$

 
$

 
$
11,048

Secured Notes Payable, net
57,222

 
135,173

 

 
192,395

Other Liabilities
6,013

 
8,214

 
17,093

 
31,320

Total Liabilities
74,283

 
143,387

 
17,093

 
234,763

CSP Equity
239,376

 
144,141

 
40,176

 
423,693

Other Investors' Equity
59,281

 
36,035

 
140,644

 
235,960

Total Liabilities and Equity
$
372,940

 
$
323,563

 
$
197,913

 
$
894,416

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

13

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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 September 30, 2015 and September 30, 2014 (in thousands):
 
Three Months Ended
 
September 30, 2015
 
September 30, 2014
 
Duke JV
 
European JV
 
Other (1)
 
Total
 
Duke JV
 
European JV
 
Other (2)
 
Total
Total Revenue
$
12,016

 
$
6,515

 
$
(887
)
 
$
17,644

 
$
14,331

 
$
7,114

 
$
4,395

 
$
25,840

Operating Expenses
3,106

 
1,170

 
598

 
4,874

 
3,980

 
722

 
820

 
5,522

Net Operating Income
8,910

 
5,345

 
(1,485
)
 
12,770

 
10,351

 
6,392

 
3,575

 
20,318

Depreciation and Amortization
4,960

 
2,383

 
490

 
7,833

 
6,611

 
3,061

 
532

 
10,204

Interest Expense
751

 
946

 

 
1,697

 
1,031

 
1,139

 

 
2,170

Gain on Sale of Real Estate
(145
)
 

 

 
(145
)
 

 

 

 

Net Income (Loss)
3,054

 
2,016

 
(1,975
)
 
3,095

 
2,709

 
2,192

 
3,043

 
7,944

Company Share in Net Income
2,443

 
1,613

 
208

 
4,264

 
2,168

 
1,754

 
490

 
4,412

Adjustments for REIT basis
(26
)
 

 

 
(26
)
 
(21
)
 

 

 
(21
)
CSP Equity in Net Income
$
2,417

 
$
1,613

 
$
208

 
$
4,238

 
$
2,147

 
$
1,754

 
$
490

 
$
4,391

__________
(1)
Includes UK JV and CBRE Strategic Partners Asia.
(2)
Includes UK JV, Afton Ridge, and CBRE Strategic Partners Asia.
The following are the statements of operations for our investments in unconsolidated entities for the nine months ended September 30, 2015 and September 30, 2014 (in thousands):
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
Duke JV
 
European JV
 
Other (1)
 
Total
 
Duke JV
 
European JV
 
Other (2)
 
Total
Total Revenue
$
35,806

 
$
19,188

 
$
(1,074
)
 
$
53,920

 
$
43,684

 
$
22,233

 
$
5,258

 
$
71,175

Operating Expenses
9,653

 
3,041

 
1,779

 
14,473

 
13,302

 
2,714

 
2,307

 
18,323

Net Operating Income
26,153

 
16,147

 
(2,853
)
 
39,447

 
30,382

 
19,519

 
2,951

 
52,852

Depreciation and Amortization
15,393

 
7,416

 
1,452

 
24,261

 
20,810

 
9,077

 
1,583

 
31,470

Interest Expense
2,300

 
2,820

 

 
5,120

 
3,106

 
3,437

 

 
6,543

Gain on Sale of Real Estate
2,894

 

 

 
2,894

 

 

 

 

Loss on Extinguishment of Debt
(73
)
 

 

 
(73
)
 

 

 

 

Net Income (Loss)
11,281

 
5,911

 
(4,305
)
 
12,887

 
6,466

 
7,005

 
1,368

 
14,839

Company Share in Net Income
9,024

 
4,729

 
745

 
14,498

 
5,179

 
5,604

 
1,129

 
11,912

Adjustments for REIT basis
(79
)
 

 

 
(79
)
 
(83
)
 

 

 
(83
)
CSP Equity in Net Income
$
8,945

 
$
4,729

 
$
745

 
$
14,419

 
$
5,096

 
$
5,604

 
$
1,129

 
$
11,829

__________
(1)
Includes UK JV and CBRE Strategic Partners Asia.
(2)
Includes UK JV, Afton Ridge, and CBRE Strategic Partners Asia.


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


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.
On April 30, 2015, CBRE Strategic Partners Asia sold the remaining three floors at the Kowloon Commerce Center in Hong Kong for approximately $42.2 million, of which our pro rata share was approximately $1.4 million.
5. Deferred Leasing Costs and Intangible Assets and Liabilities
The following table summarizes our deferred leasing costs and intangible assets, including acquired above-market leases, acquired in-place leases and other intangible assets and intangible liabilities, including acquired below-market leases and acquired above-market ground lease obligations (in thousands):
 
September 30,
 
December 31,
 
2015
 
2014
Deferred Leasing Costs and Intangible Assets, Net:
 
 
 
Deferred Leasing Costs
$
36,098

 
$
22,481

Accumulated Amortization
(6,687
)
 
(4,218
)
Deferred Leasing Costs, Net
29,411

 
18,263

Above-Market Leases
63,566

 
63,566

Accumulated Amortization
(36,686
)
 
(30,311
)
Above-Market Leases, Net
26,880

 
33,255

In-Place Leases
290,758

 
300,124

Accumulated Amortization
(154,095
)
 
(132,414
)
In-Place Leases, Net
136,663

 
167,710

Other Intangible Assets
1,425

 
1,425

Accumulated Amortization

(270
)
 
(163
)
Other Intangible Assets, Net
1,155

 
1,262

Total Deferred Leasing Costs and Intangible Assets, Net
$
194,109

 
$
220,490

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

 
$
51,653

Accumulated Amortization
(26,223
)
 
(26,675
)
Below-Market Leases, Net
20,543

 
24,978

Above-Market Ground Lease Obligation
1,501

 
1,501

Accumulated Amortization
(285
)
 
(231
)
Above-Market Ground Lease Obligation, Net
1,216

 
1,270

Total Intangible Liabilities, Net
$
21,759

 
$
26,248


15

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


The following table sets forth amortization related to intangible assets and liabilities for the three and nine months ended September 30, 2015 and 2014 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Deferred Leasing Costs(1)
$
932

 
$
423

 
$
2,473

 
$
1,141

Above-Market Leases(2)
2,110

 
2,250

 
6,375

 
7,198

In-Place Leases(1)
8,953

 
9,162

 
27,564

 
27,915

Other Intangible Assets(1)
36

 
127

 
108

 
127

Below-Market Leases(2)
(1,091
)
 
(1,077
)
 
(3,443
)
 
(3,142
)
Above-Market Ground Lease Obligation(3)
(18
)
 
(18
)
 
(53
)
 
(53
)
__________
(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 September 30, 2015 (in thousands):
 
Intangible Assets
 
Intangible Liabilities
 
Deferred Leasing Costs
 
Acquired
Above-Market
Leases
 
Acquired
In-Place
 Leases
 
Other Intangible Assets
 
Acquired
Below-Market
Leases
 
Above-Market
Ground Lease
Obligations
Remaining 2015
$
671

 
$
2,090

 
$
8,663

 
$
36

 
$
993

 
$
18

2016
2,630

 
5,557

 
29,075

 
144

 
3,404

 
71

2017
2,476

 
4,466

 
24,603

 
144

 
2,912

 
71

2018
2,376

 
3,862

 
20,399

 
144

 
2,639

 
71

2019
2,173

 
3,300

 
16,633

 
144

 
2,418

 
71

Thereafter
19,085

 
7,605

 
37,290

 
543

 
8,177

 
914

 
$
29,411

 
$
26,880

 
$
136,663

 
$
1,155

 
$
20,543

 
$
1,216


16

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
 
 
 
 
September 30,
 
December 31,
 
 
 
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
70 Hudson Street (2)
 
5.65%
 
5.15%
 
4/11/2016
 
$
112,543

 
$
114,108

Point West I - Swapped to Fixed
 
3.41%
 
3.41%
 
12/6/2016
 
10,472

 
10,716

100 Tice Blvd
 
5.97%
 
4.38%
 
9/15/2017
 
18,499

 
18,960

100 Tice Blvd
 
5.97%
 
4.38%
 
9/15/2017
 
18,499

 
18,960

4701 Gold Spike Drive(3)
 
4.45%
 
4.45%
 
3/1/2018
 
9,806

 
9,958

1985 International Way(3)
 
4.45%
 
4.45%
 
3/1/2018
 
6,813

 
6,920

3660 Deerpark Boulevard(3)
 
4.45%
 
4.45%
 
3/1/2018
 
7,043

 
7,153

Tolleson Commerce Park II(3)
 
4.45%
 
4.45%
 
3/1/2018
 
4,235

 
4,301

20000 S. Diamond Lake Road(3)
 
4.45%
 
4.45%
 
3/1/2018
 
6,169

 
6,265

Atrium I - Swapped to Fixed
 
3.78%
 
3.78%
 
5/31/2018
 
20,878

 
21,580

McAuley Place
 
3.98%
 
3.50%
 
9/1/2018
 
12,582

 
12,865

Easton III - Swapped to Fixed
 
3.95%
 
3.95%
 
1/31/2019
 
6,141

 
6,280

90 Hudson Street
 
5.66%
 
5.26%
 
5/1/2019
 
102,165

 
103,301

Fairforest Bldg. 6
 
5.42%
 
6.50%
 
6/1/2019
 
1,488

 
1,751

North Rhett I
 
5.65%
 
6.50%
 
8/1/2019
 
1,606

 
1,958

Kings Mountain II
 
5.47%
 
6.50%
 
1/1/2020
 
3,014

 
3,467

1 Rocket Road
 
6.60%
 
4.00%
 
8/1/2020
 
18,213

 
18,516

North Rhett II
 
5.20%
 
6.50%
 
10/1/2020
 
1,265

 
1,425

Mount Holly Bldg.
 
5.20%
 
6.50%
 
10/1/2020
 
1,265

 
1,425

Orangeburg Park Bldg.
 
5.20%
 
6.50%
 
10/1/2020
 
1,286

 
1,449

Kings Mountain I
 
5.27%
 
6.50%
 
10/1/2020
 
1,096

 
1,235

Ten Parkway North
 
4.75%
 
4.75%
 
1/1/2021
 
11,226

 
11,469

Union Cross Bldg. II
 
5.53%
 
6.50%
 
6/1/2021
 
5,192

 
5,755

Union Cross Bldg. I
 
5.50%
 
6.50%
 
7/1/2021
 
1,709

 
1,892

Norman Pointe I
 
5.24%
 
3.50%
 
10/1/2021
 
19,914

 
20,177

Norman Pointe II
 
5.24%
 
3.50%
 
10/1/2021
 
21,924

 
22,214

The Landings I
 
5.24%
 
3.50%
 
10/1/2021
 
14,987

 
15,185

The Landings II
 
5.24%
 
3.50%
 
10/1/2021
 
13,219

 
13,393

Fairforest Bldg. 5
 
6.33%
 
6.50%
 
2/1/2024
 
7,203

 
7,678

North Rhett IV
 
5.80%
 
6.50%
 
2/1/2025
 
7,427

 
7,862

One Wayside Road(4)
 
5.66%
 
5.25%
 
8/1/2015
 

 
12,938

One Wayside Road(4)
 
5.92%
 
5.25%
 
8/1/2015
 

 
10,854

Lakeside Office Center(5)
 
6.03%
 
6.03%
 
9/1/2015
 

 
8,617

Celebration Office Center III(6)
 
4.25%
 
2.50%
 
12/1/2015
 

 
8,817


17

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
 
 
 
 
September 30,
 
December 31,
 
 
 
 
2015
 
2014
22535 Colonial Pkwy(6)
 
4.25%
 
2.50%
 
12/1/2015
 

 
7,889

Northpoint III(6)
 
4.25%
 
2.50%
 
12/1/2015
 

 
10,209

Goodyear Crossing II(6)
 
4.25%
 
2.50%
 
12/1/2015
 

 
19,489

3900 North Paramount Parkway(6)
 
4.25%
 
2.50%
 
12/1/2015
 

 
7,656

3900 South Paramount Parkway(6)
 
4.25%
 
2.50%
 
12/1/2015
 

 
7,656

1400 Perimeter Park Drive(6)
 
4.25%
 
2.50%
 
12/1/2015
 

 
2,320

Miramar I(6)
 
4.25%
 
2.50%
 
12/1/2015
 

 
9,095

Miramar II(6)
 
4.25%
 
2.50%
 
12/1/2015
 

 
12,250

Total Secured Notes Payable
 
 
 
 
 
 
 
467,879

 
596,008

Plus Premium
 
 
 
 
 
 
 
11,587

 
15,494

Less Discount
 
 
 
 
 
 
 
(727
)
 
(894
)
Total Secured Notes Payable, Net
 
 
 
 
 
 
 
$
478,739

 
$
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)
In accordance with the provisions of this loan, beginning in February 2015, the property's excess cash proceeds after the payment of debt service, impounds and budgeted operating expenses are being held by the lender until the loan is repaid or the property is re-leased to the existing tenant under terms described in the loan agreement.
(3)
These five loans are cross-collaterialized.
(4)
This loan was paid off in full on February 2, 2015 prior to the maturity date.
(5)
This loan was paid off in full on June 3, 2015 prior to the maturity date.
(6)
These loans were paid off in full on September 2, 2015, prior to their maturity dates.

Unsecured Term Loan Facilities
The terms of our unsecured term loan facilities and outstanding balances as of September 30, 2015 and December 31, 2014 are set forth in the table below (in thousands):
Term Loan Facility
 
Unswapped Interest Rate
 
Effective Interest Rate(1)
 
Maturity Date
 
Outstanding Balance
 
 
 
 
September 30,
 
December 31,
 
 
 
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
WF Term Loan #2(2)
 
LIBOR + 1.50%
 
2.49%
 
3/7/2018
 
$
200,000

 
$
200,000

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

 
200,000

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

 
50,000

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

 
120,000

Total Unsecured Term Loan Facilities
 
 
 
 
 
 
 
$
570,000

 
$
570,000

__________
(1)
Represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the effect of the interest rate swaps, excluding debt issuance costs.
(2)
As of September 30, 2015 and December 31, 2014, the applicable LIBOR rate was 0.197% and 0.156%, respectively, for these loans.
(3)
As of September 30, 2015 and December 31, 2014, the applicable LIBOR rate was 0.197% and 0.155%, respectively, for this loan.

18

Table of Contents
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):
 
September 30,
 
December 31,
 
2015
 
2014
Outstanding Borrowings
$
290,044


$
200,044

Remaining Borrowing Capacity
559,956


649,956

Total Borrowing Capacity
$
850,000


$
850,000

Interest Rate(1)
1.50
%

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 September 30, 2015 and December 31, 2014.
(2)
The facility fee is based on the unsecured revolving credit facility's total borrowing capacity.
(3)
We may exercise an option to extend the maturity date by one year.
Debt Covenants and Restrictions
Certain of our secured notes payable are subject to financial covenants (interest coverage and loan to value ratio).
As of September 30, 2015, our unsecured term loan facilities and revolving credit facility were subject to certain financial covenants that require, among other things: the maintenance of (i) a leverage ratio of not more than 0.60; (ii) a fixed charge coverage ratio of at least 1.50; (iii) a secured leverage ratio of not more than 0.40; (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 September 30, 2015, we were in compliance with all financial debt covenants.
The minimum principal payments due for our secured notes payable, unsecured term loan facilities and unsecured revolving credit facility are as follows as of September 30, 2015 (in thousands):
Remaining 2015
$
3,588

2016
134,612

2017
46,822

2018
562,612

2019
308,768

Thereafter
271,521

 
$
1,327,923

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

19

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


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 September 30, 2015 and December 31, 2014 (amounts in thousands):
 
Notional Amount
 
Fair Value
 
Rate
 
 
 
 
Type of Hedging Instrument
September 30,
 
December 31,
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
Index
 
Maturity 
Date
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
 
Interest Rate Swap(1)
$
10,472

 
$
10,716

 
$
(118
)
 
$
(135
)
 
1.2
%
 
1.3
%
 
LIBOR
 
12/6/2016
Interest Rate Swap(2)
200,000

 
200,000

 
(1,143
)
 
1,467

 
0.8
%
 
0.8
%
 
LIBOR
 
3/7/2018
Interest Rate Swap(1)
20,878

 
21,580

 
(508
)
 
(354
)
 
1.6
%
 
1.6
%
 
LIBOR
 
5/31/2018
Interest Rate Swap
200,000

 
200,000

 
(4,467
)
 
(1,540
)
 
1.4