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

Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2017
or 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from . to .

Commission File No. 1-35933 (Gramercy Property Trust)
Commission File No. 33-219049 (GPT Operating Partnership LP)
Gramercy Property Trust
GPT Operating Partnership LP
(Exact name of registrant as specified in its charter) 

Gramercy Property Trust
 
Maryland
 
56-2466617
GPT Operating Partnership LP
 
Delaware
 
56-2466618
 
 
(State or other jurisdiction
incorporation or organization)
 
(I.R.S. Employer of
Identification No.)
 
 
 
 
 
90 Park Avenue, 32nd Floor, New York, NY 10016
(Address of principal executive offices – zip code)
 
 
 
 
 
(212) 297-1000
(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. 
Gramercy Property Trust    Yes x      No ¨        GPT Operating Partnership LP Yes x      No ¨
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). 
Gramercy Property Trust    Yes x      No ¨        GPT Operating Partnership LP Yes x      No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Gramercy Property Trust
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨
(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
GPT Operating Partnership LP
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x
Smaller reporting company ¨
Emerging growth company ¨
(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Gramercy Property Trust    Yes ¨      No x        GPT Operating Partnership LP Yes ¨      No x

The number of shares outstanding of Gramercy Property Trust’s common shares of beneficial interest, $0.01 par value, was 151,916,981 as of July 31, 2017.



EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2017 of Gramercy Property Trust and GPT Operating Partnership LP. Unless stated otherwise or the context otherwise requires, references to "Gramercy Property Trust," the "Company" or "Gramercy" mean Gramercy Property Trust and its consolidated subsidiaries; and references to "GPT Operating Partnership LP," the "Operating Partnership" or "GPTOP" mean GPT Operating Partnership LP and its consolidated subsidiaries. The terms "we," "our" and "us" mean the Company and all the entities owned or controlled by the Company, including the Operating Partnership.
The Company is a Maryland real estate investment trust, or REIT, which operates as a self-administered and self-managed entity and is the sole general partner of the Operating Partnership. As the general partner of the Operating Partnership, the Company has full, exclusive and complete responsibility and discretion in the day-to-day management and control of the Operating Partnership.
As of June 30, 2017 the Company owned 99.64% of the outstanding general and limited partnership interest in the Operating Partnership. As of June 30, 2017, noncontrolling investors owned approximately 0.36% of the outstanding limited partnership interest in the Operating Partnership. We refer to these interests as the noncontrolling interests in the Operating Partnership.
The Company and the Operating Partnership are managed and operated as one entity. The financial results of the Operating Partnership are consolidated into the financial statements of the Company. The Company has no significant assets other than its investment in the Operating Partnership. Substantially all of the Company’s assets are held by, and its operations are conducted through, the Operating Partnership. Therefore, the assets and liabilities of the Company and the Operating Partnership are substantially the same.
Noncontrolling interests in the Operating Partnership, shareholders' equity of the Company and partners' capital of the Operating Partnership are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership.
We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:
Combined reports enhance investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
Combined reports eliminate duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the Company's disclosure applies to both the Company and the Operating Partnership; and
Combined reports create time and cost efficiencies through the preparation of one combined report instead of two separate reports.
To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:
consolidated financial statements; and
the following notes to the consolidated financial statements:
Note 11, Shareholders' Equity (Deficit) of the Company;
Note 12, Partners' Capital of the Operating Partnership; and
Note 13, Noncontrolling Interests.



This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Company and the Operating Partnership, respectively, in order to establish that the Chief Executive Officer and the Chief Financial Officer of the Company, in both their capacity as the principal executive officer and principal financial officer of the Company and the principal executive officer and principal financial officer of the general partner of the Operating Partnership, have made the requisite certifications and that the Company and the Operating Partnership are compliant with Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended.



GRAMERCY PROPERTY TRUST
FORM 10-Q
TABLE OF CONTENTS
 
 
 
Page
PART I.
 
 
ITEM 1.
 
 
 
 
Financial Statements of Gramercy Property Trust
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statements of GPT Operating Partnership LP
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
ITEM 3.
 
ITEM 4.
 
PART II.
 
ITEM 1.
 
ITEM 1A.
 
ITEM 2.
 
ITEM 3.
 
ITEM 4.
 
ITEM 5.
 
ITEM 6.
 
 


Gramercy Property Trust
Condensed Consolidated Balance Sheets
(Unaudited, amounts in thousands, except share and per share data)

PART I.
FINANCIAL INFORMATION
ITEM I.
FINANCIAL STATEMENTS
 
June 30, 2017
 
December 31, 2016
Assets:
 

 
 

Real estate investments, at cost:
 

 
 

Land
$
796,476

 
$
805,264

Building and improvements
4,118,785

 
4,053,125

Less: accumulated depreciation
(259,826
)
 
(201,525
)
Total real estate investments, net
4,655,435

 
4,656,864

Cash and cash equivalents
163,509

 
67,529

Restricted cash
40,326

 
12,904

Investment in unconsolidated equity investments
114,880

 
101,807

Assets held for sale, net
14,741

 

Tenant and other receivables, net
65,976

 
72,795

Acquired lease assets, net of accumulated amortization of $174,792 and $133,710
563,231

 
618,680

Other assets
68,808

 
72,948

Total assets
$
5,686,906

 
$
5,603,527

Liabilities and Equity:
 
 
 
Liabilities:
 
 
 
Senior unsecured revolving credit facility
$
70,955

 
$
65,837

Exchangeable senior notes, net
110,154

 
108,832

Mortgage notes payable, net
495,404

 
558,642

Senior unsecured notes, net
496,584

 
496,464

Senior unsecured term loans
1,225,000

 
1,225,000

Total long-term debt, net
2,398,097

 
2,454,775

Accounts payable and accrued expenses
39,738

 
58,380

Dividends payable
57,597

 
53,074

Below market lease liabilities, net of accumulated amortization of $26,091 and $26,416
175,635

 
230,183

Liabilities related to assets held for sale
7,960

 

Other liabilities
43,748

 
46,081

Total liabilities
$
2,722,775

 
$
2,842,493

Commitments and contingencies

 

Noncontrolling interest in the Operating Partnership
6,412

 
8,643

Equity:
 
 
 
Common shares, par value $0.01, 151,889,880 and 140,647,971 issued and outstanding at June 30, 2017 and December 31, 2016, respectively
1,519

 
1,406

Series A cumulative redeemable preferred shares, par value $0.01, liquidation preference $87,500, and 3,500,000 shares authorized, issued and outstanding at June 30, 2017 and December 31, 2016
84,394

 
84,394

Additional paid-in-capital
4,187,431

 
3,887,793

Accumulated other comprehensive loss
(1,655
)
 
(4,128
)
Accumulated deficit
(1,313,607
)
 
(1,216,753
)
Total shareholders' equity
2,958,082

 
2,752,712

Noncontrolling interest in other partnerships
(363
)
 
(321
)
Total equity
$
2,957,719

 
$
2,752,391

Total liabilities and equity
$
5,686,906

 
$
5,603,527


The accompanying notes are an integral part of these financial statements.
1

Gramercy Property Trust
Condensed Consolidated Statements of Operations
(Unaudited, amounts in thousands, except share and per share data)


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Revenues
 

 
 

 
 
 
 
Rental revenue
$
108,261

 
$
98,517

 
$
211,543

 
$
190,612

Third-party management fees
1,638

 
18,310

 
6,230

 
23,356

Operating expense reimbursements
19,628

 
21,905

 
39,996

 
44,487

Other income
1,838

 
693

 
3,590

 
1,515

Total revenues
131,365

 
139,425

 
261,359

 
259,970

Operating Expenses
 

 
 

 
 

 
 
Property operating expenses
23,219

 
23,510

 
46,405

 
47,679

Property management expenses
2,435

 
5,591

 
5,519

 
10,112

Depreciation and amortization
62,176

 
60,538

 
124,393

 
118,786

General and administrative expenses
9,100

 
8,005

 
17,856

 
15,727

Acquisition expenses

 
4,312

 

 
4,722

Total operating expenses
96,930

 
101,956

 
194,173

 
197,026

Operating Income
34,435

 
37,469

 
67,186

 
62,944

Other Expenses:
 
 
 
 
 
 
 
Interest expense
(23,239
)
 
(16,909
)
 
(46,295
)
 
(38,862
)
Other-than-temporary impairment

 

 
(4,081
)
 

Portion of impairment recognized in other comprehensive loss

 

 
(809
)
 

Net impairment recognized in earnings

 

 
(4,890
)
 

Equity in net income (loss) of unconsolidated equity investments
248

 
(168
)
 
154

 
(2,923
)
Gain on dissolution of previously held U.S. unconsolidated equity investment interests

 
7,229

 

 
7,229

Gain (loss) on extinguishment of debt
268

 
(1,356
)
 
60

 
(7,113
)
Impairment of real estate investments
(5,580
)
 

 
(18,351
)
 

Income (loss) from continuing operations before provision for taxes
6,132

 
26,265

 
(2,136
)
 
21,275

Provision for taxes
(147
)
 
(2,700
)
 
49

 
(3,403
)
Income (loss) from continuing operations
5,985

 
23,565

 
(2,087
)
 
17,872

Income (loss) from discontinued operations before gain on extinguishment of debt
(28
)
 
58

 
(52
)
 
2,768

Gain on extinguishment of debt

 

 

 
1,930

Income (loss) from discontinued operations
(28
)
 
58

 
(52
)
 
4,698

Income (loss) before net gain on disposals
5,957

 
23,623

 
(2,139
)
 
22,570

Net gain on disposals
2,002

 

 
19,379

 

Gain on sale of European unconsolidated equity investment interests held with a related party

 
5,341

 

 
5,341

Net income
7,959

 
28,964

 
17,240

 
27,911

Net (income) loss attributable to noncontrolling interest
113

 
(51
)
 
(41
)
 
69

Net income attributable to Gramercy Property Trust
8,072

 
28,913

 
17,199

 
27,980

Preferred share dividends
(1,558
)
 
(1,558
)
 
(3,117
)
 
(3,117
)
Net income available to common shareholders
$
6,514

 
$
27,355

 
$
14,082

 
$
24,863

Basic earnings per share:
 

 
 

 
 
 
 
Net income from continuing operations, after preferred dividends
$
0.04

 
$
0.19

 
$
0.09

 
$
0.14

Net income (loss) from discontinued operations

 

 

 
0.03

Net income available to common shareholders
$
0.04

 
$
0.19

 
$
0.09

 
$
0.17

Diluted earnings per share:
 

 
 

 
 
 
 
Net income from continuing operations, after preferred dividends
$
0.04

 
$
0.19

 
$
0.09

 
$
0.14

Net income (loss) from discontinued operations

 

 

 
0.03

Net income available to common shareholders
$
0.04

 
$
0.19

 
$
0.09

 
$
0.17

Basic weighted average common shares outstanding
148,542,916

 
140,776,976

 
144,746,251

 
140,664,885

Diluted weighted average common shares outstanding
149,914,443

 
142,514,202

 
145,965,936

 
142,088,590

 

The accompanying notes are an integral part of these financial statements.
2

Gramercy Property Trust
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, amounts in thousands)


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
7,959

 
$
28,964

 
$
17,240

 
$
27,911

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on available for sale debt securities
1,251

 
33

 
(1,569
)
 
967

Unrealized gain (loss) on derivative instruments
(2,692
)
 
(11,460
)
 
1,686

 
(33,649
)
Reclassification of accumulated foreign currency translation adjustments due to disposal

 
(3,737
)
 

 
(3,737
)
Foreign currency translation adjustments
1,101

 
(8,686
)
 
1,792

 
(2,567
)
Reclassification of unrealized loss on terminated derivative instruments into earnings
271

 
271

 
539

 
631

Other comprehensive income (loss)
$
(69
)
 
$
(23,579
)
 
$
2,448

 
$
(38,355
)
Comprehensive income (loss)
$
7,890

 
$
5,385

 
$
19,688

 
$
(10,444
)
Net (income) loss attributable to noncontrolling interest
113

 
(51
)
 
(41
)
 
69

Other comprehensive (income) loss attributable to noncontrolling interest
25

 
(67
)
 
14

 
(115
)
Comprehensive income (loss) attributable to Gramercy Property Trust
$
8,028

 
$
5,267

 
$
19,661

 
$
(10,490
)
 


The accompanying notes are an integral part of these financial statements.
3


Gramercy Property Trust
Condensed Consolidated Statement of Shareholders’ Equity (Deficit) and Noncontrolling Interests
(Unaudited, amounts in thousands, except share data)

 
Common Shares
 
Preferred Shares
 
Additional Paid-In-Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings / (Accumulated Deficit)
 
Total Gramercy Property Trust
 
Noncontrolling Interest
 
 
 
Shares
 
Par Value
 
 
 
 
 
 
 
Total
Balance at December 31, 2016
140,647,971

 
$
1,406

 
$
84,394

 
$
3,887,793

 
$
(4,128
)
 
$
(1,216,753
)
 
$
2,752,712

 
$
(321
)
 
$
2,752,391

Net income (loss)

 

 

 

 

 
17,199

 
17,199

 
(17
)
 
17,182

Change in net unrealized loss on derivative instruments

 

 

 

 
1,686

 

 
1,686

 

 
1,686

Change in net unrealized gain on debt securities

 

 

 

 
(1,569
)
 

 
(1,569
)
 

 
(1,569
)
Reclassification of unrealized gain on terminated derivative instruments into earnings

 

 

 

 
539

 

 
539

 

 
539

Offering costs

 

 

 
(12,346
)
 

 

 
(12,346
)
 

 
(12,346
)
Issuance of shares
11,081,453

 
111

 

 
305,549

 

 

 
305,660

 

 
305,660

Share based compensation - fair value
58,645

 
1

 

 
4,212

 

 

 
4,213

 

 
4,213

Dividend reinvestment program proceeds
3,802

 

 

 
103

 

 

 
103

 

 
103

Conversion of OP Units to common shares
98,009

 
1

 

 
2,696

 

 

 
2,697

 

 
2,697

Reallocation of noncontrolling interest in the Operating Partnership

 

 

 
(576
)
 

 

 
(576
)
 

 
(576
)
Foreign currency translation adjustment

 

 

 

 
1,817

 

 
1,817

 
(25
)
 
1,792

Dividends on preferred shares

 

 

 

 

 
(3,117
)
 
(3,117
)
 

 
(3,117
)
Dividends on common shares

 

 

 

 

 
(110,936
)
 
(110,936
)
 

 
(110,936
)
Balance at June 30, 2017
151,889,880

 
$
1,519

 
$
84,394

 
$
4,187,431

 
$
(1,655
)
 
$
(1,313,607
)
 
$
2,958,082

 
$
(363
)
 
$
2,957,719



The accompanying notes are an integral part of these financial statements.
4


Gramercy Property Trust
Condensed Consolidated Statements of Cash Flows
(Unaudited, amounts in thousands)

 
Six Months Ended June 30,
 
2017
 
2016
Operating Activities:
 

 
 

Net income
$
17,240

 
$
27,911

Adjustments to net cash provided by operating activities:
 
 
 
Depreciation and amortization
124,393

 
118,786

Amortization of acquired leases to rental revenue and expense
(5,400
)
 
(5,773
)
Amortization of deferred costs
1,274

 
679

Amortization of discounts and other fees
33

 
(2,102
)
Amortization of lease inducement costs
173

 
173

Straight-line rent adjustment
(14,718
)
 
(12,716
)
Other-than-temporary impairment on retained bonds
4,890

 

Impairment of real estate investments
18,351

 

Net gain on disposals
(19,379
)
 

Distributions received from unconsolidated equity investments
689

 
13,775

Equity in net (income) loss of unconsolidated equity investments
(154
)
 
2,923

Gain on remeasurement of previously held unconsolidated equity investment interests

 
(7,229
)
Gain from sale of unconsolidated equity investment interests held with a related party

 
(5,341
)
(Gain) loss on extinguishment of debt
(60
)
 
5,183

Amortization of share-based compensation
4,058

 
2,422

Other non-cash adjustments

 
150

Changes in operating assets and liabilities:
 
 
 
Restricted cash
(19
)
 
716

Payment of capitalized leasing costs
(6,008
)
 
(9,558
)
Tenant and other receivables
20,031

 
(11,842
)
Other assets
(3,125
)
 
(7,480
)
Accounts payable and accrued expenses
(14,331
)
 
(27,056
)
Other liabilities
(1,895
)
 
(9,319
)
Net cash provided by operating activities
126,043

 
74,302

Investing Activities:
 
 
 
Capital expenditures
(46,119
)
 
(9,474
)
Distributions from investing activities received from unconsolidated equity investments

 
47,408

Proceeds from sales of unconsolidated equity investment interests held with a related party

 
149,286

Proceeds from sale of real estate
207,553

 
528,870

Return of restricted cash held in escrow for 1031 exchange
(27,691
)
 
(42,908
)
Contributions to unconsolidated equity investments
(7,400
)
 
(32,566
)
Acquisition of real estate
(284,689
)
 
(304,267
)
Restricted cash for tenant improvements
1,168

 
3,304

Proceeds from servicing advances receivable

 
1,390

Net cash (used in) provided by investing activities
(157,178
)
 
341,043

Financing Activities:
 
 
 
Proceeds from unsecured term loan and credit facility
155,000

 
173,160

Proceeds from senior unsecured notes

 
50,000

Repayment of unsecured term loans and credit facility
(155,000
)
 
(300,000
)
Proceeds from mortgage notes payable
2,582

 
9,550

Repayment of mortgage notes payable
(58,014
)
 
(215,179
)
Offering costs
(12,346
)
 

Proceeds from sale of common shares
305,763

 

Payment of deferred financing costs
(213
)
 
(1,734
)
Payment of debt extinguishment costs

 
(15,836
)
Preferred share dividends paid
(3,117
)
 
(3,117
)
Common share dividends paid
(106,377
)
 
(55,175
)
Proceeds from exercise of share options and purchases under the employee share purchase plan

 
167

Distribution to noncontrolling interest in the Operating Partnership
(205
)
 
(177
)
Change in restricted cash from financing activities
(880
)
 
(25
)
Net cash provided by (used in) financing activities
127,193

 
(358,366
)
Net increase in cash and cash equivalents
96,058

 
56,979

Increase (decrease) in cash and cash equivalents related to foreign currency translation
(78
)
 
131

Cash and cash equivalents at beginning of period
67,529

 
128,031

Cash and cash equivalents at end of period
$
163,509

 
$
185,141


The accompanying notes are an integral part of these financial statements.
5

GPT Operating Partnership LP
Condensed Consolidated Balance Sheets
(Unaudited, amounts in thousands, except unit, share, per unit, and per share data)

 
June 30, 2017
 
December 31, 2016
Assets:
 

 
 

Real estate investments, at cost:
 

 
 

Land
$
796,476

 
$
805,264

Building and improvements
4,118,785

 
4,053,125

Less: accumulated depreciation
(259,826
)
 
(201,525
)
Total real estate investments, net
4,655,435

 
4,656,864

Cash and cash equivalents
163,509

 
67,529

Restricted cash
40,326

 
12,904

Investment in unconsolidated equity investments
114,880

 
101,807

Assets held for sale, net
14,741

 

Tenant and other receivables, net
65,976

 
72,795

Acquired lease assets, net of accumulated amortization of $174,792 and $133,710
563,231

 
618,680

Other assets
68,808

 
72,948

Total assets
$
5,686,906

 
$
5,603,527

Liabilities and Partners’ Capital:
 
 
 
Liabilities:
 
 
 
Senior unsecured revolving credit facility
$
70,955

 
$
65,837

Exchangeable senior notes, net
110,154

 
108,832

Mortgage notes payable, net
495,404

 
558,642

Senior unsecured notes, net
496,584

 
496,464

Senior unsecured term loans
1,225,000

 
1,225,000

Total long-term debt, net
2,398,097

 
2,454,775

Accounts payable and accrued expenses
39,738

 
58,380

Dividends and distributions payable
57,597

 
53,074

Below market lease liabilities, net of accumulated amortization of $26,091 and $26,416
175,635

 
230,183

Liabilities related to assets held for sale
7,960

 

Other liabilities
43,748

 
46,081

Total liabilities
$
2,722,775

 
$
2,842,493

Commitments and contingencies
 
 
 
Limited partner interest in the Operating Partnership (545,589 and 643,596 limited partner common units outstanding at June 30, 2017 and December 31, 2016, respectively)
6,412

 
8,643

Partners’ Capital:
 
 
 
Series A cumulative redeemable preferred units, liquidation preference $87,500, and 3,500,000 units issued and outstanding at June 30, 2017 and December 31, 2016
84,394

 
84,394

GPT partners’ capital (1,520,626 and 1,412,916 general partner common units and 149,996,382 and 139,235,055 limited partner common units outstanding at June 30, 2017 and December 31, 2016, respectively)
2,875,343

 
2,672,446

Accumulated other comprehensive loss
(1,655
)
 
(4,128
)
Total GPTOP partners' capital
2,958,082

 
2,752,712

Noncontrolling interest in other partnerships
(363
)
 
(321
)
Total partners’ capital
$
2,957,719

 
$
2,752,391

Total liabilities and partners’ capital
$
5,686,906

 
$
5,603,527



The accompanying notes are an integral part of these financial statements.
6

GPT Operating Partnership LP
Condensed Consolidated Statements of Operations
(Unaudited, amounts in thousands, except unit, share, per unit, and per share data)


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Revenues
 

 
 

 
 
 
 
Rental revenue
$
108,261

 
$
98,517

 
$
211,543

 
$
190,612

Third-party management fees
1,638

 
18,310

 
6,230

 
23,356

Operating expense reimbursements
19,628

 
21,905

 
39,996

 
44,487

Other income
1,838

 
693

 
3,590

 
1,515

Total revenues
131,365

 
139,425

 
261,359

 
259,970

Operating Expenses
 
 
 
 
 
 
 
Property operating expenses
23,219

 
23,510

 
46,405

 
47,679

Property management expenses
2,435

 
5,591

 
5,519

 
10,112

Depreciation and amortization
62,176

 
60,538

 
124,393

 
118,786

General and administrative expenses
9,100

 
8,005

 
17,856

 
15,727

Acquisition expenses

 
4,312

 

 
4,722

Total operating expenses
96,930

 
101,956

 
194,173

 
197,026

Operating Income
34,435

 
37,469

 
67,186

 
62,944

Other Expenses:
 
 
 
 
 
 
 
Interest expense
(23,239
)
 
(16,909
)
 
(46,295
)
 
(38,862
)
Other-than-temporary impairment

 

 
(4,081
)
 

Portion of impairment recognized in other comprehensive loss

 

 
(809
)
 

Net impairment recognized in earnings

 

 
(4,890
)
 

Equity in net income (loss) of unconsolidated equity investments
248

 
(168
)
 
154

 
(2,923
)
Gain on dissolution of previously held U.S. unconsolidated equity investment interests

 
7,229

 

 
7,229

Gain (loss) on extinguishment of debt
268

 
(1,356
)
 
60

 
(7,113
)
Impairment of real estate investments
(5,580
)
 

 
(18,351
)
 

Income (loss) from continuing operations before provision for taxes
6,132

 
26,265

 
(2,136
)
 
21,275

Provision for taxes
(147
)
 
(2,700
)
 
49

 
(3,403
)
Income (loss) from continuing operations
5,985

 
23,565

 
(2,087
)
 
17,872

Income (loss) from discontinued operations before gain on extinguishment of debt
(28
)
 
58

 
(52
)
 
2,768

Gain on extinguishment of debt

 

 

 
1,930

Income (loss) from discontinued operations
(28
)
 
58

 
(52
)
 
4,698

Income (loss) before net gain on disposals
5,957

 
23,623

 
(2,139
)
 
22,570

Net gain on disposals
2,002

 

 
19,379

 

Gain on sale of European unconsolidated equity investment interests held with a related party

 
5,341

 

 
5,341

Net income
7,959

 
28,964

 
17,240

 
27,911

 Net income attributable to noncontrolling interest in other partnerships
137

 
27

 
17

 
139

 Net income attributable to GPTOP
8,096

 
28,991

 
17,257

 
28,050

 Preferred unit distributions
(1,558
)
 
(1,558
)
 
(3,117
)
 
(3,117
)
 Net income available to common unitholders
$
6,538

 
$
27,433

 
$
14,140

 
$
24,933

Basic earnings per unit:
 

 
 

 
 

 
 

 Net income from continuing operations, after preferred unit distributions
$
0.04

 
$
0.19

 
$
0.09

 
$
0.14

 Net income (loss) from discontinued operations

 

 

 
0.03

 Net income available to common unitholders
$
0.04

 
$
0.19

 
$
0.09

 
$
0.17

Diluted earnings per unit:
 
 
 
 
 

 
 

 Net income from continuing operations, after preferred unit distributions
$
0.04

 
$
0.19

 
$
0.09

 
$
0.14

 Net income (loss) from discontinued operations

 

 

 
0.03

 Net income available to common unitholders
$
0.04

 
$
0.19

 
$
0.09

 
$
0.17

Basic weighted average common units outstanding
149,103,359

 
141,179,745

 
145,336,798

 
141,095,320

Diluted weighted average common units outstanding
150,474,886

 
142,514,202

 
146,556,483

 
142,088,590


The accompanying notes are an integral part of these financial statements.
7

GPT Operating Partnership LP
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, amounts in thousands)


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
7,959

 
$
28,964

 
$
17,240

 
$
27,911

Other comprehensive income (loss):
 
 
 
 
 

 
 
Unrealized gain (loss) on available for sale debt securities
1,251

 
33

 
(1,569
)
 
967

Unrealized gain (loss) on derivative instruments
(2,692
)
 
(11,460
)
 
1,686

 
(33,649
)
Reclassification of accumulated foreign currency translation adjustments due to disposal

 
(3,737
)
 

 
(3,737
)
Foreign currency translation adjustments
1,101

 
(8,686
)
 
1,792

 
(2,567
)
Reclassification of unrealized loss on terminated derivative instruments into earnings
271

 
271

 
539

 
631

Other comprehensive income (loss)
(69
)
 
(23,579
)
 
2,448

 
(38,355
)
Comprehensive income (loss)
$
7,890

 
$
5,385

 
$
19,688

 
$
(10,444
)
 Net loss attributable to noncontrolling interest in other partnerships
137

 
27

 
17

 
139

Other comprehensive loss attributable to noncontrolling interest in other partnerships
25

 

 
25

 

 Comprehensive income (loss) attributable to GPTOP
$
8,052

 
$
5,412

 
$
19,730

 
$
(10,305
)


The accompanying notes are an integral part of these financial statements.
8

GPT Operating Partnership LP
Condensed Consolidated Statement of Partners' Capital
(Unaudited, amounts in thousands, except unit data)


 
Partners' Interest
 
Series A Preferred Units
 
Accumulated Other Comprehensive Income (Loss)
 
Total GPTOP
 
Noncontrolling Interest
 
 
 
Common Units
 
Common Unitholders
 
 
 
 
 
Total
Balance at December 31, 2016
140,647,971

 
$
2,672,446

 
$
84,394

 
$
(4,128
)
 
$
2,752,712

 
$
(321
)
 
$
2,752,391

Net income (loss)

 
17,199

 

 

 
17,199

 
(17
)
 
17,182

Change in net unrealized loss on derivative instruments

 

 

 
1,686

 
1,686

 

 
1,686

Change in net unrealized gain on debt securities

 

 

 
(1,569
)
 
(1,569
)
 

 
(1,569
)
Reclassification of unrealized gain of terminated derivative instruments into earnings

 

 

 
539

 
539

 

 
539

Offering costs

 
(12,346
)
 

 

 
(12,346
)
 

 
(12,346
)
Issuance of common units resulting from public issuance of common shares
11,081,453

 
305,660

 

 

 
305,660

 

 
305,660

Share based compensation - fair value
58,645

 
4,213

 

 

 
4,213

 

 
4,213

Distribution reinvestment program proceeds
3,802

 
103

 

 

 
103

 

 
103

Conversion of OP Units to common units
98,009

 
2,697

 

 

 
2,697

 

 
2,697

Reallocation of limited partner interest in the Operating Partnership

 
(576
)
 

 

 
(576
)
 

 
(576
)
Foreign currency translation adjustment

 

 
 
 
1,817

 
1,817

 
(25
)
 
1,792

Distributions on preferred units

 
(3,117
)
 

 

 
(3,117
)
 

 
(3,117
)
Distributions on common units

 
(110,936
)
 

 

 
(110,936
)
 

 
(110,936
)
Balance at June 30, 2017
151,889,880

 
$
2,875,343

 
$
84,394

 
$
(1,655
)
 
$
2,958,082

 
$
(363
)
 
$
2,957,719



The accompanying notes are an integral part of these financial statements.
9

GPT Operating Partnership LP
Condensed Consolidated Statements of Cash Flows
(Unaudited, amounts in thousands)


 
Six Months Ended June 30,
 
2017
 
2016
Operating Activities:
 

 
 

Net income
$
17,240

 
$
27,911

Adjustments to net cash provided by operating activities:
 
 
 
Depreciation and amortization
124,393

 
118,786

Amortization of acquired leases to rental revenue and expense
(5,400
)
 
(5,773
)
Amortization of deferred costs
1,274

 
679

Amortization of discounts and other fees
33

 
(2,102
)
Amortization of lease inducement costs
173

 
173

Straight-line rent adjustment
(14,718
)
 
(12,716
)
Other-than-temporary impairment on retained bonds
4,890

 

Non-cash impairment charges
18,351

 

Gain on sale of properties
(19,379
)
 

Distributions received from unconsolidated equity investments
689

 
13,775

Equity in net income (loss) of unconsolidated equity investments
(154
)
 
2,923

Gain on remeasurement of previously held unconsolidated equity investment interests

 
(7,229
)
Gain from sale of unconsolidated equity investment interests held with a related party

 
(5,341
)
Gain (loss) on extinguishment of debt
(60
)
 
5,183

Amortization of share-based compensation
4,058

 
2,422

Other non-cash adjustments

 
150

Changes in operating assets and liabilities:
 
 
 
Restricted cash
(19
)
 
716

Payment of capitalized leasing costs
(6,008
)
 
(9,558
)
Tenant and other receivables
20,031

 
(11,842
)
Other assets
(3,125
)
 
(7,480
)
Accounts payable and accrued expenses
(14,331
)
 
(27,056
)
Other liabilities
(1,895
)
 
(9,319
)
Net cash provided by operating activities
126,043

 
74,302

Investing Activities:
 
 
 
Capital expenditures
(46,119
)
 
(9,474
)
Distributions from investing activities received from unconsolidated equity investments

 
47,408

Proceeds from sales of unconsolidated equity investment interests held with a related party

 
149,286

Proceeds from sale of real estate
207,553

 
528,870

Return of restricted cash held in escrow for 1031 exchange
(27,691
)
 
(42,908
)
Contributions unconsolidated equity investments
(7,400
)
 
(32,566
)
Acquisition of real estate
(284,689
)
 
(304,267
)
Restricted cash for tenant improvements
1,168

 
3,304

Proceeds from servicing advances receivable

 
1,390

Net cash (used in) provided by investing activities
(157,178
)
 
341,043

Financing Activities:
 
 
 
Proceeds from unsecured term loan and credit facility
155,000

 
173,160

Proceeds from senior unsecured notes

 
50,000

Repayment of unsecured term loans and credit facility
(155,000
)
 
(300,000
)
Proceeds from mortgage notes payable
2,582

 
9,550

Repayment of mortgage notes payable
(58,014
)
 
(215,179
)
Offering costs
(12,346
)
 

Proceeds from issuance of common units
305,763

 

Payment of deferred financing costs
(213
)
 
(1,734
)
Payment of debt extinguishment costs

 
(15,836
)
Preferred unit distributions paid
(3,117
)
 
(3,117
)
Common unit distributions paid
(106,377
)
 
(55,175
)
Proceeds from exercise of share options and purchases under the employee share purchase plan

 
167

Distribution to limited partnership interest in the Operating Partnerships
(205
)
 
(177
)
Change in restricted cash from financing activities
(880
)
 
(25
)
Net cash provided by (used in) financing activities
127,193

 
(358,366
)
Net increase in cash and cash equivalents
96,058

 
56,979

Increase (decrease) in cash and cash equivalents related to foreign currency translation
(78
)
 
131

Cash and cash equivalents at beginning of period
67,529

 
128,031

Cash and cash equivalents at end of period
$
163,509

 
$
185,141


The accompanying notes are an integral part of these financial statements.
10

Gramercy Property Trust and GPT Operating Partnership LP
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, unit, per share, per unit, and property data)
June 30, 2017


1. Business and Organization
Gramercy Property Trust, or the Company or Gramercy, a Maryland real estate investment trust, or REIT, together with its subsidiary, GPT Operating Partnership LP, or the Operating Partnership, is a leading global investor and asset manager of commercial real estate. Gramercy specializes in acquiring and managing high quality, income producing commercial real estate leased to high quality tenants in major markets in the United States and Europe.
Gramercy earns revenues primarily through rental revenues on properties that it owns in the United States and asset management revenues on properties owned by third parties in the United States and Europe. The Company also owns unconsolidated equity investments in the United States, Europe, and Asia. The Company's operations are conducted primarily through the Operating Partnership. As of June 30, 2017, third-party holders of limited partnership interests owned approximately 0.36% of the Operating Partnership. These interests are referred to as the noncontrolling interests in the Operating Partnership.
As of June 30, 2017, the Company’s wholly-owned portfolio consists of 320 properties comprising 67,485,724 rentable square feet with 97.7% occupancy. As of June 30, 2017, the Company has ownership interests in 52 industrial and office properties which are held in unconsolidated equity investments in the United States and Europe and two properties held through the investment in CBRE Strategic Partners Asia. As of June 30, 2017, the Company manages approximately $1,341,000 of commercial real estate assets, primarily on behalf of its joint venture partners, including approximately $1,048,000 of assets in Europe.
During the six months ended June 30, 2017, the Company acquired 19 properties aggregating 4,750,354 square feet for a total purchase price of approximately $302,412, including the acquisition of a previously consolidated variable interest entity, or VIE, for $29,605, a vacant property for $2,400, and two land parcels for $6,840. Additionally, during the six months ended June 30, 2017, the Company acquired two land parcels for an aggregate purchase price of $2,800, on which it has committed to construct industrial facilities for an estimated $49,077. During the six months ended June 30, 2017, the Company sold 17 properties and two offices from another asset aggregating 2,227,753 square feet for total gross proceeds of approximately $234,985.
Prior to December 17, 2015, the Company was known as Chambers Street Properties, or Chambers. On December 17, 2015, Chambers completed a merger, or the Merger, with Gramercy Property Trust Inc., or Legacy Gramercy. While Chambers was the surviving legal entity, immediately following consummation of the Merger, the Company changed its name to “Gramercy Property Trust” and its New York Stock Exchange, or NYSE, trading symbol to “GPT.”
Unless the context requires otherwise, all references to “Company,” “Gramercy,” "we," "our" and "us" mean Legacy Gramercy and its subsidiaries, including Legacy Gramercy’s operating partnership and its subsidiaries, for the periods prior to the Merger closing and Gramercy Property Trust and its subsidiaries, including the Operating Partnership and its consolidated subsidiaries, for periods following the Merger closing.
2. Significant Accounting Policies
Basis of Quarterly Presentation
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information and with the

11

Gramercy Property Trust and GPT Operating Partnership LP
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, unit, per share, per unit, and property data)
June 30, 2017

instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In management’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. The 2017 operating results for the period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and in the Operating Partnership’s audited financial statements for the year ended December 31, 2016 filed as an exhibit to the Company’s Form 8-K filed on June 29, 2017. The Condensed Consolidated Balance Sheets at December 31, 2016 were derived from the audited Consolidated Financial Statements at that date.
Reclassifications
Certain prior year balances have been reclassified to conform with the current year presentation. These reclassifications had no effect on the previously reported net income. On the Condensed Consolidated Statements of Operations, the Company reclassified investment income of $503 and $946 for the three and six months ended June 30, 2016, respectively, into other income.
Principles of Consolidation
The Condensed Consolidated Financial Statements include the Company’s accounts and those of the Company’s subsidiaries which are wholly-owned or controlled by the Company, or entities which are VIEs in which the Company is the primary beneficiary. The primary beneficiary is the party that absorbs a majority of the VIE’s anticipated losses and/or a majority of the expected returns. The Company has evaluated its investments for potential classification as variable interests by evaluating the sufficiency of each entity’s equity investment at risk to absorb losses.
Entities which the Company does not control and are considered VIEs, but where the Company is not the primary beneficiary, are accounted for under the equity method. All significant intercompany balances and transactions have been eliminated. The equity interests of other limited partners in the Company’s Operating Partnership are reflected as noncontrolling interests. See Note 13 for more information on the Company’s noncontrolling interests.
Real Estate Investments
Real Estate Acquisitions
In January 2017, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2017-01, Amendments to Business Combinations, which clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. Although the Company is not required to implement ASU 2017-01 until annual periods beginning after December 15, 2017, including interim periods within those periods, the Company early adopted the new standard in the first quarter of 2017. As a result, the Company evaluated its real estate acquisitions during the six months ended June 30, 2017 under the new framework and determined the properties acquired did not meet the definition of a business, thus the transactions were accounted for as asset acquisitions. Refer to the "Recently Issued Accounting Pronouncements" section below for more information on the new guidance and refer to Note 4 for more information on the transactions during the six months ended June 30, 2017.

12

Gramercy Property Trust and GPT Operating Partnership LP
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, unit, per share, per unit, and property data)
June 30, 2017

The Company evaluates its acquisitions of real estate, including equity interests in entities that predominantly hold real estate assets, to determine if the acquired assets meet the definition of a business and need to be accounted for as a business combination, or alternatively, should be accounted for as an asset acquisition. An integrated set of assets and activities acquired does not meet the definition of a business if either (i) substantially all the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets, or (ii) the asset and activities acquired do not contain at least an input and a substantive process that together significantly contribute to the ability to create outputs. The Company expects that its acquisitions of real estate will continue to not meet the revised definition of a business.
Acquisitions of real estate that do not meet the definition of a business, including sale-leaseback transactions that have newly-originated leases and real estate investments under construction, or build-to-suit investments, are recorded as asset acquisitions. The accounting for asset acquisitions is similar to the accounting for business combinations, except that the acquisition consideration, including acquisition costs, is allocated to the individual assets acquired and liabilities assumed on a relative fair value basis. Based on this allocation methodology, asset acquisitions do not result in the recognition of goodwill or a bargain purchase. The Company incurs internal transaction costs, which are direct, incremental internal costs related to acquisitions, that are recorded within general and administrative expense. Additionally, for build-to-suit investments in which the Company may engage a developer to construct a property or provide funds to a tenant to develop a property, the Company capitalizes the funds provided to the developer/tenant and real estate taxes, if applicable, during the construction period.
To determine the fair value of assets acquired and liabilities assumed in an acquisition, which generally include land, building, improvements, and intangibles, such as the value of above- and below-market leases and origination costs associated with the in-place leases at the acquisition date, the Company utilizes various estimates, processes and information to determine the as-if-vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, and discounted cash flow analyses. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. The Company assesses the fair value of leases assumed at acquisition based upon estimated cash flow projections that utilize appropriate discount rates and available market information. Refer to the policy section "Intangible Assets and Liabilities" for more information on the Company’s accounting for intangibles.
Depreciation is computed using the straight-line method over the shorter of the estimated useful life at acquisition of the capitalized item or 40 years for buildings, five to ten years for building equipment and fixtures, and the lesser of the useful life or the remaining lease term for tenant improvements and leasehold interests. Maintenance and repair expenditures are charged to expense as incurred.
For transactions that qualify as business combinations, the Company recognizes the assets acquired and liabilities assumed at fair value, including the value of intangible assets and liabilities, and any excess or deficit of the consideration transferred relative to the fair value of the net assets acquired is recorded as goodwill or a bargain purchase gain, as appropriate. Acquisition costs of business combinations are expensed as incurred.

13

Gramercy Property Trust and GPT Operating Partnership LP
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, unit, per share, per unit, and property data)
June 30, 2017

Capital Improvements
In leasing space, the Company may provide funding to the lessee through a tenant allowance. Certain improvements are capitalized when they are determined to increase the useful life of the building. During construction of qualifying projects, the Company capitalizes project management fees as permitted to be charged under the lease, if incremental and identifiable. In accounting for tenant allowances, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership of such improvements. If the Company is considered the owner of the leasehold improvements, the Company capitalizes the amount of the tenant allowance and depreciates it over the shorter of the useful life of the leasehold improvements or the lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements for accounting purposes, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of rental revenue. Factors considered during this evaluation usually include (i) who holds legal title to the improvements, (ii) evidentiary requirements concerning the spending of the tenant allowance, and (iii) other controlling rights provided by the lease agreement (e.g. unilateral control of the tenant space during the build-out process). Determination of the accounting for a tenant allowance is made on a case-by-case basis, considering the facts and circumstances of the individual tenant lease.
Impairments
The Company reviews the recoverability of a property’s carrying value when circumstances indicate a possible impairment of the value of a property, such as an adverse change in future expected occupancy or a significant decrease in the market price of an asset. The review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as changes in strategy resulting in an increased or decreased holding period, expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If management determines impairment exists due to the inability to recover the carrying value of a property, for properties to be held and used, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property and for assets held for sale, an impairment loss is recorded to the extent that the carrying value exceeds the fair value less estimated cost of disposal. These assessments are recorded as an impairment loss in the Condensed Consolidated Statements of Operations in the period the determination is made. The estimated fair value of the asset becomes its new cost basis. For a depreciable long-lived asset to be held and used, the new cost basis will be depreciated or amortized over the remaining useful life of that asset.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
Restricted Cash
The Company had restricted cash of $40,326 and $12,904 at June 30, 2017 and December 31, 2016, respectively, which primarily consisted of proceeds from property sales held by qualified intermediaries to be used for tax-deferred, like-kind exchanges under Internal Revenue Code, or IRC, Section 1031, reserves for certain capital improvements, leasing, interest and real estate tax and insurance payments as required by certain mortgage note obligations.

14

Gramercy Property Trust and GPT Operating Partnership LP
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, unit, per share, per unit, and property data)
June 30, 2017

Variable Interest Entities
The Company had two and three consolidated VIEs as of June 30, 2017 and December 31, 2016, respectively. The Company had three and four unconsolidated VIEs as of June 30, 2017 and December 31, 2016, respectively. The following is a summary of the Company’s involvement with VIEs as of June 30, 2017:
 
Company carrying value-assets
 
Company carrying value-liabilities
 
Face value of assets held by the VIEs
 
Face value of liabilities issued by the VIEs
Consolidated VIEs:
 
 
 
 
 
 
 
Operating Partnership
$
5,686,906

 
$
2,722,775

 
$
5,686,906

 
$
2,722,775

Gramercy Europe Asset Management (European Fund Manager)
$
1,348

 
$
25

 
$
1,348

 
$
2,073

Unconsolidated VIEs:
 
 
 
 
 
 
 
Gramercy Europe Asset Management (European Fund Carry Co.)
$
5

 
$

 
$
18

 
$

Retained CDO Bonds
$
6,345

 
$

 
$
135,640

 
$
113,252

The following is a summary of the Company’s involvement with VIEs as of December 31, 2016:
 
Company carrying value-assets
 
Company carrying value-liabilities
 
Face value of assets held by the VIEs
 
Face value of liabilities issued by the VIEs
Consolidated VIEs:
 
 
 
 
 
 
 
Operating Partnership
$
5,603,527

 
$
2,842,493

 
$
5,603,527

 
$
2,842,493

Proportion Foods
$
22,836

 
$
3,041

 
$
22,836

 
$
23,514

Gramercy Europe Asset Management (European Fund Manager)
$
1,100

 
$
47

 
$
1,100

 
$
1,742

Unconsolidated VIEs:
 
 
 
 
 
 
 
Gramercy Europe Asset Management (European Fund Carry Co.)
$
8

 
$

 
$
31

 
$

Retained CDO Bonds
$
11,906

 
$

 
$
391,990

 
$
592,414

Consolidated VIEs
Operating Partnership
The Operating Partnership is a consolidated VIE because the Company is its primary beneficiary due to its majority ownership and ability to exercise control over every aspect of the Operating Partnership’s operations.
Gramercy Europe Asset Management (European Fund Manager)
In connection with the Company’s December 2014 investment in the Gramercy European Property Fund, the Company acquired equity interests in the entity, hereinafter European Fund Manager, which provides investment and asset management services to the Gramercy European Property Fund. The Company determined that European Fund Manager is a VIE, as the equity holders of that entity do not have controlling financial interests and do not have the

15

Gramercy Property Trust and GPT Operating Partnership LP
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, unit, per share, per unit, and property data)
June 30, 2017

obligation to absorb losses. As Gramercy Europe Asset Management, through an investment advisory agreement with the VIE, controls the activities that most significantly affect the economic outcome of European Fund Manager, the Company concluded that it is the entity’s primary beneficiary and has consolidated the VIE. The Company receives net cash inflows from European Fund Manager in the form of management fees, and if the VIE’s cash inflows are not sufficient to cover its obligations, the Company may provide financial support for the VIE.
Proportion Foods
In December 2015, the Company entered into a non-recourse financing arrangement with Big Proportion Austin LLC, or BIG, for a build-to-suit industrial property in Round Rock, Texas, or Proportion Foods. Concurrently, the Company entered into a forward purchase agreement with BIG, pursuant to which the Company agreed to acquire the property, which is 100.0% leased to Proportion Foods, upon substantial completion of the facility’s development. The Company determined that Proportion Foods was a VIE, as the equity holders of the entity did not have controlling financial interests and were not obligated to absorb losses. The Company controlled the activities that most significantly affected the economic outcome of Proportion Foods through its financing arrangement to fund the property’s development and its forward purchase agreement with BIG. As such, the Company concluded it was the entity’s primary beneficiary and consolidated the VIE. The construction of the facility on the property was completed in March 2017, at which time the Company acquired the property. Following the acquisition, the property was wholly-owned by the Company and was no longer a consolidated VIE.
Unconsolidated VIEs
Gramercy Europe Asset Management (European Fund Carry Co.)
In connection with the Company’s December 2014 investment in the Gramercy European Property Fund, the Company acquired equity interests in the entity, hereinafter European Fund Carry Co., entitled to receive certain preferential distributions, if any, made from time-to-time by the Gramercy European Property Fund. The Company determined that European Fund Carry Co. is a VIE, as the equity holders of that entity do not have controlling financial interests and do not have the obligation to absorb losses in excess of capital committed. Decisions that most significantly affect the economic performance of European Fund Carry Co. are decided by a majority vote of that VIE’s shareholders. As such, the Company does not have a controlling financial interest in the VIE and accounts for it as an equity investment.
Investment in Retained CDO Bonds
The Company has retained non-investment grade subordinate bonds, preferred shares and ordinary shares of three collateralized debt obligations, or CDOs, together the Retained CDO Bonds. The Company does not control the activities that most significantly impact the Retained CDO Bonds’ economic performance and is not obligated to provide any financial support to them, thus the Retained CDO Bonds have been determined to be unconsolidated VIEs, in which the Company’s interest is recorded at fair value within other assets on the Condensed Consolidated Balance Sheets. The Retained CDO Bonds may provide the potential for the Company to receive continuing cash flows in the future, however, there is no guarantee that the Company will realize any proceeds from the Retained CDO Bonds or what the timing of the proceeds may be. The Company’s maximum exposure to loss is limited to its interest in the Retained CDO Bonds. In April 2017, one of the CDOs, in which the Company’s retained interest has no value, commenced liquidation. The Company will not receive any proceeds from the liquidation. Thus, as of June 30, 2017, one of the Retained CDO Bonds is no longer considered a VIE of the Company.

16

Gramercy Property Trust and GPT Operating Partnership LP
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, unit, per share, per unit, and property data)
June 30, 2017

Tenant and Other Receivables
Tenant and other receivables are derived from rental revenue, tenant reimbursements, and management fees.
Rental revenue is recorded on a straight-line basis over the initial term of the lease. Since many leases provide for rental increases at specified intervals, straight-line basis accounting requires the Company to record a receivable, and include in revenues, unbilled rent receivables that will only be received if the tenant makes all rent payments required through the expiration of the initial term of the lease. Tenant and other receivables also include receivables related to tenant reimbursements for common area maintenance expenses and certain other recoverable expenses that are recognized as revenue in the period in which the related expenses are incurred.
Tenant and other receivables are recorded net of the allowances for doubtful accounts, which as of June 30, 2017 and December 31, 2016 were $523 and $57, respectively. The Company continually reviews receivables related to rent, tenant reimbursements, and management fees, including incentive fees, and determines collectability by taking into consideration the tenant or asset management clients’ payment history, the financial condition of the tenant or asset management client, business conditions in the industry in which the tenant or asset management client operates and economic conditions in the area in which the property or asset management client is located. In the event that the collectability of a receivable is in doubt, the Company increases the allowance for doubtful accounts or records a direct write-off of the receivable, as appropriate.
Management fees, including incentive management fees, are recognized as earned in accordance with the terms of the management agreements. The management agreements may contain provisions for fees related to dispositions, administration of the assets including fees related to accounting, valuation and legal services, and management of capital improvements or projects on the underlying assets.
Intangible Assets and Liabilities
As discussed above in the policy section “Real Estate Acquisitions” the Company follows the acquisition method of accounting for its asset acquisitions and business combinations and thus allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Identifiable intangible assets include amounts allocated to acquired leases for above- and below- market lease rates and the value of in-place leases. Management also considers information obtained about each property as a result of its pre-acquisition due diligence.
Above-market and below-market lease values for properties acquired are recorded based on the present value of the difference between the contractual amount to be paid pursuant to each in-place lease and management’s estimate of the fair market lease rate for each such in-place lease, measured over a period equal to the remaining non-cancelable term of the lease. The present value calculation utilizes a discount rate that reflects the risks associated with the leases acquired. The above-market and below-market lease values are amortized as a reduction of and increase to rental revenue, respectively, over the remaining non-cancelable terms of the respective leases. If a tenant terminates its lease prior to its contractual expiration and no future rental payments will be received, any unamortized balance of the market lease intangibles will be written off to rental revenue.
The aggregate value of in-place leases represents the costs of leasing costs, other tenant related costs, and lost revenue that the Company did not have to incur by acquiring a property that is already occupied. Factors considered by management in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected

17

Gramercy Property Trust and GPT Operating Partnership LP
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, unit, per share, per unit, and property data)
June 30, 2017

lease-up period for each property taking into account current market conditions and costs to execute similar leases, including leasing commissions and other related expenses. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the anticipated lease-up period. The value of in-place leases is amortized to depreciation and amortization expense over the remaining non-cancelable term of the respective leases, but never over a term that exceeds the remaining depreciable life of the building. If a tenant terminates its lease prior to its contractual expiration and no future rental payments will be received, any unamortized balance of the in-place lease intangible will be written off to depreciation and amortization expense.
Above-market and below-market ground rent intangibles are recorded for properties acquired in which the Company is the lessee pursuant to a ground lease assumed at acquisition. The above-market and below-market ground rent intangibles are valued similarly to above-market and below-market leases, except that, because the Company is the lessee as opposed to the lessor, the above-market and below-market ground lease values are amortized as a reduction of and increase to rent expense, respectively, over the remaining non-cancelable terms of the respective leases.
Intangible assets and liabilities consist of the following: