10-K 1 cxp10-k2016.htm 10-K Document

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _______________________________________________ 
FORM 10-K
 _______________________________________________
(mark one)
 
 
x
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
for the fiscal year ended December 31, 2016
 
OR
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
for the transition period from ______ to ______
 
Commission file number 001-36113
COLUMBIA PROPERTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland
 
20-0068852
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
One Glenlake Parkway, Suite 1200
Atlanta, Georgia 30328
(Address of principal executive offices) (Zip Code)
(404) 465-2200
(Registrant's telephone number, including area code)
 
 
 
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class
 
Name of exchange on which registered
Common Stock
 
New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  x No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes  o No  x
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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.
Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes  o No  x

As of June 30, 2016, the aggregate market value of the common stock of Columbia Property Trust, Inc. held by non-affiliates was $2,268,996,000 based on the closing price as reported by the New York Stock Exchange.
As of January 31, 2017, 122,455,763 shares of common stock were outstanding.

Registrant incorporates by reference portions of the Columbia Property Trust, Inc. Definitive Proxy Statement for the 2017 Annual Meeting of Stockholders (Items 10, 11, 12, 13, and 14 of Part III) to be filed prior to April 30, 2017.
 
 
 
 
 



FORM 10-K
COLUMBIA PROPERTY TRUST, INC.
TABLE OF CONTENTS
 
 
 
Page No.
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 1B.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
Item 7.
 
Item 7A.
 
 
 
Item 8.
 
 
 
Item 9.
 
 
 
Item 9A.
 
 
 
Item 9B.
 
 
 
 
 
 
Item 10.
 
 
 
Item 11.
 
 
 
Item 12.
 
 
 
Item 13.
 
 
 
Item 14.
 
 
 
 
 
 
Item 15.
 
 
 
 




Page 2



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-K of Columbia Property Trust, Inc. and its subsidiaries ("Columbia Property Trust," "we," "our," or "us"), other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in those acts. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "estimate," "believe," "continue," or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the U.S. Securities and Exchange Commission ("SEC"). We do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. See Item 1A herein for a discussion of some of the risks and uncertainties, although not all risks and uncertainties that could cause actual results to differ materially from those presented in our forward-looking statements may be included therein.



Page 3


PART I
ITEM 1.
BUSINESS
General
Columbia Property Trust, Inc. ("Columbia Property Trust") (NYSE: CXP) is a Maryland corporation that operates as a real estate investment trust ("REIT") for federal income tax purposes and owns and operates commercial real estate properties. Columbia Property Trust was incorporated in 2003, commenced operations in 2004, and conducts business primarily through Columbia Property Trust Operating Partnership, L.P. ("Columbia Property Trust OP"), a Delaware limited partnership. Columbia Property Trust is the general partner and sole owner of Columbia Property Trust OP and possesses full legal control and authority over its operations. Columbia Property Trust OP acquires, develops, owns, leases, and operates real properties directly, through wholly owned subsidiaries, or through joint ventures. References to Columbia Property Trust, "we," "us," or "our" herein shall include Columbia Property Trust and all subsidiaries of Columbia Property Trust, direct and indirect.
Columbia Property Trust typically invests in high-quality, income-generating office properties. As of December 31, 2016, Columbia Property Trust owned 21 office properties and one hotel, which contain approximately 11.0 million square feet of commercial space, located in nine states and the District of Columbia. All of the office properties are wholly owned except for one property, which is owned through the Market Square Joint Venture, as described in Note 4, Unconsolidated Joint Venture. As of December 31, 2016, the office properties, including 51% of the Market Square buildings, which Columbia Property Trust owns through an unconsolidated joint venture, were approximately 90.6% leased. In January 2017, Columbia Property Trust sold three office properties in Houston, Texas, and the Key Center Tower and Key Center Marriott in Cleveland, Ohio. The terms of these transactions are described in Note 3, Real Estate Transactions, of the accompanying consolidated financial statements.
Real Estate Investment Objectives
Columbia Property Trust seeks to invest in and manage a commercial real estate portfolio that provides the size, quality, and market specialization needed to deliver both income and long-term growth, as measured in the total return to our shareholders. Our primary strategic objective is to generate long-term shareholder returns from a combination of steadily growing cash flows and appreciation in our net asset values, through the acquisition and ownership of high-quality office buildings located principally in high-barrier-to-entry markets. Our value creation and growth strategies are founded in the following:
Targeted Market Strategy
Our portfolio consists of a combination of multi- and single-tenant office properties located primarily in Central Business Districts ("CBD"). We focus our acquisition efforts in select primary markets with strong fundamentals and liquidity, including CBD and urban in-fill locations. We believe that the major U.S. office markets provide a greater propensity for producing increasing net income and property values over time. We maintain a long-term goal of increasing our market concentrations in order to leverage our scale, efficiency, and market knowledge.
New Investment Targets
We look to acquire strategic and premier office assets with quality tenants in our target markets, with an emphasis on value-added opportunities. We pursue high-quality assets that are competitive within the top tier of their markets or can be repositioned as such. Our asset selection criteria include the property's location attributes, physical quality, tenant/lease characteristics, competitive positioning, and pricing level in comparison to long-term, normalized value or replacement cost.
Strong and Flexible Balance Sheet
We are committed to maintaining an investment-grade balance sheet with a strong liquidity profile and proven access to capital. Our leverage level and other credit metrics provide the financial flexibility to pursue new acquisitions and other growth opportunities that will further our long-term performance objectives.
Capital Recycling
We consistently evaluate our existing portfolio to identify assets in which the value has been optimized and/or those that are considered nonstrategic, based on their market location or investment characteristics. The goal of our disposition efforts is to harvest capital from these mature and nonstrategic assets, and redeploy it into properties in our target markets to maximize growth in net operating income and long-term value.
Proactive Asset Management
We believe our team is well equipped to deliver operating results in all facets of the management process. Our leasing efforts are founded in understanding the varied and complex needs of tenants in the marketplace today. We pursue meeting those needs


Page 4


through new and renewal leases, as well as lease restructures that further our long-term goals. We are committed to prudent capital investment in our assets to ensure their competitive positioning and status, and rigorously pursue efficient operations and cost containment at the property level.
Transaction Activity
In connection with furthering the repositioning of our portfolio in furtherance of our real estate investment objectives, we have executed the following real estate transactions in the 2015, 2016, and 2017:
Acquisitions
 
 
 
 
 
 
 
 
Property
 
Location
 
Rentable Square Feet
 
Acquisition Date
 
Purchase Price
2015
 
 
 
 
 
 
 
 
229 West 43rd Street Building
 
New York, NY
 
481,000

 
August 4, 2015
 
$
516,000

116 Huntington Avenue Building
 
Boston, MA
 
271,000

 
January 8, 2015
 
$
152,000

315 Park Avenue South Building
 
New York, NY
 
327,000

 
January 7, 2015
 
$
372,000

1881 Campus Commons Building
 
Reston, VA
 
244,000

 
January 7, 2015
 
$
64,000


Dispositions
 
 
 
 
 
 
 
 
Property
 
Location
 
Rentable Square Feet
 
Disposition Date
 
Sale Price
2017
 
 
 
 
 
 
 
 
Key Center Tower & Marriott
 
Cleveland, OH
 
1,326,000

 
January 31, 2017
 
$
267,500

Houston Property Sale:
 
 
 
1,187,000

 
January 6, 2017
 
$
272,000

5 Houston Center
 
Houston, TX
 
581,000

 
 
 
 
Energy Center I
 
Houston, TX
 
332,000

 
 
 
 
515 Post Oak
 
Houston, TX
 
274,000

 
 
 
 
2016
 
 
 
 
 
 
 
 
SanTan Corporate Center
 
Phoenix, AZ
 
267,000

 
December 15, 2016
 
$
58,500

Sterling Commerce
 
Dallas, TX
 
310,000

 
November 30, 2016
 
$
51,000

9127 South Jamaica Street
 
Denver, CO
 
108,000

 
October 12, 2016
 
$
19,500

80 Park Plaza
 
Newark, NJ
 
961,000

 
September 30, 2016
 
$
174,500

9189, 9191 & 9193 South Jamaica Street
 
Denver, CO
 
370,000

 
September 22, 2016
 
$
122,000

800 North Frederick
 
Suburban MD
 
393,000

 
July 8, 2016
 
$
48,000

100 East Pratt
 
Baltimore, MD
 
653,000

 
March 31, 2016
 
$
187,000

2015
 
 
 
 
 
 
 
 
1881 Campus Commons Building
 
Reston, VA
 
244,000

 
December 10, 2015
 
$
65,000

11 Property Sale:
 
 
 
2,856,000

 
July 1, 2015
 
$
433,250

170 Park Avenue Building
 
Northern NJ
 
145,000

 
 
 
 
180 Park Avenue Building
 
Northern NJ
 
224,000

 
 
 
 
1580 West Nursery Road Buildings
 
Baltimore, MD
 
315,000

 
 
 
 
Acxiom Buildings
 
Chicago, IL
 
322,000

 
 
 
 
Highland Landmark III Building
 
Chicago, IL
 
273,000

 
 
 
 
The Corridors III Building
 
Chicago, IL
 
222,000

 
 
 
 
215 Diehl Road Building
 
Chicago, IL
 
162,000

 
 
 
 
544 Lakeview Building
 
Chicago, IL
 
139,000

 
 
 
 
Bannockburn Lake III Building
 
Chicago, IL
 
106,000

 
 
 
 
Robbins Road Buildings
 
Boston, MA
 
458,000

 
 
 
 
550 King Street Buildings
 
Boston, MA
 
490,000

 
 
 
 
Joint Venture
 
 
 
 
 
 
 
 
 
 
Property Contributed to Joint Venture
 
Location
 
% Sold / Retained
 
Rentable Square Feet
 
Closing Date
 
Contributed Value
2015
 
 
 
 
 
 
 
 
 
 
Market Square Buildings
 
Washington, D.C.
 
49%/51%
 
698,000

 
October 28, 2015
 
$
595,000



Page 5


Segment Information
As of December 31, 2016, our reportable segments are determined based on the geographic markets in which we have significant investments. We consider geographic location when evaluating our portfolio composition and in assessing the ongoing operations and performance of our properties. See Note 15, Segment Information, to the accompanying consolidated financial statements.
Employees
As of December 31, 2016, we employed 90 people.
Competition
Leasing real estate is highly competitive in the current market. As a result, we experience competition for high-quality tenants from owners and managers of competing projects. Therefore, we may experience delays in re-leasing vacant space; or we may have to provide rent concessions, incur charges for tenant improvements, or offer other inducements to enable us to timely lease vacant space, all of which may have an adverse impact on our results of operations. In addition, we are in competition with other potential buyers for the acquisition of the same properties, which may result in an increase in the amount we must pay to purchase a property. Further, at the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchasers.
Concentration of Credit Risk
We are dependent upon the ability of our current tenants to pay their contractual rent amounts as they become due. The inability of a tenant to pay future rental amounts would have a negative impact on our results of operations. We are not aware of any reason why our current tenants will not be able to pay their contractual rental amounts as they become due in all material respects. Situations preventing our tenants from paying contractual rents could result in a material adverse impact on our results of operations. Based on our 2016 annualized lease revenue, no single tenant accounts for more than 8% of our portfolio.
Website Address
Access to copies of each of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and other documents filed with, or furnished to, the SEC, including amendments to such filings, may be obtained free of charge from our website, http://www.columbia.reit, or through a link to the http://www.sec.gov website. The information contained on our website is not incorporated by reference herein. These filings are available promptly after we file them with, or furnish them to, the SEC.
ITEM 1A.
RISK FACTORS
Below are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to our business, operating results, prospects, and financial condition. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.
Risks Related to Our Business and Properties
If we are unable to find suitable investments or pay too much for properties, we may not be able to achieve our investment objectives, and the returns on our investments will be lower than they otherwise would be.
We are competing for real estate investments with other REITs; real estate limited partnerships, pension funds and their advisors; bank and insurance company investment accounts; individuals; and other entities. The market for high-quality commercial real estate assets is highly competitive given how infrequently those assets become available for purchase. As a result, many real estate investors, including us, face aggressive competition to purchase quality office real estate assets. A significant number of entities and resources competing for high-quality office properties support relatively high acquisition prices for such properties, which may reduce the number of acquisition opportunities available to, or affordable for, us and could put pressure on our profitability and our ability to pay distributions to stockholders. We cannot be sure that we will be successful in obtaining suitable investments on financially attractive terms or that, if we make investments, our objectives will be achieved.
Economic conditions may cause the creditworthiness of our tenants to deteriorate and occupancy and market rental rates to decline.
Although U.S. macroeconomic conditions continued to be relatively stable during 2016, several economic factors, including increases in interest rates, have adversely affected the financial condition and liquidity of many businesses, as well as the demand for office space generally. Should economic conditions worsen, our tenants' ability to honor their contractual obligations may


Page 6


suffer. Further, it may become increasingly difficult to maintain our occupancy rate and achieve future rental rates comparable to the rental rates of our currently in-place leases as we seek to re-lease space and/or renew existing leases.
Our office properties were approximately 90.6% leased at December 31, 2016, and provisions for uncollectible tenant receivables, net of recoveries, were less than 0.1% of total revenues for the year then ended. As a percentage of 2016 annualized lease revenue, approximately 10% of leases expire in 2017, 9% of leases expire in 2018, and 4% of leases expire in 2019 (see Item 2, Properties). No assurances can be given that economic conditions will not have a material adverse effect on our ability to re-lease space at favorable rates or on our ability to maintain our current occupancy rate and our low provisions for uncollectible tenant receivables.
Changes in general economic conditions and regulatory matters germane to the real estate industry may cause our operating results to suffer and the value of our real estate properties to decline.
Our operating results are subject to risks generally incident to the ownership of real estate, including:
changes in general or local economic conditions;
changes in supply of or demand for similar or competing properties in an area;
changes in interest rates and availability of permanent mortgage funds, which may render the sale of a property difficult or unattractive;
inability to finance property redevelopment or acquisitions on favorable terms;
the relative illiquidity of real estate investments;
changes in space utilization by our tenants due to technology, economic conditions, and business culture;
changes in tax, real estate, environmental, and zoning laws; and
periods of rising or higher interest rates and tight money supply.
In addition, market and economic conditions in the metropolitan areas in which we derive a substantial portion of our revenue such as San Francisco, California; New York City, New York; Washington, D.C.; Boston, Massachusetts; and Atlanta, Georgia, may have a greater impact on our overall occupancy levels and rental rates and therefore our profitability. Furthermore, our business strategy involves continued focus on select core markets, which will increase the impact of the local economic conditions in such markets on our results of operations in future periods. These and other reasons may prevent us from being profitable or from realizing growth or maintaining the value of our real estate properties.
We depend on tenants for our revenue, and lease defaults or terminations could negatively affect our financial condition and results of operations and limit our ability to make distributions to our stockholders.
The success of our investments materially depends on the financial stability of our tenants. A default or termination by a significant tenant on its lease payments to us would cause us to lose the revenue associated with such lease and require us to find an alternative source of revenue to meet mortgage payments and prevent a foreclosure if the property is subject to a mortgage. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting our property. If a tenant defaults on or terminates a significant lease, we may be unable to lease the property for the rent previously received or sell the property without incurring a loss. In addition, significant expenditures for our properties, such as mortgage payments, real estate taxes, and insurance and maintenance costs are generally fixed and do not decrease when revenues at the related property decreases. Therefore, these events could have a material adverse effect on our results of operations or cause us to reduce the amount of distributions to stockholders.
Future acquisitions may fail to perform in accordance with our expectations, may require renovation costs exceeding our estimates or expose us to unknown liabilities, and may be located in new markets where we may face risks associated with investing in an unfamiliar market.
In the normal course of business, we typically evaluate potential acquisitions, enter into nonbinding letters of intent, and may, at any time, enter into contracts to acquire additional properties. Acquired properties may fail to perform in accordance with our expectations due to lease-up risk, renovation cost risks, and other factors. In addition, the renovation and improvement costs we incur in bringing an acquired property up to market standards may exceed our estimates. We may not have the financial resources to make suitable acquisitions or renovations on favorable terms or at all. The properties we acquire may be subject to liabilities for which we have no recourse, or only limited recourse, against the prior owners or other third parties with respect to unknown liabilities. As a result, if a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle or contest it, which could adversely affect our results of operations and cash flow. Unknown liabilities with respect to acquired properties might include:
liabilities for clean-up of undisclosed environmental contamination;
claims by tenants, vendors, or other persons against the former owners of the properties;


Page 7


liabilities incurred in the ordinary course of business; and
claims for indemnification by general partners, directors, officers, and others indemnified by the former owners of the properties.
Furthermore, we may acquire properties located in markets in which we do not have an established presence. We may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area, and unfamiliarity with local government and permitting procedures. As a result, the operating performance of properties acquired in new markets may be less than we anticipate, and we may have difficulty integrating such properties into our existing portfolio. In addition, the time and resources that may be required to obtain market knowledge and/or integrate such properties into our existing portfolio could divert our management's attention from our existing business or other attractive opportunities in our established markets.
Real estate investments are illiquid; our inability to sell a property when we plan to do so could limit our operational and financial flexibility, including our ability to pay cash distributions to our stockholders.
Because real estate investments are relatively illiquid, our ability to sell promptly one or more properties in our portfolio in response to changing economic, financial, and investment conditions may be limited. Purchasers may not be willing to pay acceptable prices for properties that we wish to sell. General economic conditions, availability of financing, interest rates, and other factors, including supply and demand, all of which are beyond our control, affect the real estate market. Therefore, we may be unable to sell a property for the price, on the terms, or within the time frame that we want. That inability could reduce our cash flow and cause our results of operations to suffer, limiting our ability to make distributions to our stockholders. Furthermore, our properties' market values depend principally upon the value of the properties' leases. A property may incur vacancies either by the default of tenants under their leases or the expiration of tenant leases. If vacancies occur and continue for a prolonged period of time, it may become difficult to locate suitable buyers for any such property, and property resale values may suffer, which could result in lower returns for our stockholders.
Uninsured losses relating to real property or excessively expensive premiums for insurance coverage could reduce our net income, or materially and adversely affect our business or financial condition.
We may incur losses from time to time that are uninsurable or not economically feasible to insure, or may be insured subject to limitations, such as large deductibles or co-payments. Some of these losses could be catastrophic in nature, such as losses due to earthquakes, acts of terrorism, fire, floods, tornadoes, hurricanes, pollution, wars, or environmental matters. For example, we have properties located in San Francisco, California, an area especially susceptible to earthquakes, and collectively, these properties represent approximately 26% of our 2016 Annualized Lease Revenue, as described in Item 2, Properties. Because these properties are located in close proximity to one another, an earthquake in the San Francisco area could materially damage, destroy, or impair the use by tenants of all of these properties. Furthermore, insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases insist that commercial property owners purchase coverage against terrorism as a condition of providing mortgage loans. Such insurance policies may not be available at a reasonable cost, if at all, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. In addition, we may not have adequate coverage for losses. If any of our properties incur a loss that is not fully insured, the value of that asset will be reduced by such uninsured loss. Furthermore, other than any working capital reserves or other reserves that we may establish, or our existing line of credit, we do not have sources of funding specifically designated for repairs or reconstruction of any our properties. To the extent we incur significant uninsured losses, or are required to pay unexpectedly large amounts for insurance, our results of operations or financial condition could be adversely effected.
If we are unable to fund the future capital needs of our properties, cash distributions to our stockholders and the value of our investments could decline.
When tenants do not renew their leases or otherwise vacate their space, we often need to expend substantial funds for tenant improvements to the vacated space in order to attract replacement tenants. In addition, although we expect that our leases with tenants will require tenants to pay routine property maintenance costs, we will likely be responsible for any major structural repairs, such as repairs to the foundation, exterior walls, and rooftops.
If we need significant capital in the future to improve or maintain our properties or for any other reason, we will have to obtain financing from sources such as cash flow from operations, borrowings, property sales, or future equity offerings. These sources of funding may not be available on attractive terms or at all. If we cannot procure the necessary funding for capital improvements, our investments may generate lower cash flows or decline in value, or both, which would limit our ability to make distributions to our stockholders.
We have incurred and are likely to continue to incur mortgage and other indebtedness, which may increase our business risks.


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As of January 31, 2017, our total consolidated indebtedness was approximately $1.4 billion, which includes a $150.0 million term loan, $700.0 million of bonds, and $274.6 million of mortgage loans, all with fixed interest rates, or with interest rates that are effectively fixed when considered in connection with an interest rate swap agreement; and a $300.0 million term loan, and no outstanding borrowings on our variable-rate line of credit. We are likely to incur additional indebtedness to acquire properties, to fund property improvements and other capital expenditures, to pay our distributions, and for other purposes.
Significant borrowings by us increase the risks of an investment in us. If there is a shortfall between the cash flow from properties and the cash flow needed to service our indebtedness, then the amount available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt on behalf of the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we are responsible to the lender for satisfaction of the debt if it is not paid by such entity.
If any mortgages or other indebtedness contain cross-collateralization or cross-default provisions, a default on a single loan could affect multiple properties. Our unsecured credit facility (the "Revolving Credit Facility") and our two unsecured term loan facilities, each includes a cross-default provision that provides that a payment default under any recourse obligation of $50 million or more by us, Columbia Property Trust OP, or any of our subsidiaries, constitutes a default under the line of credit and term loan facilities. If any of our properties are foreclosed due to a default, our ability to pay cash distributions to our stockholders will be limited.
Increases in interest rates could increase the amount of our debt payments and make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our net income, and the amount of cash distributions we can make.
We expect to incur additional indebtedness in the future, which may include mortgages, unsecured bonds, term loans, or borrowings under a credit facility. Increases in interest rates will increase interest costs on our variable-interest debt instruments, which would reduce our cash flows and our ability to pay distributions. If mortgage debt is unavailable at reasonable interest rates, we may not be able to finance the purchase of properties. If we place mortgage debt on properties, we run the risk of being unable to refinance the properties when the loans become due, or of being unable to refinance on favorable terms. In addition, if we need to repay existing debt during periods of higher interest rates, we may need to sell one or more of our investments in order to repay the debt, which sale at that time might not permit realization of the maximum return on such investments. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise capital in the future through additional borrowings or debt or equity offerings. For additional information, please refer to Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for additional information regarding interest rate risk.
Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.
When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property or discontinue insurance coverage. These or other limitations may limit our flexibility and our ability to execute on our operating plans.
A downgrade in the credit rating of our debt could materially adversely affect our business and financial condition.
Our senior unsecured debt is rated investment grade by Standard & Poor's Corporation and Moody's Investors Service. In determining our credit ratings, the rating agencies consider a number of both quantitative and qualitative factors, including earnings, fixed charges, cash flows, total debt outstanding, total secured debt, off balance sheet obligations, total capitalization, and various ratios calculated from these factors. The rating agencies also consider predictability of cash flows, business strategy, property development risks, industry conditions, and contingencies. Therefore, any deterioration in our operating performance could cause our investment-grade rating to come under pressure. Our corporate credit rating at Standard & Poor's Ratings Service is currently "BBB" with a stable outlook, and our corporate credit rating at Moody's Investor Service is currently "Baa2" with a stable outlook. There can be no assurance that our credit ratings will not be lowered or withdrawn in their entirety. A negative change in our ratings outlook or any downgrade in our current investment-grade credit ratings by rating agencies could adversely affect our cost and access to sources of liquidity and capital. Additionally, a downgrade could, among other things, increase the costs of borrowing under our credit facility and term loan, adversely impact our ability to obtain unsecured debt or refinance our unsecured debt on


Page 9


competitive terms in the future, or require us to take certain actions to support our obligations, any of which would adversely affect our business and financial condition.
A breach of our privacy or information security systems could materially adversely affect our business and financial condition.
Privacy and information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber attacks. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. Risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationships with our tenants, potential errors from misstated financial reports, missed reporting deadlines, and private data exposure, among others. Any or all of the preceding risks could have a material adverse effect on our results of operations, financial condition, and cash flows. Although we make efforts to maintain the security and integrity of these types of information technology networks and related systems, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. As cyber threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures and to investigate and remediate any information security vulnerabilities.
We are and may continue to be subject to litigation, which could have a material adverse effect on our financial condition.
We currently are, and are likely to continue to be, subject to a variety of claims arising in the ordinary course of business, including contract claims and claims alleging violations of federal and state law regarding workplace and employment matters, discrimination, and similar matters. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. Although we defend ourselves against any such claims, we cannot be certain of the ultimate outcomes of currently asserted claims or of those that arise in the future. Resolution of these types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, would adversely impact our earnings and cash flows, thereby impacting our ability to service debt and make distributions to our stockholders.
Costs of complying with governmental laws and regulations may reduce our net income and the cash available for distributions to our stockholders.
All real property and the operations conducted on real property are subject to federal, state, and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liability on tenants, owners, or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may hinder our ability to sell, rent, or pledge such property as collateral for future borrowings.
Compliance with new laws or regulations, or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances, or regulations may impose material environmental liability. Additionally, our tenants' operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks or activities of unrelated third parties may affect our properties. Furthermore, there are various local, state, and federal regulatory requirements, such as fire, health, life-safety, and similar regulations, and the Americans with Disabilities Act, with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we must pay will reduce our ability to make distributions.
Discovery of previously undetected environmentally hazardous conditions may decrease our revenues and limit our ability to make distributions.
Under various federal, state, and local environmental laws, ordinances, and regulations, a current or previous real property owner or operator may be liable for the cost to remove or remediate hazardous or toxic substances on, under, or in such property. These costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos-containing materials. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could have an adverse impact on our business and results of operations.
Property ownership through joint ventures may limit our ability to act exclusively in our interest.


Page 10


We entered into a joint venture arrangement for one of our properties in 2015 and in the future may acquire properties in or contribute properties to joint ventures with other persons or entities when we believe circumstances warrant the use of such structures. We could become engaged in a dispute with one or more of our joint venture partners, which might affect our ability to operate a jointly-owned property. Moreover, joint venture partners may have business, economic, or other objectives that are inconsistent with our objectives, including objectives that relate to the appropriate timing and terms of any sale or refinancing of a property. In some instances, joint venture partners may have competing interests in our markets that could create conflicts of interest. Also, our joint venture partners might refuse to make capital contributions when due and we may be responsible to our partners for indemnifiable losses. We and our partners may each have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partners' interest, at a time when we otherwise would not have initiated such a transaction and may result in the valuation of our interest in the joint venture (if we are the seller) or of the other partner's interest in the joint venture (if we are the buyer) at levels which may not be representative of the valuation that would result from an arm's length marketing process. We are also subject to risk in cases where an institutional owner is our joint venture partner, including (i) a deadlock if we and our joint venture partner are unable to agree upon certain major and other decisions, (ii) the limitation of our ability to liquidate our position in the joint venture without the consent of the other joint venture partner, and (iii) the requirement to provide guarantees in favor of lenders with respect to the indebtedness of the joint venture.
If we sell properties and provide financing to purchasers, defaults by the purchasers would decrease our cash flows and limit our ability to make distributions.
In some instances we may sell our properties by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk that the purchaser may default, which could negatively impact our liquidity and results of operations. Even in the absence of a purchaser default, the distribution of the proceeds of sales to our stockholders, or the reinvestment of proceeds in other assets, will be delayed until the promissory notes or other property we may accept upon a sale are actually paid, sold, refinanced, or otherwise disposed.
We are dependent on our executive officers and employees.
We rely on a small number of persons, particularly E. Nelson Mills and James A. Fleming, to carry out our business and investment strategies. Any of our senior management, including Messrs. Mills and Fleming, may cease to provide services to us at any time. The loss of the services of any of our key management personnel or our inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results. As we expand, we will continue to try to attract and retain qualified additional senior management and other employees, but may not be able to do so on acceptable terms.
Our operating results may suffer because of potential development and construction risks and delays and resultant increased costs.
We may acquire and develop properties, including unimproved real estate, upon which we will construct improvements. We will be subject to uncertainties associated with rezoning for development and our ability to obtain required permits and authorizations; environmental concerns of governmental entities and/or community groups; and our builders' ability to build in conformity with plans, specifications, budgeted costs, and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder's performance may also be affected or delayed by conditions beyond the builder's control, and we may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. Delays in completing construction could also give tenants the right to terminate preconstruction leases. These and other factors can result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a purchase price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and our return on our investment could suffer.
If our disclosure controls or internal control over financial reporting are not effective, investors could lose confidence in our reported financial information, which could adversely affect the perception of our business and the trading price of our common stock.
Section 404 of the Sarbanes-Oxley Act of 2002, requires that we evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of our internal control over financial reporting. Deficiencies, including any material weakness, in our internal control over financial reporting that may occur in the future could result in misstatements of our results of operations, restatements of our financial statements, a decline in the trading price of our common stock, or otherwise materially adversely affect our business, reputation, results of operations, financial condition, or liquidity.


Page 11


Risks Related to Ownership of Our Common Stock
We may be unable to pay or maintain cash distributions or increase distributions over time, which could reduce the funds we have available for investment and the return to our investors.
There are many factors that can affect the availability and timing of distributions to stockholders. We expect to continue to fund distributions principally from cash flow from operations; however, from time to time, we may elect to fund a portion of our distributions from borrowings. If we fund distributions from financings, we will have fewer funds available for the investment in, and acquisition of, properties; thus, the overall return to our investors may be reduced. Further, to the extent distributions exceed cash flow from operations, a stockholder's basis in our stock will be reduced and, to the extent distributions exceed a stockholder's basis, the stockholder may recognize capital gain. We can give no assurance that we will be able to pay or maintain cash distributions or increase distributions over time.
Our stock price may be volatile or may decline regardless of our operating performance, and you may not be able to sell your shares at a desirable price.
The market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including those described under this section and the following:
changes in capital market conditions that could affect valuations of real estate companies in general or other adverse economic conditions;
our failure to meet any earnings estimates or expectations;
future sales of our common stock by our officers, directors, and significant stockholders;
global economic, legal, and regulatory factors unrelated to our performance;
investors' perceptions of our prospects;
announcements by us or our competitors of significant contracts, acquisitions, joint ventures, or capital commitments; and
investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives.
In addition, the stock markets, and in particular The New York Stock Exchange (the "NYSE"), have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many real estate companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs, and our resources and the attention of management could be diverted from our business. Furthermore, we currently have limited research coverage by securities and industry analysts. If additional securities or industry analysts do not commence coverage of our company, the long-term trading price for our common stock could be negatively impacted. If one or more of present or future analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price and trading volume to decline.
Our common stock has experienced and may continue to experience low trading volumes, which may make it more difficult for you to sell your shares at any given time at prevailing prices.
The daily trading volumes for our common stock are, and may continue to be, relatively small compared to many other publicly traded securities. For example, since our listing, our average daily trading volume per month has been as low as 355,000 shares. If our stock continues to experience low trading volumes, it may be difficult for individuals to sell their shares when they want and at a price that is desirable to them. Furthermore, low trading volumes for our common stock may cause the price of our stock to be highly volatile.
Our charter limits the number of shares a person may own, which may discourage a takeover that could otherwise result in a premium price to our stockholders.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, no person may own more than 9.8% of our outstanding common stock. This restriction may have the effect of delaying, deferring, or preventing a change in control, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock.


Page 12


Our organizational documents contain provisions that may discourage a takeover of us and could depress the price of our shares of common stock.
Our organizational documents contain provisions that may discourage a takeover of us and could depress the price of our common stock. Our organizational documents contain provisions that may have an anti-takeover effect, inhibit a change of our management, or inhibit in certain circumstances, tender offers for our common stock or proxy contests to change our board. These provisions include: ownership limits and restrictions on transferability that are intended to enable us to continue to qualify as a REIT; broad discretion of our board to take action, without stockholder approval, to issue new classes of securities that may discourage a third party from acquiring us; the ability, through board action or bylaw amendment to opt-in to certain provisions of Maryland law that may impede efforts to effect a change in control of us; advance notice requirements for stockholder proposals and stockholder nominations of directors; and the absence of cumulative voting rights.
In addition, our board of directors may classify or reclassify any unissued preferred stock and establish the preferences; conversion; or other rights, voting powers, restrictions, or limitations as to distributions, qualifications, and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of preferred stock with terms and conditions that could have priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Such preferred stock could also have the effect of delaying, deferring, or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price to holders of our common stock.
Maryland General Corporation Law provides certain protections relating to deterring or defending hostile takeovers, which may discourage others from trying to acquire control of us and may prevent our stockholders from receiving a premium price for their stock in connection with a business combination.
Under Maryland law, "business combinations" between a Maryland corporation and certain interested stockholders or affiliates of interested stockholders are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. Also under Maryland law, control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquirer, an officer of the corporation, or an employee of the corporation who is also a director of the corporation are excluded from the vote on whether to accord voting rights to the control shares. These provisions may therefore discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. Similarly, provisions of Title 3, Subtitle 8 of the Maryland General Corporation Law, commonly referred to as the "Maryland Unsolicited Takeover Act," could provide similar anti-takeover protection.
Our board of directors has determined to opt out of these provisions of Maryland law; in the case of the business combination provisions of Maryland law, by resolution of our board of directors; in the case of the control share provisions of Maryland law, pursuant to a provision in our bylaws; and in the case of certain provisions of the Maryland Unsolicited Takeover Act, pursuant to Articles Supplementary. Only upon the approval of our stockholders, our board of directors may repeal the foregoing opt-outs from the anti-takeover provisions of Maryland General Corporation Law.
Federal Income Tax Risks
Failure to qualify as a REIT would reduce our net income and cash available for distributions.
Our qualification as a REIT depends upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets, and other tests imposed by the Internal Revenue Code (the "Code"). If we fail to qualify as a REIT for any taxable year, we will be subject to federal and state income tax on our taxable income at corporate rates and/or penalties. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends-paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.
Recharacterization of sale-leaseback transactions may cause us to lose our REIT status, which would reduce the return to our stockholders.
We may purchase properties and lease them back to the sellers of such properties. While we will use our best efforts to structure any such sale-leaseback transaction such that the lease will be characterized as a "true lease," thereby allowing us to be treated as the owner of the property for federal income tax purposes, we can give no assurance that the Internal Revenue Service will not challenge such characterization. In the event that any such sale-leaseback transaction is challenged and recharacterized as a


Page 13


financing transaction or loan for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction was so recharacterized, we might fail to satisfy the REIT qualification asset tests or income tests and, consequently, lose our REIT status. Alternatively, the amount of our REIT taxable income could be recalculated, which might also cause us to fail to meet the distribution requirement for a taxable year.
Even if we qualify as a REIT for federal income tax purposes, we may be subject to other tax liabilities that reduce our cash flow and our ability to make distributions to our stockholders.
Even if we remain qualified as a REIT for federal income tax purposes, we may be subject to some federal, state, and local taxes on our income or property. For example:
In order to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income to our stockholders (which is determined without regard to the dividends-paid deduction or net capital gain). To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal and state corporate income tax on the undistributed income.
We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gains net income, and 100% of our undistributed income from prior years.
If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other nonqualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.
If we sell a property, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% "prohibited transaction" tax.
We may perform additional, noncustomary services for tenants of our buildings through our taxable REIT subsidiary, including real estate or non-real-estate-related services; however, any earnings related to such services are subject to federal and state income taxes.
To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions to make distributions to our stockholders, which could increase our operating costs and decrease the value of an investment in us.
To qualify as a REIT, we must distribute to our stockholders each year 90% of our REIT taxable income (which is determined without regard to the dividends-paid deduction or net capital gains). At times, we may not have sufficient funds to satisfy these distribution requirements and may need to borrow funds to maintain our REIT status and avoid the payment of income and excise taxes. These borrowing needs could result from (i) differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes, (ii) the effect of nondeductible capital expenditures, (iii) the creation of reserves, or (iv) required debt or amortization payments. We may need to borrow funds at times when market conditions are unfavorable. Such borrowings could increase our costs and reduce the value of our common stock.
To maintain our REIT status, we may be forced to forego otherwise attractive opportunities, which could delay or hinder our ability to meet our investment objectives and lower the return to our stockholders.
To qualify as a REIT, we must satisfy tests on an ongoing basis concerning, among other things, the sources of our income, the nature of our assets, and the amounts we distribute to our stockholders. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
Because of the ownership structure of our hotel property, we face potential adverse effects from changes to the applicable tax laws.
Until January 31, 2017, we owned one hotel property. However, under the Code, REITs are not allowed to operate hotels directly or indirectly. Accordingly, our hotel property was leased to our taxable REIT subsidiary (the "TRS"). As lessor, we were entitled to base rent and percentage rent, calculated based on the gross receipts from the operation of the hotel property. Marriott Hotel Services, Inc. managed the hotel under the Marriott® name pursuant to a management contract with the TRS as lessee. While the TRS structure allowed the economic benefits of ownership to flow to us, the TRS was subject to tax on its income from the operations of the hotel at the federal and state levels. In addition, the TRS continues to be subject to detailed tax regulations that affect how it may be capitalized and operated. If the tax laws applicable to our TRS changed, we could have been forced to modify the structure for owning our hotel property or selling our hotel property, which may have adversely affected our cash flows. In addition, the Internal Revenue Service, the U. S. Department of the Treasury, and Congress frequently review federal income tax legislation, and we cannot predict whether, when, or to what extent new federal tax laws, regulations, interpretations, or rulings


Page 14


will be adopted. Any of such actions may prospectively or retroactively modify the tax treatment of the TRS and, therefore, may adversely affect after-tax returns from the hotel property.
Legislative or regulatory action could adversely affect investors.
In recent years, numerous legislative, judicial, and administrative changes have been made in the provisions of federal and state income tax laws applicable to investments similar to an investment in shares of Columbia Property Trust. Additional changes to tax laws are likely to continue to occur in the future, and we cannot assure you that any such changes will not adversely affect the taxation of our stockholders. Any such changes could have an adverse effect on an investment in shares or on the market value or the resale potential of our properties. You are urged to consult with your own tax advisor with respect to the impact of recent legislation on your ownership of shares and the status of legislative, regulatory, or administrative developments and proposals, and their potential effect on ownership of shares.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
PROPERTIES
Overview
As of December 31, 2016, we owned interests in 21 office properties and one hotel located in nine states and the District of Columbia. All of the properties are wholly owned except for one, which is owned through an unconsolidated joint venture. As of December 31, 2016, our office properties, including 51% of the Market Square buildings, which we own through an unconsolidated joint venture, were approximately 90.6% leased. In January 2017, Columbia Property Trust sold three office properties in Houston, Texas, and the Key Center Tower and Key Center Marriott in Cleveland, Ohio. The terms of these transactions are described in Note 3, Real Estate Transactions.
Property Statistics
The tables below include statistics for the 21 properties that we own directly and 51% of the Annualized Lease Revenue for the Market Square buildings, which we own through an unconsolidated joint venture. Annualized Lease Revenue is an operating metric, calculated as (i) annualized rental payments (defined as base rent plus operating expense reimbursements, excluding rental abatements) for executed and commenced leases as of December 31, 2016, as well as leases executed but not yet commenced for vacant space, and (ii) annualized parking revenues, payable either under the terms of an executed lease or vendor contract. Annualized Lease Revenue excludes rental payments for executed leases that have not yet commenced for space covered by an existing lease.
The following table shows lease expirations of our office properties as of December 31, 2016, during each of the next 10 years and thereafter. This table assumes no exercise of renewal options or termination rights.    
Year of Lease Expiration
 
2016 Annualized
Lease Revenue
(in thousands)
(1)
 
Rentable
Square Feet
(in thousands)(2)
 
Percentage of
2016 Annualized
Lease Revenue
Vacant
 
$

 
965

 
%
2017
 
39,102

 
884

 
10
%
2018
 
36,727

 
739

 
9
%
2019
 
16,666

 
251

 
4
%
2020
 
32,527

 
799

 
8
%
2021
 
61,486

 
1,780

 
16
%
2022
 
34,412

 
789

 
9
%
2023
 
19,252

 
378

 
5
%
2024
 
14,857

 
267

 
4
%
2025
 
37,327

 
1,146

 
9
%
2026
 
37,402

 
882

 
9
%
Thereafter
 
65,997

 
1,440

 
17
%
 
 
$
395,755

 
10,320

 
100
%


Page 15


(1) 
Includes Annualized Lease Revenue of $22.0 million from our 51% interest in the Market Square Joint Venture.
(2) 
Includes 272,000 square feet for the Market Square Buildings, which amount is prorated to reflect our 51% interest in the Market Square Joint Venture.

The following table shows the geographic locations of our office properties as of December 31, 2016. For more information about our geographic locations, see Note 15, Segment Information, of the accompanying consolidated financial statements.
Location
 
2016 Annualized
Lease Revenue
(in thousands)
 
Leased
Square Feet
(in thousands)
 
Percentage of
2016 Annualized
Lease Revenue
San Francisco
 
$
104,731

 
1,765

 
26
%
New York
 
99,258

 
1,782

 
25
%
Atlanta
 
37,300

 
1,572

 
9
%
Washington, D.C.(1)
 
34,639

 
519

 
9
%
Boston
 
11,709

 
217

 
3
%
Los Angeles
 
7,967

 
249

 
2
%
Other(2)
 
100,151

 
3,251

 
26
%
 
 
$
395,755

 
9,355

 
100
%
(1) 
Includes Annualized Lease Revenue of $22.0 million from our 51% interest in the Market Square Joint Venture; and includes 272,000 square feet for the Market Square Buildings, which amount is prorated to reflect our 51% interest in the Market Square Joint Venture.
(2) 
No more than 11% is attributable to any individual geographic location.
The following table shows the industry breakdown of our office tenants as of December 31, 2016.
Industry
 
2016 Annualized
Lease Revenue
(in thousands)
(1)
 
Leased
Square Feet
(in thousands)(2)
 
Percentage of
2016 Annualized
Lease Revenue
Business Services
 
$
68,148

 
1,077

 
17
%
Depository Institutions
 
61,748

 
1,666

 
16
%
Legal Services
 
41,529

 
912

 
10
%
Communications
 
28,642

 
1,042

 
7
%
Security and Commodity Brokers
 
26,457

 
388

 
7
%
Engineering & Management Services
 
23,682

 
476

 
6
%
Health Services
 
19,448

 
455

 
5
%
Electric, Gas, and Sanitary Services
 
18,466

 
866

 
5
%
Nondepository Institutions
 
14,169

 
264

 
4
%
Heavy Construction
 
12,646

 
332

 
3
%
Other(3)
 
80,820

 
1,877

 
20
%
 
 
$
395,755

 
9,355

 
100
%
(1) 
Includes Annualized Lease Revenue of $22.0 million from our 51% interest in the Market Square Joint Venture.
(2) 
Includes 272,000 square feet for the Market Square Buildings, which amount is prorated to reflect our 51% interest in the Market Square Joint Venture.
(3) 
No more than 3% is attributable to any individual industry.


Page 16


The following table shows the major tenants of our office properties as of December 31, 2016.
Tenant
 
2016 Annualized
Lease Revenue
(in thousands)
(1)
 
Percentage of
2016 Annualized
Lease Revenue
Wells Fargo
 
$
28,640

 
7
%
AT&T
 
22,278

 
6
%
Pershing
 
18,471

 
5
%
Credit Suisse
 
16,082

 
4
%
Westinghouse
 
15,778

 
4
%
NYU
 
14,802

 
4
%
Yahoo!
 
14,423

 
4
%
KeyBank
 
13,939

 
4
%
Foster Wheeler
 
12,646

 
3
%
Other(2)
 
238,696

 
59
%
 
 
$
395,755

 
100
%
(1) 
Includes Annualized Lease Revenue of $22.0 million from our 51% interest in the Market Square Joint Venture.
(2) 
No more than 3% is attributable to any individual tenant.
ITEM 3.
LEGAL PROCEEDINGS
From time to time, we are party to legal proceedings, which arise in the ordinary course of our business. We are not currently involved in any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by governmental authorities.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.


Page 17


PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders
Our common stock was listed on the NYSE, on October 10, 2013 under the symbol "CXP." Prior to October 10, 2013, our common stock was not listed on a national securities exchange and there was no established public trading market for our shares. As of January 31, 2017, we had approximately 122.5 million shares of common stock outstanding held by a total of 47,695 stockholders of record.
The closing high and low prices for our stock and dividends declared during 2016 and 2015 were as follows:
 
High
 
Low
 
Dividends
2016 Quarters:
 
 
 
 
 
First
$
23.20

 
$
19.81

 
$
0.30

Second
$
22.77

 
$
20.20

 
$
0.30

Third
$
24.63

 
$
21.24

 
$
0.30

Fourth
$
22.22

 
$
20.47

 
$
0.30

2015 Quarters:
 
 
 
 
 
First
$
27.67

 
$
24.08

 
$
0.30

Second
$
27.45

 
$
24.55

 
$
0.30

Third
$
25.30

 
$
21.16

 
$
0.30

Fourth
$
25.97

 
$
23.21

 
$
0.30

Distributions
We intend to make distributions each taxable year (not including a return of capital for federal income tax purposes) equal to at least 90% of our taxable income. One of our primary goals is to pay regular quarterly distributions to our stockholders. The amount of distributions paid and the taxable portion thereof in prior periods are not necessarily indicative of amounts anticipated in future periods.
The amount of distributions to common stockholders is determined by our board of directors and is dependent upon a number of factors, including funds deemed available for distribution based principally on our current and future projected operating cash flows, reduced by capital requirements necessary to maintain our existing portfolio. In determining the amount of distributions to common stockholders, we also consider our future capital needs and future sources of liquidity, as well as the annual distribution requirements necessary to maintain our status as a REIT under the Code. Investments in new property acquisitions and first-generation capital improvements, as well as equity repurchases, are generally funded with recycled capital proceeds from property sales, debt, or cash on hand.


Page 18


Performance Graph
The following graph compares the cumulative total return of our common stock with the S&P 500 Index, Morgan Stanley REIT Index, and the FTSE NAREIT US Real Estate Index for the period beginning on October 10, 2013 (the date of our initial listing on the NYSE) through December 31, 2016. The graph assumes a $100 investment in each of the indices on October 10, 2013, and the reinvestment of all dividends.
cxp2013123_chart-12758a05.jpg
Index
 
October 10, 2013
 
December 31, 2013
 
December 31, 2014
 
December 31, 2015
 
December 31, 2016
Columbia Property Trust
 
$
100.00

 
$
112.10

 
$
119.00

 
$
115.70

 
$
112.50

S&P 500 Index
 
$
100.00

 
$
109.70

 
$
124.70

 
$
126.40

 
$
141.50

Morgan Stanley REIT Index
 
$
100.00

 
$
97.70

 
$
127.38

 
$
130.60

 
$
141.90

FTSE NAREIT US Real Estate Index
 
$
100.00

 
$
97.68

 
$
127.40

 
$
131.30

 
$
141.60



Page 19


Share Repurchases
On September 4, 2015, our board of directors approved a stock repurchase program, which authorizes us to buy up to $200 million of our common stock over a two-year period, ending on September 4, 2017 (the "Stock Repurchase Program"). During the quarter ended December 31, 2016, we purchased and retired the following shares in accordance with the Stock Repurchase Program:
Period
 
Total Number
of Shares
Purchased
 
Average
 Price Paid 
per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plan
 
Maximum Approximate Dollar Value Available for Future Purchase(2)
October 2016
 

 
$

 

 
$
158,683,331

November 2016(1)
 
1,150,822

 
$
21.522

 
1,150,822

 
$
133,914,903

December 2016(1)
 
143,110

 
$
20.963

 
143,110

 
$
130,914,930

(1) 
All activity for November and December 2016 relates to the Stock Repurchase Program, as described above.
(2) 
Amounts available for future purchase relate only to our Stock Repurchase Program and represent the remainder of the $200 million authorized by our board of directors for share repurchases.
Unregistered Issuance of Securities
During the years 2016, 2015, and 2014, we did not issue any securities that were not registered under the Securities Act of 1933.
Securities Authorized for Issuance under Equity Compensation Plans
We have reserved 2,000,000 shares of common stock for issuance under our long term incentive plan (the "LTIP") and 25,000 shares of common stock under the a director stock option plan (the "Independent Director Stock Option Plan"). See Note 8, Equity, to the accompanying consolidated financial statements, for more information about these plans. The LTIP was approved by our stockholders in 2013, and the Independent Director Stock Option Plan was approved by our stockholders in 2003, before we commenced our initial public offering and suspended on April 24, 2008. The following table provides summary information about securities issuable under our equity compensation plans as of December 31, 2016:
Plan category
 
Number of securities
to be issued upon 
exercise of
outstanding options,
warrants, and rights
 
Weighted-average exercise price of outstanding options, warrants, and rights
 
Common stock issued under the LTIP
 
Number of securities remaining available for future issuance under equity compensation plans(1)
Equity compensation plans
approved by security holders
 
1,375

 
$
48.00

 
570,054

 
1,447,571

Equity compensation plans not
approved by security holders
 

 

 

 

Total
 
1,375

 
$
48.00

 
570,054

 
1,447,571

(1) 
Includes 1,429,946 shares reserved for issuance under the LTIP and 17,625 shares reserved for issuance under the Independent Director Stock Option Plan.


Page 20


ITEM 6.
SELECTED FINANCIAL DATA
The following selected financial data for 2016, 2015, 2014, 2013, and 2012 should be read in conjunction with the accompanying consolidated financial statements and related notes in Item 8, Financial Statements and Supplementary Data, hereof (amounts in thousands, except per-share data).
 
As of December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
Total assets(1)
$
4,299,793

 
$
4,678,118

 
$
4,734,240

 
$
4,587,301

 
$
5,724,652
 
Total stockholders' equity
$
2,502,768

 
$
2,614,194

 
$
2,733,478

 
$
2,787,823

 
$
3,163,980
 
Outstanding debt
$
1,424,602

 
$
1,735,063

 
$
1,680,066

 
$
1,489,179

 
$
1,650,296
 
Outstanding long-term debt
$
1,302,602

 
$
1,577,063

 
$
1,469,245

 
$
1,477,563

 
$
1,621,541
 
Obligations under capital leases
$
120,000

 
$
120,000

 
$
120,000

 
$
120,000

 
$
586,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
Total revenues(2)
$
473,543

 
$
566,065

 
$
540,797

 
$
526,578

 
$
494,271
 
Loss from unconsolidated joint venture
$
(7,561
)
 
$
(1,142
)
 
$

 
$

 
$
 
Net income
$
84,281

 
$
44,619

 
$
92,635

 
$
15,720

 
$
48,039
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
193,091

 
$
223,080

 
$
236,906

 
$
218,329

 
$
252,839
 
Net cash provided by (used in) investing activities
$
525,613

 
$
(576,699
)
 
$
(23,788
)
 
$
495,389

 
$
31,047
 
Net cash provided by (used in) financing activities
$
(535,264
)
 
$
263,474

 
$
(163,183
)
 
$
(667,417
)
 
$
(269,729
)
Distributions paid(3)
$
148,474

 
$
112,570

 
$
149,962

 
$
191,473

 
$
256,020
 
Net proceeds raised through issuance of our common stock(3)
$

 
$

 
$

 
$
46,402

 
$
118,388
 
Net debt and bond proceeds (repayments)(3)
$
(311,769
)
 
$
378,995

 
$
(11,739
)
 
$
(160,940
)
 
$
(28,191
)
Acquisitions, earnest money paid, and investments in real estate(3)
$
(39,521
)
 
$
(1,145,402
)
 
$
(416,991
)
 
$
(44,856
)
 
$
(233,798
)
Per weighted-average common share data:
 
 
 
 
 
 
 
 
 
 
Net income – basic(4)
$
0.68

 
$
0.36

 
$
0.74

 
$
0.12

 
$
0.35
 
Net income – diluted(4)
$
0.68

 
$
0.36

 
$
0.74

 
$
0.12

 
$
0.35
 
Distributions declared(4)
$
1.20

 
$
1.20

 
$
1.20

 
$
1.44

 
$
1.88
 
Weighted-average common shares
outstanding – basic(4)
123,130

 
124,757

 
124,860

 
134,085

 
136,672
 
Weighted-average common shares
outstanding – diluted
(4)
123,228

 
124,847

 
124,918

 
134,085

 
136,672
 
(1) 
The amounts for 2014 through 2012 have been adjusted to conform with 2016 and 2015 presentation by reclassifying debt issuance costs on the accompanying consolidated balance sheets, other than those related to our revolving credit facility, from a deferred financing costs asset to an offset to line of credit, term loans, and notes payable liability and bonds payable.
(2) 
The amounts for 2014 through 2012 have been adjusted to classify revenues generated by certain sold properties as discontinued operations (see Note 12, Discontinued Operations, to the accompanying consolidated financial statements).
(3) 
Activity is presented on a cash basis. Please refer to our accompanying consolidated statements of cash flows.
(4) 
Where applicable, share and per-share amounts have been retroactively adjusted to reflect the impact of the August 14, 2013, four-for-one reverse stock split for all periods presented (See Note 8, Equity, to the accompanying consolidated financial statements).



Page 21


ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the Selected Financial Data in Item 6, Selected Financial Data, above and our accompanying consolidated financial statements and notes thereto. See also Cautionary Note Regarding Forward-Looking Statements preceding Part I.
Overview
Executive Summary
Our primary strategic objective is to generate long-term shareholder returns from a combination of growing cash flows and appreciation in the values of our properties, through investments in high-quality office properties located principally in high-barrier-to-entry markets. Capital recycling initiatives have enabled us to improve our concentration in key markets and central business districts, as well as to reduce our exposure to single-tenant assets. During 2015 and 2016, we sold 18 properties in outlying markets for approximately $1.2 billion, and reinvested those proceeds in acquisitions in New York and Boston, and in targeted capital improvements for our existing portfolio. In January of 2017, we sold five additional assets for $0.5 billion, which allowed us to exit the Houston and Cleveland markets. This year, we will be focused on reinvesting those proceeds into strategic opportunities within our key markets. We typically target acquisition opportunities that are competitive within the top tier of their markets, or will be repositioned as such through value-add initiatives. We believe that these investment objectives will allow us to optimize our portfolio allocation between stabilized investments and more growth-oriented, value-add investments, and at the same time, continue to increase our portfolio allocations to central business districts and multi-tenant buildings. Transitioning the portfolio to more growth-oriented, value-add properties is likely to cause some dilution in earnings for a period of time; however, we believe that this transition will improve our growth potential over the longer term.
In 2017, leasing will continue to be a key area of focus, both of vacant space and in managing upcoming expirations. During 2016, we leased 1.1 million square feet of space, and addressed some of our most significant near-term expirations:
In April, we executed a 30-year, full building lease of 390,000-square feet at the 222 East 41st Street property in New York, which replaced a lease for the majority of the building that was scheduled to expire later in 2016;
In June, we executed a 130,000-square foot, full-building lease renewal at the SanTan Corporate Center in Phoenix, Arizona, for one of the two buildings. The lease rolled rents up slightly with a long-time tenant, and positioned the property to be sold at favorable terms in December.
In June, we executed a 35,000-square-foot lease at the 315 Park Avenue South Building in New York, which brought the property to 97% leased; and
In November, we executed a 15-year, 69,000-square-foot lease at the 80 M Street Building in Washington, D.C., which, along with other leasing at the property, brought it to 87% leased.
We continue to maintain a flexible balance sheet with low leverage and an emphasis on unsecured borrowings. During 2015 and 2016, we refinanced approximately $1.3 billion of unsecured debt and repaid $371.5 million of mortgage loans. As a result, over this period, we extended our weighted-average debt maturity from 3.3 years to 6.1 years(1), decreased our weighted-average cost of borrowing from 4.24% per annum to 3.63%(1) per annum, and increased our unencumbered pool of assets as a percentage of gross real estate assets from 61.7% to 78.8%(1). Further, our board of directors adopted a stock repurchase program that authorizes us to buy up to $200.0 million of our common stock through September of 2017. We believe such a program enables us to benefit from market downturns, which may cause our stock to be undervalued from time to time. In 2016, we repurchased $52.8 million of our common stock.
(1) 
Statistics include 51% of the debt held by the the Market Square Joint Venture, in which we own an interest through an unconsolidated joint venture.


Page 22


Key Performance Indicators
Our operating results depend primarily upon the level of income generated by the leases at our properties. Occupancy and rental rates are critical drivers of our lease income. Historically, our portfolio has been more than 90% leased. During 2016 and 2015, our average portfolio percentage leased ranged from 90.6% to 93.3%. The following table sets forth details related to recent leasing activities, which drive changes in our rental revenues.
 
Years Ended December 31,
 
 
2016
 
2015
 
Total number of leases
54

 
75

 
Weighted-average lease term (months)
316

 
163

 
Square feet of leasing - renewal(1)
275,653

 
757,283

 
Square feet of leasing - new(1)
746,290

 
486,572

 
Total square feet of leasing(1)
1,021,943

 
1,243,855

 
Rent leasing spread - renewal(2)
27.4
%
 
13.3
%
 
Rent leasing spread - new(2)(3)
18.5
%
(4) 
49.9
%
 
Rent leasing spread - all leases(2)(3)
19.0
%
 
27.4
%
(5) 
Tenant improvements, per square foot - renewal
$
35.75

 
$
27.91

 
Tenant improvements, per square foot - new
$
162.03

(4) 
$
76.20

 
Tenant improvements, per square foot - all leases
$
155.16

 
$
49.70

 
Leasing commissions, per square foot - renewal
$
14.31

 
$
12.46

 
Leasing commissions, per square foot - new
$
41.91

(4) 
$
40.06

 
Leasing commissions, per square foot - all leases
$
40.41

 
$
24.91

 
(1) 
Includes 51% of the leasing at the Market Square buildings, which we own through an unconsolidated joint venture.
(2) 
Rent leasing spreads are calculated based on the change in base rental income measured on a straight-line basis.
(3) 
Rent leasing spreads are only calculated for new leases on tenant spaces that have been vacant less than one year.
(4) 
In the second quarter of 2016, we executed a new 390,000-square-foot, 30-year lease at our 222 East 41st Street property with NYU Langone Medical, which resulted in positive rent leasing spreads of 14.4%, tenant improvements of $180.10 per square foot, and leasing commissions of $44.90 per square foot.
(5) 
In 2015, rent leasing spreads were positive due to a lease expansion and extension with the anchor tenant at our 221 Main Street building in San Francisco, California, and a new lease for 45,000 square feet at 315 Park Avenue South in New York, partially offset by the impact of a lease renewal with CH2M at South Jamaica Street.
Over the next 12 months, approximately 755,000 square feet of our leases (approximately 8.8% of our office portfolio based on revenues) are scheduled to expire. Approximately 354,000 of this total relates to a lease with OfficeMax at our 263 Shuman Boulevard property. The tenant vacated this property in the second quarter of 2015, and we are in the process of working to transfer this property to the lender. The remainder of the near-term expirations primarily relates to our properties in New York and San Francisco, and we expect to replace these leases with starting rates above those currently in place at the properties.
Liquidity and Capital Resources
Overview
Cash flows generated from the operation of our properties are primarily used to fund recurring expenditures and stockholder dividends. The amount of distributions to common stockholders is determined by our board of directors and is dependent upon a number of factors, including funds deemed available for distribution based principally on our current and future projected operating cash flows, reduced by capital requirements necessary to maintain our existing portfolio. In determining the amount of distributions to common stockholders, we also consider our future capital needs and future sources of liquidity, as well as the annual distribution requirements necessary to maintain our status as a REIT under the Code. Investments in new property acquisitions and first-generation capital improvements are generally funded with capital proceeds from property sales, debt, or cash on hand. Beginning with the first quarter of 2017, our board of directors has elected to reduce the quarterly stockholder distribution rate from $0.30 per share to $0.20 per share to adjust to a payout level consistent with our current investment objectives. We’ve transformed the composition of our portfolio by selling suburban assets, and acquiring assets in high-barrier to entry markets, which offer lower initial yields and higher potential for growth over time. We believe the new dividend rate is sustainable over the near and medium term, and offers the potential for growth over the long-term.


Page 23


Short-term Liquidity and Capital Resources
During 2016, we generated net cash flows from operating activities of $193.1 million, which consists primarily of receipts from tenants for rent and reimbursements, reduced by payments for operating costs, administrative expenses, and interest expense. During the same period, we paid total distributions to stockholders of $148.5 million.
During 2016, we generated net proceeds of $603.7 million from property sales and issued $350.0 million of bonds payable.  We used these proceeds to repay debt ($655.0 million), fund leasing and capital projects ($88.1 million) and repurchase shares of our common stock ($54.0 million). In January, we generated an additional $526.5 million from the sale of Houston and Key Center assets. 
Over the short-term, we expect our primary sources of capital to be operating cash flows and future debt financings. We expect that our principal demands for funds will be property acquisitions, capital improvements to our existing portfolio, stockholder distributions, operating expenses, and interest and principal payments on current and maturing debt. We believe that we have adequate liquidity and capital resources to meet our other current obligations as they come due, including 2017 debt maturities of $122.0 million. As of January 31, 2017, we had access to the entire $500 million borrowing capacity under the Revolving Credit Facility, in addition to $671.8 million of cash on hand.
Long-term Liquidity and Capital Resources
Over the long term, we expect that our primary sources of capital will include operating cash flows, select property dispositions, and proceeds from secured or unsecured borrowings. We expect that our primary uses of capital will continue to include stockholder distributions; acquisitions; capital expenditures, such as building improvements, tenant improvements, and leasing costs; and repaying or refinancing debt.
Consistent with our financing objectives and operational strategy, we continue to maintain debt levels historically less than 40% of the cost of our assets. We believe that preserving investor capital while generating stable current income is in the best interest of our stockholders. Our debt-to-real-estate-asset ratio is calculated using the outstanding debt balance and real estate at cost. As of December 31, 2016, our debt-to-real-estate-asset ratio, including 51% of the debt and real estate at the Market Square Joint venture, in which we own an interest through an unconsolidated joint venture, was approximately 34.6%.
Revolving Credit Facility
Our Revolving Credit Facility has a capacity of $500.0 million and matures in July 2019, with two six-month extension options. As of December 31, 2016, we had no outstanding balance on the Revolving Credit Facility. Amounts outstanding under the Revolving Credit Facility bear interest at the London Interbank Office Rate ("LIBOR"), plus an applicable margin ranging from 0.875% to 1.55% for LIBOR borrowings, or an alternate base rate, plus an applicable margin ranging from 0.00% to 0.55% for base rate borrowings, based on our applicable credit rating. The per annum facility fee on the aggregate revolving commitment (used or unused) ranges from 0.125% to 0.30%, also based on our applicable credit rating. Additionally, we have the ability to increase the capacity of the Revolving Credit Facility, along with the $300 Million Term Loan, which provides for four accordion options for an aggregate additional amount of up to $400 million, subject to certain limitations.
Term Loans
We have a $300.0 million unsecured, single-draw term loan, which matures in July 2020 (the "$300 Million Term Loan"), and, along with the Revolving Credit Facility, provides for four accordion options for an aggregate amount of up to $400 million, subject to certain conditions. The $300 Million Term Loan bears interest, at our option, at either (i) LIBOR, plus an applicable margin ranging from 0.90% to 1.75% for LIBOR loans, or (ii) an alternate base rate, plus an applicable margin ranging from 0.00% to 0.75% for base rate loans, based on our applicable credit rating.
We have a $150.0 million unsecured, single-draw term loan, which matures in July 2022 (the "$150 Million Term Loan"). The $150 Million Term Loan bears interest, at our option, at either (i) LIBOR, plus an applicable margin ranging from 1.40% to 2.35% for LIBOR loans, or (ii) base rate, plus an applicable margin ranging from 0.40% to 1.35% for base rate loans. The interest rate on the $150 Million Term Loan is effectively fixed with an interest rate swap agreement, which is designated as a cash flow hedge. Based on the terms of the interest rate swap and our current credit rating, the interest rate on the $150 Million Term Loan is effectively fixed at 3.52%.


Page 24


Debt Covenants
The $300 Million Term Loan, the $150 Million Term Loan, and the Revolving Credit Facility contain the following restrictive covenants:
limits the ratio of secured debt to total asset value, as defined therein, to 40% or less;
requires the fixed charge coverage ratio, as defined therein, to be at least 1.50:1.00;
limits the ratio of debt to total asset value, as defined therein, to 60% or less;
requires the ratio of unencumbered adjusted net operating income, as defined therein, to unsecured interest expense, as defined therein, to be at least 1.75:1.00;
requires the ratio of unencumbered asset value, as defined therein, to total unsecured debt, as defined therein, to be at least 1.66:1.00; and
requires maintenance of certain minimum tangible net worth balances.
As of December 31, 2016, we believe we were in compliance with the restrictive covenants on these outstanding debt obligations.
Bonds Payable
In August 2016, we issued $350.0 million of ten-year, unsecured 3.650% senior notes at 99.626% of their face value (the "2026 Bonds Payable") under our Universal Shelf Registration Statement (defined below). We received proceeds from the 2026 Bonds Payable, net of fees, of $346.4 million, which were used to prepay our $250 million bonds payable, originally due in April of 2018. The 2026 Bonds Payable require semi-annual interest payments in February and August based on a contractual annual interest rate of 3.650%. The principal amount of the 2026 Bonds Payable is due and payable on the maturity date, August 15, 2026.
In March 2015, we issued $350.0 million of ten-year, unsecured 4.150% senior notes at 99.859% of their face value under our Universal Shelf Registration Statement (the "2025 Bonds Payable"). We received proceeds from the 2025 Bonds Payable, net of fees, of $347.2 million, a portion of which was used to repay a bridge loan, which was originated in January 2015. The 2025 Bonds Payable require semi-annual interest payments in April and October based on a contractual annual interest rate of 4.150%. The principal amount of the 2025 Bonds Payable is due and payable on the maturity date, April 1, 2025.
The restrictive covenants on the 2026 Bonds Payable and the 2025 Bonds Payable as defined pursuant to an indenture include:
a limitation on the ratio of debt to total assets, as defined, to 60%;
limits to our ability to incur debt if the consolidated income available for debt service to annual debt service charge, as defined, for four previous consecutive fiscal quarters is less than 1.5:1 on a pro forma basis;
limits to our ability to incur liens if, on an aggregate basis for us, the secured debt amount would exceed 40% of the value of the total assets; and
a requirement that the ratio of unencumbered asset value, as defined, to total unsecured debt be at least 150% at all times.
As of December 31, 2016, we believe we were in compliance with the restrictive covenants on the 2026 Bonds Payable and the 2025 Bonds Payable.
Debt Repayments, Maturities, and Interest Payments
During 2016 and 2015, we made the following debt repayments:
On October 3, 2016, a portion of the proceeds from the sale of the 80 Park Plaza Property was used to repay the $99.0 million remaining outstanding balance on our Revolving Credit Facility. No additional borrowings were made against the Revolving Credit Facility during the remainder of 2016.
On September 2, 2016, the proceeds from the 2026 Bonds Payable, as described above, were used to redeem $250.0 million of seven-year, unsecured 5.875% senior notes due April 2018, including a $17.9 million make-whole payment reflected as an early loss on extinguishment of debt in the accompanying consolidated statement of operations.
On June 30, 2016, we used borrowings on the Revolving Credit Facility to repay the $39.0 million SanTan Corporate Center mortgage notes, which were scheduled to mature on October 11, 2016, resulting in the write off approximately $10,000 of related unamortized financing costs, which are included in loss on early extinguishment in the accompanying statements of operations.
On April 1, 2016, we repaid the $119.0 million remaining on our $300 million, six-month unsecured loan, which was used to finance a portion of the 229 West 43rd Street Building acquisition in August of 2015. The $300 Million Bridge


Page 25


Loan was scheduled to mature on August 4, 2016. We recognized a loss on early extinguishment of debt of $82,000 related to unamortized deferred financing costs.
On January 6, 2015, we entered into a $300.0 million, six-month, unsecured loan to finance a portion of the real estate assets purchased in January 2015. On March 12, 2015, we fully repaid the loan with proceeds from the 2025 Bonds Payable, at which time we recognized a loss on early extinguishment of debt of $0.5 million as a result of writing off the unamortized deferred financing costs. The loan was set to mature on July 6, 2015.
On June 1, 2015, we repaid the mortgage note for the 333 Market Street Building for $206.5 million and the related interest rate swap agreement expired. The maturity date for the 333 Market Street Building mortgage note was July 1, 2015.
On July 1, 2015, in connection with the 11 Property Sale, as described in Note 3, Real Estate Transactions, to the accompanying financial statements, we repaid the mortgage note for the 215 Diehl Road Building, one of the properties included in the 11 Property Sale, for $21.0 million. As a result, we recognized a loss on early extinguishment of debt of $2.1 million, primarily as a result of a prepayment premium. The maturity date for the 215 Diehl Road Building mortgage note was July 1, 2017.
On July 13, 2015, we repaid the $105.0 million mortgage note on the 100 East Pratt Street Building at par. The maturity date for the 100 East Pratt Street Building mortgage note was June 11, 2017.
During 2016 and 2015, we made interest payments of approximately $27.8 million and $54.0 million, respectively, related to our line of credit and notes payable. Interest payments on the 2026 Bonds Payable begin in February 2017. Interest payments of $28.0 million and $22.7 million were made on the 2025 Bonds Payable and the 2018 Bonds Payable during 2015 and 2016, respectively.
Universal Shelf Registration Statement
We have on file a universal shelf registration statement on Form S-3 (No. 333-198764) with the Securities and Exchange Commission (the "Universal Shelf Registration Statement"), which was effective upon filing in September 2014. The Universal Shelf Registration Statement provides us with flexibility to offer, from time to time and in one or more offerings, debt securities, common stock, preferred stock, depositary shares, warrants, or any combination thereof. The terms of any such future offerings would be established at the time of an offering.
Contractual Commitments and Contingencies
As of December 31, 2016, our contractual obligations will become payable in the following periods (in thousands):
Contractual Obligations
 
Total
 
2017
 
2018-2019
 
2020-2021
 
Thereafter
Debt obligations(1)
 
$
1,590,353

 
$
127,728

 
$
146,875

 
$
300,000

 
$
1,015,750

Interest obligations on debt(1)(2)
 
362,006

 
54,267

 
99,486

 
84,680

 
123,573

Capital lease obligations(3)
 
120,000

 

 

 
120,000

 

Operating lease obligations
 
208,442

 
2,642

 
5,342

 
5,342

 
195,116

Total
 
$
2,280,801

 
$
184,637

 
$
251,703

 
$
510,022

 
$
1,334,439

(1) 
Includes 51% of the debt and interest obligations for the Market Square Joint Venture, in which we own an interest through an unconsolidated joint venture. The Market Square Joint Venture holds a $325 million mortgage note on the Market Square Buildings, bearing interest at 5.07% and maturing on July 1, 2023. We guarantee $16.1 million of the Market Square Buildings note payable (see Note 7, Commitments & Contingencies, to the accompanying financial statements).
(2) 
Interest obligations on variable-rate debt are measured at the rate at which they are effectively fixed with interest rate swap agreements (where applicable). Interest obligations on all other debt instruments are measured at the contractual rate. See Item 7A, Quantitative and Qualitative Disclosure About Market Risk, for more information regarding our interest rate swaps.
(3) 
Amounts include principal obligations only. We made interest payments on these obligations of $7.2 million during 2016, all of which was funded with interest income earned on the corresponding investments in development authority bonds.
Results of Operations
Overview
As of December 31, 2016, we owned 21 office properties, which were approximately 90.6% leased, including 51% of the Market Square buildings, which we own through an unconsolidated joint venture, and one hotel. Our period-over-period operating results are heavily impacted by the real estate activities set forth in the Transaction Activity section of Item 1, Business, which include acquisitions, dispositions and the transfer of the Market Square Buildings to an unconsolidated joint venture. Other than real estate transactions, we expect real estate operating income to fluctuate primarily based on leasing activity over the near-term.


Page 26


Comparison of the year ended December 31, 2016 versus the year ended December 31, 2015
Rental income was $366.2 million for 2016, which represents a decrease from $436.0 million for 2015. The decrease is primarily due to current year and prior year dispositions ($53.0 million); transferring the Market Square Buildings to a joint venture in the fourth quarter of 2015 ($30.9 million); and vacancy at our 222 East 41st Street property for a portion of 2016 ($7.4 million), while the building was being prepared for NYU's Langone Medical lease to commence, partially offset by additional rental income from the acquisition of the 229 West 43rd Street Building in August 2015 ($19.9 million). We expect future rental income to fluctuate based on leasing, acquisition, and disposition activity.
Tenant reimbursements and property operating costs were $69.8 million and $155.0 million, respectively, for 2016, which represents a decrease from $99.7 million and $188.1 million, respectively, for 2015. The decrease in property operating costs is due to dispositions ($23.4 million) and the transfer of the Market Square Buildings to a joint venture ($16.4 million), partially offset by additional property operating costs from the acquisition of the 229 West 43rd Street Building ($6.6 million). The proportional decrease in tenant reimbursements is also due to dispositions ($17.3 million) and the transfer of the Market Square Buildings to a joint venture ($9.4 million), partially offset by additional tenant reimbursements from the acquisition of the 229 West 43rd Street Building ($2.9 million). Tenant reimbursements and property operating costs are expected to fluctuate with leasing activity and changes in our portfolio.
Hotel income, net of hotel operating costs, was $4.0 million for 2016, which represents a decrease as compared with $4.7 million for 2015, primarily due to a higher level of group bookings and meetings at the hotel in 2015. The Key Center Marriott was sold in January of 2017.
Other property income was $14.9 million for 2016, which represents an increase as compared with $6.1 million for 2015, primarily due to an early termination at our 222 East 41st Street property ($6.8 million) and additional management fees earned from the Market Square Joint Venture in 2016 ($2.4 million), as described in Note 4, Unconsolidated Joint Venture, to the accompanying consolidated financial statements. Future other property income is expected to fluctuate, primarily as a result of lease restructuring and termination activities.
Asset and property management fees were $1.4 million for 2016, which represents a decrease as compared with $1.8 million for 2015, primarily due to transferring the Market Square Buildings to a joint venture in the fourth quarter of 2015. Future asset and property management fees are expected to fluctuate with future acquisition and disposition activity.
Depreciation was $108.5 million for 2016, which represents a decrease as compared with $131.5 million for 2015, primarily due to dispositions ($16.3 million) and transferring the Market Square Buildings to a joint venture ($11.6 million), partially offset by additional depreciation from the acquisition of the 229 West 43rd Street Building in August 2015 ($5.4 million). Excluding the impact of additional acquisitions and dispositions, depreciation is expected to increase in future periods due to ongoing capital improvements at our existing properties.
Amortization was $56.8 million for 2016, which represents a decrease as compared with $87.1 million for 2015. The decrease is primarily due to dispositions ($16.1 million); intangibles written off related to the expiration or termination of leases ($9.8 million); and transferring the Market Square Buildings to a joint venture ($5.9 million); partially offset by additional amortization from the acquisition of the 229 West 43rd Street Building in August 2015 ($2.6 million). We expect future amortization to fluctuate primarily as a result of future leasing activity, acquisitions, and dispositions.
General and administrative expenses were $33.9 million for 2016, which represents an increase from $29.7 million for 2015. The increase is due to costs incurred to develop our regional management and investment platform ($2.9 million), and additional vesting under our stock-based incentive compensation plan ($1.0 million). We expect future general and administrative expenses to increase as a result of transitioning our long-term incentive plan from a one-year performance period to a three-year performance period, beginning in 2017.
We incurred acquisition expenses of $3.7 million for 2015, in connection with acquiring three properties in January 2015 and the 229 West 43rd Street Building, in New York, in August 2015. See Note 3, Real Estate Transactions, to the accompanying financial statements for additional details. We expect future acquisition expenses to fluctuate with acquisition activity.
Interest expense was $67.6 million for 2016, which represents a decrease as compared with $85.3 million for 2015, primarily due to transferring the Market Square mortgage note to a joint venture ($13.6 million) and repaying mortgage loans ($5.4 million), partially offset by the 2025 Bonds Payable outstanding for the entire year ($3.0 million). We expect interest expense to continue to fluctuate based on acquisition activity in the near-term.
Interest and other income was stable at $7.3 million for 2016 and 2015. Interest income is expected to remain at comparable levels in future periods, as the majority of this income is earned on investments in development authority bonds with a remaining term


Page 27


of approximately five years as of December 31, 2016. Interest income earned on investments in development authority bonds is entirely offset by interest expense incurred on the corresponding capital leases.
We recognized a loss on interest rate swaps that do not qualify for hedge accounting treatment of approximately $1.1 million for 2015, primarily due to the settlement of the swap related to a $450 million term loan, which was replaced with other unsecured borrowings in July 2015. We anticipate that future gains and losses on interest rate swaps that do not qualify for hedge accounting treatment will fluctuate, primarily due to changes in the estimated fair value of our interest rate swaps relative to then-current market conditions. Market value adjustments to swaps that qualify for hedge accounting treatment are recorded directly to equity and therefore do not impact net income.
We recognized a loss on early extinguishment of debt of $19.0 million and $3.1 million in 2016 and 2015, respectively. In 2016, we incurred an early redemption premium on the settlement of the 2018 Bonds Payable of $17.9 million, and write offs of deferred financing costs in connection with other early repayments. In 2015, we incurred a prepayment premium of $2.1 million related to the early repayment of the 215 Diehl Building mortgage note, approximately two years prior to its maturity and write offs of deferred financing costs in connection with other early repayments. We expect future gains or losses on early extinguishments of debt to fluctuate with financing activities.
We recognized a loss from unconsolidated joint venture of $7.6 million for 2016, which represents a increase as compared with a loss of $1.1 million for 2015. The Market Square Joint Venture was formed on October 28, 2015. Since inception, real estate operating income from the Market Square Buildings has been reduced by interest incurred on the property's $325 million mortgage note, and the Market Square Buildings had slightly decreased occupancy during 2016. Future income or loss from unconsolidated joint venture will fluctuate with operating activity at the Market Square Buildings.
We recognized gains on sales of real estate assets of $72.3 million in 2016, as a result of selling six properties in separate transactions for an aggregate of $660.5 million, exclusive of transaction costs. We recognized gains on sales of real estate assets of $23.9 million in 2015, as a result of selling 12 properties for an aggregate of $498.3 million, exclusive of transaction costs, and the sale of a 49% interest in the Market Square Buildings for a gross sales price of $120.0 million. See Note 3, Real Estate Transactions, of the accompanying financial statements, for additional details of these dispositions. We expect future gains on sales of real estate assets will fluctuate with disposition activity.
Net income was $84.3 million, or $0.68 per basic and diluted share, for 2016, which represents an increase from $44.6 million, or $0.36 per share, for 2015. The increase is due to additional year-over-year gains on sales of real estate ($48.5 million) and a decrease in interest expense and other financing costs ($17.7 million), partially offset by additional year-over-year losses on early extinguishment of debt ($15.8 million), lower earnings due to property sales ($5.3 million), and increase in equity in loss of unconsolidated joint venture ($6.4 million) due to reduced occupancy at the Market Square Buildings. See "Supplemental Performance Measures" section below for our same store results compared with the prior year period. We expect future earnings to fluctuate as a result of leasing activity at our existing properties, our planned near-term dispositions, and acquisition activity.
Comparison of the year ended December 31, 2015 versus the year ended December 31, 2014
Rental income was $436.0 million for 2015, which represents an increase from $414.5 million for 2014. The increase includes additional rental income from properties acquired in 2014 and 2015 ($74.3 million), partially offset by selling properties during the same periods and transferring the Market Square Buildings to a joint venture on October 28, 2015 ($51.1 million).
Tenant reimbursements were relatively stable at $99.7 million and $95.4 million for 2015 and 2014, respectively. Property operating costs were $188.1 million for 2015, which represents an increase as compared with $163.7 million for 2014, primarily due to properties acquired during 2014 and 2015 ($32.2 million), partially offset by selling properties during the same periods and transferring the Market Square Buildings to a joint venture on October 28, 2015 ($14.0 million). Tenant reimbursements and property operating costs related to our joint venture interest in the Market Square Buildings (51%) are included in loss from unconsolidated joint venture on the accompanying consolidated statement of operations. Tenant reimbursements did not increase at the same pace as property operating costs, primarily due to a lease contraction at one of our properties, and a prior year property tax refund received in the current year.
Hotel income, net of hotel operating costs, was $4.7 million for 2015, which represents an increase as compared with $4.1 million for 2014, due to additional group bookings and meetings at the hotel.
Other property income was $6.1 million for 2015, which represents a decrease as compared with $8.0 million for 2014, primarily due to fluctuations in lease termination activity.
Asset and property management fees were $1.8 million for 2015, which represents a decrease as compared with $2.3 million for 2014, primarily as a result of savings generated from bringing asset and property management services in house during 2015 for


Page 28


properties in San Francisco ($1.1 million), partially offset by incurring additional property management and asset management fees for properties acquired in 2015 ($0.7 million).
Depreciation was $131.5 million for 2015, which represents an increase as compared with $117.8 million for 2014, primarily due to recent acquisitions ($25.8 million), partially offset by recent dispositions and transferring the Market Square Buildings to a joint venture on October 28, 2015 ($15.4 million). Depreciation related to our joint venture interest in the Market Square Buildings (51%) is included in loss from unconsolidated joint venture on the accompanying consolidated statement of operations.
Amortization was $87.1 million for 2015, which represents an increase as compared with $78.8 million for 2015, primarily due to recent acquisitions ($25.5 million), partially offset by properties sold and transferring the Market Square Buildings to a joint venture on October 28, 2015 ($13.8 million), and prior-period write offs at our existing properties ($2.4 million). Amortization related to our joint venture interest in the Market Square Buildings (51%) is included in loss from unconsolidated joint venture on the accompanying consolidated statement of operations.
In 2015, we did not recognize any impairment losses. In 2014, we recognized the following impairment losses in connection with changing our investment strategy and disposition expectations for the following assets: $13.6 million on the 160 Park Avenue Building in Florham Park, New Jersey, in the first quarter of 2014 (sold in June 2014); $1.4 million on the 200 South Orange Building in Orlando, Florida, in the second quarter of 2014 (sold in June 2014); and $10.1 million on the Bannockburn Lake III Building in Bannockburn, Illinois, in the fourth quarter of 2014 (sold in July 2015).
General and administrative expenses were $29.7 million for 2015, which represents a decrease from $31.3 million for 2014. The decrease is primarily due to the full period impact of savings related to changing transfer agents in the third quarter of 2014 ($1.5 million). In addition, reductions related to non-recurring professional fees incurred in 2014 ($2.6 million) are largely offset by costs incurred in 2015 to develop our regional investment platform ($1.5 million) and for vesting under our stock-based incentive compensation plan ($1.0 million).
We incurred acquisition expenses of $3.7 million for 2015 in connection with acquiring three properties in January 2015 and the 229 West 43rd Street Building, in New York in August 2015. We incurred acquisition expenses of $14.1 million for 2014, in connection with acquiring the 221 Main Street Building and the 650 California Street Building in San Francisco in 2014. See Note 3, Real Estate Transactions, to the accompanying financial statements for additional details.
Interest expense was $85.3 million for 2015, which represents an increase as compared with $75.7 million for 2014, primarily due to interest incurred on the 2025 Bonds Payable issued in March 2015 ($11.6 million) and the full year impact of the notes payable assumed with the properties acquired in 2014 ($4.1 million), partially offset by mortgages settled during 2015 ($5.6 million). See Note 5, Line of Credit and Notes Payable, to the accompanying financial statements, for additional details.
Interest and other income was stable at $7.3 million for 2015 and 2014. Interest income is expected to remain at comparable levels in future periods, as the majority of this income is earned on investments in development authority bonds with a remaining term of approximately six years as of December 31, 2015. Interest income earned on investments in development authority bonds is entirely offset by interest expense incurred on the corresponding capital leases.
We recognized a loss on interest rate swaps that do not qualify for hedge accounting treatment of approximately $1.1 million for 2015, as compared with $0.4 million for 2014. The $1.1 million loss in 2015 is primarily due to the settlement of the swap related to a $450 million term loan, which was replaced with other unsecured borrowings in July 2015.
We recognized a loss on early extinguishment of debt of $3.1 million in 2015, primarily due to prepayment fees incurred to settle the 215 Diehl Building mortgage note in connection with selling the property as part of the 11 Property Sale, and writing off deferred financing costs in association with repaying a bridge loan in March 2015, 4.3 months prior to its original maturity date. We recognized a loss of $23,000 in 2014 related to the early repayment of the $9.1 million mortgage note for the 544 Lakeview Building. This note was originally due on December 1, 2014, and fully repaid on October 8, 2014.
We recognized a loss from unconsolidated joint venture of $1.1 million from the time we entered into the joint venture on October 28, 2015 through year end, as income from operations at the Market Square Buildings is offset by interest expense related to the $325 million mortgage note on the property.
We recognized gains on sales of real estate assets of $23.9 million and $75.3 million in 2015 and 2014, respectively.In July 2015, we sold 12 properties for aggregate gross proceeds of $498.3 million, exclusive of transaction costs, yielding total gains on sales of real estate assets of $20.8 million; and, in October 2015, we sold a 49% interest in the Market Square Buildings for a gross sales price of $120.0 million, resulting in a gain on sale of real estate assets of $3.1 million. In 2014, we sold five properties for aggregate gross proceeds of $425.5 million, exclusive of transaction costs, yielding total gains on sale of real estate assets of $75.3 million.


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Loss from discontinued operations was $2.0 million for 2014. Effective April 1, 2014, we adopted Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components on an Entity ("ASU 2014-08"), which requires only dispositions representing a strategic shift in our operations to be reclassified to discontinued operations. Therefore, the operating results of properties disposed subsequent to our adoption date have not been reclassified to discontinued operations. As further explained in Note 12, Discontinued Operations, to the accompanying consolidated financial statements, prior to our adoption of ASU 2014-08, properties meeting certain criteria for disposal were classified as "discontinued operations" in the accompanying consolidated statements of operations.
Net income was $44.6 million, or $0.36 per basic and diluted share, for 2015, which represents a decrease from $92.6 million, or $0.74 per share, for 2014, primarily due to the gain on the sale of the Lenox Park Property in October 2014 ($56.5 million). This decrease is partially offset by additional real estate operating income from the $0.5 billion of net real estate acquisitions made in 2015 and leasing activity ($15.6 million), reduced by additional interest expense to fund such acquisitions ($9.6 million).
Supplemental Performance Measures
In addition to net income, we measure the performance of the company using certain non-GAAP supplemental performance measures, including: (i) Funds From Operations ("FFO"), (ii) Net Operating Income ("NOI"), and (iii) Same Store Net Operating Income ("Same Store NOI"). These non-GAAP metrics are commonly used by industry analysts and investors as supplemental operation performance measures of REITs and are viewed by management to be useful indicators of operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry analysts and investors have considered presentation of operating results for real estate companies using historical cost accounting alone to be insufficient. Management believes that the use of FFO, NOI, and Same Store NOI, combined with net income, improves the understanding of operating results of REITs among the investing public and makes comparisons of REIT operating results more meaningful.
Net income is the most comparable GAAP measure to FFO, NOI, and Same Store NOI. Each of these supplemental performance measures exclude expenses that materially impact our overall results of operations and, therefore, should not be considered as a substitute for net income, income from continuing operations before income taxes, or any other measures derived in accordance with GAAP. Furthermore, these metrics may not be comparable to other similarly titled measures used by other companies.
Funds From Operations
FFO is a non-GAAP measure used by many investors and analysts who follow the real estate industry to measure the performance of an equity REIT. We consider FFO a useful measure of our performance because it principally adjusts for the effects of GAAP depreciation and amortization of real estate assets, which assumes that the value of real estate diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, we believe that FFO provides a meaningful supplemental measure of our performance. We believe that the use of FFO, combined with the required GAAP presentations, is beneficial in improving our investors' understanding of our operating results and allowing for comparisons among other companies who define FFO as we do.
FFO, as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), represents net income (computed in accordance with GAAP), excluding gains (losses) on sales of real estate and impairments of real estate assets, plus real estate-related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures, for both continuing and discontinued operations. We compute FFO in accordance with NAREIT's definition, which may differ from the methodology for calculating FFO, or similarly titled measures, used by other companies, and this may not be comparable to those presentations.
FFO does not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. Our presentation of FFO should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of financial performance.


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Reconciliations of net income to FFO (in thousands):
 
Years Ended December 31,
 
2016
 
2015
 
2014
Reconciliation of Net Income to Funds From Operations:
 
 
 
 
 
Net income
$
84,281

 
$
44,619

 
$
92,635

Adjustments:
 
 
 
 
 
Depreciation of real estate assets
108,543

 
131,490

 
117,766

Amortization of lease-related costs
56,775

 
87,128

 
78,843

Depreciation and amortization included in loss from unconsolidated joint venture(1)
8,776

 
1,606

 

Impairment loss on real estate assets

 

 
25,130

Gains on sales of real estate assets  continuing operations
(72,325
)
 
(23,860
)
 
(75,275
)
Gain (loss) on sale of real estate assets  discontinued operations

 

 
1,627

Total Funds From Operations adjustments
101,769

 
196,364

 
148,091

Funds From Operations
$
186,050

 
$
240,983

 
$
240,726

(1) 
Reflects 51% of depreciation and amortization for the Market Square Joint Venture, in which we own an interest through an unconsolidated joint venture.
Net Operating Income
As set forth below, NOI is calculated by deducting property operating costs from rental and other property revenues for continuing operations. As a performance metric consisting of only revenues and expenses directly related to ongoing real estate rental operations, which have been or will be settled in cash, NOI is narrower in scope than FFO.
NOI, as we calculate it, may not be directly comparable to similarly titled, but differently calculated, measures for other REITs. We believe that NOI is another useful supplemental performance measure, as it is an input in many REIT valuation models and it provides a means by which to evaluate the performance of the properties.
The major factors influencing our NOI are property acquisitions and dispositions, occupancy levels, rental rate increases or decreases, and the recoverability of operating expenses.


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Same Store Net Operating Income
We also evaluate the performance of our properties, on a "same store" basis, using a metric referred to as Same Store NOI. We view Same Store NOI as a useful supplemental performance measure because it improves comparability between periods by eliminating the effects of changes in the composition of our portfolio. On an individual property basis, Same Store NOI is computed in a consistent manner as NOI. For the periods presented, we have defined our same store portfolio as those properties that have been continuously owned and operating since January 1, 2015. NOI and Same Store NOI are calculated as follows for the years ended December 31, 2016 and 2015 (in thousands):
 
Years Ended December 31,
 
2016
 
2015
Revenues:
 
 
 
Rental income
$
269,829

 
$
276,166

Tenant reimbursements
44,752

 
49,414

Hotel income
22,661

 
24,309

Other property income
2,763

 
520

Lease termination income
9,133

 
2,919

Total revenues
349,138

 
353,328

Operating expenses:
 
 
 
Property operating costs
(105,425
)
 
(106,728
)
Hotel operating costs
(18,686
)
 
(19,615
)
Total operating expenses
(124,111
)
 
(126,343
)
Same Store NOI - wholly-owned properties(1)
225,027

 
226,985

Same Store NOI - 51% of Market Square Buildings(2)
9,732

 
14,021

NOI from acquisitions(3)
46,145

 
31,189

NOI from dispositions(4)
27,319

 
86,376

NOI
$
308,223

 
$
358,571

(1) 
Reflects NOI from properties that were wholly-owned for the entirety of the periods presented.
(2) 
Reflects NOI for 51% of the Market Square buildings for all periods presented. On October 28, 2015, we transferred the Market Square buildings and the $325.0 million mortgage note to a joint venture, and sold a 49% interest in the joint venture. Beginning on October 28, 2015, upon entering the joint venture, our interest in NOI from the Market Square Buildings is included in loss from unconsolidated joint venture in the accompanying consolidated statement of operations.
(3) 
Reflects activity for the following properties acquired since January 1, 2015: 229 West 43rd Street, 315 Park Avenue South, and 116 Huntington Avenue.
(4) 
Reflects activity for the following properties sold since January 1, 2015: SanTan Corporate Center, Sterling Commerce, 80 Park Plaza, 9127, 9189, 9191 & 9193 South Jamaica Street, 800 North Frederick, 100 East Pratt, 1881 Campus Commons, 49% of the Market Square Buildings, 170 Park Avenue, 180 Park Avenue, 1580 West Nursery Road, Acxiom, Highland Landmark III, The Corridors III, 215 Diehl Road, 544 Lakeview, Bannockburn Lake III, 550 King Street, and Robbins Road.


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A reconciliation of Net Income to NOI and Same Store NOI is presented below (in thousands):
 
Years Ended December 31,
 
2016
 
2015
Net income
$
84,281

 
$
44,619

Net interest expense
67,538

 
85,265

Interest income from development authority bonds
(7,200
)
 
(7,200
)
Income tax expense
445

 
378

Depreciation
108,543

 
131,490

Amortization
56,775

 
87,128

Real estate acquisition costs

 
3,675

Gains on sales of real estate assets
(72,325
)
 
(23,860
)
Loss on early extinguishment of debt
18,997

 
3,149

General and administrative
33,876

 
29,683

Interest rate swap valuation adjustment

 
(2,634
)
Interest expense associated with interest rate swaps

 
2,642

Settlement of interest rate swap

 
1,102

Adjustment included in loss from unconsolidated joint venture
17,293

 
3,134

Net Operating Income
$
308,223

 
$
358,571

Same Store NOI - 51% of Market Square Buildings(1)
(9,732
)
 
(14,021
)
NOI from Acquisitions(2)
(46,145
)
 
(31,189
)
NOI from Dispositions(3)
(27,319
)
 
(86,376
)
Same Store NOI(4)
$
225,027

 
$
226,985

(1) 
Reflects NOI for 51% of the Market Square buildings for all periods presented. On October 28, 2015, we transferred the Market Square buildings and the $325.0 million mortgage note to a joint venture, and sold a 49% interest in the joint venture. Beginning on October 28, 2015, upon entering the joint venture, our interest in NOI from the Market Square Buildings is included in loss from unconsolidated joint venture in the accompanying consolidated statement of operations.
(2) 
Reflects activity for the following properties acquired since January 1, 2015: 229 West 43rd Street, 315 Park Avenue South, and 116 Huntington Avenue.
(3) 
Reflects activity for the following properties sold since January 1, 2015: SanTan Corporate Center, Sterling Commerce, 80 Park Plaza, 9127, 9189, 9191 & 9193 South Jamaica Street, 800 North Frederick, 100 East Pratt, 1881 Campus Commons, 49% of the Market Square Buildings, 170 Park Avenue, 180 Park Avenue, 1580 West Nursery Road, Acxiom, Highland Landmark III, The Corridors III, 215 Diehl Road, 544 Lakeview, Bannockburn Lake III, 550 King Street, and Robbins Road.
(4) 
Reflects NOI from properties that were wholly-owned for the entirety of the periods presented.


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Portfolio Information
As of December 31, 2016, we owned 21 office properties and one hotel. These properties contain approximately 11.0 million square feet of commercial space located in nine states and the District of Columbia. All of our office properties are wholly owned except for one, which is owned through an unconsolidated joint venture. As of December 31, 2016, our office properties, including 51% of the Market Square buildings, which we own through an unconsolidated joint venture, were approximately 90.6% leased. In January 2017, we sold three office properties in Houston, Texas, and the Key Center Tower and Key Center Marriott in Cleveland, Ohio. The terms of these transactions are described in Note 3, Real Estate Transactions, of the accompanying consolidated financial statements.
As of December 31, 2016, our five highest geographic reportable segments, based on Annualized Lease Revenue, were as follows. For more information about our reportable segments, see Note 15, Segment Information, to the accompanying consolidated financial statements.
Location
 
2016 Annualized
Lease Revenue
(in thousands)
 
Leased
Square Feet
(in thousands)
 
Percentage of
2016 Annualized
Lease Revenue
San Francisco
 
$
104,731

 
1,765

 
26
%
New York
 
99,258

 
1,782

 
25
%
Atlanta
 
37,300

 
1,572

 
9
%
Washington, D.C.
 
34,639

 
519

 
9
%
Boston
 
11,709

 
217

 
3
%
 
 
$
287,637

 
5,855

 
72
%
As of December 31, 2016, our five highest tenant industry concentrations, based on Annualized Lease Revenue, were as follows:
Industry
 
2016 Annualized
Lease Revenue
(in thousands)
 
Leased
Square Feet
(in thousands)
 
Percentage of
2016 Annualized
Lease Revenue
Business Services
 
$
68,148

 
1,077

 
17
%
Depository Institutions
 
61,748

 
1,666

 
16
%
Legal Services
 
41,529

 
912

 
10
%
Communications
 
28,642

 
1,042

 
7
%
Security and Commodity Brokers
 
26,457

 
388

 
7
%
 
 
$
226,524

 
5,085

 
57
%
As of December 31, 2016, our five highest tenant concentrations, based on Annualized Lease Revenue, were as follows:
Tenant
 
2016 Annualized
Lease Revenue
(in thousands)
 
Percentage of
2016 Annualized
Lease Revenue
Wells Fargo
 
$
28,640

 
7
%
AT&T
 
22,278

 
6
%
Pershing
 
18,471

 
5
%
Credit Suisse
 
16,082

 
4
%
Westinghouse
 
15,778

 
4
%
 
 
$
101,249

 
26
%
For more information on our portfolio, see Item 2, Properties.
Election as a REIT
We have elected to be taxed as a REIT under the Code, and have operated as such beginning with our taxable year ended December 31, 2003. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our adjusted taxable income, as defined in the Code, to our stockholders, computed without regard to the dividends-paid deduction and by excluding our net capital gain. As a REIT, we generally will not be subject


Page 34


to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income for that year and for the four years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially affect our net income and net cash available for distribution to our stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT for federal income tax purposes.
Columbia Property Trust TRS, LLC, Columbia KCP TRS, LLC, and Columbia Energy TRS, LLC (collectively, the "TRS Entities") are wholly owned subsidiaries of Columbia Property Trust, are organized as Delaware limited liability companies, and operate, among other things, office properties that we do not intend to hold long term and a full-service hotel. We have elected to treat the TRS Entities as taxable REIT subsidiaries. We may perform certain additional, noncustomary services for tenants of our buildings through the TRS Entities; however, any earnings related to such services are subject to federal and state income taxes. In addition, for us to continue to qualify as a REIT, we must limit our investments in taxable REIT subsidiaries to 25% of the value of our total assets. Deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted rates expected to be in effect when the temporary differences reverse.
No provisions for federal income taxes have been made in our accompanying consolidated financial statements, other than the provisions relating to the TRS Entities, as we made distributions in excess of taxable income for the periods presented. We are subject to certain state and local taxes related to property operations in certain locations, which have been provided for in our accompanying consolidated financial statements.
Inflation
We are exposed to inflation risk, as income from long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that are intended to protect us from, and mitigate the risk of, the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per-square-foot basis, or in some cases, annual reimbursement of operating expenses above a certain per-square-foot allowance. However, due to the long-term nature of the leases, the leases may not reset frequently enough to fully cover inflation.
Application of Critical Accounting Policies
Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.
Investment in Real Estate Assets
We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of our assets by class are as follows:
Buildings
  
40-45 years
Building and site improvements
  
5-25 years
Tenant improvements
  
Shorter of economic life or lease term
Intangible lease assets
  
Lease term
Evaluating the Recoverability of Real Estate Assets
We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate and related intangible assets of both operating properties and properties under construction, in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present that suggest that the carrying amounts of real estate assets and related intangible assets (liabilities) may not be recoverable, we assess the recoverability of these assets by determining whether the respective carrying values will be recovered through the estimated undiscounted future operating cash flows expected from the use of the assets and their eventual disposition. In the event


Page 35


that such expected undiscounted future cash flows do not exceed the carrying values, we adjust the carrying value of the real estate assets and related intangible assets to the estimated fair values, pursuant to the property, plant, and equipment accounting standard for the impairment or disposal of long-lived assets, and recognize an impairment loss. Estimated fair values are calculated based on the following information, in order of preference, depending upon availability: (Level 1) recently quoted market prices; (Level 2) market prices for comparable properties; or (Level 3) the present value of future cash flows, including estimated residual value. Certain of our assets may be carried at more than an amount that could be realized in a current disposition transaction. We have determined that there is no impairment in the carrying values of our real estate assets and related intangible assets for the year ended December 31, 2016.
Projections of expected future operating cash flows require that we estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. The subjectivity of assumptions used in the future cash flow analysis, including discount rates, could result in an incorrect assessment of the property's fair value and could result in the misstatement of the carrying value of our real estate assets and related intangible assets and net income.
In the first quarter of 2014, we revised our investment strategy for the 160 Park Avenue Building in Florham Park, New Jersey, to sell the property to a user in the near-term. As a result, management reduced its intended holding period for the building and reevaluated the property's carrying value as of March 31, 2014, pursuant to the accounting policy outlined above. We concluded that the 160 Park Avenue Building was not recoverable and reduced its carrying value to reflect its fair value, estimated based on recently quoted market prices (Level 2), by recording an impairment loss of approximately $13.6 million in the first quarter of 2014. The sale of the160 Park Avenue Building closed on June 4, 2014, for $10.2 million, exclusive of transaction costs.
In the second quarter of 2014, we decided to pursue a near-term sale of the 200 South Orange Building in Orlando, Florida. As a result, management reduced its intended holding period for the building and reevaluated the property's carrying value in the second quarter of 2014. In connection with negotiating the terms of the sale, we reduced the carrying value of the 200 South Orange Building to reflect fair value, estimated based on an approximate net contract price of $18.4 million (Level 1), by recording an impairment loss of $1.4 million in the second quarter. The sale of the 200 South Orange Building closed on June 30, 2014, for $18.4 million, net of transaction costs.
In the fourth quarter of 2014, we identified $500 million to $600 million of properties in our portfolio that fell outside of our targeted investment strategy. In connection with initiating the sales process for these assets, we evaluated the recoverability of the carrying values of each of these properties and determined that the carrying value of the Bannockburn Lake III property, a vacant property located in Bannockburn, Illinois, was no longer recoverable due to reducing its expected property holding period to less than one year. As a result, in the fourth quarter of 2014, we reduced the carrying value of the Bannockburn Lake III property to $5.0 million, estimated based on current projected discounted future cash flows (Level 3), by recording an impairment loss of $10.1 million.
The fair value measurements used in this evaluation of nonfinancial assets are considered to be Level 3 valuations within the fair value hierarchy outlined above, as there are significant unobservable inputs. Examples of inputs that were utilized in the fair value calculations include estimated holding periods, discount rates, market capitalization rates, expected lease rental rates, and potential sales prices. The table below represents the detail of the adjustments recognized, using Level 3 inputs.
Property
 
Net Book Value
 
Impairment Loss Recognized
 
Fair Value
Bannockburn Lake III
 
$
15,148

 
$
(10,148
)
 
$
5,000

Allocation of Purchase Price of Acquired Assets
Upon the acquisition of real properties, we allocate the purchase price of properties to tangible assets, consisting of land and building, site improvements, and identified intangible assets and liabilities, including the value of in-place leases, based in each case on our estimate of their fair values.
The fair values of the tangible assets of an acquired property (which includes land and building) are determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to land and building based on our determination of the relative fair value of these assets. We determine the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors we consider in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases, including leasing commissions and other related costs. In estimating carrying costs, we include real estate taxes, insurance, and other operating expenses during the expected lease-up periods based on current market demand.


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Intangible Assets and Liabilities Arising from In-Place Leases Where We Are the Lessor
As further described below, in-place leases where we are the lessor may have values related to direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease, tenant relationships, and effective contractual rental rates that are above or below market rates:
Direct costs associated with obtaining a new tenant, including commissions, tenant improvements, and other direct costs, are estimated based on management's consideration of current market costs to execute a similar lease. Such direct costs are included in intangible lease origination costs in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.
The value of opportunity costs associated with lost rentals avoided by acquiring an in-place lease is calculated based on the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. Such opportunity costs are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.
The value of tenant relationships is calculated based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. Values associated with tenant relationships are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.
The value of effective rental rates of in-place leases that are above or below the market rates of comparable leases is calculated based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be received pursuant to the in-place leases and (ii) management's estimate of fair market lease rates for the corresponding in-place leases. This calculation includes significantly below- market renewal options for which exercise of the renewal option appears to be reasonably assured. These intangible assets or liabilities are measured over the actual or assumed (in the case of renewal options) remaining lease terms. The capitalized above-market and below-market lease values are recorded as intangible lease assets or liabilities and amortized as an adjustment to rental income over the remaining terms of the respective leases.
Evaluating the Recoverability of Intangible Assets and Liabilities
The values of intangible lease assets and liabilities are determined based on assumptions made at the time of acquisition and have defined useful lives, which correspond with the lease terms. There may be instances in which intangible lease assets and liabilities become impaired, and we are required to write off the remaining asset or liability immediately or over a shorter period of time. Lease restructurings, including lease terminations and lease extensions, may impact the value and useful life of in-place leases. In-place leases that are terminated, partially terminated, or modified will be evaluated for impairment if the original in-place lease terms have been modified. In the event that the discounted cash flows of the original in-place lease stream do not exceed the discounted modified in-place lease stream, we adjust the carrying value of the intangible lease assets to the discounted cash flows and recognize an impairment loss. For in-place lease extensions that are executed more than one year prior to the original in-place lease expiration date, the useful life of the in-place lease will be extended over the new lease term with the exception of those in-place lease components, such as lease commissions and tenant allowances, which have been renegotiated for the extended term. Renegotiated in-place lease components, such as lease commissions and tenant allowances, will be amortized over the shorter of the useful life of the asset or the new lease term.
Intangible Assets and Liabilities Arising from In-Place Leases Where We Are the Lessee
In-place ground leases where we are the lessee may have value associated with effective contractual rental rates that are above or below market rates. Such values are calculated based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place lease and (ii) management's estimate of fair market lease rates for the corresponding in-place lease at the time of execution or assumption. This calculation includes significantly below market renewal options for which exercise of the renewal option appears to be reasonably assured. These intangible assets and liabilities are measured over the actual or assumed (in the case of renewal options) remaining lease terms. The capitalized above-market and below-market in-place lease values are recorded as intangible lease liabilities and assets, respectively, and are amortized as an adjustment to property operating cost over the remaining term of the respective leases.
Related-Party Transactions and Agreements
During 2016, 2015, and 2014, we did not have any related party transactions, except as described in Note 4, Unconsolidated Joint Venture, of the accompanying consolidated financial statements.



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Commitments and Contingencies
We are subject to certain commitments and contingencies with regard to certain transactions. Refer to Note 7, Commitments and Contingencies, to the accompanying consolidated financial statements for further explanation. Examples of such commitments and contingencies include:
guaranty of debt of an unconsolidated joint venture of $16.1 million;
obligations under operating leases;
obligations under capital leases;
commitments under existing lease agreements; and
litigation.
Subsequent Events
We have evaluated subsequent events in connection with the preparation of our consolidated financial statements and notes thereto included in this report on Form 10-K and noted the following items in addition to those disclosed elsewhere in this report:
Property Dispositions
As further described in Note 3, Real Estate Transactions, of the accompanying consolidated financial statements, we closed on the sale of the Houston Properties on January 6, 2017, and closed on the sale of the Key Center Tower and the Key Center Marriott on January 31, 2017.
Dividends
On January 5, 2017, we paid an aggregate amount of $36.7 million in dividends for the fourth quarter of 2016 to shareholders of record on December 1, 2016.
On February 8, 2017, the board of directors declared dividends for the first quarter of 2017 in the amount of $0.20 per share, payable on March 15, 2017, to stockholders of record on March 1, 2017.
ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of our debt facilities, we are exposed to interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flow, primarily through a moderate level of overall borrowings. However, we currently have a substantial amount of debt outstanding. The majority of our borrowings are in the form of effectively fixed-rate financings, which helps to insulate our portfolio from interest rate risk. We closely monitor interest rates and will continue to consider the sources and terms of our borrowing facilities to determine whether we have appropriately guarded ourselves against the fluctuation of interest rates in future periods.
Additionally, we have entered into interest rate swaps, and may enter into other interest rate swaps, caps, or other arrangements to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes; however, certain of our derivatives may not qualify for hedge accounting treatment. All of our debt was entered into for other-than-trading purposes. As of December 31, 2016 and 2015, the estimated fair value of our consolidated line of credit and notes payable and bonds was $1.4 billion and $1.7 billion, respectively.
Our financial instruments, including bonds payable, consist of both fixed- and variable-rate debt. As of December 31, 2016, adjusting for 51% of the debt at the Market Square Joint Venture, in which we own an interest through an unconsolidated joint venture, our debt consisted of the following, in thousands:
 
 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
 
Total
Maturing debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effectively variable-rate debt
 
$

 
$

 
$

 
$
300,000

 
$

 
$

 
$
300,000

Effectively fixed-rate debt
 
$
127,728

 
$
25,859

 
$
121,016

 
$

 
$

 
$
1,015,750

 
$
1,290,353

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average interest rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effectively variable-rate debt
 
%
 
%
 
%
 
1.80
%
 
%
 
%
 
1.80
%
Effectively fixed-rate debt
 
4.60
%
 
5.57
%
 
3.60
%
 
%
 
%
 
4.04
%
 
4.08
%


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Our variable-rate borrowings consist of the Revolving Credit Facility, the $300 Million Term Loan, and the $150 Million Term Loan. However, only the Revolving Credit Facility and the $300 Million Term Loan bear interest at effectively variable rates, as the variable rate on the $150 Million Term Loan has been effectively fixed through the interest rate swap agreement described herein.
As of December 31, 2016, we had no outstanding borrowings under the Revolving Credit Facility; $150.0 million outstanding on the $150 Million Term Loan; $300.0 million outstanding on the $300 Million Term Loan; $348.7 million in 2026 Bonds Payable outstanding; $349.6 million in 2025 Bonds Payable outstanding; and $274.6 million outstanding on fixed-rate, term mortgage loans. The weighted-average interest rate of all of our consolidated debt instruments was 3.49% as of December 31, 2016.
Approximately $1,122.9 million of our consolidated debt outstanding as of December 31, 2016, is subject to fixed rates, either directly or when coupled with an interest rate swap agreement. As of December 31, 2016, these balances incurred interest expense at an average interest rate of 3.94% and have expirations ranging from 2017 through 2026. A change in the market interest rate impacts the net financial instrument position of our fixed-rate debt portfolio; however, it has no impact on interest incurred or cash flows. A one percent change in interest rates would have a $3.0 million annual impact on our interest payments. The amounts outstanding on our variable-rate debt facilities in the future will largely depend upon future acquisition and disposition activity and other financing activities.
Our Market Square Joint Venture holds a $325 million mortgage note, which bears interest at 5.07%. Adjusting for 51% of the debt at the Market Square Joint Venture, in which we own an interest through an unconsolidated joint venture, our weighted- average interest rate is 3.65%.
We do not believe there is any exposure to increases in interest rates related to the capital lease obligations of $120.0 million at December 31, 2016, as the obligations are at fixed interest rates.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data filed as part of this report are set forth beginning on page F-1 of this report.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements with our independent registered public accountants during 2016, 2015, or 2014.
ITEM 9A.
CONTROLS AND PROCEDURES

Management's Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods in SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Report of Management on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of, the Principal Executive Officer and Principal Financial Officer and effected by our management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets;
provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and/or members of the board of directors; and


Page 39


provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of human error and the circumvention or overriding of controls, material misstatements may not be prevented or detected on a timely basis. In addition, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes and conditions or that the degree of compliance with policies or procedures may deteriorate. Accordingly, even internal controls determined to be effective can provide only reasonable assurance that the information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and represented within the time periods required.
Our management has assessed the effectiveness of our internal control over financial reporting at December 31, 2016. To make this assessment, we used the criteria for effective internal control over financial reporting described in the Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management believes that our system of internal control over financial reporting met those criteria, and therefore our management has concluded that we maintained effective internal control over financial reporting as of December 31, 2016.
The report of the Company's independent registered public accounting firm on internal control over financial reporting for the Company is included in Part IV, Item 15, of this annual report on Form 10-K and is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Page 40


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Columbia Property Trust, Inc.:
We have audited the internal control over financial reporting of Columbia Property Trust, Inc. and subsidiaries (the "Company") as of December 31, 2016, based on criteria established in Internal Control- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2016 of the Company and our report dated February 9, 2017 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia
February 9, 2017


Page 41


ITEM 9B.
OTHER INFORMATION
During the fourth quarter of 2016, there was no information that was required to be disclosed in a report on Form 8-K that was not disclosed in a report on Form 8-K.



Page 42


PART III
We will file a definitive Proxy Statement for our 2017 Annual Meeting of Stockholders (the "2017 Proxy Statement") with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2017 Proxy Statement that specifically address the items required to be set forth herein are incorporated by reference.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
We have adopted a Code of Ethics that applies to all of our executive officers and directors, including but not limited to, our principal executive officer and principal financial officer. Our Code of Ethics may be found at http://www.columbia.reit. Any amendments to, or waivers of, the Code of Ethics for our principal executive officer, principal financial officer, principal accounting officer, or controller or persons performing similar functions will be disclosed on our website promptly following the date of such amendment or waiver.
The other information required by this Item is incorporated by reference from our 2017 Proxy Statement.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from our 2017 Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required by this Item is incorporated by reference from our 2017 Proxy Statement.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference from our 2017 Proxy Statement.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference from our 2017 Proxy Statement.


Page 43


PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1.    A list of the financial statements contained herein is set forth on page F-1 hereof.
(a) 2.    Schedule III Real Estate Assets and Accumulated Depreciation
Information with respect to this item begins on page S-1 hereof. Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto.
(a) 3.
The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.
(b)    See (a) 3 above.
(c)    See (a) 2 above.


Page 44


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
COLUMBIA PROPERTY TRUST, INC.
(Registrant)
 
 
 
 
Dated:
February 9, 2017
By:
/s/ JAMES A. FLEMING
 
 
 
JAMES A. FLEMING
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
 
Dated:
February 9, 2017
 
/s/ WENDY W. GILL
 
 
 
WENDY W. GILL
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity as and on the date indicated.
Signature
 
Title
 
Date
 
 
 
 
 
/s/ Carmen M. Bowser
 
Independent Director
 
 
Carmen M. Bowser
 
 
 
February 9, 2017
 
 
 
 
 
/s/ Charles R. Brown
 
Independent Director
 
 
Charles R. Brown
 
 
 
February 9, 2017
 
 
 
 
 
/s/ Richard W. Carpenter
 
Independent Director
 
 
Richard W. Carpenter
 
 
 
February 9, 2017
 
 
 
 
 
/s/ John L. Dixon
 
Independent Director
 
 
John L. Dixon
 
 
 
February 9, 2017
 
 
 
 
 
/s/ David B. Henry
 
Independent Director
 
 
David B. Henry
 
 
 
February 9, 2017
 
 
 
 
 
/s/ Murray J. McCabe
 
Independent Director