Basis of Presentation and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Basis of Presentation

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles (“U.S. GAAP”) and the rules applicable to Form 10-Q and reflect all adjustments, which are, in our opinion, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Certain information and footnotes required for annual financial statement presentation have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our interim financial statements do not include all of the information and disclosures required under U.S. GAAP for complete financial statements. The condensed consolidated financial statements and notes thereto should be read in conjunction with our current Annual Report on Form 10-K, which contains the latest available audited consolidated financial statements and notes thereto, which are as of and for the year ended December 31, 2011.

In the opinion of management, all adjustments of a normal recurring nature considered necessary in all material respects to present fairly our financial position, results of our operations and cash flows as of and for the three and nine months ended September 30, 2012 have been made. The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the results of operations to be expected for the entire year

Principles of Consolidation

Principles of Consolidation

Because we are the sole general partner and majority owner of CSP OP and have majority control over their management and major operating decisions, the accounts of CSP OP are consolidated in our financial statements. The interests of REIT Holdings are reflected in non-controlling interest in the accompanying consolidated financial statements. All inter-company accounts and transactions are eliminated in consolidation. CBRE Global Investors, L.L.C. (“CBRE Global Investors”), an affiliate of the former investment advisor, also owns an interest in us through its ownership of 243,229 common shares of beneficial interest at September 30, 2012 and December 31, 2011.

Investment in Unconsolidated Entities

Investment in Unconsolidated Entities

Our determination of the appropriate accounting method with respect to our investment in CB Richard Ellis Strategic Partners Asia II-A, L.P. (“CBRE Strategic Partners Asia”), which is not considered a Variable Interest Entity (“VIE”), is partially based on CBRE Strategic Partners Asia’s sufficiency of equity investment at risk which was triggered by a substantial paydown during 2009 of its subscription line of credit, which is backed by investor capital commitments to fund its operations. We account for this investment under the equity method of accounting.

We determine if an entity is a VIE based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support. We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, then a quantitative analysis, if necessary. In a quantitative analysis, we incorporate various estimates, including estimated future cash flows, asset holding periods and discount rates, as well as estimates of the probabilities of the occurrence of various scenarios occurring. If the entity is a VIE, we then determine whether to consolidate the entity as the primary beneficiary. We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. If we made different judgments or utilized different estimates in these evaluations, it could result in differing conclusions as to whether or not an entity is a VIE and whether or not we consolidate such entity.

With respect to our majority limited membership interests in the Duke/Hulfish, LLC joint venture (the “Duke joint venture”), the Afton Ridge Joint Venture, LLC (“Afton Ridge”), the Goodman Princeton Holdings (Jersey) Limited joint venture (the “UK JV”) and the Goodman Princeton Holdings (LUX) SARL joint venture (the “European JV”), we considered the Accounting Standards Codification (“ASC”) Topic “Consolidation” (“FASB ASC 810”) in determining that we did not have control over the financial and operating decisions of such entities due to the existence of substantive participating rights held by the minority limited members who are also the managing members of the Duke joint venture and Afton Ridge, and the investment advisors/managers of the UK JV and the European JV, respectively.

We carry our investments in CBRE Strategic Partners Asia, the Duke joint venture, Afton Ridge, the UK JV and the European JV using the equity method of accounting because we have the ability to exercise significant influence (but not control) over operating and financial policies of each such entity.

We eliminate transactions with such equity method entities to the extent of our ownership in each such entity. Accordingly, our share of net income (loss) of these equity method entities is included in consolidated net income (loss). CBRE Strategic Partners Asia is a limited partnership that qualifies for specialized industry accounting for investment companies. Specialized industry accounting allows investment companies to carry their investments at fair value, with changes in the fair value of the investments recorded in the statement of operations. On the basis of the guidance in ASC 970-323, the Company accounts for its investment in CBRE Strategic Partners Asia under the equity method. As a result, and in accordance with ASC 810-10-25-15 the specialized accounting treatment, principally the fair value basis applied by CBRE Strategic Partners Asia under the investment company guide, is retained in the recognition of equity method earnings in the statement of operations of the Company. See Note 17 “Fair Value of Financial Instruments and Investments” for further discussion of the application of the fair value accounting to our investment in CBRE Strategic Partners Asia.

Consolidated Variable Interest Entities

Consolidated Variable Interest Entities

In December 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-17, “Consolidations” (“Topic 810”): “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” This ASU incorporates the Statement of Financial Accounting Standards (SFAS) No. 167, “Amendments to FASB Interpretation No. 46(R),” issued by the FASB in June 2009. The amendments in this ASU replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact such entity’s economic performance and (i) the obligation to absorb losses of such entity or (ii) the right to receive benefits from such entity. ASU 2009-17 also requires additional disclosures about a reporting entity’s involvement in variable interest entities, which enhances the information provided to users of financial statements.

In October 2011, one of our consolidated subsidiaries, RT Atwater Holding, LLC, entered into a real estate development venture with a subsidiary of the Trammel Crow Company (“TCC”), a wholly-owned subsidiary of CBRE Group, Inc., a former related party of ours, whereby we own 95% of the newly formed entity and TCC owns the remaining 5% of the entity. The new entity, RT/TC Atwater, LP (“Atwater”), was formed for the purpose of developing and then operating a build-to-suit suburban office and research facility for a single tenant that has agreed to a minimum lease term of 12 years starting from the completion of construction of the facility. Through the provisions of the Atwater, LP agreement, we and TCC collectively have the power to direct the activities that most significantly impact the economic performance of Atwater. Atwater was deemed a variable interest entity and we were the entity within the related party group determined to be most closely associated with Atwater. We began to consolidate the entity at its inception in October 2011.

On February 16, 2012, we entered into a construction loan agreement with Atwater, a consolidated joint venture, to provide it with up to $49,575,000 of financing which will be available for disbursements to fund construction expenditures at 1400 Atwater Drive. We will receive a $250,000 financing fee from the joint venture for providing this construction loan. The construction loan will bear interest at 5.00% of amounts outstanding and is scheduled to mature on April 30, 2013, unless otherwise extended. This construction loan has been eliminated in the consolidation of Atwater for reporting purposes.

Atwater’s construction in progress and other assets, including the initial land acquired by Atwater in October 2011, was $66,354,000 and $17,233,000 at September 30, 2012 and December 31, 2011. The assets of the entity are the sole collateral for the other liabilities of the entity. For the three and nine months ended September 30, 2012 and 2011, there were no revenues and operating expenses relating to the operating activities of the entity. All activity of the entity has been strictly geared toward the development of the property. The Atwater cash balance was $5,939,000 at September 30, 2012. The capital account of TCC is included in non-controlling interest—variable interest entity on the accompanying consolidated balance sheets at September 30, 2012 and December 31, 2011, respectively.

Use of Estimates

Use of Estimates

The preparation of financial statements, in conformity with U.S. GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Segment Information

Segment Information

We currently operate our consolidated properties in two geographic areas, the United States and the United Kingdom. We view our consolidated property operations as three reportable segments, a Domestic Industrial segment, a Domestic Office segment and an International Office/Retail segment, which participate in the acquisition, development, ownership, and operation of high quality real estate in their respective segments.

Cash Equivalents

Cash Equivalents

We consider short-term investments with maturities of three months or less when purchased to be cash equivalents. As of September 30, 2012 and December 31, 2011, cash equivalents consisted primarily of investments in money market funds.

Restricted Cash

Restricted Cash

Restricted cash represents those cash accounts for which the use of funds is restricted by loan covenants. As of September 30, 2012 and December 31, 2011, our restricted cash balance was $9,483,000 and $7,216,000, respectively, which represents amounts set aside as impounds for future property tax payments, property insurance payments and tenant improvement payments as required by our agreements with our lenders.

Discontinued Operations and Real Estate Held for Sale

Discontinued Operations and Real Estate Held for Sale

In a period in which a property has been disposed of or is classified as held for sale, the statements of operations for current and prior periods report the results of operations of the property as discontinued operations.

At such time as a property is deemed held for sale, such property is carried at the lower of: (1) its carrying amount or (2) fair value less costs to sell. In addition, a property being held for sale ceases to be depreciated. We classify operating properties as property held for sale in the period in which all of the following criteria are met:

¡ management, having the authority to approve the action, commits to a plan to sell the asset;

¡ the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;

¡ an active program to locate a buyer and other actions required to complete the plan to sell the asset has been initiated;

¡ the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year;

¡ the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and

¡ given the actions required to complete the plan to sell the asset, it is unlikely that significant changes to the plan would be made or that the plan would be withdrawn.

Accounting for Derivative Financial Instruments and Hedging Activities

Accounting for Derivative Financial Instruments and Hedging Activities

All of our derivative instruments are carried at fair value on the balance sheet. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking each hedge transaction. We periodically review the effectiveness of each hedging transaction, which involves estimating future cash flows. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or liability, with a corresponding amount recorded in other comprehensive income within shareholders’ equity. Calculation of a fair value of derivative instruments also requires management to use estimates. Amounts will be reclassified from other comprehensive income to the income statement in the period or periods the hedged forecasted transaction affects earnings.

We have certain interest rate swap derivatives that are designated as qualifying cash flow hedges and follow the accounting treatment discussed above. We also have certain interest rate swap derivatives that do not qualify for hedge accounting, and accordingly, changes in fair values are recognized in current earnings.

We disclose the fair values of derivative instruments and their gains and losses in a tabular format. We also provide more information about our liquidity by disclosing derivative features that are credit risk-related. Finally, we cross-reference within these footnotes to enable financial statement users to locate important information about derivative instruments (see Note 15 “Derivative Instruments” and Note 17 “Fair Value of Financial Instruments and Investments” for a further discussion of our derivative financial instruments).

Investments in Real Estate and Related Long Lived Assets (Impairment Evaluation)

Investments in Real Estate and Related Long Lived Assets (Impairment Evaluation)

Our investments in real estate are stated at depreciated cost. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives as follows:

Buildings and Improvements	39 years
Site Improvements	15 and 25 years
Tenant Improvements	Shorter of the useful lives or the terms of the related leases

Improvements and replacements are capitalized when they extend the useful life, increase capacity, or improve the efficiency of the asset. Repairs and maintenance are charged to expense as incurred. As of September 30, 2012 and December 31, 2011, we owned on a consolidated basis 78 and 77 real estate investments, respectively.

On March 20, 2012, we acquired 2400 Dralle Road, a single tenant warehouse/distribution building located in University Park, Illinois, a suburb of Chicago. The purchase price was $64,250,000.

On August 16, 2012, we acquired Midwest Commerce Center I, a single tenant warehouse/distribution building located in Gardner, Kansas, a suburb of Kansas City. The purchase price was $62,950,000.

We assess whether there has been impairment in the value of our long-lived assets whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. The estimated fair value of the asset group indentified for step two testing is based on either the income approach with market discount rate, terminal capitalization rate and rental rate assumptions being most critical, or on the sales comparison approach to similar properties. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.

No impairment of long-lived assets was recognized during the nine months ended September 30, 2012 and 2011.

Other Assets

Other Assets

Other assets include the following as of September 30, 2012 and December 31, 2011 (in thousands):

	September 30, 2012		December 31, 2011
Prepaid insurance	$	2,408	$	401
Prepaid real estate taxes		309		184
Other		642		1,391
Total	$	3,359	$	1,976

Concentration of Credit Risk

Concentration of Credit Risk

Our consolidated properties are located throughout the United States and in the United Kingdom. The ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory, and social factors affecting the communities in which the tenants operate. Our credit risk relates primarily to cash, restricted cash, and interest rate swap agreements. Cash accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000 through December 31, 2013.

We have not experienced any losses to date on our invested cash and restricted cash. The interest rate swap agreements create credit risk. Credit risk arises from the potential failure of counterparties to perform in accordance with the terms of their contracts. Our risk management policies define parameters of acceptable market risk and limit exposure to credit risk. Credit exposure resulting from derivative financial instruments is represented by their fair value amounts, increased by an estimate of potential adverse position exposure arising from changes over time in interest rates, maturities, and other relevant factors. We do not anticipate nonperformance by any of our counterparties.

Non-Controlling Interest Operating Partnership Units

Non-Controlling Interest Operating Partnership Units

We owned a 99.90%, 99.89% and 99.88% partnership interest in CSP OP as of September 30, 2012, December 31, 2011 and September 30, 2011, respectively. The remaining 0.10%, 0.11% and 0.12% partnership interest as of September 30, 2012, December 31, 2011 and September 30, 2011, respectively, was owned by REIT Holdings in the form of 246,361 non-controlling operating partnership units which are exchangeable on a one for one basis for common shares of the Company, with an estimated aggregate redemption value of $2,464,000.

With respect to the operating partnership units, FASB ASC 480-10 Distinguishing Liabilities from Equity requires non-controlling interests with redemption provisions that permit the issuer to settle in either cash or common shares at the option of the issuer to be further evaluated under the Codification Sub-Topic “Derivatives and Hedging—Conditions Necessary for Equity Classification” (“FASB ASC 815-40-25-10”) to determine whether permanent equity or temporary equity classification on the balance sheet is appropriate. Since the operating partnership units contain such a provision, we evaluated this guidance and determined that the operating partnership units do not meet the requirements to qualify for equity presentation. As a result, upon the adoption of FASB ASC 810 Consolidation and the related revisions to FASB ASC 480-10 the operating partnership units are presented in the temporary equity section of the consolidated balance sheets and reported at the higher of their proportionate share of the net assets of CSP OP or fair value, with period to period changes in value reported as an adjustment to shareholder’s equity. Under the terms of the April 27, 2012 third amended and restated agreement of limited partnership, as amended from time to time (the “Third Amended Partnership Agreement”), the fair value of the operating partnership units is determined as an amount equal to the redemption value as defined therein.

Purchase Accounting for Acquisition of Investments in Real Estate

Purchase Accounting for Acquisition of Investments in Real Estate

We apply the acquisition method to all acquired real estate investments. The purchase consideration of the real estate is allocated to the acquired tangible assets, which consist primarily of land, site improvements, building and tenant improvements and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases, value of tenant relationships and acquired ground leases, based in each case on their fair values. Loan premiums, in the case of above-market rate loans, or loan discounts, in the case of below-market loans, will be recorded based on the fair value of any loans assumed in connection with acquiring the real estate.

The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is the basis for the purchase consideration allocated to land (or acquired ground lease if the land is subject to a ground lease), site improvements, building and tenant improvements based on management’s determination of the relative fair values of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management 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. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs.

In allocating the purchase consideration of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases; and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases measured over a period equal to the remaining non-cancelable term of the lease and, for below-market leases, over a period equal to the initial term plus any below-market fixed-rate renewal periods. The capitalized below-market lease values, also referred to as acquired lease obligations, are amortized as an increase to rental income over the initial terms of the respective leases and any below-market fixed-rate renewal periods. The capitalized above-market lease values are amortized as a decrease to rental income over the initial terms of the prospective leases.

The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, is measured by the estimated cost of operations during a theoretical lease-up period to replace in-place leases, including lost revenues and any unreimbursed operating expenses, plus an estimate of deferred leasing commissions for in-place leases. This aggregate value is allocated between in-place lease value and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease; however, the value of tenant relationships has not been separated from in-place lease value for the real estate acquired, as such value and its consequence to amortization expense is immaterial for these particular acquisitions. Should future acquisitions of properties result in allocating material amounts to the value of tenant relationships, an amount would be separately allocated and amortized over the estimated life of the relationship. The value of in-place leases is amortized as an expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written-off.

Comprehensive Income (Loss)

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). In the accompanying consolidated balance sheets, accumulated other comprehensive income (loss) consists of foreign currency translation adjustments and swap fair value adjustments for qualifying hedges.

Income Taxes

Income Taxes

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, beginning with our taxable year ended December 31, 2004. To qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding net capital gains) as defined in the Internal Revenue Code, to our shareholders and satisfy certain other organizational and operating requirements. We generally will not be subject to U.S. federal income taxes if we distribute 100% of our net taxable income each year to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income taxes (including any applicable alternative minimum tax) on our taxable income at regular corporate rates and may not be able to qualify as a REIT for the four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and to U.S. federal income taxes and excise taxes on our undistributed taxable income. Except as discussed below, we believe that we have met all of the REIT distribution and technical requirements for the nine months ended September 30, 2012 and the year ended December 31, 2011. We intend to continue to adhere to these requirements and maintain our REIT qualification.

In order for distributions to be deductible for U.S. federal income tax purposes and count towards our distribution requirement, they must not be “preferential dividends.” A distribution will not be treated as preferential if it is pro rata among all outstanding shares of stock within a particular class. IRS guidance, however, allows a REIT to offer shareholders participating in its dividend reinvestment program (“DRIP”) up to a 5% discount on shares purchased through the DRIP without treating such reinvested dividends as preferential. Our DRIP offers a 5% discount. In 2007, 2008 and the first two quarters of 2009, common shares issued pursuant to our DRIP were treated as issued as of the first day following the close of the quarter for which the distributions were declared, and not on the date that the cash distributions were paid to shareholders not participating in our DRIP. Because we declare dividends on a daily basis, which includes common shares issued pursuant to our DRIP, the IRS could take the position that distributions paid by us during these periods were preferential on the grounds that the discount provided to DRIP participants effectively exceeded the authorized 5% discount or, alternatively, that the overall distributions were not pro rata among all shareholders. In addition, in the years 2007 through 2009 we paid certain individual retirement account (“IRA”) custodial fees with respect to IRA accounts that invested in our common shares. The payment of those fees could have been treated as dividend distributions to the IRAs, and therefore as preferential dividends because those fees were not paid with respect to our other outstanding common shares. Although we believe that the effect of the operation of our DRIP and the payment of such fees was immaterial, the REIT rules do not provide an exception for de minimis preferential dividends.

We submitted a request to the IRS for a closing agreement under which the IRS would grant us relief with respect to payments we made to shareholders under our DRIP and in respect of certain custodial fees we paid on behalf of some of our IRA shareholders, in each case, which payments could be treated as preferential dividends under the rules applicable to REITs. On July 8, 2011, we and our former investment advisor entered into a closing agreement with the IRS pursuant to which (i) the IRS agreed not to challenge our dividends as preferential for its taxable years 2007, 2008 and 2009 as a result of the matters described above, and (ii) our former investment advisor paid a compliance fee of approximately $135,000 to the IRS. In accordance with the terms of the closing agreement, neither we, nor any of our subsidiaries have directly or indirectly reimbursed or will directly or indirectly reimburse the former investment advisor for its payment of this compliance fee. We expect to remain in compliance with the terms of the closing agreement, but any inadvertent non-compliance with such terms could result in adverse consequences for us. As a result of the closing agreement, we have met our distribution requirements for our taxable years ended December 31, 2007, 2008 and 2009.

Revenue Recognition and Valuation of Receivables

Revenue Recognition and Valuation of Receivables

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is recorded as deferred rent. In connection with various leases, we have received irrevocable stand-by letters of credit totaling $17,810,000 and $16,714,000 as security for such leases at September 30, 2012 and December 31, 2011, respectively.

Reimbursements from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes, insurance and other recoverable costs, are recognized as revenue in the period the expenses are incurred. Tenant reimbursements are recognized and presented on a gross basis when we are the primary obligor, with respect to incurring expenses and with respect to having the credit risk.

Tenant receivables and deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and deferred rent. Management’s determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, individual receivables, current economic conditions, and other relevant factors. The allowances are increased or decreased through the provision for bad debts. The allowance for uncollectible rent receivable was $656,000 and $821,000 as of September 30, 2012 and December 31, 2011, respectively.

Offering Costs

Offering Costs

Offering costs totaling $18,337,000 and $47,943,000 were incurred during the nine months ended September 30, 2012 and 2011, respectively, and are recorded as a reduction of additional paid-in-capital in the consolidated statement of shareholders’ equity. Offering costs incurred through September 30, 2012 totaled $237,676,000. Of the total amount, $217,959,000 was incurred to CNL Securities Corp., as the former dealer manager of our public offerings (the “former dealer manager”); $3,969,000 was incurred to CBRE Group, Inc., an affiliate of the former investment advisor; $912,000 was incurred to the former investment advisor for reimbursable marketing costs and $14,836,000 was incurred to other service providers. Each party was paid the amount incurred from proceeds of our public offering. As of September 30, 2012 and December 31, 2011, the accrued offering costs payable to related parties included in our consolidated balance sheets were $0 and $1,974,000, respectively. Offering costs payable to unrelated parties of $0 and $133,000 at September 30, 2012 and December 31, 2011, respectively, were included in accounts payable and accrued expenses.

Deferred Financing Costs and Discounts or Premiums on Notes Payable

Deferred Financing Costs and Discounts or Premiums on Notes Payable

Direct costs incurred in connection with obtaining financing are amortized over the respective term of the loan on a straight-line basis, which approximates the effective interest method.

Discounts or premiums on notes payable are amortized to interest expense based on the effective interest method.

Translation of Non-U.S. Currency Amounts

Translation of Non-U.S. Currency Amounts

The financial statements and transactions of our United Kingdom and European real estate operation are recorded in their functional currency, namely the Great Britain Pound (“GBP”) and Euro (“EUR”), respectively and are then translated into U.S. Dollars (“USD”).

Assets and liabilities of this operation are denominated in the functional currency and are then translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rate for the reporting period. Translation adjustments are reported in “Accumulated Other Comprehensive Loss,” a component of Shareholders’ Equity.

The carrying value of our United Kingdom assets and liabilities fluctuate due to changes in the exchange rate between the USD and the GBP. The exchange rate of the USD to the GBP was $1.6147 and $1.5535 at September 30, 2012 and December 31, 2011, respectively. The profit and loss weighted average exchange rate of the USD to the GBP was approximately $1.5755 and $1.6243 for the three months ended September 30, 2012 and 2011, respectively; and $1.5790 and $1.6193 for the nine months ended September 30, 2012 and 2011, respectively.

The carrying value of our European assets and liabilities fluctuate due to changes in the exchange rate between the USD and the EUR. The exchange rate of the USD to the EUR was $1.2844 and $1.2945 at September 30, 2012 and December 31, 2011. The profit and loss weighted average exchange rate of the USD to the EUR was approximately $1.2510 and $1.4425 for the three months ended September 30, 2012 and 2011, respectively; and $1.2859 and $1.4154 for the nine months ended September 30, 2012 and 2011, respectively.

Class B Interest-Related Party

Class B Interest—Related Party

Effective July 1, 2004, REIT Holdings, an affiliate of the former investment advisor, was granted a Class B interest in CSP OP. The Class B interest is an equity instrument that was issued in exchange for services provided to us relating to our formation and subsequent operations. The holder is entitled to receive distributions made by CSP OP in an amount equal to 15% of all net sales proceeds on dispositions of properties or other assets (including by liquidation, merger or otherwise) after the other partners, including us, have received in the aggregate, cumulative distributions from property income, sales proceeds or other services equal to (i) the total capital contributions made to CSP OP and (ii) a 7% annual, uncompounded return on such capital contributions.

Effective May 1, 2012, we entered into the Third Amended Partnership Agreement which revised the redemption rights of the Class B interest. Accordingly, the Class B interest may be redeemed upon the earliest to occur of (i) the exercise by the holder of the Class B interest of its right to require CSP OP to redeem its interest, which right continues for five years from the date of the agreement, (ii) the fifth anniversary of the date of the agreement, (iii) certain other liquidity events, (iv) a merger or sale transaction (a “Merger or Sale”), or (v) our common shares becoming listed or admitted to trading on a national securities exchange or designated for quotation on the NASDAQ Global Select Market or the NASDAQ Global Market (a “Listing”). CSP OP may reject a redemption and institute a blackout period with respect to redemptions upon the determination by our Board of Trustees that an appraisal process would not be in the best interest of CSP OP at the time of the proposed redemption. A blackout period may only be imposed as the result of a potential Merger or Sale or potential Listing. The consideration received for the redemption of the Class B interest will depend upon the event triggering the redemption. In the event of a redemption in connection with (a) a Listing, the consideration will be determined based on the market value of our shares for a 30 day period beginning 150 days after the Listing, or (b) a Merger or Sale, the consideration will be determined based on our aggregate share value in the transaction. In the event of a redemption as a result of (a) the exercise by the holder of the Class B interest of its redemption right, (b) the fifth anniversary of the date of the agreement or (c) certain other liquidity events, the consideration will be determined based on an appraisal process. As a result, future changes in the fair value of the Class B interest will be deferred from recognition in the financial statements until a Listing or Merger or Sale transaction takes place.

As a result of the modification of the terms of the Class B interest pursuant to the Third Amended Partnership Agreement, it was no longer required that the Class B interest be redeemed or forfeited upon a termination of the former investment advisor as investment advisor to the Company. Consequently, we recognized expense of $200,000 during the nine months ended September 30, 2012 for the current economic fair value resulting from the modification of the terms of the Class B interest.

With respect to the Class B interest in CSP OP, FASB ASC 480-10 “Distinguishing Liabilities from Equity” requires non-controlling interests with redemption provisions that permit the issuer to settle in either cash or common shares at the option of the issuer to be further evaluated under the Codification Sub-Topic “Derivatives and Hedging—Conditions Necessary for Equity Classification” (“FASB ASC 815-40-25-10”) to determine whether permanent equity or temporary equity classification on the balance sheet is appropriate. Since the Class B interest contains such a provision, we evaluated this guidance and determined that the Class B interest does not meet the requirements to qualify for equity presentation. As a result, the Class B interest in CSP OP is presented in the temporary equity section of the consolidated balance sheets and reported at fair value, with period to period changes in value reported as an adjustment to shareholder’s equity. Under the terms of the Third Amended Partnership Agreement, the fair value of the Class B Interest is determined as an amount equal to the redemption value as defined therein.

Transition Costs

Transition Costs

We incurred certain costs in connection with our transition from being an externally managed company to a self-managed company (“Transition Costs”). These Transition Costs consist of legal, consulting and other third-party service provider costs incurred by us in order to execute on our Board of Trustees’ decision to become a self-managed company. The Transition Costs include legal and consulting costs resulting from the amendment of our management structure and various corporate relationships, including with respect to our relations with the former investment advisor, as well as exploring and implementing strategic alternatives for information technology, office space and personnel needs, among other expenses. Transition costs totaling $6,216,000 and $8,152,000 were incurred during the three and nine months ended September 30, 2012, respectively.

Earnings Per Share Attributable to Chambers Street Properties

Earnings Per Share Attributable to Chambers Street Properties

Basic net income (loss) per share is computed by dividing income (loss) by the weighted average number of common shares outstanding during each period. The computation of diluted net income (loss) further assumes the dilutive effect of stock options, stock warrants and contingently issuable shares, if any. We have recorded a net loss for the three and nine months ended September 30, 2012 and 2011, respectively, the effect of share awards, stock warrants and contingently issuable shares, would be anti–dilutive for the three and nine months ended September 30, 2012 and 2011, and accordingly, they are excluded from the earnings per share computation. As a result, there is no difference in basic and diluted shares in either period presented.

Fair Value of Financial Instruments and Investments

Fair Value of Financial Instruments and Investments

We elected to apply the fair value option for one of our eligible mortgage notes payable that was newly issued debt during the year ended December 31, 2008. The measurement of the elected mortgage note payable at its fair value and its impact on the statement of operations is described in Note 16 “Fair Value Option-Note Payable” and Note 17 “Fair Value of Financial Instruments and Investments.”

We generally determine or calculate the fair value of financial instruments using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments and our estimates for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow. The Investment Manager of CBRE Strategic Partners Asia applies valuation techniques for our investment carried at fair value based upon the application of the income approach, the direct market comparison approach, the replacement cost approach or third party appraisals to the underlying assets held in the unconsolidated entity in determining the net asset value attributable to our ownership interest therein. The financial assets and liabilities recorded at fair value in our consolidated financial statements are the two interest rate swaps, one interest rate cap, our investment in CBRE Strategic Partners Asia (a real estate entity which qualifies as an investment company under the Investment Company Act), and one mortgage note payable that is economically hedged by one of the interest rate swaps.

The remaining financial assets and liabilities which are only disclosed at fair value are comprised of all other notes payable, the unsecured line of credit and other debt instruments. We determined the fair value of our secured notes payable and other debt instruments by performing discounted cash flow analyses using an appropriate market discount rate. We calculate the market discount rate by obtaining period-end treasury rates for fixed-rate debt, or London Inter-Bank Offering Rate (“LIBOR”) rates for variable-rate debt, for maturities that correspond to the maturities of our debt and then adding an appropriate credit spread derived from information obtained from third-party financial institutions. These credit spreads take into account factors such as our credit standing, the maturity of the debt, whether the debt is secured or unsecured, and the loan-to-value ratios of the debt.

The carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value due to their short-term maturities.

We adopted the fair value measurement criteria described herein for our non-financial assets and non-financial liabilities on January 1, 2009. The adoption of the fair value measurement criteria to our non-financial assets and liabilities did not have a material impact to our consolidated financial statements. Assets and liabilities typically recorded at fair value on a non-recurring basis include:

¡ Non-financial assets and liabilities initially measured at fair value in an acquisition or business combination;

¡ Long-lived assets measured at fair value due to an impairment assessment; and

¡ Asset retirement obligations initially measured under the ASC Topic “Asset Retirement and Environmental Obligations” (“FASB ASC 410”).

Share-based Compensation

Share-based Compensation

For share-based awards for which there is no pre-established performance period, we recognize compensation costs over the service vesting period, which represents the requisite service period, on a straight-line basis.

For share-based awards in which the performance period precedes the grant date, we recognize compensation costs over the requisite service period, which includes both the performance and service vesting periods, using the accelerated attribution expense method. The requisite service period begins on the date the Compensation Committee of the Board of Trustees authorizes the award and adopts any relevant performance measures.

During the performance period for a share-based award program, we estimate the total compensation cost of the potential future awards. We then record compensation costs equal to the portion of the requisite service period that has elapsed through the end of the reporting period.

For share based awards granted by the Company, CSP OP issues a number of common units equal to the number of common shares ultimately granted by the Company in respect of such awards.

Adoption of Accounting Standards

Adoption of Accounting Standards

New Accounting Standards

In May 2011, the FASB issued, ASU 2011-04 to the Fair Value Measurement topic of the Accounting Standards Codification (“ASC”). The ASU eliminates unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards, expands the disclosure requirements of the Fair Value Measurements topic of the ASC for fair value measurements and makes other amendments, including:

¡ limiting the highest-and-best-use and valuation-premise concepts only to measuring the fair value of nonfinancial assets;

¡ permitting an exception to fair value measurement principles for financial assets and financial liabilities (and derivatives) with offsetting positions in market risk or counterparty credit risk when several criteria are met. When the criteria are met, an entity can measure the fair value of the net risk position;

¡ clarifying that premiums or discounts that reflect size as a characteristic of the reporting entity’s holding rather than as a characteristic of the asset or liability (for example, a control premium when measuring the fair value of a controlling interest) are not permitted in a fair value measurement; and

¡ prescribing a model for measuring the fair value of an instrument classified in shareholders’ equity; this model is consistent with the guidance on measuring the fair value of liabilities.

ASU 2011-04 expands the Fair Value Measurements topic’s disclosure requirements, particularly for fair value measurements categorized in Level 3 of the fair value hierarchy: (1) a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, (2) a description of the valuation processes in place (e.g., how the entity decides its valuation policies and procedures, as well as changes in its analyses of fair value measurements, from period to period), (3) a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs, (4) discussion of the use of a nonfinancial asset that differs from the asset’s highest and best use, and (5) the level of the fair value hierarchy of financial instruments for items that are not measured at fair value but for which disclosure of fair value is required.

ASU 2011-04 is applicable to our company for interim and annual periods beginning after December 15, 2011. The adoption of this ASU had a material effect on the disclosures in our consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (included in ASC 220, Comprehensive Income), or ASU 2011-05, which amends existing guidance to allow only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous statement of comprehensive income, or (2) in two separate but consecutive financial statements consisting of an income statement followed by a statement of other comprehensive income. ASU 2011-05 requires retrospective application, and it is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. We early adopted ASU 2011-05 during the year ended December 31, 2011 and included the statements of comprehensive income or loss in the consolidated financial statements presented in the 2011 10-K.

Other Accounting Standards Updates not effective until after November 2012 are not expected to have a significant effect on our consolidated financial position or results of operations.

Accounting for Impairment or Disposal of Long-Lived Assets

Real estate and other assets held for sale include real estate for sale in their present condition that have met all of the “held for sale” criteria of ASC 360 “Accounting for the Impairment or Disposal of Long-Lived Assets,” and other assets directly related to such projects. Liabilities related to real estate and other assets held for sale have been included as a single line item in the accompanying consolidated balance sheets.