|
|
ITEM I.
|
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Assets:
|
|
|
|
|
|
Real estate investments, at cost:
|
|
|
|
|
|
Land
|
$
|
804,044
|
|
|
$
|
805,264
|
|
Building and improvements
|
4,108,891
|
|
|
4,053,125
|
|
Less: accumulated depreciation
|
(235,318
|
)
|
|
(201,525
|
)
|
Total real estate investments, net
|
4,677,617
|
|
|
4,656,864
|
|
Cash and cash equivalents
|
56,256
|
|
|
67,529
|
|
Restricted cash
|
13,101
|
|
|
12,904
|
|
Investment in unconsolidated equity investments
|
105,187
|
|
|
101,807
|
|
Assets held for sale, net
|
8,962
|
|
|
—
|
|
Tenant and other receivables, net
|
75,730
|
|
|
72,795
|
|
Acquired lease assets, net of accumulated amortization of $154,753 and $133,710
|
596,811
|
|
|
618,680
|
|
Other assets
|
73,196
|
|
|
72,948
|
|
Total assets
|
$
|
5,606,860
|
|
|
$
|
5,603,527
|
|
Liabilities and Equity:
|
|
|
|
Liabilities:
|
|
|
|
Senior unsecured revolving credit facility
|
$
|
121,759
|
|
|
$
|
65,837
|
|
Exchangeable senior notes, net
|
109,488
|
|
|
108,832
|
|
Mortgage notes payable, net
|
549,924
|
|
|
558,642
|
|
Senior unsecured notes, net
|
496,524
|
|
|
496,464
|
|
Senior unsecured term loans
|
1,225,000
|
|
|
1,225,000
|
|
Total long-term debt, net
|
2,502,695
|
|
|
2,454,775
|
|
Accounts payable and accrued expenses
|
42,381
|
|
|
58,380
|
|
Dividends payable
|
53,677
|
|
|
53,074
|
|
Below market lease liabilities, net of accumulated amortization of $28,350 and $26,416
|
216,401
|
|
|
230,183
|
|
Liabilities related to assets held for sale
|
3,128
|
|
|
—
|
|
Other liabilities
|
49,409
|
|
|
46,081
|
|
Total liabilities
|
$
|
2,867,691
|
|
|
$
|
2,842,493
|
|
Commitments and contingencies
|
|
|
|
Noncontrolling interest in the Operating Partnership
|
6,129
|
|
|
8,643
|
|
Equity:
|
|
|
|
Common shares, par value $0.01, 141,522,527 and 140,647,971 issued and outstanding at March 31, 2017 and December 31, 2016, respectively
|
1,415
|
|
|
1,406
|
|
Series A cumulative redeemable preferred shares, par value $0.01, liquidation preference $87,500, and 3,500,000 shares authorized, issued and outstanding at March 31, 2017 and December 31, 2016
|
84,394
|
|
|
84,394
|
|
Additional paid-in-capital
|
3,911,889
|
|
|
3,887,793
|
|
Accumulated other comprehensive loss
|
(1,611
|
)
|
|
(4,128
|
)
|
Accumulated deficit
|
(1,262,842
|
)
|
|
(1,216,753
|
)
|
Total shareholders' equity
|
2,733,245
|
|
|
2,752,712
|
|
Noncontrolling interest in other partnerships
|
(205
|
)
|
|
(321
|
)
|
Total equity
|
$
|
2,733,040
|
|
|
$
|
2,752,391
|
|
Total liabilities and equity
|
$
|
5,606,860
|
|
|
$
|
5,603,527
|
|
The accompanying notes are an integral part of these financial statements.
1
Gramercy Property Trust
Condensed Consolidated Statements of Operations
(Unaudited, amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Revenues
|
|
|
|
|
|
Rental revenue
|
$
|
103,282
|
|
|
$
|
92,095
|
|
Third-party management fees
|
4,592
|
|
|
5,046
|
|
Operating expense reimbursements
|
20,368
|
|
|
22,582
|
|
Other income
|
1,752
|
|
|
822
|
|
Total revenues
|
129,994
|
|
|
120,545
|
|
Operating Expenses
|
|
|
|
|
|
Property operating expenses
|
23,186
|
|
|
24,169
|
|
Property management expenses
|
3,084
|
|
|
4,521
|
|
Depreciation and amortization
|
62,217
|
|
|
58,248
|
|
General and administrative expenses
|
8,756
|
|
|
7,722
|
|
Acquisition expenses
|
—
|
|
|
410
|
|
Total operating expenses
|
97,243
|
|
|
95,070
|
|
Operating Income
|
32,751
|
|
|
25,475
|
|
Other Expenses:
|
|
|
|
Interest expense
|
(23,056
|
)
|
|
(21,953
|
)
|
Other-than-temporary impairment
|
(4,081
|
)
|
|
—
|
|
Portion of impairment recognized in other comprehensive loss
|
(809
|
)
|
|
—
|
|
Net impairment recognized in earnings
|
(4,890
|
)
|
|
—
|
|
Equity in net loss of unconsolidated equity investments
|
(94
|
)
|
|
(2,755
|
)
|
Loss on extinguishment of debt
|
(208
|
)
|
|
(5,757
|
)
|
Impairment of real estate investments
|
(12,771
|
)
|
|
—
|
|
Loss from continuing operations before provision for taxes
|
(8,268
|
)
|
|
(4,990
|
)
|
Provision for taxes
|
196
|
|
|
(703
|
)
|
Loss from continuing operations
|
(8,072
|
)
|
|
(5,693
|
)
|
Income (loss) from discontinued operations before gain on extinguishment of debt
|
(24
|
)
|
|
2,710
|
|
Gain on extinguishment of debt
|
—
|
|
|
1,930
|
|
Income (loss) from discontinued operations
|
(24
|
)
|
|
4,640
|
|
Loss before net gain on disposals
|
(8,096
|
)
|
|
(1,053
|
)
|
Net gain on disposals
|
17,377
|
|
|
—
|
|
Net income (loss)
|
9,281
|
|
|
(1,053
|
)
|
Net (income) loss attributable to noncontrolling interest
|
(154
|
)
|
|
120
|
|
Net income (loss) attributable to Gramercy Property Trust
|
9,127
|
|
|
(933
|
)
|
Preferred share dividends
|
(1,559
|
)
|
|
(1,559
|
)
|
Net income (loss) available to common shareholders
|
$
|
7,568
|
|
|
$
|
(2,492
|
)
|
Basic earnings per share:
|
|
|
|
|
|
Net income (loss) from continuing operations, after preferred dividends
|
$
|
0.05
|
|
|
$
|
(0.05
|
)
|
Net income (loss) from discontinued operations
|
—
|
|
|
0.03
|
|
Net income (loss) available to common shareholders
|
$
|
0.05
|
|
|
$
|
(0.02
|
)
|
Diluted earnings per share:
|
|
|
|
|
|
Net income (loss) from continuing operations, after preferred dividends
|
$
|
0.05
|
|
|
$
|
(0.05
|
)
|
Net income (loss) from discontinued operations
|
—
|
|
|
0.03
|
|
Net income (loss) available to common shareholders
|
$
|
0.05
|
|
|
$
|
(0.02
|
)
|
Basic weighted average common shares outstanding
|
140,907,399
|
|
|
140,060,405
|
|
Diluted weighted average common shares outstanding
|
141,875,619
|
|
|
140,060,405
|
|
The accompanying notes are an integral part of these financial statements.
2
Gramercy Property Trust
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, amounts in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Net income (loss)
|
$
|
9,281
|
|
|
$
|
(1,053
|
)
|
Other comprehensive income (loss):
|
|
|
|
Unrealized gain (loss) on available for sale debt securities
|
(2,820
|
)
|
|
934
|
|
Unrealized gain (loss) on derivative instruments
|
4,378
|
|
|
(22,189
|
)
|
Foreign currency translation adjustments
|
691
|
|
|
6,119
|
|
Reclassification of unrealized loss on terminated derivative instruments into earnings
|
268
|
|
|
360
|
|
Other comprehensive income (loss)
|
2,517
|
|
|
(14,776
|
)
|
Comprehensive income (loss)
|
$
|
11,798
|
|
|
$
|
(15,829
|
)
|
Net (income) loss attributable to noncontrolling interest
|
(154
|
)
|
|
120
|
|
Other comprehensive (income) loss attributable to noncontrolling interest
|
(11
|
)
|
|
48
|
|
Comprehensive income (loss) attributable to Gramercy Property Trust
|
$
|
11,633
|
|
|
$
|
(15,661
|
)
|
The accompanying notes are an integral part of these financial statements.
3
Gramercy Property Trust
Condensed Consolidated Statements of Shareholders’ Equity (Deficit) and Noncontrolling Interests
(Unaudited, amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
Preferred Shares
|
|
Additional Paid-In-Capital
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Retained Earnings / (Accumulated Deficit)
|
|
Total Gramercy Property Trust
|
|
Noncontrolling Interest
|
|
|
|
Shares
|
|
Par Value
|
|
|
|
|
|
|
|
Total
|
Balance at December 31, 2016
|
140,647,971
|
|
|
$
|
1,406
|
|
|
$
|
84,394
|
|
|
$
|
3,887,793
|
|
|
$
|
(4,128
|
)
|
|
$
|
(1,216,753
|
)
|
|
$
|
2,752,712
|
|
|
$
|
(321
|
)
|
|
$
|
2,752,391
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,127
|
|
|
9,127
|
|
|
120
|
|
|
9,247
|
|
Change in net unrealized loss on derivative instruments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,378
|
|
|
—
|
|
|
4,378
|
|
|
—
|
|
|
4,378
|
|
Change in net unrealized gain on debt securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,820
|
)
|
|
—
|
|
|
(2,820
|
)
|
|
—
|
|
|
(2,820
|
)
|
Reclassification of unrealized gain on terminated derivative instruments into earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
268
|
|
|
—
|
|
|
268
|
|
|
—
|
|
|
268
|
|
Offering costs
|
—
|
|
|
—
|
|
|
—
|
|
|
(606
|
)
|
|
—
|
|
|
—
|
|
|
(606
|
)
|
|
—
|
|
|
(606
|
)
|
Issuance of shares
|
731,453
|
|
|
7
|
|
|
—
|
|
|
19,993
|
|
|
—
|
|
|
—
|
|
|
20,000
|
|
|
—
|
|
|
20,000
|
|
Share based compensation - fair value
|
59,311
|
|
|
1
|
|
|
—
|
|
|
2,169
|
|
|
—
|
|
|
—
|
|
|
2,170
|
|
|
—
|
|
|
2,170
|
|
Dividend reinvestment program proceeds
|
2,976
|
|
|
—
|
|
|
—
|
|
|
81
|
|
|
—
|
|
|
—
|
|
|
81
|
|
|
—
|
|
|
81
|
|
Conversion of OP Units to common shares
|
80,816
|
|
|
1
|
|
|
—
|
|
|
2,163
|
|
|
—
|
|
|
—
|
|
|
2,164
|
|
|
—
|
|
|
2,164
|
|
Reallocation of noncontrolling interest in the Operating Partnership
|
—
|
|
|
—
|
|
|
—
|
|
|
296
|
|
|
—
|
|
|
—
|
|
|
296
|
|
|
—
|
|
|
296
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
691
|
|
|
—
|
|
|
691
|
|
|
(4
|
)
|
|
687
|
|
Dividends on preferred shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,559
|
)
|
|
(1,559
|
)
|
|
—
|
|
|
(1,559
|
)
|
Dividends on common shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(53,657
|
)
|
|
(53,657
|
)
|
|
—
|
|
|
(53,657
|
)
|
Balance at March 31, 2017
|
141,522,527
|
|
|
$
|
1,415
|
|
|
$
|
84,394
|
|
|
$
|
3,911,889
|
|
|
$
|
(1,611
|
)
|
|
$
|
(1,262,842
|
)
|
|
$
|
2,733,245
|
|
|
$
|
(205
|
)
|
|
$
|
2,733,040
|
|
The accompanying notes are an integral part of these financial statements.
4
Gramercy Property Trust
Condensed Consolidated Statements of Cash Flows
(Unaudited, amounts in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Operating Activities:
|
|
|
|
|
|
Net income (loss)
|
$
|
9,281
|
|
|
$
|
(1,053
|
)
|
Adjustments to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
62,217
|
|
|
58,248
|
|
Amortization of acquired leases to rental revenue and expense
|
(633
|
)
|
|
(163
|
)
|
Amortization of deferred costs
|
615
|
|
|
2,675
|
|
Amortization of discounts and other fees
|
(409
|
)
|
|
(1,109
|
)
|
Amortization of lease inducement costs
|
86
|
|
|
86
|
|
Straight-line rent adjustment
|
(7,260
|
)
|
|
(6,761
|
)
|
Other-than-temporary impairment on retained bonds
|
4,890
|
|
|
—
|
|
Non-cash impairment charges
|
12,771
|
|
|
—
|
|
Net gain on sale of properties
|
(17,377
|
)
|
|
—
|
|
Distributions received from unconsolidated equity investments
|
352
|
|
|
9,961
|
|
Equity in net loss of unconsolidated equity investments
|
94
|
|
|
2,755
|
|
Loss on extinguishment of debt
|
208
|
|
|
3,827
|
|
Amortization of share-based compensation
|
2,054
|
|
|
1,150
|
|
Changes in operating assets and liabilities:
|
|
|
|
Restricted cash
|
(235
|
)
|
|
5,598
|
|
Payment of capitalized leasing costs
|
(3,790
|
)
|
|
(3,973
|
)
|
Tenant and other receivables
|
11,707
|
|
|
(2,151
|
)
|
Other assets
|
(4,368
|
)
|
|
(10,519
|
)
|
Accounts payable and accrued expenses
|
(9,755
|
)
|
|
(33,738
|
)
|
Other liabilities
|
(2,204
|
)
|
|
(3,085
|
)
|
Net cash provided by operating activities
|
58,244
|
|
|
21,748
|
|
Investing Activities:
|
|
|
|
Capital expenditures
|
(18,429
|
)
|
|
(6,416
|
)
|
Distributions from investing activities received from unconsolidated equity investments
|
—
|
|
|
47,408
|
|
Proceeds from sale of real estate
|
33,053
|
|
|
416,094
|
|
Return of restricted cash held in escrow for 1031 exchange
|
31
|
|
|
(145,500
|
)
|
Unconsolidated equity investments
|
(2,650
|
)
|
|
(4,790
|
)
|
Acquisition of real estate
|
(99,613
|
)
|
|
(52,874
|
)
|
Restricted cash for tenant improvements
|
917
|
|
|
198
|
|
Proceeds from servicing advances receivable
|
—
|
|
|
1,390
|
|
Net cash provided by (used in) investing activities
|
(86,691
|
)
|
|
255,510
|
|
Financing Activities:
|
|
|
|
Proceeds from unsecured term loan and credit facility
|
60,000
|
|
|
75,000
|
|
Proceeds from senior unsecured notes
|
—
|
|
|
50,000
|
|
Repayment of unsecured term loans and credit facility
|
(5,000
|
)
|
|
(250,000
|
)
|
Proceeds from mortgage notes payable
|
2,582
|
|
|
9,550
|
|
Repayment of mortgage notes payable
|
(3,915
|
)
|
|
(198,189
|
)
|
Offering costs
|
(606
|
)
|
|
—
|
|
Proceeds from sale of common shares
|
20,081
|
|
|
—
|
|
Payment of deferred financing costs
|
(252
|
)
|
|
(551
|
)
|
Payment of debt extinguishment costs
|
—
|
|
|
(13,803
|
)
|
Preferred share dividends paid
|
(1,559
|
)
|
|
(1,559
|
)
|
Common share dividends paid
|
(53,025
|
)
|
|
(8,736
|
)
|
Proceeds from exercise of share options and purchases under the employee share purchase plan
|
—
|
|
|
167
|
|
Distribution to noncontrolling interest in the Operating Partnership
|
(118
|
)
|
|
(29
|
)
|
Change in restricted cash from financing activities
|
(909
|
)
|
|
(12
|
)
|
Net cash provided by (used in) financing activities
|
17,279
|
|
|
(338,162
|
)
|
Net decrease in cash and cash equivalents
|
(11,168
|
)
|
|
(60,904
|
)
|
Decrease in cash and cash equivalents related to foreign currency translation
|
(105
|
)
|
|
(3
|
)
|
Cash and cash equivalents at beginning of period
|
67,529
|
|
|
128,031
|
|
Cash and cash equivalents at end of period
|
$
|
56,256
|
|
|
$
|
67,124
|
|
The accompanying notes are an integral part of these financial statements.
5
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
1. Business and Organization
Gramercy Property Trust, or the Company or Gramercy, a Maryland real estate investment trust, or REIT, is a leading global investor and asset manager of commercial real estate. Gramercy specializes in acquiring and managing high quality, income producing commercial real estate leased to high quality tenants in major markets in the United States and Europe.
Gramercy earns revenues primarily through rental revenues on properties that it owns in the United States and asset management revenues on properties owned by third parties in the United States and Europe. The Company also owns unconsolidated equity investments in the United States, Europe, and Asia.
As of
March 31, 2017
, the Company’s wholly-owned portfolio consists of
318
properties comprising
66,732,561
rentable square feet with
98.4%
occupancy. As of
March 31, 2017
, the Company has ownership interests in
48
industrial and office properties which are held in unconsolidated equity investments in the United States and Europe and
two
properties held through the investment in CBRE Strategic Partners Asia. As of
March 31, 2017
, the Company’s asset management business manages approximately
$1,147,000
of commercial real estate assets, primarily on behalf of its joint venture partners, including approximately
$918,000
of assets in Europe.
During the three months ended
March 31, 2017
, the Company acquired
seven
properties aggregating
2,257,311
square feet for a total purchase price of approximately
$124,672
, including the acquisition of a previously consolidated variable interest entity, or VIE, for
$29,605
and the acquisition of a vacant property for
$2,400
. During the three months ended
March 31, 2017
, the Company sold
seven
properties aggregating
487,872
square feet for total gross proceeds of approximately
$51,683
.
Prior to December 17, 2015, the Company was known as Chambers Street Properties, or Chambers. On December 17, 2015, Chambers completed a merger, or the Merger, with Gramercy Property Trust Inc. While Chambers was the surviving legal entity, immediately following consummation of the Merger, the Company changed its name to “Gramercy Property Trust” and its New York Stock Exchange, or NYSE, trading symbol to “GPT.”
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, or IRC, and generally will not be subject to U.S. federal income taxes to the extent it distributes its taxable income, if any, to its shareholders. The Company has in the past established, and may in the future establish taxable REIT subsidiaries, or TRSs, to effect various taxable transactions. Those TRSs would incur U.S. federal, state and local taxes on the taxable income from their activities.
The Company’s operating partnership, GPT Operating Partnership LP, or the Operating Partnership, is the
100.0%
owner of all of its direct and indirect subsidiaries. As of
March 31, 2017
, third-party holders of limited partnership interests in the Operating Partnership owned approximately
0.40%
of the beneficial interest of the Company. These interests are referred to as the noncontrolling interests in the Operating Partnership. See Note
12
for more information on the Company’s noncontrolling interests.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
2
. Significant Accounting Policies
Basis of Quarterly Presentation
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In management’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. The 2017 operating results for the period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The Condensed Consolidated Balance Sheet at December 31, 2016 was derived from the audited Consolidated Financial Statements at that date.
Reclassifications
Certain prior year balances have been reclassified to conform with the current year presentation. These reclassifications had no effect on the previously reported net income (loss). On the Condensed Consolidated Statements of Operations, the Company reclassified investment income of
$443
for the three months ended March 31, 2016 into other income.
Principles of Consolidation
The Condensed Consolidated Financial Statements include the Company’s accounts and those of the Company’s subsidiaries which are wholly-owned or controlled by the Company, or entities which are VIEs in which the Company is the primary beneficiary. The primary beneficiary is the party that absorbs a majority of the VIE’s anticipated losses and/or a majority of the expected returns. The Company has evaluated its investments for potential classification as variable interests by evaluating the sufficiency of each entity’s equity investment at risk to absorb losses.
Entities which the Company does not control and are considered VIEs, but where the Company is not the primary beneficiary, are accounted for under the equity method. All significant intercompany balances and transactions have been eliminated. The equity interests of other limited partners in the Company’s Operating Partnership are reflected as noncontrolling interests.
Real Estate Investments
Real Estate Acquisitions
In January 2017, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2017-01, Amendments to Business Combinations, which clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. Although the Company is not required to implement ASU 2017-01 until annual periods beginning after December 15, 2017, including interim periods within those periods, the Company early adopted the new standard in the
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
first quarter of 2017. As a result, the Company evaluated its real estate acquisitions during the first quarter of 2017 under the new framework and determined the properties acquired did not meet the definition of a business, thus the transactions were accounted for as asset acquisitions. Refer to the "Recently Issued Accounting Pronouncements" section below for more information on the new guidance and refer to Note 4 for more information on the transactions during the first quarter of 2017.
The Company evaluates its acquisitions of real estate, including equity interests in entities that predominantly hold real estate assets, to determine if the acquired assets meet the definition of a business and need to be accounted for as a business combination, or alternatively, should be accounted for as an asset acquisition. An integrated set of assets and activities acquired does not meet the definition of a business if either (i) substantially all the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets, or (ii) the asset and activities acquired do not contain at least an input and a substantive process that together significantly contribute to the ability to create outputs. The Company expects that its acquisitions of real estate will continue to not meet the revised definition of a business.
Acquisitions of real estate that do not meet the definition of a business, including sale-leaseback transactions that have newly-originated leases and real estate investments under construction, or build-to-suit investments, are recorded as asset acquisitions. The accounting for asset acquisitions is similar to the accounting for business combinations, except that the acquisition consideration, including acquisition costs, is allocated to the individual assets acquired and liabilities assumed on a relative fair value basis. Based on this allocation methodology, asset acquisitions do not result in the recognition of goodwill or a bargain purchase. Additionally, for build-to-suit investments in which the Company may engage a developer to construct a property or provide funds to a tenant to develop a property, the Company capitalizes the funds provided to the developer/tenant and real estate taxes, if applicable, during the construction period.
To determine the fair value of assets acquired and liabilities assumed in an acquisition, which generally include land, building, improvements, and intangibles, such as the value of above- and below-market leases and origination costs associated with the in-place leases at the acquisition date, the Company utilizes various estimates, processes and information to determine the as-if-vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, and discounted cash flow analyses. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. The Company assesses the fair value of leases assumed at acquisition based upon estimated cash flow projections that utilize appropriate discount rates and available market information. Refer to the policy section "Intangible Assets and Liabilities" for more information on the Company’s accounting for intangibles.
Depreciation is computed using the straight-line method over the shorter of the estimated useful life at acquisition of the capitalized item or
40
years for buildings,
five
to
ten
years for building equipment and fixtures, and the lesser of the useful life or the remaining lease term for tenant improvements and leasehold interests. Maintenance and repair expenditures are charged to expense as incurred.
For transactions that qualify as business combinations, the Company recognizes the assets acquired and liabilities assumed at fair value, including the value of intangible assets and liabilities, and any excess or deficit of the consideration transferred relative to the fair value of the net assets acquired is recorded as goodwill or a bargain purchase gain, as appropriate. Acquisition costs of business combinations are expensed as incurred.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Capital Improvements
In leasing space, the Company may provide funding to the lessee through a tenant allowance. Certain improvements are capitalized when they are determined to increase the useful life of the building. During construction of qualifying projects, the Company capitalizes project management fees as permitted to be charged under the lease, if incremental and identifiable. In accounting for tenant allowances, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership of such improvements. If the Company is considered the owner of the leasehold improvements, the Company capitalizes the amount of the tenant allowance and depreciates it over the shorter of the useful life of the leasehold improvements or the lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements for accounting purposes, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of rental revenue. Factors considered during this evaluation usually include (i) who holds legal title to the improvements, (ii) evidentiary requirements concerning the spending of the tenant allowance, and (iii) other controlling rights provided by the lease agreement (e.g. unilateral control of the tenant space during the build-out process). Determination of the accounting for a tenant allowance is made on a case-by-case basis, considering the facts and circumstances of the individual tenant lease.
Impairments
The Company reviews the recoverability of a property’s carrying value when circumstances indicate a possible impairment of the value of a property, such as an adverse change in future expected occupancy or a significant decrease in the market price of an asset. The review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as changes in strategy resulting in an increased or decreased holding period, expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If management determines impairment exists due to the inability to recover the carrying value of a property, for properties to be held and used, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property and for assets held for sale, an impairment loss is recorded to the extent that the carrying value exceeds the fair value less estimated cost of disposal. These assessments are recorded as an impairment loss in the Condensed Consolidated Statements of Operations in the period the determination is made. The estimated fair value of the asset becomes its new cost basis. For a depreciable long-lived asset to be held and used, the new cost basis will be depreciated or amortized over the remaining useful life of that asset.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
Restricted Cash
The Company had restricted cash of
$13,101
and
$12,904
at
March 31, 2017
and
December 31, 2016
, respectively, which primarily consisted of reserves for certain capital improvements, leasing, interest and real estate tax and insurance payments as required by certain mortgage loan obligations.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Variable Interest Entities
The Company had
two
and
three
consolidated VIEs as of
March 31, 2017
and
December 31, 2016
, respectively. The Company had
four
unconsolidated VIEs as of
March 31, 2017
and
December 31, 2016
. The following is a summary of the Company’s involvement with VIEs as of
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company carrying value-assets
|
|
Company carrying value-liabilities
|
|
Face value of assets held by the VIEs
|
|
Face value of liabilities issued by the VIEs
|
Consolidated VIEs:
|
|
|
|
|
|
|
|
Operating Partnership
|
$
|
5,606,860
|
|
|
$
|
2,867,691
|
|
|
$
|
5,606,860
|
|
|
$
|
2,867,691
|
|
Gramercy Europe Asset Management (European Fund Manager)
|
$
|
1,062
|
|
|
$
|
9
|
|
|
$
|
1,062
|
|
|
$
|
1,473
|
|
Unconsolidated VIEs:
|
|
|
|
|
|
|
|
Gramercy Europe Asset Management (European Fund Carry Co.)
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
28
|
|
|
$
|
—
|
|
Retained CDO Bonds
|
$
|
4,828
|
|
|
$
|
—
|
|
|
$
|
446,451
|
|
|
$
|
577,169
|
|
The following is a summary of the Company’s involvement with VIEs as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company carrying value-assets
|
|
Company carrying value-liabilities
|
|
Face value of assets held by the VIEs
|
|
Face value of liabilities issued by the VIEs
|
Consolidated VIEs:
|
|
|
|
|
|
|
|
Operating Partnership
|
$
|
5,603,527
|
|
|
$
|
2,842,493
|
|
|
$
|
5,603,527
|
|
|
$
|
2,842,493
|
|
Proportion Foods
|
$
|
22,836
|
|
|
$
|
3,041
|
|
|
$
|
22,836
|
|
|
$
|
23,514
|
|
Gramercy Europe Asset Management (European Fund Manager)
|
$
|
1,100
|
|
|
$
|
47
|
|
|
$
|
1,100
|
|
|
$
|
1,742
|
|
Unconsolidated VIEs:
|
|
|
|
|
|
|
|
Gramercy Europe Asset Management (European Fund Carry Co.)
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
31
|
|
|
$
|
—
|
|
Retained CDO Bonds
|
$
|
11,906
|
|
|
$
|
—
|
|
|
$
|
391,990
|
|
|
$
|
592,414
|
|
Consolidated VIEs
Operating Partnership
The Company’s Operating Partnership is a consolidated VIE because the Company is its primary beneficiary due to its majority ownership and ability to exercise control over every aspect of the Operating Partnership’s operations. The assets and liabilities of the Company and its Operating Partnership are substantially the same.
Gramercy Europe Asset Management (European Fund Manager)
In connection with the Company’s December 2014 investment in the Gramercy European Property Fund, the Company acquired equity interests in the entity, hereinafter European Fund Manager, which provides investment and asset management services to the Gramercy European Property Fund. The Company determined that European Fund
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Manager is a VIE, as the equity holders of that entity do not have controlling financial interests and do not have the obligation to absorb losses. As Gramercy Europe Asset Management, through an investment advisory agreement with the VIE, controls the activities that most significantly affect the economic outcome of European Fund Manager, the Company concluded that it is the entity’s primary beneficiary and has consolidated the VIE. The Company receives net cash inflows from European Fund Manager in the form of management fees, and if the VIE’s cash inflows are not sufficient to cover its obligations, the Company may provide financial support for the VIE.
Proportion Foods
In December 2015, the Company entered into a non-recourse financing arrangement with Big Proportion Austin LLC, or BIG, for a build-to-suit industrial property in Round Rock, Texas, or Proportion Foods. Concurrently, the Company entered into a forward purchase agreement with BIG, pursuant to which the Company will acquire the property, which is
100.0%
leased to Proportion Foods, upon substantial completion of the facility’s development. The Company determined that Proportion Foods was a VIE, as the equity holders of the entity did not have controlling financial interests and were not obligated to absorb losses. The Company controlled the activities that most significantly affected the economic outcome of Proportion Foods through its financing arrangement to fund the property’s development and its forward purchase agreement with BIG. As such, the Company concluded it was the entity’s primary beneficiary and consolidated the VIE. The construction of the facility on the property was completed in March 2017. The Company acquired the property upon completion in March 2017. As of
March 31, 2017
, the property was wholly-owned by the Company and was no longer a consolidated VIE.
Unconsolidated VIEs
Gramercy Europe Asset Management (European Fund Carry Co.)
In connection with the Company’s December 2014 investment in the Gramercy European Property Fund, the Company acquired equity interests in the entity, hereinafter European Fund Carry Co., entitled to receive certain preferential distributions, if any, made from time-to-time by the Gramercy European Property Fund. The Company determined that European Fund Carry Co. is a VIE, as the equity holders of that entity do not have controlling financial interests and do not have the obligation to absorb losses in excess of capital committed. Decisions that most significantly affect the economic performance of European Fund Carry Co. are decided by a majority vote of that VIE’s shareholders. As such, the Company does not have a controlling financial interest in the VIE and accounts for it as an equity investment.
Investment in Retained CDO Bonds
The Company has retained non-investment grade subordinate bonds, preferred shares and ordinary shares of three collateralized debt obligations, or CDOs, together the Retained CDO Bonds. The Company does not control the activities that most significantly impact the Retained CDO Bonds’ economic performance and is not obligated to provide any financial support to them, thus the Retained CDO Bonds have been determined to be unconsolidated VIEs, in which the Company’s interest is recorded at fair value within other assets on the Condensed Consolidated Balance Sheets. The Retained CDO Bonds may provide the potential for the Company to receive continuing cash flows in the future, however, there is no guarantee that the Company will realize any proceeds from the Retained CDO Bonds or what the timing of the proceeds may be. The Company’s maximum exposure to loss is limited to its interest in the Retained CDO Bonds.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Tenant and Other Receivables
Tenant and other receivables are derived from rental revenue, tenant reimbursements, and management fees.
Rental revenue is recorded on a straight-line basis over the initial term of the lease. Since many leases provide for rental increases at specified intervals, straight-line basis accounting requires the Company to record a receivable, and include in revenues, unbilled rent receivables that will only be received if the tenant makes all rent payments required through the expiration of the initial term of the lease. Tenant and other receivables also include receivables related to tenant reimbursements for common area maintenance expenses and certain other recoverable expenses that are recognized as revenue in the period in which the related expenses are incurred.
Tenant and other receivables are recorded net of the allowances for doubtful accounts, which as of
March 31, 2017
and
December 31, 2016
were
$230
and
$57
, respectively. The Company continually reviews receivables related to rent, tenant reimbursements, and management fees, including incentive fees, and determines collectability by taking into consideration the tenant or asset management clients’ payment history, the financial condition of the tenant or asset management client, business conditions in the industry in which the tenant or asset management client operates and economic conditions in the area in which the property or asset management client is located. In the event that the collectability of a receivable is in doubt, the Company increases the allowance for doubtful accounts or records a direct write-off of the receivable, as appropriate.
Management fees, including incentive management fees, are recognized as earned in accordance with the terms of the management agreements. The management agreements may contain provisions for fees related to dispositions, administration of the assets including fees related to accounting, valuation and legal services, and management of capital improvements or projects on the underlying assets.
Intangible Assets and Liabilities
As discussed above in the policy section “Real Estate Acquisitions” the Company follows the acquisition method of accounting for its asset acquisitions and business combinations and thus allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Identifiable intangible assets include amounts allocated to acquired leases for above- and below- market lease rates and the value of in-place leases. Management also considers information obtained about each property as a result of its pre-acquisition due diligence.
Above-market and below-market lease values for properties acquired are recorded based on the present value of the difference between the contractual amount to be paid pursuant to each in-place lease and management’s estimate of the fair market lease rate for each such in-place lease, measured over a period equal to the remaining non-cancelable term of the lease. The present value calculation utilizes a discount rate that reflects the risks associated with the leases acquired. The above-market and below-market lease values are amortized as a reduction of and increase to rental revenue, respectively, over the remaining non-cancelable terms of the respective leases. If a tenant terminates its lease prior to its contractual expiration and no future rental payments will be received, any unamortized balance of the market lease intangibles will be written off to rental revenue.
The aggregate value of in-place leases represents the costs of leasing costs, other tenant related costs, and lost revenue that the Company did not have to incur by acquiring a property that is already occupied. Factors considered by management in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
lease-up period for each property taking into account current market conditions and costs to execute similar leases, including leasing commissions and other related expenses. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the anticipated lease-up period. The value of in-place leases is amortized to depreciation and amortization expense over the remaining non-cancelable term of the respective leases, but never over a term that exceeds the remaining depreciable life of the building. If a tenant terminates its lease prior to its contractual expiration and no future rental payments will be received, any unamortized balance of the in-place lease intangible will be written off to depreciation and amortization expense.
Above-market and below-market ground rent intangibles are recorded for properties acquired in which the Company is the lessee pursuant to a ground lease assumed at acquisition. The above-market and below-market ground rent intangibles are valued similarly to above-market and below-market leases, except that, because the Company is the lessee as opposed to the lessor, the above-market and below-market ground lease values are amortized as a reduction of and increase to rent expense, respectively, over the remaining non-cancelable terms of the respective leases.
Intangible assets and liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Intangible assets:
|
|
|
|
|
|
In-place leases, net of accumulated amortization of $137,416 and $117,717
|
$
|
536,913
|
|
|
$
|
553,924
|
|
Above-market leases, net of accumulated amortization of $17,325 and $15,719
|
56,198
|
|
|
59,647
|
|
Below-market ground rent, net of accumulated amortization of $306 and $274
|
5,078
|
|
|
5,109
|
|
Amounts related to assets held for sale, net of accumulated amortization of $294 and $0
|
(1,378
|
)
|
|
—
|
|
Total intangible assets
|
$
|
596,811
|
|
|
$
|
618,680
|
|
Intangible liabilities:
|
|
|
|
Below-market leases, net of accumulated amortization of $28,485 and $26,168
|
$
|
212,415
|
|
|
$
|
223,110
|
|
Above-market ground rent, net of accumulated amortization of $302 and $248
|
7,000
|
|
|
7,073
|
|
Amounts related to liabilities of assets held for sale, net of accumulated amortization of $437 and $0
|
(3,014
|
)
|
|
—
|
|
Total intangible liabilities
|
$
|
216,401
|
|
|
$
|
230,183
|
|
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
The following table provides the weighted-average amortization period as of
March 31, 2017
for intangible assets and liabilities and the projected amortization expense for the next five years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Amortization Period
|
|
April 1 to December 31, 2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
In-place leases
|
9.7
|
|
$
|
68,372
|
|
|
$
|
83,678
|
|
|
$
|
70,384
|
|
|
$
|
58,007
|
|
|
$
|
50,453
|
|
Total to be included in depreciation and amortization expense
|
|
|
$
|
68,372
|
|
|
$
|
83,678
|
|
|
$
|
70,384
|
|
|
$
|
58,007
|
|
|
$
|
50,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Above-market lease assets
|
7.3
|
|
$
|
8,236
|
|
|
$
|
10,510
|
|
|
$
|
9,340
|
|
|
$
|
7,224
|
|
|
$
|
6,012
|
|
Below-market lease liabilities
|
19.2
|
|
(9,844
|
)
|
|
(12,763
|
)
|
|
(12,414
|
)
|
|
(12,120
|
)
|
|
(11,984
|
)
|
Total to be included in rental revenue
|
|
|
$
|
(1,608
|
)
|
|
$
|
(2,253
|
)
|
|
$
|
(3,074
|
)
|
|
$
|
(4,896
|
)
|
|
$
|
(5,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Below-market ground rent
|
41.1
|
|
$
|
95
|
|
|
$
|
127
|
|
|
$
|
127
|
|
|
$
|
127
|
|
|
$
|
127
|
|
Above-market ground rent
|
33.0
|
|
(161
|
)
|
|
(214
|
)
|
|
(214
|
)
|
|
(214
|
)
|
|
(214
|
)
|
Total to be included in property operating expense
|
|
|
$
|
(66
|
)
|
|
$
|
(87
|
)
|
|
$
|
(87
|
)
|
|
$
|
(87
|
)
|
|
$
|
(87
|
)
|
The Company recorded
$24,172
and
$27,560
of amortization of in-place lease intangible assets as part of depreciation and amortization for the three months ended
March 31, 2017
and
2016
, respectively. The Company recorded
$621
and
$181
of amortization of market lease intangible assets and liabilities as an increase to rental revenue for the three months ended
March 31, 2017
and
2016
, respectively. The Company recorded
$21
and
$9
of amortization of ground rent intangible assets and liabilities as a reduction of other property operating expense for the three months ended
March 31, 2017
and
2016
, respectively.
Revenue Recognition
Real Estate Investments
Rental revenue from leases on real estate investments is recognized on a straight-line basis over the term of the lease, regardless of when payments are contractually due. The excess of rental revenue recognized over the amounts contractually due according to the underlying leases are included in other liabilities on the Condensed Consolidated Balance Sheets. For leases on properties that are under construction at the time of acquisition, the Company begins recognition of rental revenue upon completion of construction of the leased asset and delivery of the leased asset to the tenant.
The Company’s lease agreements with tenants also generally contain provisions that require tenants to reimburse the Company for real estate taxes, insurance costs, common area maintenance costs, and other property-related expenses. Under lease arrangements in which the Company is the primary obligor for these expenses, such amounts are recognized as both revenues and operating expenses for the Company. Under lease arrangements in which the tenant pays these expenses directly, such amounts are not included in revenues or expenses. These reimbursement amounts are recognized in the period in which the related expenses are incurred.
The Company recognizes sales of real estate properties only upon closing. Payments received from purchasers prior to closing are recorded as deposits. Profit on real estate sold is recognized using the full accrual method upon
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
closing when the collectability of the sale price is reasonably assured and the Company is not obligated to perform significant activities after the sale. Profit may be deferred in whole or part until the sale meets the requirements of profit recognition on sale of real estate.
Asset Management Business
The Company’s asset and property management agreements may contain provisions for fees related to dispositions, administration of the assets including fees related to accounting, valuation and legal services, and management of capital improvements or projects on the underlying assets. The Company recognizes revenue for fees pursuant to its management agreements in the period in which they are earned. Deferred revenue from management fees received prior to the date earned are included in other liabilities on the Condensed Consolidated Balance Sheets.
Certain of the Company’s asset management contracts include provisions that may allow it to earn additional fees, generally described as incentive fees or profit participation interests, based on the achievement of a targeted valuation of the managed assets or the achievement of a certain internal rate of return on the managed assets. The Company recognizes incentive fees on its asset management contracts based upon the amount that would be due pursuant to the contract, if the contract were terminated at the reporting date. If the contract may be terminated at will, revenue will only be recognized to the amount that would be due pursuant to that termination. If the incentive fee is a fixed amount, only a proportionate share of revenue is recognized at the reporting date, with the remaining fees recognized on a straight-line basis over the measurement period. The values of incentive management fees are periodically evaluated by management. For the
three
months ended
March 31, 2017
and 2016, the Company recognized incentive fees of
$1,449
and
$973
, respectively.
Other Income
Other income primarily consists of income accretion on the Company’s Retained CDO Bonds, which are measured at fair value on a quarterly basis using a discounted cash flow model, realized foreign currency exchange gains (losses), interest income, and miscellaneous property related income.
Foreign Currency
Gramercy Europe Asset Management operates an asset and property management business in the United Kingdom. The Company has unconsolidated equity investments in Europe and Asia and had
two
wholly-owned properties in Canada and
one
wholly-owned property in the United Kingdom until their dispositions in March 2017 and December 2016, respectively. The Company also has borrowings outstanding in euros and British pounds sterling under the multicurrency portion of its revolving credit facility. Refer to Note
5
for more information on the Company’s foreign unconsolidated equity investments.
Foreign Currency Translation
During the periods presented, the Company has had interests in Europe and Canada for which the functional currencies are the euro, the British pound sterling, and the Canadian dollar, respectively. The Company performs the translation from these foreign currencies to the U.S. dollar for assets and liabilities using the exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The Company reports the gains and losses resulting from such translation as a component of other comprehensive income (loss). For the three months ended
March 31, 2017
and 2016, the Company recorded net translation gains of
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
$691
and
$6,119
, respectively. Translation gains and losses are reclassified to other income within earnings when the Company has substantially exited from all investments in the related currency.
Foreign Currency Transactions
A transaction gain or loss realized upon settlement of a foreign currency transaction will be included in earnings for the period in which the transaction is settled. Foreign currency intercompany transactions that are scheduled for settlement are included in the determination of net income. Intercompany foreign currency transactions of a long-term nature that do not have a planned or foreseeable future settlement date, in which the entities to the transactions are consolidated or accounted for by the equity method in the Company’s financial statements, are not included in net income but are reported as a component of other comprehensive income (loss). For the three months ended
March 31, 2017
and 2016, the Company recognized net realized foreign currency transaction gains (losses) of
$(9)
and
$105
, respectively, on such transactions.
Other Assets
The Company includes prepaid expenses, capitalized software costs, contract intangible assets, deferred costs, goodwill, derivative assets, servicing advances receivable, and Retained CDO Bonds in other assets.
Goodwill
Goodwill represents the fair value of the collaboration expected to be achieved upon consummation of a business combination and is measured as the excess of consideration transferred over the net assets acquired at acquisition date. The Company initially recognized goodwill of
$3,887
related to the acquisition of Gramercy Europe Limited, or Gramercy Europe Asset Management, which was adjusted to
$3,802
in 2015 as a result of finalization of the purchase price allocation for the acquisition. The carrying value of goodwill is adjusted each reporting period for the effect of foreign currency translation adjustments. The carrying value of goodwill at
March 31, 2017
and
December 31, 2016
was
$3,039
and
$2,988
, respectively. The Company’s goodwill has an indeterminate life and is not amortized, but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company takes a qualitative approach to consider whether an impairment of goodwill exists prior to quantitatively determining the fair value of the reporting unit in step one of the impairment test. The Company did not record any impairment on its goodwill during the
three months ended
March 31, 2017
or
2016
.
Retained CDO Bonds
The Retained CDO Bonds are non-investment grade subordinate bonds, preferred shares and ordinary shares of three CDOs. Management estimated the timing and amount of cash flows expected to be collected and recognized an investment in the Retained CDO Bonds equal to the net present value of these discounted cash flows. There is no guarantee that the Company will realize any proceeds from this investment, or what the timing will be for the expected remaining life of the Retained CDO Bonds. The Company considers these investments to be not of high credit quality and does not expect a full recovery of interest and principal. Therefore, the Company has suspended interest income accruals on these investments. The Company classifies the Retained CDO Bonds as available for sale. On a quarterly basis, the Company evaluates the Retained CDO Bonds to determine whether significant changes in estimated cash flows or unrealized losses on these investments, if any, reflect a decline in value which is other-than-temporary. If there is a decrease in estimated cash flows and the investment is in an unrealized loss position, the Company will record an other-than-temporary impairment, or OTTI, in the Condensed Consolidated Statements of Operations. To determine the
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
component of the OTTI related to expected credit losses, the Company compares the amortized cost basis of the Retained CDO Bonds to the present value of the revised expected cash flows, discounted using the pre-impairment effective yield. Conversely, if the security is in an unrealized gain position and there is a decrease or significant increase in expected cash flows, the Company will prospectively adjust the yield using the effective yield method. Refer to Note
9
for further discussion regarding the fair value measurement of the Retained CDO Bonds. For the
three
months ended
March 31, 2017
and 2016, the Company recognized OTTI of
$4,890
and
$0
, respectively, on its Retained CDO Bonds.
A summary of the Company’s Retained CDO Bonds as of
March 31, 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
Face Value
|
|
Amortized Cost
|
|
Gross Unrealized Gain
|
|
Other-than-temporary impairment
|
|
Fair Value
|
|
Weighted Average Expected Life
|
9
|
|
|
$
|
387,304
|
|
|
$
|
8,839
|
|
|
$
|
879
|
|
|
$
|
(4,890
|
)
|
|
$
|
4,828
|
|
|
1.8
|
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
The following table summarizes the activity related to credit losses on the Retained CDO Bonds for the
three
months ended
March 31, 2017
and for the year ended December 31,
2016
:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Balance as of January 1, 2017 and 2016, respectively, of credit losses on Retained CDO Bonds for which a portion of an OTTI was recognized in other comprehensive income (loss)
|
$
|
(491
|
)
|
|
$
|
3,196
|
|
Additions to credit losses:
|
|
|
|
On Retained CDO Bonds for which an OTTI was not previously recognized
|
—
|
|
|
—
|
|
On Retained CDO Bonds for which an OTTI was previously recognized and a portion of an OTTI was recognized in other comprehensive income (loss)
|
(4,890
|
)
|
|
—
|
|
On Retained CDO Bonds for which an OTTI was previously recognized without any portion of OTTI recognized in other comprehensive income (loss)
|
—
|
|
|
—
|
|
Reduction for credit losses:
|
—
|
|
|
—
|
|
On Retained CDO Bonds for which no OTTI was recognized in other
comprehensive income at current measurement date
|
—
|
|
|
—
|
|
On Retained CDO Bonds sold during the period
|
—
|
|
|
—
|
|
On Retained CDO Bonds charged off during the period
|
—
|
|
|
—
|
|
For increases in cash flows expected to be collected that are recognized over the remaining life of the Retained CDO Bonds
|
—
|
|
|
(3,687
|
)
|
Balance as of March 31, 2017 and December 31, 2016, respectively, of credit of losses on Retained CDO Bonds for which a portion of an OTTI was recognized in other comprehensive income (loss)
|
$
|
(5,381
|
)
|
|
$
|
(491
|
)
|
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash investments, debt investments and accounts receivable. The Company places its cash investments in excess of insured amounts with high quality financial institutions.
Concentrations of credit risk also arise when a number of the Company’s tenants or asset management clients are engaged in similar business activities or are subject to similar economic risks or conditions that could cause their inability to meet contractual obligations to the Company. The Company regularly monitors its portfolio to assess potential concentrations of credit risk. Management believes the current credit risk portfolio is reasonably well diversified. Asset management clients KBS and Gramercy Europe Asset Management accounted for
68.8%
and
26.8%
, respectively, of the Company's management fee income for the three months ended
March 31, 2017
and
86.3%
and
12.8%
, respectively, of the Company’s management fee income for the three months ended March 31, 2016. No single tenant accounted for more than 10.0% of the Company’s rental revenue for the three months ended
March 31, 2017
. One tenant, Bank of America, N.A., or BOA, accounted for
10.8%
of the Company’s rental revenue for the three months ended March 31, 2016. The concentration of rental revenue from BOA was partially due to amortization recorded on the BOA below-market lease liabilities, which accounted for
2.9%
of total rental revenue for the three months ended March 31, 2016. Additionally, for the three months ended
March 31, 2017
, there were three states,
California
,
Florida
, and
Texas
, that each accounted for
10.0%
or more of the Company’s rental revenue.
Use of Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to customers in an amount reflecting the consideration it expects to receive in exchange for those goods or services. The guidance also requires enhanced disclosures related to the nature, amount, timing, and uncertainty of revenue that is recognized. In April 2016, the FASB issued ASU 2016-10, which amends the new revenue recognition guidance on identifying performance obligations. In February 2017, the FASB issued ASU 2017-05, which clarifies the scope of gains and losses from the derecognition of nonfinancial assets and provides guidance for the partial sales of nonfinancial assets in context of the new revenue standard. The new revenue recognition guidance is effective for the first interim period within annual reporting periods beginning after December 15, 2017, with early adoption permitted for the first interim period within annual reporting periods beginning after December 15, 2016. Companies may use either a full retrospective or a modified retrospective approach to adopt the new guidance. A substantial portion of the Company’s revenue consists of rental revenue from leasing arrangements, which is specifically excluded from the new revenue guidance, however the Company also generates revenue from operating expense reimbursements, management fees, and gains and impairments on disposals, which will be impacted by the new revenue standard. The Company is continuing to analyze the impact of the new revenue guidance on its recognition and disclosure of these streams of revenue. The Company currently expects to adopt the standard in the first quarter of 2018 using the modified retrospective approach.
I
n February 2016, the FASB issued ASU 2016-02, Leases, which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The update will be effective beginning in the first quarter of 2019 and early adoption is permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company’s accounting for leases in which it is a lessor, which represents most of its leasing arrangements, will be largely unchanged under ASU 2016-02, however the Company is a lessee in several operating and ground leases and the accounting for these arrangements is more significantly impacted by the new standard. Pursuant to the new guidance, lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. The Company is continuing to evaluate the impact of adopting the new leases standard on its Condensed Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The update serves to simplify the accounting for share-based payment award transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification of awards on the statement of cash flows. The guidance in the ASU is effective for fiscal years beginning after December 15, 2016. The Company adopted the new guidance in the first quarter of 2017. The adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-01, Amendments to Business Combinations, which amends the current guidance to clarify the definition of a business in order to assist entities in evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The guidance is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted under certain circumstances. The amendments must be applied prospectively as of the beginning of the period of adoption. The Company elected to early adopt ASU 2017-01 in the first quarter of 2017, as described in the “Real Estate Acquisitions” section above.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
3
. Dispositions, Assets Held for Sale, and Discontinued Operations
Real Estate Dispositions and Impairments
During the
three
months ended
March 31, 2017
, the Company sold
seven
properties, which comprised an aggregate
487,872
square feet and generated gross proceeds of
$51,683
. The Company recognized a gain on disposals of
$17,377
during the
three
months ended
March 31, 2017
related to the properties sold during the period. Of the properties sold in 2017,
one
of the sales was structured as a like-kind exchange within the meaning of Section 1031 of the IRC. As a result of the sale, the Company deposited
$23,218
of the total sale proceeds into an IRC Section 1031 exchange escrow account with a qualified intermediary. The Company then used
$23,218
of these funds as consideration for
one
property acquisition during the three months ended March 31, 2017. During the
three
months ended
March 31, 2017
, the Company recognized an impairment on real estate investments of
$12,771
related to
two
properties held by the Company as of March 31, 2017, for which the Company determined there were non-recoverable declines in value. Refer to Note 9 for more information on how the Company determined the non-recurring fair value of these
two
properties.
Assets Held for Sale
The Company separately classifies properties held for sale in the Condensed Consolidated Financial Statements. The Company had
one
asset and
two
offices that are part of another asset classified as held for sale as of
March 31, 2017
with total net asset value of
$5,834
and
no
assets classified as held for sale as of
December 31, 2016
. In the normal course of business, the Company identifies non-strategic assets for sale. Real estate investments to be disposed of are reported at the lower of carrying amount or estimated fair value, less costs to sell. Once an asset is classified as held for sale, depreciation and amortization expense is no longer recorded.
The following table summarizes the assets held for sale and liabilities related to the assets held for sale as of
March 31, 2017
:
|
|
|
|
|
Assets held for sale
|
March 31, 2017
|
Real estate investments
|
$
|
7,538
|
|
Acquired lease assets
|
1,378
|
|
Other assets
|
46
|
|
Total assets
|
$
|
8,962
|
|
Liabilities related to assets held for sale
|
|
Below-market lease liabilities
|
3,014
|
|
Other liabilities
|
114
|
|
Total liabilities
|
$
|
3,128
|
|
Net assets held for sale
|
$
|
5,834
|
|
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Discontinued Operations
The Company’s discontinued operations for the three months ended
March 31, 2017
and 2016 were related to the assets that were assumed in the Merger and simultaneously designated as held for sale. The following operating results for the three months ended
March 31, 2017
and 2016 are included in discontinued operations for all periods presented:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Revenues
|
$
|
(6
|
)
|
|
$
|
5,857
|
|
Operating expenses
|
6
|
|
|
(2,180
|
)
|
General and administrative expense
|
(24
|
)
|
|
(12
|
)
|
Interest expense
|
—
|
|
|
(955
|
)
|
Gain on extinguishment of debt
|
—
|
|
|
1,930
|
|
Net income (loss) from discontinued operations
|
$
|
(24
|
)
|
|
$
|
4,640
|
|
Discontinued operations have not been segregated in the Condensed Consolidated Statements of Cash Flows. The table below presents additional relevant information pertaining to results of discontinued operations for the three months ended
March 31, 2017
and 2016, including depreciation, amortization, capital expenditures, and significant operating and investing noncash items:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Significant operating noncash items
|
$
|
—
|
|
|
$
|
(9,455
|
)
|
Increase in cash and cash equivalents related to foreign currency translation
|
—
|
|
|
275
|
|
Total
|
$
|
—
|
|
|
$
|
(9,180
|
)
|
4. Real Estate Investments
Property Acquisitions
During the three months ended
March 31, 2017
, the Company acquired
seven
properties comprising
2,257,311
square feet for an aggregate contract purchase price of approximately
$124,672
,
including the acquisition of a consolidated VIE for
$29,605
and the acquisition of a vacant property for
$2,400
.
Total value of the properties acquired during the three months ended March 31, 2017 was comprised of
$115,504
of real estate assets,
$11,296
of intangible assets, and
$774
of intangible liabilities, including transaction costs capitalized for the asset acquisitions.
Property Purchase Price Allocations
During the first quarter of 2017, the Company adopted ASU 2017-01, Amendments to Business Combinations, which amends the definition of a business and provides a revised framework for the determination of whether an integrated set of assets and activities meets the definition of a business. The Company evaluated its real estate acquisitions during the first quarter of 2017 under the new framework and determined the properties acquired did not meet the definition of a business, thus the transactions were accounted for as asset acquisitions. The Company expects that its acquisitions of real estate will not meet the revised definition of a business and will be accounted for as asset acquisitions going forward. Refer to Note 2 for more information on the new accounting standard and the Company’s adoption thereof.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
As noted above, the Company’s acquisitions in 2017 were accounted for as asset acquisitions, however the majority of the Company’s acquisitions prior to 2017 were accounted for as business combinations pursuant to the definition of a business prior to the adoption of ASU 2017-01. Of the acquisitions prior to 2017, there were
21
properties acquired in 2016 that were accounted for as business combinations which had preliminary purchase price allocations recorded as of December 31, 2016. The Company finalized the purchase price allocations of these
21
properties during the first quarter of 2017. The aggregate changes recorded from the preliminary purchase price allocations to the finalized purchase price allocations, are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Allocations recorded
|
|
Finalized Allocations recorded
|
Period Finalized
|
|
No. of Acquisitions
|
|
Real Estate Assets
|
|
Intangible Assets
|
|
Intangible Liabilities
|
|
Real Estate Assets
|
|
Intangible Assets
|
|
Intangible Liabilities
|
|
Decrease to Rental Revenue
|
|
Increase to Depreciation and Amortization Expense
|
Three Months Ended March 31, 2017
|
|
21
|
|
$
|
513,424
|
|
|
$
|
61,178
|
|
|
$
|
11,093
|
|
|
$
|
513,087
|
|
|
$
|
60,627
|
|
|
$
|
10,205
|
|
|
$
|
27
|
|
|
$
|
16
|
|
5
. Unconsolidated Equity Investments
The Company accounts for substantially all of its unconsolidated equity investments under the equity method of accounting because it exercises significant influence, but does not unilaterally control the entities, and is not considered to be the primary beneficiary. In unconsolidated equity investments, the rights of the other investors are protective and participating. Unless the Company is determined to be the primary beneficiary, these rights preclude it from consolidating the investments. The investments are recorded initially at cost as unconsolidated equity investments, as applicable, and subsequently are adjusted for equity interest in net income (loss) and contributions and distributions. The amount of the investments on the Condensed Consolidated Balance Sheets is evaluated for impairment at each reporting period. None of the unconsolidated equity investment debt is recourse to the Company. Transactions with unconsolidated equity method entities are eliminated to the extent of the Company’s ownership in each such entity. Accordingly, the Company’s share of net income (loss) of these equity method entities is included in consolidated net income (loss).
As a result of the Merger in 2015, the Company acquired an interest in
four
unconsolidated entities, the Goodman Europe JV, the Goodman UK JV, the Duke JV, and CBRE Strategic Partners Asia. The Company’s equity investment in the entities was fair valued on the Merger closing date, and the difference between the historical carrying value of the net assets and the fair value was recorded as a basis difference, which is amortized to equity in net income (loss) from unconsolidated equity investments over the remaining weighted average useful life of the underlying assets of each entity.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
As of
March 31, 2017
and
December 31, 2016
, the Company owned properties through unconsolidated equity investments and had investment interests in these unconsolidated entities as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
|
As of December 31, 2016
|
Investment
|
|
Ownership %
|
|
Voting Interest %
|
|
Partner
|
|
Investment in Unconsolidated Equity Investment
1
|
|
No. of Properties
|
|
Investment in Unconsolidated Equity Investment
1
|
|
No. of Properties
|
Gramercy European Property Fund
2
|
|
14.2
|
%
|
|
14.2
|
%
|
|
Various
|
|
$
|
51,524
|
|
|
27
|
|
|
$
|
50,367
|
|
|
26
|
|
Goodman Europe JV
3
|
|
5.1
|
%
|
|
5.1
|
%
|
|
Gramercy European Property Fund
|
|
3,269
|
|
|
8
|
|
|
3,491
|
|
|
8
|
|
Strategic Office Partners
|
|
25.0
|
%
|
|
25.0
|
%
|
|
TPG Real Estate
|
|
18,444
|
|
|
7
|
|
|
15,872
|
|
|
6
|
|
Goodman UK JV
|
|
80.0
|
%
|
|
50.0
|
%
|
|
Goodman Group
|
|
25,336
|
|
|
2
|
|
|
25,309
|
|
|
2
|
|
CBRE Strategic Partners Asia
|
|
5.07
|
%
|
|
5.07
|
%
|
|
Various
|
|
3,999
|
|
|
2
|
|
|
4,145
|
|
|
2
|
|
Philips JV
|
|
25.0
|
%
|
|
25.0
|
%
|
|
Various
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Morristown JV
|
|
50.0
|
%
|
|
50.0
|
%
|
|
21 South Street
|
|
2,615
|
|
|
1
|
|
|
2,623
|
|
|
1
|
|
Total
|
|
|
|
|
|
|
|
$
|
105,187
|
|
|
48
|
|
|
$
|
101,807
|
|
|
46
|
|
|
|
1.
|
The amounts presented include basis differences of
$2,279
and
$3,918
, net of accumulated amortization, for the Goodman Europe JV and Goodman UK JV, respectively, as of
March 31, 2017
. The amounts presented include basis differences of
$2,286
and
$3,941
, net of accumulated amortization, for the Goodman Europe JV and Goodman UK JV, respectively, as of December 31, 2016.
|
|
|
2.
|
Includes European Fund Carry Co., which has a carrying value of
$7
and
$8
for the Company’s
25.0%
interest as of
March 31, 2017
and December 31, 2016, respectively.
|
|
|
3.
|
As of
March 31, 2017
, the Company has a
5.1%
direct interest in the Goodman Europe JV as well as an indirect interest in the remaining
94.9%
interest of Goodman Europe JV through its
14.2%
interest in the Gramercy European
Property Fund. In the table above, as of December 31, 2016, the Company’s
94.9%
interest in Goodman Europe JV held through its
14.2%
interest in the Gramercy European Property Fund is included in the amount shown for the Gramercy European Property Fund and the Company’s
5.1%
direct interest in the Goodman Europe JV is presented separately as the amount shown for the Goodman Europe JV.
|
The following is a summary of the Company’s unconsolidated equity investments for the
three months ended
March 31, 2017
:
|
|
|
|
|
|
Unconsolidated Equity Investments
|
Balance at January 1, 2017
|
$
|
101,807
|
|
Contributions to unconsolidated equity investments
|
2,650
|
|
Equity in net loss of unconsolidated equity investments, including adjustments for basis differences
|
(94
|
)
|
Other comprehensive loss of unconsolidated equity investments
|
1,176
|
|
Distributions from unconsolidated equity investments
|
(352
|
)
|
Balance at March 31, 2017
|
$
|
105,187
|
|
Gramercy European Property Fund
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
In December 2014, the Company, along with several equity investment partners, formed the Gramercy European Property Fund, a private real estate investment fund that targets single-tenant industrial, office and specialty retail assets throughout Europe. In the second quarter of 2016, the Gramercy European Property Fund acquired
74.9%
of the Company’s
80.0%
interest in the Goodman Europe JV. As of March 31, 2017 and December 31, 2016, the Company has a
14.2%
interest in the Gramercy European Property Fund, which has a
94.9%
ownership interest in the Goodman Europe JV. As of March 31, 2017 and December 31, 2016, the Company has a
5.1%
direct interest in the Goodman Europe JV, as well as an indirect interest in the remaining
94.9%
interest that is held through the Company’s
14.2%
interest in the Gramercy European Property Fund.
Since inception, the equity investors, including the Company, have collectively funded
$395,213
(
€352,500
) in equity capital to the Gramercy European Property Fund. As of March 31, 2017 and December 31, 2016 the Company's cumulative contributions to the Gramercy European Property Fund were
$55,892
(
€50,000
). As of March 31, 2017, the remaining commitments of all equity investors to the Gramercy European Property Fund were
$53,260
(
€50,000
), including
$13,315
(
€12,500
) from the Company. During the
three
months ended
March 31, 2017
and 2016, the Company received distributions of
$352
and
$3,561
, respectively, from the Goodman Europe JV.
During
three
months ended
March 31, 2017
and the year ended December 31, 2016, the Gramercy European Property Fund acquired
one
and
13
properties, respectively, located in Germany, the Netherlands, Poland, and the United Kingdom, and in 2016 also acquired the Company's
5.1%
interest in one property located in Lille, France held by the Goodman Europe JV. Refer to Note
8
for additional information on the equity transactions related to the Gramercy European Property Fund and Goodman Europe JV. As of
March 31, 2017
, there were
27
properties in the Gramercy European Property Fund and
eight
additional properties held in the Goodman Europe JV.
Strategic Office Partners
In August 2016, the Company partnered with TPG Real Estate, or TPG, to form Strategic Office Partners, an unconsolidated equity investment created for the purpose of acquiring, owning, operating, leasing and selling single-tenant office properties located in high-growth metropolitan areas in the United States. In September 2016, the Company contributed
six
properties to Strategic Office Partners and in the first quarter of 2017 Strategic Office Partners acquired
one
property. The Company provides asset and property management, accounting, construction, and leasing services to Strategic Office Partners, for which it earns management fees and is entitled to a promoted interest. TPG and the Company have committed to fund an aggregate
$400,000
to Strategic Office Partners, including
$100,000
from the Company. During the three months ended
March 31, 2017
, the Company contributed
$2,650
to Strategic Office Partners and as of
March 31, 2017
, the Company's remaining commitment is
$81,323
. During the
three
months ended
March 31, 2017
, the Company received
no
distributions from the Strategic Office Partners.
Goodman UK JV
The Goodman UK JV invests in industrial properties in the United Kingdom. During the three months ended
March 31, 2017
and 2016, the Company received
no
distributions from the Goodman UK JV.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Duke JV
The Duke JV invested in industrial and office properties located throughout the United States. In June 2016, the Company and Duke entered into a Dissolution and Liquidation Agreement, pursuant to which the Duke JV distributed
seven
of its properties to the Company and
one
of its properties to Duke on June 30, 2016, then was dissolved in July 2016 following the disposition of its remaining property and final distributions of cash to its members. During the three months ended March 31, 2016, the Company received cash distributions of
$53,807
from the Duke JV.
CBRE Strategic Partners Asia
CBRE Strategic Partners Asia is a real estate investment fund with investments in China. CBRE Strategic Partners Asia has an
eight
-year term, which began on January 31, 2008 and may be extended for up to
two
one
-year periods with the approval of two-thirds of the limited partners. In March 2016, the limited partners approved a one-year extension. CBRE Strategic Partners Asia's commitment period has ended, however, it may call capital to fund operations, obligations and liabilities. For the three months ended
March 31, 2017
, the Company did not receive any distributions from CBRE Strategic Partners Asia. In February 2017, the fund commenced liquidation and will wind up over the succeeding
24
months.
Philips JV
The Company has a
25.0%
interest in 200 Franklin Square Drive, a
199,900
square foot building located in Somerset, New Jersey which is
100.0%
net leased to Philips Holdings, USA Inc., a wholly-owned subsidiary of Royal Philips Electronics, through December 2021, or the Philips JV. During the three months ended
March 31, 2017
and 2016, the Company received no distributions and recognized no revenue from the Philips JV.
Morristown JV
In October 2015, the Company contributed
50.0%
of its interest in an office property located in Morristown, New Jersey to a joint venture the Company formed with 21 South Street, a subsidiary of Hampshire Partners Fund VIII LP, or the Morristown JV. Concurrent with the contribution, the Company sold the remaining
50.0%
equity interest of the property to 21 South Street.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
The balance sheets for the Company’s
unconsolidated equity investments
at
March 31, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gramercy European Property Fund
1
|
|
|
|
|
|
|
|
|
|
Goodman Europe JV
|
|
Gramercy European Property Fund
2
|
|
Total
|
|
Strategic Office Partners
|
|
Goodman UK JV
|
|
CBRE Strategic Partners Asia
|
|
Other
3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate assets, net
4
|
$
|
224,122
|
|
|
$
|
480,477
|
|
|
$
|
704,599
|
|
|
$
|
181,655
|
|
|
$
|
30,763
|
|
|
$
|
85,175
|
|
|
$
|
49,342
|
|
Other assets
|
27,485
|
|
|
94,407
|
|
|
121,892
|
|
|
46,673
|
|
|
2,057
|
|
|
11,992
|
|
|
3,251
|
|
Total assets
|
$
|
251,607
|
|
|
$
|
574,884
|
|
|
$
|
826,491
|
|
|
$
|
228,328
|
|
|
$
|
32,820
|
|
|
$
|
97,167
|
|
|
$
|
52,593
|
|
Liabilities and members’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages payable
|
$
|
140,245
|
|
|
$
|
285,499
|
|
|
$
|
425,744
|
|
|
$
|
142,498
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,557
|
|
Other liabilities
|
2,753
|
|
|
20,958
|
|
|
23,711
|
|
|
9,974
|
|
|
957
|
|
|
14,314
|
|
|
3,445
|
|
Total liabilities
|
142,998
|
|
|
306,457
|
|
|
449,455
|
|
|
152,472
|
|
|
957
|
|
|
14,314
|
|
|
43,002
|
|
Gramercy Property Trust equity
|
11,924
|
|
|
42,862
|
|
|
54,786
|
|
|
18,444
|
|
|
25,336
|
|
|
3,999
|
|
|
2,622
|
|
Other members’ equity
|
96,685
|
|
|
225,565
|
|
|
322,250
|
|
|
57,412
|
|
|
6,527
|
|
|
78,854
|
|
|
6,969
|
|
Liabilities and members’ equity
|
$
|
251,607
|
|
|
$
|
574,884
|
|
|
$
|
826,491
|
|
|
$
|
228,328
|
|
|
$
|
32,820
|
|
|
$
|
97,167
|
|
|
$
|
52,593
|
|
|
|
1.
|
As of
March 31, 2017
, the Company has a
5.1%
direct interest in the Goodman Europe JV as well as an indirect interest in the remaining
94.9%
interest that is held through the Company’s
14.2%
interest in the Gramercy European Property Fund. In the table above, the Company’s equity interest in the Goodman Europe JV includes both its direct
5.1%
interest as well as its indirect interest that is held through its
14.2%
interest in the Gramercy European Property Fund, and the Company’s equity interest in the Gramercy European Property Fund represents its interest in all of the properties owned by the Gramercy European Property Fund except for the properties in the Goodman Europe JV.
|
|
|
2.
|
Excludes the Gramercy European Property Fund’s
94.9%
interest in the Goodman Europe JV.
|
|
|
3.
|
Includes the Philips JV, the Morristown JV, and European Fund Carry Co.
|
|
|
4.
|
Includes basis adjustments that were recorded by the Company to adjust the unconsolidated equity investments to fair value upon closing of the Merger.
|
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
The balance sheets for the Company’s
unconsolidated equity investments
at
December 31, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gramercy European Property Fund
1
|
|
|
|
|
|
|
|
|
|
Goodman Europe JV
|
|
Gramercy European Property Fund
2
|
|
Total
|
|
Strategic Office Partners
|
|
Goodman UK JV
|
|
CBRE Strategic Partners Asia
|
|
Other
3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate assets, net
4
|
$
|
285,087
|
|
|
$
|
347,069
|
|
|
$
|
632,156
|
|
|
$
|
149,484
|
|
|
$
|
25,128
|
|
|
$
|
87,852
|
|
|
$
|
49,580
|
|
Other assets
|
86,273
|
|
|
63,523
|
|
|
149,796
|
|
|
42,323
|
|
|
6,650
|
|
|
12,247
|
|
|
3,020
|
|
Total assets
|
$
|
371,360
|
|
|
$
|
410,592
|
|
|
$
|
781,952
|
|
|
$
|
191,807
|
|
|
$
|
31,778
|
|
|
$
|
100,099
|
|
|
$
|
52,600
|
|
Liabilities and members' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages payable
|
$
|
174,269
|
|
|
$
|
215,980
|
|
|
$
|
390,249
|
|
|
$
|
121,894
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,730
|
|
Other liabilities
|
7,778
|
|
|
19,940
|
|
|
27,718
|
|
|
4,347
|
|
|
934
|
|
|
14,383
|
|
|
3,259
|
|
Total liabilities
|
182,047
|
|
|
235,920
|
|
|
417,967
|
|
|
126,241
|
|
|
934
|
|
|
14,383
|
|
|
42,989
|
|
Gramercy Property Trust equity
|
12,734
|
|
|
41,116
|
|
|
53,850
|
|
|
15,872
|
|
|
25,309
|
|
|
4,145
|
|
|
2,631
|
|
Other members' equity
|
176,579
|
|
|
133,556
|
|
|
310,135
|
|
|
49,694
|
|
|
5,535
|
|
|
81,571
|
|
|
6,980
|
|
Liabilities and members' equity
|
$
|
371,360
|
|
|
$
|
410,592
|
|
|
$
|
781,952
|
|
|
$
|
191,807
|
|
|
$
|
31,778
|
|
|
$
|
100,099
|
|
|
$
|
52,600
|
|
|
|
1.
|
As of December 31, 2016, the Company has a
5.1%
direct interest in the Goodman Europe JV as well as an indirect interest in the remaining
94.9%
interest that is held through the Company’s
14.2%
interest in the Gramercy European Property Fund. In the table above, the Company’s equity interest in the Goodman Europe JV includes both its direct
5.1%
interest as well as its indirect interest that is held through its
14.2%
interest in the Gramercy European Property Fund, and the Company’s equity interest in the Gramercy European Property Fund represents its interest in all of the properties owned by the Gramercy European Property Fund except for the properties in the Goodman Europe JV.
|
|
|
2.
|
Excludes the Gramercy European Property Fund’s
94.9%
interest in the Goodman Europe JV.
|
|
|
3.
|
Includes the Philips JV, the Morristown JV, and European Fund Carry Co.
|
|
|
4.
|
Includes basis adjustments that were recorded by the Company to adjust the unconsolidated equity investments to fair value upon closing of the Merger.
|
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Certain real estate assets in the Company’s unconsolidated equity investments are subject to mortgage loans. The following is a summary of the secured financing arrangements within the Company’s unconsolidated equity investments as of
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Balance
2
|
Property
|
|
Unconsolidated Equity Investment
|
|
Economic Ownership
|
|
Interest Rate
1
|
|
Maturity Date
|
|
March 31, 2017
|
|
December 31, 2016
|
Strategic Office Partners portfolio
3
|
|
Strategic Office Partners
|
|
25.0%
|
|
3.83%
|
|
10/7/2019
|
|
$
|
145,800
|
|
|
$
|
125,000
|
|
Durrholz, Germany
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
1.52%
|
|
3/31/2020
|
|
12,303
|
|
|
12,289
|
|
Venray, Germany
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
3.32%
|
|
12/2/2020
|
|
13,149
|
|
|
13,015
|
|
Lille, France
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
3.13%
|
|
12/17/2020
|
|
27,429
|
|
|
27,081
|
|
Carlisle, United Kingdom
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
3.32%
|
|
2/19/2021
|
|
10,620
|
|
|
10,443
|
|
Oud Beijerland, Netherlands
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
2.09%
|
|
12/30/2022
|
|
8,148
|
|
|
8,077
|
|
Zaandam, Netherlands
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
2.08%
|
|
12/30/2022
|
|
11,749
|
|
|
11,647
|
|
Kerkrade, Netherlands
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
2.08%
|
|
12/30/2022
|
|
9,706
|
|
|
9,622
|
|
Friedrichspark, Germany
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
2.08%
|
|
12/30/2022
|
|
8,770
|
|
|
8,694
|
|
Fredersdorf, Germany
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
2.08%
|
|
12/30/2022
|
|
11,345
|
|
|
11,247
|
|
Breda, Netherlands
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
1.90%
|
|
12/30/2022
|
|
10,035
|
|
|
9,948
|
|
Juechen, Germany
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
1.89%
|
|
12/30/2022
|
|
19,017
|
|
|
18,852
|
|
Piaseczno, Poland
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
1.98%
|
|
12/30/2022
|
|
8,212
|
|
|
8,141
|
|
Strykow, Poland
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
1.98%
|
|
12/30/2022
|
|
19,335
|
|
|
19,167
|
|
Uden, Netherlands
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
1.98%
|
|
12/30/2022
|
|
8,992
|
|
|
8,913
|
|
Rotterdam, Netherlands
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
1.89%
|
|
12/30/2022
|
|
7,700
|
|
|
7,633
|
|
Frechen, Germany
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
1.49%
|
|
12/30/2022
|
|
6,101
|
|
|
6,043
|
|
Meerane, Germany
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
1.35%
|
|
12/30/2022
|
|
10,236
|
|
|
10,138
|
|
Amsterdam, Netherlands
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
1.59%
|
|
12/30/2022
|
|
3,123
|
|
|
3,093
|
|
Tiel, Netherlands
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
1.59%
|
|
12/30/2022
|
|
9,262
|
|
|
9,174
|
|
Netherlands portfolio
4
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
3.02%
|
|
6/28/2023
|
|
13,581
|
|
|
13,409
|
|
Kutno, Poland
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
1.91%
|
|
7/21/2023
|
|
5,965
|
|
|
5,890
|
|
European Facility 1
5
|
|
Goodman Europe JV
|
|
18.6%
|
6
|
0.90%
|
|
11/16/2023
|
|
31,957
|
|
|
31,551
|
|
European Facility 2
5
|
|
Goodman Europe JV
|
|
18.6%
|
6
|
1.75%
|
|
11/16/2023
|
|
108,289
|
|
|
106,917
|
|
Utrecht, Netherlands
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
1.95%
|
|
1/16/2024
|
|
36,616
|
|
|
—
|
|
Worksop, United Kingdom
|
|
Gramercy European Property Fund
|
|
14.2%
|
|
3.94%
|
|
10/20/2026
|
|
10,668
|
|
|
10,551
|
|
Somerset, NJ
|
|
Philips JV
|
|
25.0%
|
|
6.90%
|
|
9/11/2035
|
|
39,557
|
|
|
39,730
|
|
Total mortgage notes payable
|
|
|
|
|
|
|
|
$
|
607,665
|
|
|
$
|
546,265
|
|
Net deferred financing costs and net debt premium
|
|
|
|
|
|
|
|
134
|
|
|
5,608
|
|
Total mortgage notes payable, net
|
|
|
|
|
|
|
|
$
|
607,799
|
|
|
$
|
551,873
|
|
|
|
1.
|
Represents the current effective rate as of
March 31, 2017
, including the swapped interest rate for loans that have interest rate swaps. The current interest rate is not adjusted to include the amortization of fair market value premiums or discounts.
|
|
|
2.
|
Mortgage loans amounts are presented at
100.0%
of the amount in the unconsolidated equity investment.
|
|
|
3.
|
There are
seven
properties under this mortgage loan.
|
|
|
4.
|
There are
five
properties under this mortgage loan.
|
|
|
5.
|
There are
eight
properties under this loan facility.
|
|
|
6.
|
Represents the Company’s economic ownership in the Goodman Europe JV, which includes both its
5.1%
direct interest in the Goodman Europe JV as well as an indirect interest in the remaining
94.9%
interest that is held through the Company’s
14.2%
interest in the Gramercy European Property Fund.
|
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
The statements of operations for the Company’s unconsolidated equity investments for the three months ended
March 31, 2017
or partial period for acquisitions or dispositions which closed during these periods, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gramercy European Property Fund
1
|
|
|
|
|
|
|
|
|
|
Goodman Europe JV
|
|
Gramercy European Property Fund
2
|
|
Total
|
|
Strategic Office Partners
|
|
Goodman UK JV
|
|
CBRE Strategic Partners Asia
|
|
Other
3
|
Revenues
|
$
|
4,955
|
|
|
$
|
10,118
|
|
|
$
|
15,073
|
|
|
$
|
5,526
|
|
|
$
|
295
|
|
|
$
|
(2,445
|
)
|
|
$
|
1,114
|
|
Operating expenses
|
922
|
|
|
2,951
|
|
|
3,873
|
|
|
1,474
|
|
|
302
|
|
|
418
|
|
|
158
|
|
Interest expense
|
672
|
|
|
1,474
|
|
|
2,146
|
|
|
1,510
|
|
|
—
|
|
|
—
|
|
|
641
|
|
Depreciation and amortization
|
2,021
|
|
|
4,473
|
|
|
6,494
|
|
|
2,503
|
|
|
375
|
|
|
—
|
|
|
333
|
|
Total expenses
|
3,615
|
|
|
8,898
|
|
|
12,513
|
|
|
5,487
|
|
|
677
|
|
|
418
|
|
|
1,132
|
|
Net income (loss) from operations
|
1,340
|
|
|
1,220
|
|
|
2,560
|
|
|
39
|
|
|
(382
|
)
|
|
(2,863
|
)
|
|
(18
|
)
|
Gain (loss) on derivatives
|
—
|
|
|
1,221
|
|
|
1,221
|
|
|
(349
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Provision for taxes
|
(17
|
)
|
|
146
|
|
|
129
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
Net income (loss)
|
$
|
1,323
|
|
|
$
|
2,587
|
|
|
$
|
3,910
|
|
|
$
|
(310
|
)
|
|
$
|
(390
|
)
|
|
$
|
(2,863
|
)
|
|
$
|
(18
|
)
|
Company's share in net income (loss)
|
$
|
67
|
|
|
$
|
446
|
|
|
$
|
513
|
|
|
$
|
(15
|
)
|
|
$
|
(312
|
)
|
|
$
|
(146
|
)
|
|
$
|
(9
|
)
|
Adjustments for REIT basis
|
(36
|
)
|
|
—
|
|
|
(36
|
)
|
|
—
|
|
|
(89
|
)
|
|
—
|
|
|
—
|
|
Company's equity in net income (loss) within continuing operations
|
$
|
31
|
|
|
$
|
446
|
|
|
$
|
477
|
|
|
$
|
(15
|
)
|
|
$
|
(401
|
)
|
|
$
|
(146
|
)
|
|
$
|
(9
|
)
|
|
|
1.
|
As of and for the three months ended
March 31, 2017
, the Company had a
5.1%
direct interest in the Goodman Europe JV as well as an indirect interest in the remaining
94.9%
interest that is held through the Company’s
14.2%
interest in the Gramercy European Property Fund. For the
three
months ended
March 31, 2017
, the Company’s equity in net income (loss) of the entities is based on these ownership interest percentages during the period.
|
|
|
2.
|
Excludes the results of the Gramercy European Property Fund’s
94.9%
interest in the Goodman Europe JV, as the Goodman Europe JV is separately presented.
|
|
|
3.
|
Includes the Philips JV, the Morristown JV, and European Fund Carry Co.
|
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
The statements of operations for the Company’s unconsolidated equity investments for the
three months ended
March 31, 2016
or partial period for acquisitions or dispositions which closed during these periods, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodman Europe JV
|
|
Gramercy European Property Fund
|
|
Goodman UK JV
|
|
Duke JV
|
|
Other
1
|
Revenues
|
$
|
6,121
|
|
|
$
|
5,057
|
|
|
$
|
4,284
|
|
|
$
|
10,536
|
|
|
$
|
301
|
|
Operating expenses
|
862
|
|
|
502
|
|
|
287
|
|
|
2,991
|
|
|
712
|
|
Acquisition expenses
|
—
|
|
|
666
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest expense
|
923
|
|
|
927
|
|
|
—
|
|
|
436
|
|
|
729
|
|
Depreciation and amortization
|
2,290
|
|
|
2,345
|
|
|
750
|
|
|
3,729
|
|
|
333
|
|
Total expenses
|
4,075
|
|
|
4,440
|
|
|
1,037
|
|
|
7,156
|
|
|
1,774
|
|
Net income (loss) from operations
|
2,046
|
|
|
617
|
|
|
3,247
|
|
|
3,380
|
|
|
(1,473
|
)
|
Loss on derivatives
|
—
|
|
|
(3,814
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,962
|
)
|
|
—
|
|
Net gain on disposals
|
—
|
|
|
—
|
|
|
—
|
|
|
38,535
|
|
|
—
|
|
Provision for taxes
|
—
|
|
|
(315
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income (loss)
|
$
|
2,046
|
|
|
$
|
(3,512
|
)
|
|
$
|
3,247
|
|
|
$
|
33,953
|
|
|
$
|
(1,473
|
)
|
Company's share in net income (loss)
|
$
|
1,637
|
|
|
$
|
(695
|
)
|
|
$
|
2,597
|
|
|
$
|
27,162
|
|
|
$
|
(79
|
)
|
Adjustments for REIT basis
|
(486
|
)
|
|
—
|
|
|
(270
|
)
|
|
(32,621
|
)
|
|
—
|
|
Company's equity in net income (loss) within continuing operations
|
$
|
1,151
|
|
|
$
|
(695
|
)
|
|
$
|
2,327
|
|
|
$
|
(5,459
|
)
|
|
$
|
(79
|
)
|
|
|
1.
|
Includes the Philips JV, the Morristown JV, European Fund Carry Co., and CBRE Strategic Partners Asia.
|
6
. Debt Obligations
Secured Debt
Mortgage Loans
Certain real estate assets are subject to mortgage loans. During the
three months ended
March 31, 2017
, the Company assumed
$3,680
of non-recourse mortgages in connection with
one
real estate acquisition. During the year ended December 31, 2016, the Company assumed
$244,188
of non-recourse mortgages in connection with
27
real estate acquisitions.
During the
three months ended
March 31, 2017
, the Company refinanced the debt on
two
properties encumbered by a mortgage loan, subsequently transferred the mortgage on these
two
properties to the buyer of the properties, and, as a result, recorded a net loss on the early extinguishment of debt of
$208
. During the
three months ended
March 31, 2016
, the Company paid off the debt on
six
properties encumbered by mortgage loans and transferred
one
property encumbered by a mortgage loan, and as a result, the Company recorded a net loss on the early extinguishment of debt of
$3,827
, including a net gain on extinguishment of debt of
$1,930
within discontinued operations. The gains and losses recorded for extinguishments of debt are related to unamortized deferred financing costs and mortgage premiums (discounts) that were immediately expensed upon termination as well as early termination fees incurred. The Company’s mortgage loans include a series of financial and other covenants with which the Company must comply in order to borrow under them. The Company was in compliance with the covenants under the mortgage loan facilities as of
March 31, 2017
.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
The following is a summary of the Company’s secured financing arrangements as of
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Interest Rate
1
|
|
Maturity Date
|
|
Outstanding Balance
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Buford, GA
|
|
4.67%
|
|
7/1/2017
|
|
$
|
15,393
|
|
|
$
|
15,512
|
|
Woodcliff Lake, NJ
|
|
3.04%
|
|
9/15/2017
|
|
35,024
|
|
|
35,366
|
|
Logistics Portfolio - Pool 2
2
|
|
4.48%
|
|
1/1/2018
|
|
36,139
|
|
|
36,279
|
|
Dallas, TX
3
|
|
3.05%
|
|
3/1/2018
|
|
9,485
|
|
|
9,540
|
|
Cincinnati, KY
3
|
|
3.29%
|
|
3/1/2018
|
|
6,590
|
|
|
6,628
|
|
Jacksonville, FL
3
|
|
3.05%
|
|
3/1/2018
|
|
6,813
|
|
|
6,852
|
|
Phoenix, AZ
3
|
|
3.05%
|
|
3/1/2018
|
|
4,097
|
|
|
4,120
|
|
Minneapolis, MN
3
|
|
3.05%
|
|
3/1/2018
|
|
5,967
|
|
|
6,001
|
|
Ames, IA
|
|
5.05%
|
|
5/1/2018
|
|
16,312
|
|
|
16,436
|
|
Columbus, OH
|
|
3.57%
|
|
5/31/2018
|
|
19,474
|
|
|
19,708
|
|
Greenwood, IN
|
|
3.59%
|
|
6/15/2018
|
|
7,392
|
|
|
7,436
|
|
Greenfield, IN
|
|
3.63%
|
|
6/15/2018
|
|
5,974
|
|
|
6,010
|
|
Logistics Portfolio - Pool 3
2
|
|
3.96%
|
|
8/1/2018
|
|
43,300
|
|
|
43,300
|
|
Philadelphia, PA
|
|
4.99%
|
|
1/1/2019
|
|
12,232
|
|
|
12,328
|
|
Columbus, OH
|
|
3.94%
|
|
1/31/2019
|
|
5,862
|
|
|
5,908
|
|
Bridgeview, IL
|
|
3.90%
|
|
5/1/2019
|
|
5,971
|
|
|
6,014
|
|
Spartanburg, SC
|
|
3.20%
|
|
6/1/2019
|
|
929
|
|
|
1,025
|
|
Charleston, SC
|
|
3.11%
|
|
8/1/2019
|
|
856
|
|
|
986
|
|
Lawrence, IN
|
|
5.02%
|
|
1/1/2020
|
|
20,545
|
|
|
20,703
|
|
Charlotte, NC
|
|
3.28%
|
|
1/1/2020
|
|
2,051
|
|
|
2,217
|
|
Hawthorne, CA
|
|
3.52%
|
|
8/1/2020
|
|
17,556
|
|
|
17,638
|
|
Charleston, SC
|
|
2.97%
|
|
10/1/2020
|
|
925
|
|
|
984
|
|
Charleston, SC
|
|
3.37%
|
|
10/1/2020
|
|
925
|
|
|
984
|
|
Charleston, SC
|
|
3.32%
|
|
10/1/2020
|
|
941
|
|
|
1,001
|
|
Charlotte, NC
|
|
3.38%
|
|
10/1/2020
|
|
802
|
|
|
853
|
|
Des Plaines, IL
|
|
5.54%
|
|
10/31/2020
|
|
2,444
|
|
|
2,463
|
|
Waco, TX
|
|
4.75%
|
|
12/19/2020
|
|
15,113
|
|
|
15,187
|
|
Deerfield, IL
|
|
3.71%
|
|
1/1/2021
|
|
10,716
|
|
|
10,804
|
|
Winston-Salem, NC
|
|
3.41%
|
|
6/1/2021
|
|
3,992
|
|
|
4,199
|
|
Winston-Salem, NC
|
|
3.42%
|
|
7/1/2021
|
|
1,320
|
|
|
1,388
|
|
Logistics Portfolio - Pool 1
2
|
|
4.29%
|
|
1/1/2022
|
|
38,842
|
|
|
39,002
|
|
CCC Portfolio
2
|
|
4.46%
|
|
10/6/2022
|
|
23,162
|
|
|
23,280
|
|
Durham, NC
|
|
4.02%
|
|
9/6/2024
|
|
3,680
|
|
|
—
|
|
Logistics Portfolio - Pool 4
2
|
|
4.36%
|
|
12/5/2022
|
|
79,500
|
|
|
79,500
|
|
KIK USA Portfolio
2
|
|
4.63%
|
|
7/6/2023
|
|
7,376
|
|
|
7,450
|
|
Yuma, AZ
|
|
5.27%
|
|
12/6/2023
|
|
12,007
|
|
|
12,058
|
|
Allentown, PA
|
|
5.16%
|
|
1/6/2024
|
|
22,979
|
|
|
23,078
|
|
Spartanburg, SC
|
|
3.72%
|
|
2/1/2024
|
|
6,183
|
|
|
6,360
|
|
Charleston, SC
|
|
3.80%
|
|
2/1/2025
|
|
6,497
|
|
|
6,658
|
|
Hackettstown, NJ
|
|
4.95%
|
|
3/6/2026
|
|
9,550
|
|
|
9,550
|
|
Hutchins, TX
|
|
7.65%
|
|
6/1/2029
|
|
22,476
|
|
|
22,764
|
|
KIK Canada Portfolio
2
|
|
3.57%
|
|
5/5/2019
|
|
—
|
|
|
7,914
|
|
Total mortgage notes payable
|
|
$
|
547,392
|
|
|
$
|
555,484
|
|
Net deferred financing costs and net debt premium
|
|
2,532
|
|
|
3,158
|
|
Total mortgage notes payable, net
|
|
$
|
549,924
|
|
|
$
|
558,642
|
|
|
|
1.
|
Represents the interest rate as of
March 31, 2017
or date of extinguishment if loan was extinguished during the period, that was recorded for financial reporting purposes, which reflects the effect of interest rate swaps and amortization of financing costs and fair market value premiums or discounts.
|
|
|
2.
|
There are
five
properties under the Logistics Portfolio - Pool 2 loan,
two
properties under the Logistics Portfolio - Pool 3 loan,
three
properties under the Logistics Portfolio - Pool 1 loan,
five
properties under the CCC Portfolio loan,
six
properties under the Logistics Portfolio - Pool 4 loan,
three
properties under the KIK USA Portfolio loan, and
two
properties under the KIK Canada Portfolio loan.
|
|
|
3.
|
These
five
mortgage loans are cross-collateralized.
|
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Unsecured Debt
2015 Credit Facility and Term Loans
In December 2015, the Company entered into an agreement, or the Credit Agreement, for a new
$1,900,000
credit facility, or the 2015 Credit Facility, consisting of an
$850,000
senior unsecured revolving credit facility, or the 2015 Revolving Credit Facility, and
$1,050,000
term loan facility with JPMorgan Securities LLC and Merrill Lynch, Pierce, Fenner and Smith Incorporated and terminated Legacy Gramercy's 2014 Credit Facility. The 2015 Revolving Credit Facility consists of a
$750,000
U.S. dollar revolving credit facility and a
$100,000
multicurrency revolving credit facility. The 2015 Revolving Credit Facility matures in January 2020, but may be extended for
two
additional six month periods upon the payment of applicable fees and satisfaction of certain customary conditions. The term loan facility, or the 2015 Term Loan, consists of a
$300,000
term loan facility that matures in January 2019 with one 12-month extension option, or the 3-Year Term Loan, and a
$750,000
term loan facility that matures in January 2021, or the 5-Year Term Loan.
Outstanding borrowings under the 2015 Revolving Credit Facility incur interest at a floating rate based upon, at the Company’s option, either (i) adjusted London Interbank Offered Rate, or LIBOR, plus an applicable margin ranging from
0.875%
to
1.55%
, depending on the Company’s credit ratings, or (ii) the alternate base rate plus an applicable margin ranging from
0.00%
to
0.55%
, depending on the Company’s credit ratings. The Company is also required to pay quarterly in arrears a
0.125%
to
0.30%
facility fee, depending on the Company's credit ratings, on the total commitments under the 2015 Revolving Credit Facility. Outstanding borrowings under the 2015 Term Loan incur interest at a floating rate based upon, at the Company’s option, either (i) adjusted LIBOR plus an applicable margin ranging from
0.90%
to
1.75%
, depending on the Company’s credit ratings, or (ii) the alternate base rate plus an applicable margin ranging from
0.00%
to
0.75%
, depending on the Company’s credit ratings. The alternate base rate is the greater of (x) the prime rate announced by JPMorgan Chase Bank, N.A., (y)
0.50%
above the Federal Funds Effective Rate and (z) the adjusted LIBOR for a one-month interest period plus
1.00%
.
In December 2015, the Company also entered into a new
$175,000
seven-year unsecured term loan with Capital One, N.A., or the 7-Year Term Loan, which matures in January 2023. Outstanding borrowings under the 7-Year Term Loan incur interest at a floating rate based upon, at the Company’s option, either (i) adjusted LIBOR plus an applicable margin ranging from
1.30%
to
2.10%
, depending on the Company’s credit ratings, or (iii) the alternate base rate plus an applicable margin ranging from
0.30%
to
1.10%
, depending on the Company’s credit ratings. The alternate base rate is the greatest of (x) the prime rate announced by Capital One, (y)
0.50%
above the Federal Funds Effective Rate, and (z) the adjusted LIBOR for a one-month interest period plus
1.00%
.
The Company’s unsecured borrowing facilities include a series of financial and other covenants that the Company has to comply with in order to borrow under the facilities. The Company was in compliance with the covenants under the facilities as of
March 31, 2017
. Refer to the table at the end of Note 6 for specific terms and the Company’s outstanding borrowings under the facilities.
Senior Unsecured Notes
During 2016 and 2015, the Company issued and sold
$400,000
and
$100,000
aggregate principal amount of senior unsecured notes payable, respectively, in private placements, which have maturities ranging from 2022 through 2026 and bear interest semiannually at rates ranging from
3.89%
to
4.97%
. Refer to the table later in Note 6 for specific terms of the Company's Senior Unsecured Notes.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Exchangeable Senior Notes
On March 18, 2014, the Company issued
$115,000
of
3.75%
Exchangeable Senior Notes. The Exchangeable Senior Notes are senior unsecured obligations of a subsidiary of the Operating Partnership and are guaranteed by the Company on a senior unsecured basis. The Exchangeable Senior Notes mature on March 15, 2019, unless redeemed, repurchased or exchanged in accordance with their terms prior to such date and will be exchangeable, under certain circumstances, for cash, for common shares or for a combination of cash and common shares, at the election of the Operating Partnership. The Exchangeable Senior Notes will also be exchangeable prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date, at any time beginning on December 15, 2018, and also upon the occurrence of certain events. On or after March 20, 2017, in certain circumstances, the Operating Partnership may redeem all or part of the Exchangeable Senior Notes for cash at a price equal to
100.0%
of the principal amount of the Exchangeable Senior Notes to be redeemed, plus accrued and unpaid interest up to, but excluding, the redemption date.
As of
March 31, 2017
, the Exchangeable Senior Notes have a current exchange rate of
14.0843
units of Merger consideration, where one unit of Merger consideration represents 3.1898 of the Company's common shares, or approximately
44.9261
of the Company's common shares for each
$1.0
principal amount of the Exchangeable Senior Notes, representing an exchange price of
$22.26
per common share of the Company. The fair value of the Exchangeable Senior Notes was determined at issuance to be
$106,689
. The discount is being amortized to interest expense over the expected life of the Exchangeable Senior Notes. As of March 31, 2017 and December 2016, the Exchangeable Senior Notes were recorded as a liability at carrying value of
$109,488
and
$108,832
, respectively, net of unamortized discount and deferred financing costs of
$5,512
and
$6,168
, respectively. The fair value of the Exchangeable Senior Notes’ embedded exchange option of
$11,726
was recorded in additional paid-in-capital within shareholders’ equity as of March 31, 2017 and December 31, 2016.
The terms of the Company’s unsecured debt obligations and outstanding balances as of
March 31, 2017
and December 31, 2016 are set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated Interest Rate
|
|
Effective Interest Rate
1
|
|
Maturity Date
|
|
Outstanding Balance
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
2015 Revolving Credit Facility - U.S. dollar tranche
|
1.95
|
%
|
|
1.95
|
%
|
|
1/8/2020
|
|
$
|
55,000
|
|
|
$
|
—
|
|
2015 Revolving Credit Facility - Multicurrency tranche
|
1.02
|
%
|
|
1.02
|
%
|
|
1/8/2020
|
|
66,759
|
|
|
65,837
|
|
3-Year Term Loan
|
2.10
|
%
|
|
2.33
|
%
|
|
1/8/2019
|
|
300,000
|
|
|
300,000
|
|
5-Year Term Loan
|
2.10
|
%
|
|
2.70
|
%
|
|
1/8/2021
|
|
750,000
|
|
|
750,000
|
|
7-Year Term Loan
|
2.31
|
%
|
|
3.34
|
%
|
|
1/9/2023
|
|
175,000
|
|
|
175,000
|
|
2015 Senior Unsecured Notes
|
4.97
|
%
|
|
5.07
|
%
|
|
12/17/2024
|
|
150,000
|
|
|
150,000
|
|
2016 Senior Unsecured Notes
|
3.89
|
%
|
|
4.00
|
%
|
|
12/15/2022
|
|
150,000
|
|
|
150,000
|
|
2016 Senior Unsecured Notes
|
4.26
|
%
|
|
4.38
|
%
|
|
12/15/2025
|
|
100,000
|
|
|
100,000
|
|
2016 Senior Unsecured Notes
|
4.32
|
%
|
|
4.43
|
%
|
|
12/15/2026
|
|
100,000
|
|
|
100,000
|
|
Exchangeable Senior Notes
|
3.75
|
%
|
|
6.36
|
%
|
|
3/15/2019
|
|
115,000
|
|
|
115,000
|
|
Total unsecured debt
|
|
1,961,759
|
|
|
1,905,837
|
|
Net deferred financing costs and net debt discount
|
|
(8,988
|
)
|
|
(9,704
|
)
|
Total unsecured debt, net
|
|
$
|
1,952,771
|
|
|
$
|
1,896,133
|
|
|
|
1.
|
Represents the rate at which interest expense is recorded for financial reporting purposes as of March 31, 2017, which reflects the effect of interest rate swaps and amortization of financing costs and fair market value premiums or discounts.
|
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Combined aggregate principal maturities of the Company’s unsecured debt obligations, non-recourse mortgages, and Exchangeable Senior Notes, in addition to associated interest payments, as of
March 31, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Revolving Credit Facility
|
|
Term Loans
|
|
Mortgage Notes Payable
1
|
|
Senior Unsecured Notes
|
|
Exchangeable Senior Notes
|
|
Interest Payments
2
|
|
Total
|
April 1 to December 31, 2017
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
61,474
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
65,562
|
|
|
$
|
127,036
|
|
2018
|
—
|
|
|
—
|
|
|
170,819
|
|
|
—
|
|
|
—
|
|
|
80,435
|
|
|
251,254
|
|
2019
|
—
|
|
|
300,000
|
|
|
33,672
|
|
|
—
|
|
|
115,000
|
|
|
70,155
|
|
|
518,827
|
|
2020
|
121,759
|
|
|
—
|
|
|
60,103
|
|
|
—
|
|
|
—
|
|
|
65,605
|
|
|
247,467
|
|
2021
|
—
|
|
|
750,000
|
|
|
16,364
|
|
|
—
|
|
|
—
|
|
|
39,682
|
|
|
806,046
|
|
Thereafter
|
—
|
|
|
175,000
|
|
|
204,960
|
|
|
500,000
|
|
|
—
|
|
|
89,275
|
|
|
969,235
|
|
Above market interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,456
|
)
|
|
(6,456
|
)
|
Total
|
$
|
121,759
|
|
|
$
|
1,225,000
|
|
|
$
|
547,392
|
|
|
$
|
500,000
|
|
|
$
|
115,000
|
|
|
$
|
404,258
|
|
|
$
|
2,913,409
|
|
|
|
1.
|
Mortgage loan payments reflect accelerated repayment dates, when applicable, pursuant to related loan agreement.
|
|
|
2.
|
Interest payments do not reflect the effect of interest rate swaps.
|
7. Leasing Agreements
The Company’s properties are leased to tenants under operating leases with expiration dates extending through the year
2039
. These leases generally contain rent increases and renewal options.
Future minimum rental revenues under non-cancelable leases excluding reimbursements for operating expenses as of
March 31, 2017
are as follows:
|
|
|
|
|
|
Operating Leases
|
April 1 to December 31, 2017
|
$
|
289,129
|
|
2018
|
385,259
|
|
2019
|
358,794
|
|
2020
|
330,608
|
|
2021
|
305,318
|
|
Thereafter
|
1,615,136
|
|
Total minimum lease rental income
|
$
|
3,284,244
|
|
8
. Transactions with Trustee Related Entities and Related Parties
In December 2016, the Company sold its
5.1%
interest in one property located in Lille, France held by the Goodman Europe JV to the Gramercy European Property Fund, in which the Company has a
14.2%
ownership interest, for gross proceeds of
$2,662
(
€2,563
).
On June 30, 2016, the Company sold
74.9%
of its outstanding
80.0%
interest in the Goodman Europe JV to the Gramercy European Property Fund, in which the Company has a
14.2%
interest as of
March 31, 2017
. The Company has made cumulative contributions of
$55,892
(
€50,000
) to the Gramercy European Property Fund and has a remaining funding commitment of
$13,315
(
€12,500
) as of
March 31, 2017
. The Company’s CEO, who is on the board of directors, also has capital commitments to the investment, as noted below. The Company sold
74.9%
of its interest in the Goodman
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Europe JV to the Gramercy European Property Fund for gross proceeds of
$148,884
(
€134,336
), based on third-party valuations for the underlying properties. The Company’s sale of
74.9%
of its interest in the Goodman Europe JV resulted in the Company recording a gain of
$5,341
during the period, primarily related to depreciation and amortization recorded since Merger closing date. Following the sale transaction, the Company has a
5.1%
continuing direct interest in the Goodman Europe JV. The transaction was entered into in order to achieve efficiencies from the combination of the two European platforms.
The Company’s CEO, Gordon F. DuGan, is on the board of directors of the Gramercy European Property Fund and has committed and fully funded approximately
$1,388
(
€1,250
) in capital to the Gramercy European Property Fund. The
two
Managing Directors of Gramercy Europe Asset Management have collectively committed and fully funded approximately
$1,388
(
€1,250
) in capital to the Gramercy European Property Fund.
One of the properties acquired in December 2015 as part of the Merger was partially leased to Duke Realty, the Company’s partner in the Duke JV. Duke Realty acted as the managing member of the Duke JV which was dissolved in July 2016 as described in Note 5, and as such provided asset management, construction, development, leasing and property management services, for which it was entitled to fees as well as a promoted interest. From the date of the Merger through lease expiration in May 2016, Duke Realty leased
30,777
square feet of one of the Company’s office properties located in Minnesota which had an aggregate
322,551
rentable square feet. Duke Realty paid the Company
$176
under the lease for the
three months ended
March 31, 2016. See Note
5
for more information on the Company’s transactions with the Duke JV.
9
. Fair Value Measurements
ASC 820-10, “Fair Value Measurements and Disclosures,” among other things, establishes a hierarchical disclosure framework associated with the level of pricing observability utilized in measuring financial instruments and other assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, or an exit price. The Company discloses fair value information, whether or not recognized in the financial statements, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based upon the application of discount rates to estimated future cash flows based upon market yields or by using other valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, fair values are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments and other assets and liabilities measured at fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.
The level of pricing observability generally correlates to the degree of judgment utilized in measuring the fair value of financial instruments and other assets and liabilities. The three broad levels defined are as follows:
Level I - This level is comprised of financial instruments and other assets and liabilities that have quoted prices that are available in liquid markets for identical assets or liabilities.
Level II - This level is comprised of financial instruments and other assets and liabilities for which quoted prices are available but which are traded less frequently and instruments that are measured at fair value using management’s judgment, where the inputs into the determination of fair value can be directly observed.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Level III - This level is comprised of financial instruments and other assets and liabilities that have little to no pricing observability as of the reported date. These financial instruments do not have active markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment and assumptions. Instruments that are generally in this category include derivatives.
The following table presents the carrying value in the financial statements and approximate fair value of assets and liabilities measured on a recurring and nonrecurring basis at
March 31, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
8,010
|
|
|
$
|
8,010
|
|
|
$
|
3,769
|
|
|
$
|
3,769
|
|
Retained CDO Bonds
|
$
|
4,828
|
|
|
$
|
4,828
|
|
|
$
|
11,906
|
|
|
$
|
11,906
|
|
Investment in CBRE Strategic Partners Asia
|
$
|
3,999
|
|
|
$
|
3,999
|
|
|
$
|
4,145
|
|
|
$
|
4,145
|
|
Real estate investments
1
|
$
|
46,188
|
|
|
$
|
46,188
|
|
|
$
|
2,413
|
|
|
$
|
2,413
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
517
|
|
|
$
|
517
|
|
|
$
|
700
|
|
|
$
|
700
|
|
Long-term debt
|
|
|
|
|
|
|
|
2015 Revolving Credit Facility
2
|
$
|
121,759
|
|
|
$
|
113,887
|
|
|
$
|
65,837
|
|
|
$
|
65,897
|
|
3-Year Term Loan
2
|
$
|
300,000
|
|
|
$
|
298,894
|
|
|
$
|
300,000
|
|
|
$
|
300,213
|
|
5-Year Term Loan
2
|
$
|
750,000
|
|
|
$
|
744,112
|
|
|
$
|
750,000
|
|
|
$
|
750,959
|
|
7-Year Term Loan
2
|
$
|
175,000
|
|
|
$
|
176,653
|
|
|
$
|
175,000
|
|
|
$
|
172,850
|
|
Mortgage notes payable
2
|
$
|
549,924
|
|
|
$
|
559,553
|
|
|
$
|
558,642
|
|
|
$
|
567,705
|
|
Senior Unsecured Notes
2
|
$
|
496,524
|
|
|
$
|
500,598
|
|
|
$
|
496,464
|
|
|
$
|
498,650
|
|
Exchangeable Senior Notes
2
|
$
|
109,488
|
|
|
$
|
116,382
|
|
|
$
|
108,832
|
|
|
$
|
115,625
|
|
|
|
1.
|
Amounts as of March 31, 2017 and December 31, 2016 represent two and one real estate investments, respectively, that were impaired during the three months ended March 31, 2017 and the year ended December 31, 2016, respectively, and were owned as of the end of the respective reporting periods.
|
|
|
2.
|
Long-term debt instruments are classified as Level III due to the significance of unobservable inputs which are based upon management assumptions.
|
The following methods and assumptions were used to estimate the fair value of each class of assets and liabilities for which it is practicable to estimate the value:
Cash and cash equivalents, accrued interest, and accounts payable:
These balances in the Condensed Consolidated Financial Statements reasonably approximate their fair values due to the short maturities of these items.
Retained CDO Bonds:
Non-investment grade, subordinate CDO bonds, preferred shares and ordinary shares are presented in other assets on the Condensed Consolidated Financial Statements at fair value, which is determined using an internally developed discounted cash flow model.
CBRE Strategic Partners Asia:
The investment manager of CBRE Strategic Partners Asia applies valuation techniques for the Company’s 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
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
held in the unconsolidated entity in determining the net asset value attributable to the Company’s ownership interest therein. Refer to Note
5
for more information on this investment.
Real estate investments:
Real estate investments impaired during a period are reported at estimated fair value and real estate investments impaired during a period that are classified as held for sale as of the end of the period are reported at estimated fair value less costs to sell.
Derivative instruments:
The Company’s derivative instruments, which are comprised of interest rate swap agreements, are carried at fair value in the Condensed Consolidated Financial Statements based upon third-party valuations. Derivative fair values are presented within other assets or other liabilities, depending on the balance at the end of the period. Changes in fair value of derivative instruments that represent realized gains (losses) are recorded within interest expense on the Condensed Consolidated Statements of Operations. Refer to Note 10 for more information on the derivative instruments.
Mortgage notes payable, unsecured term loans, unsecured revolving credit facilities and senior unsecured notes:
These instruments are presented in the Condensed Consolidated Financial Statements at amortized cost and not at fair value. The fair value of each instrument is estimated by a discounted cash flows model, using discount rates that best reflect current market rates for financings with similar characteristics and credit quality. Mortgage premiums and discounts are amortized to interest expense on the Condensed Consolidated Statements of Operations using the effective interest method over the terms of the related notes. Refer to Note 6 for more information on these instruments.
Exchangeable Senior Notes:
The Exchangeable Senior Notes are presented at amortized cost on the Condensed Consolidated Financial Statements. The fair value is determined based upon a discounted cash-flow methodology using discount rates that best reflect current market rates for instruments with similar with characteristics and credit quality. Refer to Note 6 for more information on these instruments.
Disclosure about fair value measurements is based on pertinent information available to the Company at the reporting date. Although the Company is not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for the purpose of these financial statements since March 31, 2017 and December 31, 2016, and current estimates of fair value may differ significantly from the amounts presented herein.
The following discussion of fair value was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, fair values are not necessarily indicative of the amounts the Company could realize on disposition of the assets or liabilities. Determining which category an asset or liability falls within the hierarchy requires significant judgment and the Company evaluates its hierarchy disclosures each quarter.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Assets and liabilities measured at fair value on a recurring basis and on a non-recurring basis are categorized in the table below based upon the lowest level of significant input to the valuations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2017
|
|
Total
|
|
Level I
|
|
Level II
|
|
Level III
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained CDO Bonds
|
|
$
|
4,828
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,828
|
|
Real estate investments
|
|
46,188
|
|
|
—
|
|
|
—
|
|
|
46,188
|
|
Investment in CBRE Strategic Partners Asia
|
|
3,999
|
|
|
—
|
|
|
—
|
|
|
3,999
|
|
Interest rate swaps
|
|
8,010
|
|
|
—
|
|
|
—
|
|
|
8,010
|
|
|
|
$
|
63,025
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
63,025
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(517
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(517
|
)
|
|
|
$
|
(517
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
Total
|
|
Level I
|
|
Level II
|
|
Level III
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained CDO Bonds
|
|
$
|
11,906
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,906
|
|
Real estate investments
|
|
2,413
|
|
|
—
|
|
|
—
|
|
|
2,413
|
|
Investment in CBRE Strategic Partners Asia
|
|
4,145
|
|
|
—
|
|
|
—
|
|
|
4,145
|
|
Interest rate swaps
|
|
3,769
|
|
|
—
|
|
|
—
|
|
|
3,769
|
|
|
|
$
|
22,233
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,233
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(700
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(700
|
)
|
|
|
$
|
(700
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(700
|
)
|
Valuation of Level III Instruments
Retained CDO Bonds:
Retained CDO Bonds are valued on a recurring basis using an internally developed discounted cash flow model. Management estimates the timing and amount of cash flows expected to be collected and applies a discount rate equal to the yield that the Company would expect to pay for similar securities with similar risks at the valuation date. Future expected cash flows generated by management require significant assumptions and judgment regarding the expected resolution of the underlying collateral, which includes loans and other lending investments, and real estate investments. The resolution of the underlying collateral requires further management assumptions regarding capitalization rates, lease-up periods, future occupancy rates, market rental rates, holding periods, capital improvements, net property operating income, timing of workouts and recoveries, loan loss severities and other factors. The models are most sensitive to the unobservable inputs such as the timing of a loan default or property sale and the severity of loan losses. Significant increases (decreases) in any of those inputs in isolation as well as any change in the expected timing of those inputs would result in a significantly lower (higher) fair value measurement. Due to the inherent uncertainty in the determination of fair value, the Company has designated its Retained CDO Bonds as Level III.
Investment in CBRE Strategic Partners Asia:
The Company’s investment in CBRE Strategic Partners Asia is based on the Level III valuation inputs applied by the investment manager of CBRE Strategic Partners Asia, utilizing a mix of different approaches for valuing the underlying real estate related investments within the investment company.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
The approaches include the income approach, direct market comparison approach and the replacement cost approach for newer properties. For investments owned more than one year, except for investments under construction or incurring significant renovation, CBRE Strategic Partners Asia obtains a third-party appraisal. For investments in real estate under construction or incurring significant renovation, the valuation analysis is prepared by the investment manager of CBRE Strategic Partners Asia. The valuations are most sensitive to the unobservable inputs of discount rates, as well as capitalization rates an expected future cash flows, and significant increases (decreases) in these inputs would result in a significantly lower (higher) fair value measurement. The fund’s term ended in January 2017 and commencement of the fund's liquidation was filed in early February 2017. The fund will wind up over the succeeding 24 months.
Real estate investments:
Real estate investments impaired during a period are reported at estimated fair value and real estate investments impaired during a period that are classified as held for sale as of the end of the period are reported at estimated fair value less costs to sell. The fair value of real estate investments and their related lease intangibles is determined using third-party valuation support, including purchase-sale contracts and other available market information. Key assumptions in the valuations, to which the fair value determinations are most sensitive, include discount and capitalization rates as well as expected future cash flows. Significant increases (decreases) in these inputs would result in a significantly lower (higher) fair value measurement. As the inputs are unobservable, the Company determined the inputs used to value this liability falls within Level III for fair value reporting.
Derivative instruments:
Interest rate swaps are valued with the assistance of a third-party derivative specialist using a discounted cash flow model, which requires a combination of observable market-based inputs, such as interest rate curves, and unobservable inputs which require significant judgment such as the credit valuation adjustments due to the risk of nonperformance by both the Company and its counterparties. The most significant unobservable input in the fair valuation of derivative instruments is the credit valuation adjustment as it requires significant management judgment regarding changes in the credit risk of the Company or its counterparties, however the primary driver of the fair value of the interest rate swaps is the forward interest rate curve.
Total unrealized gains (losses) from derivatives for the
three
months ended
March 31, 2017
and 2016 were
$4,378
and
$(22,189)
, respectively, in accumulated other comprehensive income (loss).
Fair Value on a Recurring Basis
Quantitative information regarding the valuation techniques and the range of significant unobservable Level III inputs used to determine fair value measurements on a recurring basis as of
March 31, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Financial Asset (Liability)
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Range
|
Non-investment grade, subordinate CDO bonds
|
|
$
|
4,828
|
|
|
Discounted cash flows
|
|
Discount rate
|
|
16.5%
|
Interest rate swaps
1
|
|
$
|
7,493
|
|
|
Hypothetical derivative method
|
|
Credit borrowing spread
|
|
135 to 230 basis points
|
Investment in CBRE Strategic Partners Asia
|
|
$
|
3,999
|
|
|
Discounted cash flows
|
|
Discount rate
|
|
20.0%
|
|
|
1.
|
Fair value includes interest rate swap liabilities with an aggregate value of
$517
.
|
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
The following rollforward table reconciles the beginning and ending balances of financial assets (liabilities) measured at fair value on a recurring basis using Level III inputs as of
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained CDO Bonds
|
|
Investment in CBRE Strategic Partners Asia
|
|
Interest Rate Swaps
|
|
Total Financial Assets (Liabilities) - Level III
|
Balance at January 1, 2017
|
$
|
11,906
|
|
|
$
|
4,145
|
|
|
$
|
3,069
|
|
|
$
|
19,120
|
|
Amortization of discounts or premiums
|
632
|
|
|
—
|
|
|
—
|
|
|
632
|
|
Adjustments to fair value:
|
|
|
|
|
|
|
|
|
Ineffective portion of change in derivative instruments
|
—
|
|
|
—
|
|
|
46
|
|
|
46
|
|
Unrealized gain on derivatives
|
—
|
|
|
—
|
|
|
4,378
|
|
|
4,378
|
|
Unrealized loss in other comprehensive income from fair value adjustment
|
(2,820
|
)
|
|
—
|
|
|
—
|
|
|
(2,820
|
)
|
Other-than-temporary impairments
|
(4,890
|
)
|
|
—
|
|
|
—
|
|
|
(4,890
|
)
|
Total loss on fair value adjustments
|
—
|
|
|
(146
|
)
|
|
—
|
|
|
(146
|
)
|
Balance at March 31, 2017
|
$
|
4,828
|
|
|
$
|
3,999
|
|
|
$
|
7,493
|
|
|
$
|
16,320
|
|
Fair Value on a Non-Recurring Basis
The Company measured its real estate investments that were impaired during the period on a non-recurring basis at estimated fair value based on the respective selling prices as of
March 31, 2017
and December 31, 2016. The Company recorded impairment on these assets as a result of a change in intent to hold the real estate investments. The Company had
two
assets in this classification recorded at
$46,188
as of
March 31, 2017
and
one
asset in this classification recorded at
$2,413
as of December 31, 2016.
10
. Derivatives and Non-Derivative Hedging Instruments
In the normal course of business, the Company is exposed to the effect of interest rate changes and foreign exchange rate changes. The Company limits these risks by following established risk management policies and procedures including the use of derivatives and net investment hedges. The Company uses a variety of derivative instruments to manage, or hedge, interest rate risk. The Company enters into hedging and derivative instruments that will be maximally effective in reducing the interest rate risk and foreign currency exchange rate risk exposure that they are designated to hedge. This effectiveness is essential for qualifying for hedge accounting. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. The Company uses a variety of commonly used derivative products that are considered “plain vanilla” derivatives. These derivatives typically include interest rate swaps, caps, collars and floors. The Company expressly prohibits the use of unconventional derivative instruments and using derivative instruments for trading or speculative purposes. Further, the Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors.
The Company recognizes all derivatives on the Condensed Consolidated Balance Sheets at fair value within other assets or other liabilities, depending on the balance at the end of the period. Derivatives that are not designated as hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be immediately recognized in earnings.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
Derivative accounting may increase or decrease reported net income and shareholders’ equity prospectively, depending on future levels of the LIBOR swap spreads and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows, provided the contract is carried through to full term.
Borrowings on the Company’s multicurrency tranche of the 2015 Revolving Credit Facility, which are designated as non-derivative net investment hedges, are recognized at par value based on the exchange rate in effect on the date of the draw. Subsequent changes in the exchange rate of the Company’s non-derivative net investment hedge are recognized as part of the cumulative foreign currency translation adjustment within other comprehensive income (loss). Refer to Note 9 for additional information on the Company's hedging instruments, including the fair value measurement of these instruments.
The Company’s derivatives and hedging instruments as of
March 31, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benchmark Rate
|
|
Notional Value
|
|
Strike Rate
|
|
Effective Date
|
|
Expiration Date
|
|
Fair Value
|
Interest Rate Swap - Waco
|
|
1 mo. USD-LIBOR-BBA
|
|
15,113 USD
|
|
4.55%
|
|
12/19/2013
|
|
12/19/2020
|
|
$
|
(356
|
)
|
Interest Rate Swap - Atrium I
|
|
1 mo. USD-LIBOR-BBA
|
|
19,474 USD
|
|
1.78%
|
|
8/16/2011
|
|
5/31/2018
|
|
(108
|
)
|
Interest Rate Swap - Easton III
|
|
1 mo. USD-LIBOR-BBA
|
|
5,862 USD
|
|
1.95%
|
|
8/16/2011
|
|
1/31/2019
|
|
(52
|
)
|
Interest Rate Swap - 3-Year Term Loan
|
|
1 mo. USD-LIBOR-BBA
|
|
100,000 USD
|
|
1.22%
|
|
12/19/2016
|
|
12/17/2018
|
|
371
|
|
Interest Rate Swap - 3-Year Term Loan
|
|
1 mo. USD-LIBOR-BBA
|
|
100,000 USD
|
|
1.23%
|
|
12/19/2016
|
|
12/17/2018
|
|
364
|
|
Interest Rate Swap - 3-Year Term Loan
|
|
1 mo. USD-LIBOR-BBA
|
|
100,000 USD
|
|
1.24%
|
|
12/19/2016
|
|
12/17/2018
|
|
345
|
|
Interest Rate Swap - 5-Year Term Loan
|
|
1 mo. USD-LIBOR-BBA
|
|
750,000 EUR
|
|
1.60%
|
|
12/17/2015
|
|
12/17/2020
|
|
5,328
|
|
Interest Rate Swap - 7-Year Term Loan
|
|
1 mo. USD-LIBOR-BBA
|
|
175,000 EUR
|
|
1.82%
|
|
12/17/2015
|
|
1/9/2023
|
|
1,601
|
|
Net Investment Hedge in EUR-denominated investments
|
|
USD-EUR exchange rate
|
|
45,000 GBP
|
|
N/A
|
|
9/28/2015
|
|
N/A
|
|
—
|
|
Net Investment Hedge in GBP-denominated investments
|
|
USD-GBP exchange rate
|
|
15,000 GBP
|
|
N/A
|
|
7/15/2016
|
|
N/A
|
|
—
|
|
Total hedging instruments
|
|
$
|
7,493
|
|
As of
March 31, 2017
, the Company’s derivative instruments consist of interest rate swaps, which are cash flow hedges. Through its interest rate swaps, the Company is hedging exposure to variability in future interest payments on its debt facilities. At
March 31, 2017
, the Company's interest rate swap derivative instruments were reported in other assets at fair value of
$8,010
and in other liabilities at fair value of
$(517)
. Swap gain (loss) of
$46
and
$(1,830)
, was recognized in interest expense in the Condensed Consolidated Statements of Operations for the three months ended
March 31, 2017
and
2016
, respectively, with respect to interest rate swap hedge ineffectiveness, or to amounts excluded from ineffectiveness, which relates to the off-market financing element associated with certain derivatives. During the three months ended
March 31, 2017
and
2016
, the Company reclassified
$268
and
$315
, respectively, from accumulated other comprehensive income (loss) into interest expense related to a derivative terminated in 2015. Over time, the realized and unrealized gains and losses held in accumulated other comprehensive income (loss) will be reclassified into earnings in the same periods in which the hedged interest payments affect earnings. During the next 12 months, the Company expects that
$3,536
will be reclassified from other comprehensive income as an increase in interest expense for the Company’s interest rate swaps as of
March 31, 2017
. Additionally, the Company will recognize
$2,382
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
in interest expense on a straight-line basis over the remaining original term of terminated swaps through June 2019, representing amortization of the remaining accumulated other comprehensive income balance related to the swap, and of this amount
$1,087
will be recognized in interest expense during the next 12 months.
The Company hedges its investments based in foreign currencies using non-derivative net investment hedges in conjunction with borrowings under the multicurrency tranche of its 2015 Revolving Credit Facility. The Company’s non-derivative net investment hedge on its euro-denominated investments, which was entered into in September 2015, is used to hedge exposure to changes in the euro U.S. dollar exchange rate underlying its unconsolidated equity investments in the Gramercy European Property Fund and the Goodman Europe JV, both of which have euros as their functional currency. The Company’s non-derivative net investment hedge on its British pound sterling-denominated investments, which was entered into in July 2016, is used to hedge exposure to changes in the British pound sterling U.S. dollar exchange rate underlying its unconsolidated equity investment in the Goodman UK JV and its wholly-owned property in Coventry, UK until its disposition in December 2016, both of which have British pounds sterling as their functional currency. At
March 31, 2017
, the non-derivative net investment hedge value is reported at carrying value as a net liability of
$66,759
, which is included in the balance of the senior unsecured revolving credit facility on the Condensed Consolidated Balance Sheets. During the three months ended
March 31, 2017
and 2016, the Company recorded a net loss of
$923
and
$1,036
, respectively, in other comprehensive income (loss) from the impact of exchange rates related to the non-derivative net investment hedges. When the non-derivative net investments being hedged are sold or substantially liquidated, the balance of the translation adjustment accumulated in other comprehensive income will be reclassified into earnings.
11
. Shareholders’ Equity (Deficit)
As of
March 31, 2017
and December 31, 2016, the Company's authorized capital shares consists of
500,000,000
shares of beneficial interest,
$0.01
par value per share, of which the Company is authorized to issue up to
490,000,000
common shares of beneficial interest,
$0.01
par value per share, or common shares, and
10,000,000
preferred shares of beneficial interest,
$0.01
par value per share, or preferred shares. As of
March 31, 2017
,
141,522,527
common shares and
3,500,000
preferred shares were issued and outstanding.
In December 2016, the Company's board of trustees approved a 1-for-3 reverse share split of its common shares and outstanding OP Units. The reverse share split was effective after the close of trading on December 30, 2016 and the Company's common shares began trading on a reverse-split-adjusted basis on the NYSE on January 3, 2017.
In February 2017, the Company’s board of trustees authorized and the Company declared a dividend of
$0.375
per common share for the first quarter of 2017, which was paid on April 14, 2017 to holders of record as of March 31, 2017.
Dividend Reinvestment Plan
In June 2016, the Company adopted a dividend reinvestment plan, or DRIP, under which shareholders may use their dividends and optional cash payments to purchase additional common shares of the Company. In August 2016, the Company registered
3,333,333
common shares related to the DRIP. During the three months ended
March 31, 2017
,
2,976
shares were issued under the DRIP and as of March 31, 2017 there were
3,329,660
shares available for issuance under the DRIP.
Share Repurchase Program
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
In February 2016, the Company’s board of trustees approved a share repurchase program authorizing the Company to repurchase up to
$100,000
of the Company’s outstanding common shares. As of
March 31, 2017
, the Company had not repurchased any shares under the share repurchase program.
At-The-Market Equity Offering Program
In July 2016, the Company’s board of trustees approved the establishment of an “at the market” equity issuance program, or ATM Program, pursuant to which the Company may offer and sell common shares with an aggregate gross sales price of up to
$375,000
. During the three months ended
March 31, 2017
, the Company sold
731,453
common shares through the ATM Program for net proceeds of
$19,700
.
Preferred Shares
Holders of the Company's
7.125%
Series A Preferred Shares, or Series A Preferred Shares, are entitled to receive annual dividends of
$1.78125
per share on a quarterly basis and dividends are cumulative, subject to certain provisions. On or after August 15, 2019, the Company can, at its option, redeem the Series A Preferred Shares at par for cash. At
March 31, 2017
, the Company had
3,500,000
of its Series A Preferred Shares outstanding with a mandatory liquidation preference of
$25.00
per share.
Equity Incentive Plans
In June 2016, the Company instituted its 2016 Equity Incentive Plan, which was approved by the Company’s board of trustees and shareholders. As of
March 31, 2017
, there were
3,343,365
shares available for grant under the 2016 Equity Incentive Plan. The Company accounts for share-based compensation awards using fair value recognition provisions and assumes an estimated forfeiture rate which impacts the amount of compensation cost recognized over the benefit period.
Through
March 31, 2017
,
908,985
restricted shares had been issued under the equity incentive plans, including the 2016 Equity Incentive Plan and the Company’s previous equity incentive plans, of which
73.1%
have vested. Compensation expense of
$817
and
$483
was recorded for the three months ended
March 31, 2017
and 2016, respectively, related to the issuance of restricted shares. Compensation expense of
$5,741
will be recorded over the course of the next
33 months
representing the remaining weighted average vesting period of equity awards issued under the equity incentive plans as of
March 31, 2017
. As of
March 31, 2017
and
December 31, 2016
, the Company had
334,689
and
318,807
weighted average restricted shares outstanding, respectively.
Compensation expense of
$1,056
and
$488
was recorded for the three months ended
March 31, 2017
and March 31, 2016, respectively, for the Company's Outperformance Plans. Compensation expense of
$6,969
will be recorded over the course of the next
37 months
, representing the remaining weighted average vesting period of the awards issued under the Outperformance Plans as of
March 31, 2017
.
Earnings per Share
The Company presents both basic and diluted earnings per share, or EPS. Basic EPS is computed by dividing net income (loss) available to common shareholders, as adjusted for unallocated earnings attributable to certain participating securities, if any, by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
into common shares, as long as their inclusion would not be anti-dilutive. The two-class method is an earnings allocation methodology that determines earnings per share for common shares and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The Company has certain share-based payment awards that contain nonforfeitable rights to dividends, which are considered participating securities for the purposes of computing earnings per share pursuant to the two-class method, and therefore the Company applies the two-class method in its computation of EPS.
Earnings per share for the
three
months ended
March 31, 2017
and
2016
are computed as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Numerator – Income (loss):
|
|
|
|
|
|
Net loss from continuing operations
|
$
|
(8,072
|
)
|
|
$
|
(5,693
|
)
|
Net income (loss) from discontinued operations
|
(24
|
)
|
|
4,640
|
|
Loss before net gain on disposals
|
(8,096
|
)
|
|
(1,053
|
)
|
Net gain on disposals
|
17,377
|
|
|
—
|
|
Net income (loss)
|
9,281
|
|
|
(1,053
|
)
|
Less: Net (income) loss attributable to noncontrolling interest
|
(154
|
)
|
|
120
|
|
Less: Nonforfeitable dividends allocated to participating shareholders
|
(276
|
)
|
|
(199
|
)
|
Less: Preferred share dividends
|
(1,559
|
)
|
|
(1,559
|
)
|
Net income (loss) available to common shares outstanding
|
$
|
7,292
|
|
|
$
|
(2,691
|
)
|
Denominator – Weighted average shares
1
:
|
|
|
|
Weighted average basic shares outstanding
|
140,907,399
|
|
|
140,060,405
|
|
Effect of dilutive securities:
|
|
|
|
Unvested non-participating share based payment awards
|
71,848
|
|
|
—
|
|
Options
|
15,576
|
|
|
—
|
|
Exchangeable Senior Notes
|
880,796
|
|
|
—
|
|
Weighted average diluted shares outstanding
|
141,875,619
|
|
|
140,060,405
|
|
|
|
1.
|
Share and per share amounts have been adjusted for the 1-for-3 reverse share split completed on December 30, 2016.
|
The Company’s options and other share-based payment awards used in the computation of EPS were calculated using the treasury share method. The Company only includes the effect of the excess conversion premium in the calculation of Diluted EPS, as the Company has the intent and ability to settle the debt component of the Exchangeable Senior Notes in cash and the excess conversion premium in shares.
For the three months ended March 31, 2016,
961,155
unvested share based payment awards,
5,445
share options, and
458,101
common shares related to outside interests in the Operating Partnership were computed using the treasury share method, which due to the net loss from continuing operations excluding amounts attributable to noncontrolling interest and adjusted for preferred dividends declared during the period were anti-dilutive and excluded from Diluted EPS. The weighted average price of the Company’s common shares during the three months ended March 31, 2016 was below the exchange price of the Exchangeable Senior Notes for the period, thus there was no potential dilutive effect of the excess conversion premium and no effect was included in the calculation of Diluted EPS for the three months ended March 31, 2016. For the three months ended ended March 31, 2016, the Company excluded unvested restricted
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
share awards of
259,976
from its weighted average basic shares outstanding due to the net loss from continuing operations excluding amounts attributable to noncontrolling interest and adjusted for preferred dividends declared during the period. For the three months ended March 31, 2017, the net income attributable to the outside interests in the Operating Partnership has been excluded from the numerator and
620,586
of weighted average shares related to the outside interests in the Operating Partnership has been excluded from the denominator for the purpose of calculating Diluted EPS as there would have been no effect had such amounts been included. Refer to Note 13 for more information on the outside interests in the Operating Partnership.
Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss) as of
March 31, 2017
and
December 31, 2016
is comprised of the following:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Net unrealized gain (loss) on derivative securities
|
$
|
3,938
|
|
|
$
|
(440
|
)
|
Net unrealized gain on debt instruments
|
879
|
|
|
3,699
|
|
Foreign currency translation adjustments:
|
|
|
|
Gain on non-derivative net investment hedges
1
|
4,245
|
|
|
5,168
|
|
Write-off on non-derivative net investment hedge
|
(652
|
)
|
|
(652
|
)
|
Other foreign currency translation adjustments
|
(9,638
|
)
|
|
(11,252
|
)
|
Reclassification of accumulated foreign currency translation adjustments due to disposal
|
(3,737
|
)
|
|
(3,737
|
)
|
Disposition of European investment
|
1,944
|
|
|
1,944
|
|
Reclassification of swap gain into interest expense
|
1,410
|
|
|
1,142
|
|
Total accumulated other comprehensive loss
|
$
|
(1,611
|
)
|
|
$
|
(4,128
|
)
|
|
|
1.
|
The foreign currency translation adjustment associated with the Company’s non-derivative net investment hedges related to its European investments are included in other comprehensive income (loss).
|
12
. Noncontrolling Interest
Noncontrolling interests represent the outside equity interests in the Company’s Operating Partnership as well as third-party equity interests in the Company’s other consolidated subsidiaries.
Outside equity interests in Operating Partnership
The outside equity interests in the Company’s Operating Partnership include common units of limited partnership interest in the Operating Partnership, or OP Units, and the earned and vested portion of limited partnership interests in the Operating Partnership granted by the Company pursuant to its share-based compensation plans, or LTIP Units, which are convertible on a one-for-one basis into OP Units. The aggregate outstanding noncontrolling interest in the Operating Partnership as of March 31, 2017 represented an interest of approximately
0.40%
in the Company. The Company attributes a portion of its net income (loss) during each reporting period to noncontrolling interest based on the weighted average percentage ownership of both OP Unit holders and earned and vested LTIP Unit holders relative to the sum of the Company’s total outstanding common shares, OP Units, and earned and vested LTIP Units.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
OP Units
As of
March 31, 2017
,
233,023
OP Units were outstanding, which can be redeemed for
233,023
of the Company's shares. During the three months ended
March 31, 2017
and the year ended December 31, 2016,
80,816
and
156,452
OP Units, respectively, were converted on a one-for-one basis into common shares of the Company. At
March 31, 2017
,
233,023
common shares of the Company were reserved for issuance upon redemption of units of limited partnership interest of the Company's Operating Partnership. OP Units are recorded at the greater of cost basis or fair market value based on the closing share price of the Company’s common shares at the end of the reporting period. As of
March 31, 2017
, the value of the OP units was
$6,129
.
LTIP Units
As of
March 31, 2017
, noncontrolling interest owners held
329,759
earned and vested LTIP Units, which, upon conversion into OP Units, can be redeemed for
329,759
of the Company’s common shares. During the three months ended
March 31, 2017
and year ended December 31, 2016, there were no earned and vested LTIP Units converted into OP Units or redeemed for common shares of the Company. At
March 31, 2017
,
329,759
common shares of the Company were reserved for issuance upon conversion of the earned and vested LTIP Units into OP Units and their subsequent redemption for common shares.
Below is the rollforward of the activity relating to the noncontrolling interests in the Operating Partnership as of
March 31, 2017
:
|
|
|
|
|
|
Noncontrolling Interest
|
Balance at January 1, 2017
|
$
|
8,643
|
|
Redemption of noncontrolling interests in the Operating Partnership
|
(2,164
|
)
|
Net income attribution
|
34
|
|
Fair value adjustments
|
(296
|
)
|
Dividends
|
(88
|
)
|
Balance at March 31, 2017
|
$
|
6,129
|
|
Interests in Other Operating Partnerships
In connection with the Company’s December 2014 investment in the Gramercy European Property Fund, the Company acquired a
50.0%
equity interest in European Fund Manager, which provides investment and asset management services to the Gramercy European Property Fund. European Fund Manager is a consolidated VIE of the Company and is consolidated into its Condensed Consolidated Financial Statements. Refer to Note
2
for further discussion of the VIE and consolidation considerations.
As of
March 31, 2017
and
December 31, 2016
, the value of the Company’s interest in European Fund Manager was
$(205)
and
$(321)
, respectively. The Company’s interest in European Fund Manager is presented in the equity section of its Condensed Consolidated Balance Sheets.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
13
. Commitments and Contingencies
Funding Commitments
During the three months ended March 31, 2017, construction was completed on our build-to-suit property in Round Rock, Texas, which we acquired upon completion in March 2017 for
$29,605
. The Company is obligated to fund the development of
one
build-to-suit industrial property as of March 31, 2017, which is located in Summerville, South Carolina and projected to have
240,800
rentable square feet upon completion. The Company’s remaining future commitment for this property as of
March 31, 2017
is approximately
$24,382
.
As of
March 31, 2017
and
December 31, 2016
, the Company has made cumulative contributions to the Gramercy European Property Fund of
$55,892
(
€50,000
). As of March 31, 2017, the Company’s remaining commitment to the Gramercy European Property Fund is
$13,315
(
€12,500
). Foreign currency commitments have been converted into U.S. dollars based on (i) the foreign exchange rate at the closing date for completed transactions and (ii) the exchange rate that prevailed on
March 31, 2017
, in the case of unfunded commitments.
The Company has committed to fund
$100,000
to Strategic Office Partners, of which
$18,677
and
$16,027
was funded as of
March 31, 2017
and December 31, 2016, respectively. See Note
5
for further information on the Gramercy European Property Fund and Strategic Office Partners.
Legal Proceedings
The Company evaluates litigation contingencies based on information currently available, including the advice of counsel and the assessment of available insurance coverage. The Company will establish accruals for litigation and claims when a loss contingency is considered probable and the related amount is reasonably estimable. The Company will periodically review these contingencies which may be adjusted if circumstances change. The outcome of a litigation matter and the amount or range of potential losses at particular points may be difficult to ascertain. If a range of loss is estimated and an amount within such range appears to be a better estimate than any other amount within that range, then that amount is accrued.
Legacy Gramercy, its board of directors, and Chambers were named as defendants in various putative class action lawsuits brought by purported Legacy Gramercy stockholders challenging the Merger. The lawsuits were consolidated into a New York state court action, or the New York Action, and a Maryland state court action, or the Maryland Action. On March 1, 2017, the court entered a Final Order and Judgment approving the settlement, awarding plaintiffs’ attorney fees and expenses, and dismissing the New York Action with prejudice. On March 22, 2017, pursuant to the stipulation of settlement, plaintiffs in the Maryland Action filed a notice of dismissal with prejudice with the Circuit Court for Baltimore County, Maryland, which the court entered on April 11, 2017.
In connection with the Company’s property acquisitions and the Merger, the Company has determined that there is a risk it will have to pay future amounts to tenants related to continuing operating expense reimbursement audits. In 2017, the Company settled the majority of its operating expense reimbursement audits and paid
$3,500
pursuant to the settlement in February 2017. As of March 31, 2017, the Company has estimated a range of loss of
$0
to
$360
and determined that its best estimate of total loss is
$360
, which is related to the Merger and has been accrued and recorded in other liabilities as of
March 31, 2017
and
December 31, 2016
.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
In addition, the Company and/or one or more of its subsidiaries is party to various litigation matters that are considered routine litigation incidental to its business, none of which are considered material.
Office Leases
The Company has several office locations, which are each subject to operating lease agreements. These office locations include the Company’s corporate office at 90 Park Avenue, New York, New York, and the Company’s seven regional offices located across the United States and Europe.
Capital and Operating Ground Leases
Certain properties acquired are subject to ground leases, which are accounted for as operating and capital leases, as applicable. The ground leases have varying ending dates, renewal options and rental rate escalations, with the latest lease extending to
June 2053
. Future minimum rental payments to be made by the Company under these non-cancelable ground leases, excluding increases resulting from increases in the consumer price index, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ground Leases - Operating
|
|
Ground Leases - Capital
|
|
Total
|
April 1 to December 31, 2017
|
$
|
1,685
|
|
|
$
|
—
|
|
|
$
|
1,685
|
|
2018
|
2,262
|
|
|
1
|
|
|
2,263
|
|
2019
|
2,271
|
|
|
—
|
|
|
2,271
|
|
2020
|
2,263
|
|
|
—
|
|
|
2,263
|
|
2021
|
2,231
|
|
|
—
|
|
|
2,231
|
|
Thereafter
|
61,857
|
|
|
329
|
|
|
62,186
|
|
Total minimum rent expense
|
$
|
72,569
|
|
|
$
|
330
|
|
|
$
|
72,899
|
|
14. Income Taxes
The Company has elected to be taxed as a REIT, under Sections 856 through 860 of the Internal Revenue Code beginning with its taxable year ended December 31, 2004. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute annually at least 90.0% of its ordinary taxable income to its shareholders. As a REIT, the Company generally will not be subject to U.S. federal income tax on taxable income that it distributes to its shareholders. The Company’s TRSs are subject to federal, state and local taxes.
The asset management agreement with KBS has been terminated effective in the first quarter of 2017, therefore the activity in the Company’s TRS will be immaterial going forward. Consequently, the tax expense from our TRSs for the three months ended March 31, 2017 is immaterial. Prior to 2017, income taxes, primarily related to the Company’s TRSs, were accounted for under the asset and liability method. Deferred tax assets and liabilities were recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities recorded in accordance with GAAP and their respective tax basis and operating loss carryforwards. Deferred tax assets and liabilities were measured using enacted tax rates in effect for the year in which those temporary differences were expected to be recovered or settled. A valuation allowance was provided if the Company believed it was more likely than not that all or a portion of a deferred tax asset would not be realized. Any increase or decrease in a valuation allowance was included in the tax provision when such a change occurs. The Company recorded
$(196)
and
$703
of income tax expense for the three months ended March 31, 2017 and 2016, respectively.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
The Company’s policy for interest and penalties, if any, on material uncertain tax positions recognized in the financial statements is to classify these as interest expense and operating expense, respectively. As of
March 31, 2017
and December 31, 2016, the Company did not incur any material interest or penalties.
15. Segment Reporting
As of
March 31, 2017
, the Company has determined that it has
two
reportable operating segments: Asset Management and Investments/Corporate. The reportable segments are determined based upon the management approach, which looks to the Company’s internal organizational structure. The Company’s lines of business require different support infrastructures. All significant inter-segment balances and transactions have been eliminated.
The Asset Management segment includes substantially all of the Company’s activities related to asset and property management of commercial properties located throughout the United States and Europe. The Asset Management segment generates revenues from fee income related to the management agreements for properties owned by third parties throughout the United States and Europe.
The Investments/Corporate segment includes all of the Company’s activities related to the investment and ownership of commercial properties located throughout the United States and Europe. The Investments/Corporate segment generates revenues from rental revenues from properties owned by the Company, either directly or
in unconsolidated equity investments.
The Company evaluates performance based on the following financial measures for each segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Management
|
|
Investments / Corporate
|
|
Total Company
|
Three Months Ended March 31, 2017
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
4,584
|
|
|
$
|
125,410
|
|
|
$
|
129,994
|
|
Equity in net loss from unconsolidated equity investments
|
—
|
|
|
(94
|
)
|
|
(94
|
)
|
Total operating and interest expense
1
|
(1,603
|
)
|
|
(118,696
|
)
|
|
(120,299
|
)
|
Other expenses
|
(41
|
)
|
|
(17,632
|
)
|
|
(17,673
|
)
|
Net income (loss) from continuing operations
|
$
|
2,940
|
|
|
$
|
(11,012
|
)
|
|
$
|
(8,072
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Management
|
|
Investments / Corporate
|
|
Total Company
|
Three Months Ended March 31, 2016
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
5,151
|
|
|
$
|
115,394
|
|
|
$
|
120,545
|
|
Equity in net loss from unconsolidated equity investments
|
—
|
|
|
(2,755
|
)
|
|
(2,755
|
)
|
Total operating and interest expense
1
|
(5,075
|
)
|
|
(111,948
|
)
|
|
(117,023
|
)
|
Other expenses
|
(384
|
)
|
|
(6,076
|
)
|
|
(6,460
|
)
|
Net loss from continuing operations
|
$
|
(308
|
)
|
|
$
|
(5,385
|
)
|
|
$
|
(5,693
|
)
|
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Management
|
|
Investments / Corporate
|
|
Total Company
|
Total Assets:
|
|
|
|
|
|
|
|
|
March 31, 2017
|
$
|
14,191
|
|
|
$
|
5,592,669
|
|
|
$
|
5,606,860
|
|
December 31, 2016
|
$
|
21,004
|
|
|
$
|
5,582,523
|
|
|
$
|
5,603,527
|
|
|
|
1.
|
Total operating and interest expense includes operating costs on commercial property assets for the Investments/Corporate segment and costs to perform required functions under the management agreement for the Asset Management segment. Depreciation and amortization of
$62,217
and
$58,248
and provision for taxes of
$196
and
$(703)
for the three months ended
March 31, 2017
and
2016
, respectively, are included in the amounts presented above.
|
16. Supplemental Cash Flow Information
The following table represents supplemental cash flow disclosures for the
three
months ended
March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Supplemental cash flow disclosures:
|
|
|
|
Interest paid
|
$
|
17,447
|
|
|
$
|
20,638
|
|
Income taxes paid
|
$
|
71
|
|
|
$
|
322
|
|
Proceeds from 1031 exchanges from sales of real estate
|
$
|
23,219
|
|
|
$
|
175,808
|
|
Use of funds from 1031 exchanges for acquisitions of real estate
|
$
|
(23,218
|
)
|
|
$
|
(30,308
|
)
|
Non-cash activity:
|
|
|
|
Fair value adjustment to noncontrolling interest in the Operating Partnership
|
$
|
(296
|
)
|
|
$
|
1,207
|
|
Debt assumed in acquisition of real estate
|
$
|
3,680
|
|
|
$
|
—
|
|
Debt transferred in disposition of real estate
|
$
|
(10,456
|
)
|
|
$
|
(101,432
|
)
|
Non-cash acquisition of consolidated VIE
|
$
|
24,930
|
|
|
$
|
—
|
|
Dividend reinvestment plan proceeds
|
$
|
81
|
|
|
$
|
—
|
|
Redemption of units of noncontrolling interest in the Operating Partnership for common shares
|
$
|
(2,164
|
)
|
|
$
|
(524
|
)
|
17. Subsequent Events
In April 2017, the Company closed on the acquisition of
two
industrial properties which comprise an aggregate
787,074
rentable square feet and are
100.0%
occupied for an aggregate purchase price of
$51,500
and also closed on the acquisition of a land parcel for
$1,000
, on which it has committed to construct an industrial facility for an estimated
$25,805
, with projected completion in October 2017. In April 2017, the Company closed on the disposition of
three
office properties which comprised an aggregate
208,336
rentable square feet for gross proceeds of
$47,030
.
On April 26, 2017, the Company completed an underwritten public offering of
10,350,000
common shares, which includes the exercise in full by the underwriters of their option to purchase
1,350,000
additional common shares. The common shares were issued at a public offering price of
$27.60
per share and the net proceeds from the offering were approximately
$274,234
.
Gramercy Property Trust
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except share, per share and property data)
March 31, 2017
In April 2017, the Company entered into an agreement to sell its
14.2%
interest in the Gramercy European Property Fund and its
5.1%
interest in the Goodman Europe JV. The transaction is expected to close in the third quarter of 2017; however, there can be no assurances that the transaction will close at all or the amount and timing of the transaction.
In May 2017, the Company declared a second quarter 2017 common dividend of
$0.375
per share, payable on July 14, 2017 to shareholders of record as of June 30, 2017. In May 2017, the Company also declared a second quarter 2017 dividend on its
7.125%
Series A Preferred Shares in the amount of
$0.44531
per share, payable on June 30, 2017 to preferred shareholders of record as of the close of business on June 20, 2017.
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
(Unaudited, amounts in thousands, except share, per share and property data)
Overview
Gramercy Property Trust, or the Company or Gramercy, a Maryland real estate investment trust, or REIT, is a leading global investor and asset manager of commercial real estate. We specialize in acquiring and managing high quality, income producing commercial real estate leased to high quality tenants in major markets in the United States and Europe.
We earn revenues primarily through rental revenues on properties that we own in the United States and asset management revenues on properties owned by third parties in the United States and Europe. We also own unconsolidated equity investments in the United States, Europe, and Asia.
As of
March 31, 2017
, our wholly-owned portfolio consists of
318
properties comprising
66,732,561
rentable square feet with
98.4%
occupancy. As of
March 31, 2017
, we have ownership interests in
48
industrial and office properties which are held in unconsolidated equity investments in the United States and Europe and
two
properties held through our investment in CBRE Strategic Partners Asia. As of
March 31, 2017
, our asset management business manages approximately
$1,147,000
of commercial real estate assets, primarily on behalf of our joint venture partners, including approximately
$918,000
of assets in Europe.
During the three months ended
March 31, 2017
, we acquired
seven
properties aggregating
2,257,311
square feet for a total purchase price of approximately
$124,672
, including the acquisition of a consolidated variable interest entity, or VIE, for
$29,605
and the acquisition of a vacant property for
$2,400
. During the three months ended
March 31, 2017
, we sold
seven
properties aggregating
487,872
square feet for total gross proceeds of approximately
$51,683
.
Prior to December 17, 2015, we were known as Chambers Street Properties, or Chambers. On December 17, 2015, Chambers completed a merger, or the Merger, with Gramercy Property Trust Inc. While Chambers was the surviving legal entity, immediately following consummation of the Merger, we changed our name to “Gramercy Property Trust” and our New York Stock Exchange, or NYSE, trading symbol to “GPT.”
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, and generally will not be subject to U.S. federal income taxes to the extent we distribute our taxable income, if any, to our shareholders. We have in the past established, and may in the future establish TRSs to effect various taxable transactions. Those TRSs would incur U.S. federal, state and local taxes on the taxable income from their activities.
We were formed as a Maryland REIT in March 2004 and commenced operations in July 2004 following an initial private placement of our common shares. Our operating partnership, GPT Operating Partnership LP, or the Operating Partnership, is the
100.0%
owner of all of its direct and indirect subsidiaries. As of
March 31, 2017
third-party holders of limited partnership interests owned approximately
0.40%
of the beneficial interest in us. These interests are referred to as the noncontrolling interest in the Operating Partnership. Our Operating Partnership conducts commercial real estate investment business operations and third-party asset management business operations through various wholly-owned entities.
Unless the context requires otherwise, all references to “Company,” “Gramercy,” “we,” “our,” and “us” mean Legacy Gramercy and one or more of its subsidiaries for the periods prior to the Merger closing and Gramercy Property Trust and one or more of its subsidiaries for periods following the Merger closing.
Asset and Property Management
In addition to net leased investing, we also operate a commercial real estate management business for third parties and certain of our joint venture partners. We manage properties for companies including Strategic Office Partners, and the Gramercy European Property Fund. We managed properties for KBS Real Estate Investment Trust, Inc., or KBS, until March 31, 2017 when our management agreement with KBS expired.
We have an integrated asset management platform in order to consolidate responsibility for, and control over, leasing, lease administration, property management, operations, construction management, tenant relationship management and property accounting. To the extent that we provide asset management services for third-party property owners, we provide such services in consultation with and at the direction of such owners.
Results of Operations
Comparison of the three months ended
March 31, 2017
to the three months ended
March 31, 2016
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
Rental revenue
|
$
|
103,282
|
|
|
$
|
92,095
|
|
|
$
|
11,187
|
|
Third-party management fees
|
4,592
|
|
|
5,046
|
|
|
(454
|
)
|
Operating expense reimbursements
|
20,368
|
|
|
22,582
|
|
|
(2,214
|
)
|
Other income
|
1,752
|
|
|
822
|
|
|
930
|
|
Total revenues
|
$
|
129,994
|
|
|
$
|
120,545
|
|
|
$
|
9,449
|
|
Equity in net loss of unconsolidated equity investments
|
$
|
(94
|
)
|
|
$
|
(2,755
|
)
|
|
$
|
2,661
|
|
The
increase
of
$11,187
in rental revenue is due to the increase in our wholly-owned property portfolio of
318
properties as of
March 31, 2017
compared to
276
properties as of
March 31, 2016
.
The
decrease
of
$454
in third-party management fees is primarily attributable to the $1,510 decrease in asset management, property management, and accounting fees earned from our contract with KBS primarily due to property sales from the portfolio subsequent to
March 31, 2016
, which is partially offset by an increase of $443 in incentive fees earned from KBS as well as an increase of $591 in revenue from our European management platform during the three months ended
March 31, 2017
compared to the
three months ended
March 31, 2016
.
The
decrease
of
$2,214
in operating expense reimbursements is due to decreases in utility-related expenses, real estate taxes, and miscellaneous operating expenses as well as the related expense reimbursements during the three months ended
March 31, 2017
compared to the three months ended
March 31, 2016
.
For the three months ended
March 31, 2017
, other income is primarily comprised of investment income of $633 and property related income of $1,127. For the three months ended
March 31, 2016
, other income is primarily comprised of investment income of $381, property related income of $265, and realized foreign currency exchange gain of $105.
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
Property operating expenses
|
$
|
23,186
|
|
|
$
|
24,169
|
|
|
$
|
(983
|
)
|
Property management expenses
|
3,084
|
|
|
4,521
|
|
|
(1,437
|
)
|
Depreciation and amortization
|
62,217
|
|
|
58,248
|
|
|
3,969
|
|
General and administrative expenses
|
8,756
|
|
|
7,722
|
|
|
1,034
|
|
Acquisition expenses
|
—
|
|
|
410
|
|
|
(410
|
)
|
Interest expense
|
23,056
|
|
|
21,953
|
|
|
1,103
|
|
Net impairment recognized in earnings
|
4,890
|
|
|
—
|
|
|
4,890
|
|
Loss on extinguishment of debt
|
208
|
|
|
5,757
|
|
|
(5,549
|
)
|
Impairment of real estate investments
|
12,771
|
|
|
—
|
|
|
12,771
|
|
Provision for taxes
|
(196
|
)
|
|
703
|
|
|
(899
|
)
|
Net gain on disposals
|
(17,377
|
)
|
|
—
|
|
|
(17,377
|
)
|
Total expenses
|
$
|
120,595
|
|
|
$
|
123,483
|
|
|
$
|
(2,888
|
)
|
Property operating expenses are comprised of expenses directly attributable to our real estate portfolio. Property operating expenses include property related costs which we are responsible for during the lease term but can be passed through to the tenant as operating expense reimbursement revenue. The
decrease
of
$983
is due to decreases in utility-related expenses, real estate taxes, and miscellaneous operating expenses as well as the related expense reimbursements during the three months ended
March 31, 2017
compared to the three months ended
March 31, 2016
.
Property management expenses are comprised of costs related to our asset and property management business. The
decrease
of
$1,437
in property management expenses is primarily related to the reduction of expenses related to KBS, which is partially offset by the increase in expenses related to our European management platform.
The
increase
of
$3,969
in depreciation and amortization expense is due to our wholly-owned property portfolio of
318
properties as of
March 31, 2017
compared to
276
properties as of
March 31, 2016
.
The
increase
of
$1,034
in general and administrative expense is primarily related to increased legal and professional fees and as well as increased compensation costs, including share-based compensation costs, related to the growth of the Company.
The
decrease
of
$410
in acquisition expenses is attributable to the adoption of ASU 2017-01, Amendments to Business Combinations, in the first quarter of 2017, as a result of which our real estate acquisitions during the period were accounted for as asset acquisitions and thus the related acquisition costs were capitalized into the value of the real estate assets acquired.
The
increase
of
$1,103
in interest expense is primarily due to increased borrowings on our unsecured revolving credit facility and our unsecured senior notes.
During the three months ended
March 31, 2017
, we recorded net impairment recognized in earnings of
$4,890
on our Retained CDO Bonds due to adverse changes in expected cash flows related to the Retained CDO Bonds.
During the
three months ended
March 31, 2017
and 2016, we recorded loss on extinguishment of debt of
$208
and
$5,757
, respectively, related to the unamortized deferred financing costs, premiums and discounts that were immediately
expensed upon termination as well as early termination fees incurred related to mortgages paid off and transferred during the periods.
During the
three months ended
March 31, 2017
, we recognized an impairment on real estate investments of
$12,771
related to two properties that were determined to have non-recoverable declines in value during the period.
The provision for taxes was
$(196)
and
$703
for the
three months ended
March 31, 2017
and
2016
, respectively. The decrease in tax expense is primarily attributable to the decrease in activity in our TRS.
During the
three months ended
March 31, 2017
, we realized net gains on disposal of
$17,377
r
elated to the disposal of seven properties during the period.
Liquidity and Capital Resources
Liquidity is a measurement of our ability to meet cash requirements, including ongoing commitments to fund acquisitions of real estate assets, repay borrowings, pay dividends and other general business needs. In addition to cash on hand, our primary sources of funds for short-term and long-term liquidity requirements, including working capital, distributions, debt service and additional investments, consist of: (i) cash flow from operations; (ii) proceeds from our common equity and debt offerings; (iii) borrowings under our unsecured revolving credit facility and term loans; and (iv) proceeds from sale of real estate. We believe these sources of financing will be sufficient to meet our short-term and long-term liquidity requirements.
Our cash flow from operations primarily consists of rental revenue, expense reimbursements from tenants, and third-party management fees. Our cash flow from operations is our principal source of funds that we use to pay operating expenses, debt service, general and administrative expenses, operating capital expenditures, dividends, and acquisition and merger-related expenses. Our ability to fund our short-term liquidity needs, including debt service and general operations (including employment related benefit expenses), through cash flow from operations can be evaluated through the Condensed Consolidated Statements of Cash Flows included in our Condensed Consolidated Financial Statements.
Our ability to borrow under our 2015 Revolving Credit Facility and term loan facilities is subject to our ongoing compliance with a number of customary financial covenants including our maximum secured and unsecured leverage ratios, minimum fixed charge coverage ratios, consolidated adjusted net worth values, unencumbered asset values, occupancy rates, and portfolio lease terms.
We have several unconsolidated equity investments with partners who we consider to be financially stable. Our unconsolidated equity investments are financed with non-recourse debt or equity. We believe that cash flows from the underlying real estate investments and capital commitments will be sufficient to fund the capital needs of our unconsolidated equity investments.
To maintain our qualification as a REIT under the Internal Revenue Code, we must distribute annually at least 90.0% of our taxable income. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital for operations. As of the date of this filing, we expect that our cash on hand and cash flow from operations will be sufficient to satisfy our anticipated short-term and long-term liquidity needs as well as our recourse liabilities, if any.
Cash Flows
Net cash provided by operating activities increased
$36,496
to
$58,244
for the
three months ended
March 31, 2017
compared to
$21,748
for the same period in
2016
. Operating cash flow was generated primarily by net rental revenue from our real estate investments and management fees.
Net cash used in investing activities for the
three months ended
March 31, 2017
was
$86,691
compared to net cash provided by investing activities of
$255,510
during the same period in
2016
. The decrease in cash flow related to investing activities in 2017 is primarily attributable to fewer sales of real estate, which decreased proceeds received from sales, and the increase in capital expenditures on our owned portfolio of real estate investments.
Net cash provided by financing activities for the
three months ended
March 31, 2017
was
$17,279
as compared to net cash used in financing activities of
$338,162
during the same period in
2016
. The increase in cash flow in 2017 is primarily attributable to payoffs of certain mortgage loans and paydowns made on the unsecured revolving credit facility in 2016 as well as increased draws on the unsecured credit facility and proceeds from sales of common shares in 2017.
Equity Structure
As of
March 31, 2017
and
December 31, 2016
, our authorized capital shares consists of
500,000,000
shares of beneficial interest,
$0.01
par value per share, of which we are authorized to issue up to
490,000,000
common shares of beneficial interest,
$0.01
par value per share, or common shares, and
10,000,000
preferred shares of beneficial interest,
$0.01
par value per share, or preferred shares. As of
March 31, 2017
,
141,522,527
common shares and
3,500,000
preferred shares were issued and outstanding.
In December 2016, our board of trustees approved a 1-for-3 reverse share split of our common shares and outstanding OP Units. The reverse share split was effective after the close of trading on December 30, 2016 and our common shares began trading on a reverse-split-adjusted basis on the NYSE on January 3, 2017.
In April 2017, we completed an underwritten public offering of
10,350,000
common shares, which includes the exercise in full by the underwriters of their option to purchase
1,350,000
additional common shares. The common shares were issued at a public offering price of
$27.60
per share and the net proceeds from the offering were approximately
$274,234
.
Market Capitalization
At
March 31, 2017
, our consolidated market capitalization was
$6,312,237
based on a common share price of
$26.30
per share, the closing price of our common shares on the NYSE on
March 31, 2017
. Market capitalization includes consolidated debt and common and preferred shares.
Dividends
To maintain our qualification as a REIT, we must pay annual dividends to our shareholders of at least 90.0% of our REIT taxable income, determined before taking into consideration the dividends paid deduction and net capital gains. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, which would only be paid out of available cash, we must first meet both our operating requirements and scheduled debt service on our mortgages and loans payable. Dividends per share declared during 2016 and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Common dividends
1
|
|
Preferred dividends
|
March 31, 2016
|
|
$
|
0.330
|
|
|
$
|
0.445
|
|
June 30, 2016
|
|
$
|
0.330
|
|
|
$
|
0.445
|
|
September 30, 2016
|
|
$
|
0.330
|
|
|
$
|
0.445
|
|
December 31, 2016
|
|
$
|
0.375
|
|
|
$
|
0.445
|
|
March 31, 2017
|
|
$
|
0.375
|
|
|
$
|
0.445
|
|
|
|
1.
|
Common dividends declared for a quarter are accrued for during the quarter and then paid to common shareholders of record as of the end of the quarter during the month following the quarter-end.
|
Indebtedness
Secured Debt
Mortgage Loans
Certain real estate assets are subject to mortgage loans. During the
three months ended
March 31, 2017
, we assumed
$3,680
of non-recourse mortgages in connection with
one
real estate acquisition. During the year ended December 31, 2016, we assumed
$244,188
of non-recourse mortgages in connection with
27
real estate acquisitions.
During the
three months ended
March 31, 2017
, we refinanced the debt on
two
properties encumbered by a mortgage loan, subsequently transferred the mortgage on these
two
properties to the buyer of the properties, and, as a result, recorded a net loss on the early extinguishment of debt of
$208
. During the three months ended March 31, 2016, we paid off the debt on
six
properties encumbered by mortgage loans and transferred
one
property encumbered by a mortgage loan, and as a result, we recorded a net loss on the early extinguishment of debt of
$3,827
, including a gain on extinguishment of debt of
$1,930
within discontinued operations. The gains and losses recorded for
extinguishments of debt are related to
unamortized deferred financing costs and mortgage premiums (discounts) that were immediately expensed upon termination as well as early termination fees incurred. Our mortgage loans include a series of financial and other covenants that we have to comply with in order to borrow under them. We were in compliance with the covenants under the mortgage loan facilities as of
March 31, 2017
.
As of
March 31, 2017
, we have
$547,392
total outstanding principal under our mortgage loans, which encumber
59
properties, and have a weighted average remaining term of
3.7
years and a weighted average interest rate of
4.32%
. Weighted averages are based on outstanding principal balances as of
March 31, 2017
and interest rate
reflects the effects of interest rate swaps and amortization of financing costs and fair market value premiums or discounts
. Refer to Note 6 of the accompanying financial statements for additional information on our secured debt obligations.
Unsecured Debt
2015 Credit Facility and Term Loans
In December 2015, we entered into an agreement, or the Credit Agreement, for a new
$1,900,000
credit facility, or the 2015 Credit Facility, consisting of an
$850,000
senior unsecured revolving credit facility, or the 2015 Revolving Credit Facility, and
$1,050,000
term loan facility, or the 2015 Term Loan, with JPMorgan Securities LLC and Merrill Lynch, Pierce, Fenner and Smith Incorporated and terminated Legacy Gramercy's 2014 Credit Facility. The 2015 Revolving Credit Facility consists of a
$750,000
U.S. dollar revolving credit facility and a
$100,000
multicurrency revolving credit facility. The 2015 Revolving Credit Facility matures in January 2020, but may be extended for
two
additional six month periods upon the payment of applicable fees and satisfaction of certain customary conditions. The 2015 Term Loan consists of a
$300,000
term loan facility that matures in January 2019 with
one
12-month extension option, or the 3-Year Term Loan, and a
$750,000
term loan facility that matures in January 2021, or the 5-Year Term Loan.
Outstanding borrowings under the 2015 Revolving Credit Facility incur interest at a floating rate based upon, at our option, either (i) adjusted LIBOR plus an applicable margin ranging from
0.875%
to
1.55%
, depending on our credit ratings, or (ii) the alternate base rate plus an applicable margin ranging from
0.00%
to
0.55%
, depending on our credit ratings. We are also required to pay quarterly in arrears a
0.125%
to
0.30%
facility fee, depending on our credit ratings, on the total commitments under the 2015 Revolving Credit Facility. Outstanding borrowings under the 2015 Term Loan incur interest at a floating rate based upon, at our option, either (i) adjusted LIBOR plus an applicable margin ranging
from
0.90%
to
1.75%
, depending on our credit ratings, or (ii) the alternate base rate plus an applicable margin ranging from
0.00%
to
0.75%
, depending on our credit ratings. The alternate base rate is the greater of (x) the prime rate announced by JPMorgan Chase Bank, N.A., (y)
0.50%
above the Federal Funds Effective Rate, and (z) the adjusted LIBOR for a one-month interest period plus
1.00%
.
In December 2015, we also entered into a new
$175,000
7-year unsecured term loan with Capital One, N.A., or the 7-Year Term Loan, which matures in January 2023. Outstanding borrowings under the 7-Year Term Loan incur interest at a floating rate based upon, at our option, either (i) adjusted LIBOR plus an applicable margin ranging from
1.30%
to
2.10%
, depending on our credit ratings, or (iii) the alternate base rate plus an applicable margin ranging from
0.30%
to
1.10%
, depending on our credit ratings. The alternate base rate is the greatest of (x) the prime rate announced by Capital One, (y)
0.50%
above the Federal Funds Effective Rate, and (z) the adjusted LIBOR for a one-month interest period plus
1.00%
.
Our unsecured borrowing facilities include a series of financial and other covenants that we have to comply with in order to borrow under the facilities. We were in compliance with the covenants under the facilities as of
March 31, 2017
. Refer to the table at the end of the section for specific terms and our outstanding borrowings under the facilities.
Senior Unsecured Notes
During 2016 and 2015, we issued and sold
$400,000
and
$100,000
aggregate principal amount of senior unsecured notes payable, respectively, in private placements, which have maturities ranging from 2022 through 2026 and bear interest semi-annually at rates ranging from
3.89%
to
4.97%
. Refer to the table at the end of the section for specific terms of the outstanding notes.
Exchangeable Senior Notes
On March 18, 2014, we issued
$115,000
of
3.75%
Exchangeable Senior Notes. The Exchangeable Senior Notes are senior unsecured obligations of a subsidiary of the Operating Partnership and are guaranteed by us on a senior unsecured basis. The Exchangeable Senior Notes mature on March 15, 2019, unless redeemed, repurchased or exchanged in accordance with their terms prior to such date and will be exchangeable, under certain circumstances, for cash, for common shares or for a combination of cash and common shares, at the Operating Partnership's election. The Exchangeable Senior Notes will also be exchangeable prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date, at any time beginning on December 15, 2018, and also upon the occurrence of certain events. On or after March 20, 2017, in certain circumstances, the Operating Partnership may redeem all or part of the Exchangeable Senior Notes for cash at a price equal to
100.0%
of the principal amount of the Exchangeable Senior Notes to be redeemed, plus accrued and unpaid interest up to, but excluding, the redemption date.
As of
March 31, 2017
, the Exchangeable Senior Notes have a current exchange rate of
14.0843
units of Merger consideration,
where one unit of Merger consideration represents 3.1898 of our common shares,
or approximately
44.9261
of our common shares for each
$1.0
principal amount of the Exchangeable Senior Notes, representing an exchange price of
$22.26
per common share. The fair value of the Exchangeable Senior Notes was determined at issuance to be
$106,689
. The discount is being amortized to interest expense over the expected life of the Exchangeable Senior Notes. As of March 31, 2017 and December 2016, the Exchangeable Senior Notes were recorded as a liability at carrying value of
$109,488
and
$108,832
, respectively, net of unamortized discount and deferred financing costs of
$5,512
and
$6,168
, respectively. The fair value of the Exchangeable Senior Notes’ embedded exchange option of
$11,726
was recorded in additional paid-in-capital within shareholders’ equity as of March 31, 2017 and December 31, 2016.
The terms of our unsecured sources of financing and their combined aggregate principal maturities as of
March 31, 2017
and December 31, 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated Interest Rate
|
|
Effective Interest Rate
1
|
|
Maturity Date
|
|
Outstanding Balance
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
2015 Revolving Credit Facility - U.S. dollar tranche
|
1.95%
|
|
1.95%
|
|
1/8/2020
|
|
$
|
55,000
|
|
|
$
|
—
|
|
2015 Revolving Credit Facility - Multicurrency tranche
|
1.02%
|
|
1.02%
|
|
1/8/2020
|
|
66,759
|
|
|
65,837
|
|
3-Year Term Loan
|
2.10%
|
|
2.33%
|
|
1/8/2019
|
|
300,000
|
|
|
300,000
|
|
5-Year Term Loan
|
2.10%
|
|
2.70%
|
|
1/8/2021
|
|
750,000
|
|
|
750,000
|
|
7-Year Term Loan
|
2.31%
|
|
3.34%
|
|
1/9/2023
|
|
175,000
|
|
|
175,000
|
|
2015 Senior Unsecured Notes
|
4.97%
|
|
5.07%
|
|
12/17/2024
|
|
150,000
|
|
|
150,000
|
|
2016 Senior Unsecured Notes
|
3.89%
|
|
4.00%
|
|
12/15/2022
|
|
150,000
|
|
|
150,000
|
|
2016 Senior Unsecured Notes
|
4.26%
|
|
4.38%
|
|
12/15/2025
|
|
100,000
|
|
|
100,000
|
|
2016 Senior Unsecured Notes
|
4.32%
|
|
4.43%
|
|
12/15/2026
|
|
100,000
|
|
|
100,000
|
|
Exchangeable Senior Notes
|
3.75%
|
|
6.36%
|
|
3/15/2019
|
|
115,000
|
|
|
115,000
|
|
Total unsecured debt
|
|
1,961,759
|
|
|
1,905,837
|
|
Net deferred financing costs and net debt discount
|
|
(8,988
|
)
|
|
(9,704
|
)
|
Total unsecured debt, net
|
|
$
|
1,952,771
|
|
|
$
|
1,896,133
|
|
|
|
1.
|
Represents the rate at which interest expense is recorded for financial reporting purposes as of March 31, 2017, which reflects the effect of interest rate swaps and amortization of financing costs and fair market value premiums or discounts.
|
Derivatives and Non-Derivative Hedging Instruments
As of
March 31, 2017
, our derivative instruments consist of interest rate swaps, which are cash flow hedges. Changes in the effective portion of the fair value of derivatives designated as hedging instruments are recognized in other comprehensive income (loss) until the hedged item expires or is recognized in earnings. The ineffective portion of a hedging derivative’s change in fair value and the change in value of a non-hedging derivative instrument are immediately recognized in earnings. Derivative accounting may increase or decrease reported net income and shareholders’ equity, depending on future levels of LIBOR interest rates, foreign exchange rates, and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows, provided the contract is carried through to full term.
Borrowings on the multicurrency tranche of our 2015 Revolving Credit Facility, which are designated as non-derivative net investment hedges, are recognized at par value based on the exchange rate in effect on the date of the draw. Subsequent changes in the exchange rate of our non-derivative net investment hedge are recognized as part of the cumulative foreign currency translation adjustment within other comprehensive income (loss). Refer to Note
9
and Note
10
of the accompanying financial statements for additional information on our derivatives and non-derivative hedging instruments, including the fair value measurement of these instruments, as applicable.
The following table summarizes our derivatives and hedging instruments at
March 31, 2017
. The aggregate fair value of our derivatives is presented in our Condensed Consolidated Balance Sheets in d
erivative instruments and the aggregate carrying value of the non-derivative net investment hedges is included in the balance of our 2015 Revolving Credit Facility.
The notional value is an indication of the extent of our involvement in this instrument at that time, but does not represent exposure to credit, interest rate or market risks.
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Benchmark Rate
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Notional Value
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Strike Rate
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Effective Date
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Expiration Date
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Fair Value
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Interest Rate Swap - Waco
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1 mo. USD-LIBOR-BBA
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15,113 USD
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4.55%
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12/19/2013
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12/19/2020
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$
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(356
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)
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Interest Rate Swap - Atrium I
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1 mo. USD-LIBOR-BBA
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19,474 USD
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1.78%
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8/16/2011
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5/31/2018
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(108
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)
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Interest Rate Swap - Easton III
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1 mo. USD-LIBOR-BBA
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5,862 USD
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1.95%
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8/16/2011
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1/31/2019
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(52
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)
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Interest Rate Swap - 3-Year Term Loan
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1 mo. USD-LIBOR-BBA
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100,000 USD
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1.22%
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12/19/2016
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12/17/2018
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371
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Interest Rate Swap - 3-Year Term Loan
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1 mo. USD-LIBOR-BBA
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100,000 USD
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1.23%
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12/19/2016
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12/17/2018
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364
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Interest Rate Swap - 3-Year Term Loan
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1 mo. USD-LIBOR-BBA
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100,000 USD
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1.24%
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12/19/2016
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12/17/2018
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345
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Interest Rate Swap - 5-Year Term Loan
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1 mo. USD-LIBOR-BBA
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750,000 USD
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1.60%
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12/17/2015
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12/17/2020
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5,328
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Interest Rate Swap - 7-Year Term Loan
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1 mo. USD-LIBOR-BBA
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175,000 USD
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1.82%
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12/17/2015
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1/9/2023
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1,601
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Net Investment Hedge in EUR-denominated investments
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USD-EUR exchange rate
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45,000 EUR
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N/A
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9/28/2015
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N/A
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—
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Net Investment Hedge in GBP-denominated investments
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USD-GBP exchange rate
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15,000 GBP
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N/A
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7/15/2016
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N/A
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—
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Total hedging instruments
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$
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7,493
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