UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
FORM 10-K
_______________________________________________
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(mark one)
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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for the fiscal year ended December 31, 2012
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OR
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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for the transition period from ______ to ______
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Commission file number 000-51262
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COLUMBIA PROPERTY TRUST, INC.
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(Exact name of registrant as specified in its charter)
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Maryland
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20-0068852
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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One Glenlake Parkway, Suite 1200
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Atlanta, Georgia 30328
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(Address of principal executive offices) (Zip Code)
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(404) 465-2200
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(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12 (b) of the Act:
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Title of each class
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Name of exchange on which registered
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NONE
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NONE
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Securities registered pursuant to Section 12 (g) of the Act:
Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes
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No
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
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No
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Aggregate market value of the voting stock held by non-affiliates: _________________
While there is no established market for the registrant's shares of common stock, on November 8, 2012, the registrant announced an estimated per-share value of its common stock equal to $7.33 per share, calculated as of September 30, 2012. The registrant is currently offering shares of its common stock to existing stockholders pursuant to its distribution reinvestment plan at a purchase price of $7.00, which is 95.5% of the estimated per-share value. For a full description of the methodologies used to value the registrant's assets and liabilities in connection with the calculation of the estimated per-share value, see Part II, Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Market Information." The number of shares held by non-affiliates as of June 30, 2012 was approximately 547,081,420.
Number of shares outstanding of the registrant's
only class of common stock, as of
January 31, 2013
: 545,627,061 shares
Registrant incorporates by reference portions of the Columbia Property Trust, Inc. Definitive Proxy Statement for the 2013 Annual Meeting of Stockholders (Items 10, 11, 12, 13, and 14 of Part III) to be filed on or about April 30, 2013.
FORM 10-K
COLUMBIA PROPERTY TRUST, INC.
TABLE OF CONTENTS
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Page No.
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Item 1.
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Item 1A.
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Item 1B.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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Item 9.
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Item 9A.
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Item 9B.
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Item 10.
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Item 11.
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Item 12.
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Item 13.
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Item 14.
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Item 15.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-K of Columbia Property Trust, Inc., formerly known as Wells Real Estate Investment Trust II, Inc., and its subsidiaries ("Columbia Property Trust," "we," "our" or "us"), other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in those acts. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "estimate," "believe," "continue," or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the U. S. Securities and Exchange Commission ("SEC"). We do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. See Item 1A herein for a discussion of some of the risks and uncertainties, although not all risks and uncertainties, that could cause actual results to differ materially from those presented in our forward-looking statements.
PART I
General
On February 25, 2013, Wells Real Estate Investment Trust II, Inc. changed its name to Columbia Property Trust, Inc. ("Columbia Property Trust"). Columbia Property Trust is a Maryland corporation that operates in a manner as to qualify as a real estate investment trust ("REIT") for federal income tax purposes and engages in the acquisition and ownership of commercial real estate properties, including properties that have operating histories, are newly constructed, or are under construction. Columbia Property Trust was incorporated in 2003, commenced operations in 2004, and conducts business primarily through Columbia Property Trust Operating Partnership, L.P., formerly known as Wells Operating Partnership II, L.P. ("Columbia Property Trust OP"), a Delaware limited partnership. Columbia Property Trust is the general partner and sole owner of Columbia Property Trust OP and possesses full legal control and authority over its operations. Columbia Property Trust OP acquires, develops, owns, leases, and operates real properties directly, through wholly owned subsidiaries, or through joint ventures. References to Columbia Property Trust, "we," "us," or "our" herein shall include Columbia Property Trust and all subsidiaries of Columbia Property Trust, direct and indirect, and consolidated joint ventures.
From our inception through February 27, 2013, we have operated as an externally advised REIT pursuant to an advisory agreement under which a subsidiary of Wells Real Estate Funds, Inc. ("WREF"), including most recently Wells Real Estate Advisory Services II, LLC ("WREAS II"), and its affiliates performed certain key functions on our behalf, including, among others, managing our day-to-day operations, investing our capital proceeds, and arranging our financings. Also during this period of time, a subsidiary of WREF, including most recently Wells Real Estate Services, LLC ("WRES"), provided the personnel necessary to carry out property management services on behalf of Wells Management Company, Inc. ("Wells Management") and its affiliates pursuant to the property management agreement described in Note 10,
Related-Party Transactions and Agreements,
of the accompanying consolidated financial statements.
On February 28, 2013, we terminated the above-mentioned advisory agreement and property management agreement, and acquired WREAS II and WRES pursuant to assignment options previously entered into with WREF and certain of its affiliates. As a result, the services described above will be performed by our employees going forward (other than the services to be provided by WREF under the Investor Services Agreement). Contemporaneous with this transaction, we entered into a consulting agreement and an investor services agreement with WREF for the remainder of 2013. While no payments were made to exercise our assignment options to acquire WREAS II and WRES, we will pay fees to WREF for consulting and investor services for the remainder of 2013. For additional details about this transaction and the related agreements, please refer to Note 10,
Related-Party Transactions and Agreements,
of the accompanying consolidated financial statements.
We typically invest in high-quality, income-generating office properties leased to creditworthy companies and governmental entities. As of
December 31, 2012
, we owned interests in
61
office properties and one hotel, which include
83
operational buildings, comprising approximately
21.0 million
square feet of commercial space located in
19
states; the District of Columbia; and Moscow, Russia. Of these office properties,
60
are wholly owned and
one
is owned through a consolidated subsidiary. As of
December 31, 2012
, the office properties were approximately
92.9%
leased.
Our stock is not listed on a public securities exchange. However, our charter requires that in the event our stock is not listed on a national securities exchange by October 2015, we must either seek stockholder approval to extend or amend this listing deadline or stockholder approval to begin liquidating investments and distributing the resulting proceeds to our stockholders. If we seek stockholder approval to extend or amend this listing date and do not obtain it, we will then be required to seek stockholder approval to liquidate. In this circumstance, if we seek and do not obtain approval to liquidate, we will not be required to list or liquidate and could continue to operate indefinitely as an unlisted company.
Real Estate Investment Objectives
Our primary investment objectives are to support cash distributions to our investors; to preserve, protect, and return our investors' capital contributions; and to seek long-term capital appreciation from our investments.
Our primary investment focus is high-quality commercial office properties in primary markets in the U.S. We believe that the major U.S. office markets provide a greater propensity for producing increasing net income and property values over time. Within these markets our goal is to invest in central business districts and urban infill areas, as well as premier suburban submarkets. We target premier assets that we believe are competitive within the top tier of their markets. Our asset selection criteria include the property's location attributes, physical quality, tenant/lease characteristics, and competitive positioning. Further, we carefully evaluate the creditworthiness of tenants of buildings being considered for acquisition or at the time of signing a new lease at an existing building.
Our investment philosophy emphasizes diversification of our portfolio for geographic locations, tenants, industry group of tenants, and timing of lease expirations. Prior to making new acquisitions or selling properties in the portfolio, we perform an assessment to ensure that our portfolio is diversified with regard to these criteria to minimize the impact on our portfolio of significant factors affecting a single geographic area, type of property, tenant, or industry group of tenants. Additionally, we analyze annual lease expirations in an attempt to minimize the impact on the cash flows from operations of the portfolio as a whole for properties that may be vacant until re-leased.
Employees
From inception through February 27, 2013, employees of WREAS II, WRES, and their affiliates, including Wells Capital, Inc. ("Wells Capital"), and Wells Management and their subsidiaries, performed substantially all of the services related to our asset management, accounting, investor relations, and other administrative activities that were required under our advisory agreements with WREAS II and its affiliates. As explained in the "General"
section above, as of February 28, 2013, these services will be performed directly by employees of Columbia Property Trust (other than the services to be provided by WREF under the Investor Services Agreement), and as of February 28, 2013, we have 96 employees.
Insurance
We believe that our properties are adequately insured.
Competition
Leasing real estate is highly competitive in the current market; as a result, we will experience competition for high-quality tenants from owners and managers of competing projects and may experience delays in re-leasing vacant space, or we may have to provide rent concessions, incur charges for tenant improvements, or offer other inducements to enable us to timely lease vacant space, all of which may have an adverse impact on our results of operations. In addition, we are in competition with other potential buyers for the same properties, which may result in an increase in the amount we must pay to purchase a property or may require us to locate another property that meets our investment criteria. Further, at the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchasers.
Concentration of Credit Risk
We are dependent upon the ability of our current tenants to pay their contractual rent amounts as they become due. The inability of a tenant to pay future rental amounts would have a negative impact on our results of operations. We are not aware of any reason why our current tenants will not be able to pay their contractual rental amounts as they become due in all material respects. Situations preventing our tenants from paying contractual rents could result in a material adverse impact on our results of operations.
Website Address
Access to copies of each of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and other documents filed with, or furnished to, the SEC, including amendments to such filings, may be obtained free of charge from the following website,
http://www.columbiapropertytrust.com
, or through a link to the
http://www.sec.gov
website. These filings are available promptly after we file them with, or furnish them to, the SEC.
Below are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to our business, operating results, prospects, and financial condition. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.
Risks Related to Current Economic Conditions
If we are unable to find suitable investments or pay too much for properties, we may not be able to achieve our investment objectives, and the returns on our investments will be lower than they otherwise would be.
We are competing for real estate investments with other REITs; real estate limited partnerships, pension funds and their advisors; bank and insurance company investment accounts; individuals; and other entities. Over the past few years, relatively few high-quality assets have traded hands in the commercial real estate marketplace. As a result, over this period of time, many real estate investors have built up their cash positions and are eager to invest in quality real estate assets. A significant number of entities and resources competing for high-quality office properties support relatively high acquisition prices for such properties, which could
put pressure on our profitability and our ability to pay distributions to stockholders. We cannot be sure that we will be successful in obtaining suitable investments on financially attractive terms or that, if we make investments, our objectives will be achieved.
Current economic conditions may cause the creditworthiness of our tenants to deteriorate and occupancy and market rental rates to decline.
During
2012
,
2011
, and
2010
, economic conditions adversely affected the financial condition and liquidity of many businesses, as well as the demand for office space generally. Should such economic conditions continue for a prolonged period of time, our tenants' ability to honor their contractual obligations may suffer. Further, it may become increasingly difficult to maintain our occupancy rate and achieve future rental rates comparable to the rental rates of our currently in-place leases as we seek to re-lease space and/or to renew existing leases.
Our office properties were approximately
92.9%
leased at
December 31, 2012
, and provisions for uncollectible tenant receivables, net of recoveries, were less than 0.1% of total revenues for the year then ended. As a percentage of
2012
annualized lease revenue, approximately
5%
of leases expire in
2013
,
3%
of leases expire in
2014
, and
7%
of leases expire in
2015
(see Item 2). No assurances can be given that current economic conditions will not have a material adverse effect on our ability to re-lease space at favorable rates or on our ability to maintain our current occupancy rate and our low provisions for uncollectible tenant receivables.
The current offering price of shares under our distribution reinvestment plan ("DRP") may exceed the price at which we will offer shares under our DRP in the future.
On November 8, 2012, we announced an estimated per-share value of our common stock equal to
$7.33
per share, calculated as of
September 30, 2012
, and we are currently offering shares under our DRP at 95.5% of this estimated per-share value, or
$7.00
. Prior to this valuation, we offered shares in our DRP at 95.5% of the previous estimated per-share value (or, $7.13). We intend to update the estimated per-share value on an annual basis. After reporting an updated per-share estimated value, the purchase price of the shares of common stock under our DRP will be equal to 95.5% of the per-share estimated value. If real estate market fundamentals continue to deteriorate, the current offering price under our DRP may exceed the price at which we will offer shares after our annual update of our estimated per-share value.
General Risks Related to Investments in Real Estate
Changes in general economic conditions and regulatory matters germane to the real estate industry may cause our operating results to suffer and the value of our real estate properties to decline.
Our operating results will be subject to risks generally incident to the ownership of real estate, including:
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changes in general or local economic conditions;
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changes in supply of or demand for similar or competing properties in an area;
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changes in interest rates and availability of permanent mortgage funds, which may render the sale of a property difficult or unattractive;
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changes in tax, real estate, environmental, and zoning laws; and
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periods of high interest rates and tight money supply.
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These and other reasons may prevent us from being profitable or from realizing growth or maintaining the value of our real estate properties.
Properties that have significant vacancies could be difficult to sell, which could diminish our return on those properties.
Our properties' market values depend principally upon the value of the properties' leases. A property may incur vacancies either by the default of tenants under their leases or the expiration of tenant leases. If vacancies occur and continue for a prolonged period of time, it may become difficult to locate suitable buyers, and property resale values may suffer, which could result in lower returns for our stockholders.
We depend on tenants for our revenue, and lease defaults or terminations could reduce our net income and limit our ability to make distributions to our stockholders.
The success of our investments materially depends on the financial stability of our tenants. A default or termination by a significant tenant on its lease payments to us would cause us to lose the revenue associated with such lease and require us to find an alternative source of revenue to meet mortgage payments and prevent a foreclosure if the property is subject to a mortgage. In the event of a
tenant default or bankruptcy, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting our property. If a tenant defaults on or terminates a significant lease, we may be unable to lease the property for the rent previously received or sell the property without incurring a loss. These events could cause us to reduce the amount of distributions to stockholders.
Our inability to sell a property when we plan to do so could limit our ability to pay cash distributions to our stockholders.
General economic conditions, availability of financing, interest rates, and other factors, including supply and demand, all of which are beyond our control, affect the real estate market. We may be unable to sell a property for the price, on the terms, or within the time frame that we want. That inability could reduce our cash flow and cause our results of operations to suffer, limiting our ability to make distributions to our stockholders.
Uninsured losses relating to real property or excessively expensive premiums for insurance coverage could reduce our net income.
There are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution, or environmental matters, that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases have begun to insist that commercial property owners purchase coverage against terrorism as a condition of providing mortgage loans. Such insurance policies may not be available at a reasonable cost, if at all, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We may not have adequate coverage for such losses. If any of our properties incur a casualty loss that is not fully insured, the value of that asset will be reduced by such uninsured loss. In addition, other than any working capital reserves or other reserves that we may establish, or our existing line of credit, we do not have sources of funding specifically designated for funding repairs or reconstruction of any uninsured damaged property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in lower distributions to stockholders.
Our operating results may suffer because of potential development and construction delays and resultant increased costs and risks.
We may acquire and develop properties, including unimproved real properties, upon which we will construct improvements. We will be subject to uncertainties associated with rezoning for development, environmental concerns of governmental entities and/or community groups; and our builders' ability to build in conformity with plans, specifications, budgeted costs, and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder's performance may also be affected or delayed by conditions beyond the builder's control. Delays in completing construction could also give tenants the right to terminate preconstruction leases. We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. These and other factors can result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a purchase price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and our return on our investment could suffer.
Costs of complying with governmental laws and regulations may reduce our net income and the cash available for distributions to our stockholders.
All real property and the operations conducted on real property are subject to federal, state, and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liability on tenants, owners, or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may hinder our ability to sell, rent, or pledge such property as collateral for future borrowings.
Compliance with new laws or regulations, or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances, or regulations may impose material environmental liability. Additionally, our tenants' operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks or activities of unrelated third parties may affect our properties. In addition, there are various local, state, and federal fire, health, life-safety, and similar regulations with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we must pay will reduce our ability to make distributions.
Discovery of previously undetected environmentally hazardous conditions may decrease our revenues and limit our ability to make distributions.
Under various federal, state, and local environmental laws, ordinances, and regulations, a current or previous real property owner or operator may be liable for the cost to remove or remediate hazardous or toxic substances on, under, or in such property. These costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos-containing materials. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could reduce the amounts available for distribution to our stockholders.
If we sell properties and provide financing to purchasers, defaults by the purchasers would decrease our cash flows and limit our ability to make distributions.
In some instances we may sell our properties by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk that the purchaser may default, which could negatively impact our cash distributions to stockholders. Even in the absence of a purchaser default, the distribution of the proceeds of sales to our stockholders, or the reinvestment of proceeds in other assets, will be delayed until the promissory notes or other property we may accept upon a sale are actually paid, sold, refinanced, or otherwise disposed.
Risks Related to an Investment in Us
Our net income, Funds From Operations ("FFO"), and Adjusted Funds From Operations ("AFFO") may decrease in the near- term as a result of our transition to a self-managed REIT.
Our net income, FFO, and AFFO may decrease as a result of becoming a self-managed REIT. While we will no longer bear the costs of the various fees and expense reimbursements previously paid to our external advisor, our expenses will include the compensation and benefits of our officers, employees, and consultants, as well as overhead previously paid by our external advisor or their affiliates. Furthermore, these employees will be providing us services historically provided by our external advisor. There are no assurances that, following our transition to a self-managed platform, we will be able to provide those services at the same level or for the same costs as were previously provided to us by our external advisor, and there may be unforeseen costs, expenses, and difficulties associated with providing those services on a self-advised basis. If the expenses we assume as a result of becoming self-managed are higher than we anticipate, our net income, FFO, and AFFO may be lower as a result of the transition to self-management than it otherwise would have been.
We may be exposed to risks to which we have not historically been exposed.
Our transition to a self-managed platform will expose us to risks to which we have not historically been exposed. Excluding the effect of the eliminated asset management fees, our direct overhead, on a consolidated basis, will increase as a result of becoming self-advised. Effective February 28, 2013, we directly employed persons who were previously associated with the advisor or its affiliates. As their employer, we are subject to those potential liabilities that are commonly faced by employers, such as workers' disability and compensation claims, potential labor disputes, and other employee-related liabilities and grievances, and we bear the costs of the establishment and maintenance of any employee compensation plans. Furthermore, these employees will be providing us services historically provided by our external advisor with the support of a consulting services agreement and a transition services agreement. There are no assurances that we will be able to provide the same level of services when we are self-advised as were previously provided to us under our agreements with WREF and its affiliates, and there may be unforeseen costs, expenses, and difficulties associated with providing services previously provided by WREF and its affiliates.
We are dependent on our own executive officers and employees.
Effective February 28, 2013, we rely on a small number of persons, particularly E. Nelson Mills, to carry out our business and investment strategies. Any of our senior management, including Mr. Mills, may cease to provide services to us at any time. In addition, Douglas P. Williams has resigned as our Executive Vice President, Secretary, and Treasurer. Therefore, certain of our previous executive officers will no longer be involved in the day-to-day operations of Columbia Property Trust. The loss of the services of any of our key management personnel or our inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results. As we expand, we will continue to try to attract and retain qualified additional senior management, but may not be able to do so on acceptable terms.
There is no public trading market for our shares; therefore, it will be difficult for our stockholders to sell their shares.
There is no current public market for our shares, and we currently have no immediate plans to list our shares on a national securities exchange. Our charter also prohibits the ownership of more than 9.8% of our stock, unless exempted by our board of directors, which may inhibit large-scale investors from desiring to purchase our shares. Our board of directors has adopted a share redemption program (the "SRP"). We suspended Ordinary Redemptions (i.e., redemptions sought in cases other than in connection with a "qualifying disability," qualification for federal assistance for confinement to a long-term care facility, or within two years of a stockholder's death) from September 2009 to September 2010. Effective December 12, 2011, the price for Ordinary Redemptions was set at $6.25, which is significantly below the most recently stated estimated per-share value. The SRP includes numerous restrictions that limit a stockholder's ability to sell his or her shares to us, and our board of directors may amend, suspend, or terminate our share redemption program upon 30 days' notice. Therefore, it will be difficult for our stockholders to sell their shares promptly or at all. If a stockholder is able to sell his or her shares, it may be at a substantial discount to the most recently published estimated share value. It is also likely that our shares would not be accepted as the primary collateral for a loan.
We may be unable to pay or maintain cash distributions or increase distributions over time, which could reduce the funds we have available for investment and the return to our investors.
There are many factors that can affect the availability and timing of distributions to stockholders. We expect to continue to fund distributions principally from cash flow from operations; however, from time to time, we may elect to fund a portion of our distributions from borrowings or from net equity proceeds raised under our DRP. If we fund distributions from financings or the net equity proceeds pursuant to our DRP, we will have fewer funds available for the investment in, and acquisition of, properties; thus, the overall return to our investors may be reduced. Further, to the extent distributions exceed cash flow from operations, a stockholder's basis in our stock will be reduced and, to the extent distributions exceed a stockholder's basis, the stockholder may recognize capital gain. We can give no assurance that we will be able to pay or maintain cash distributions or increase distributions over time.
Our charter limits the number of shares a person may own, which may discourage a takeover that could otherwise result in a premium price to our stockholders.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, no person may own more than 9.8% of our outstanding common stock. This restriction may have the effect of delaying, deferring, or preventing a change in control, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock.
Our charter permits our board of directors to issue stock with terms that may subordinate the rights of our common stockholders or discourage a third party from acquiring us in a manner that could result in a premium price to our stockholders.
Our board of directors may classify or reclassify any unissued common stock or preferred stock and establish the preferences; conversion; or other rights, voting powers, restrictions, or limitations as to distributions, qualifications, and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of preferred stock with terms and conditions that could have priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Such preferred stock could also have the effect of delaying, deferring, or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price to holders of our common stock.
Our stockholders have limited control over changes in our policies and operations, which increases the uncertainty and risks they face.
Our board of directors determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT qualification, and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Under Maryland General Corporation Law, our stockholders have a right to vote only on limited matters. Our board's broad discretion in setting policies and our stockholders' inability to exert control over those policies increases the uncertainty and risks stockholders face.
Our organizational documents contain provisions which may discourage a takeover of us and could depress the price of our shares of common stock.
Our organizational documents contain provisions which may discourage a takeover of us and could depress the price of our common stock. Our organizational documents contain provisions which may have an anti-takeover effect, inhibit a change of our management, or inhibit in certain circumstances, tender offers for our common stock or proxy contests to change our board. These provisions include: directors may be removed only for cause; the stockholders are restricted from altering the number of directors;
ownership limits and restrictions on transferability that are intended to enable us to continue to qualify as a REIT; broad discretion of our board to take action, without stockholder approval, to issue new classes of securities that may discourage a third party from acquiring us; the ability, through board action or bylaw amendment to opt-in to certain provisions of Maryland law that may impede efforts to effect a change in control of us; advance notice requirements for stockholder proposals and stockholder nominations of directors; and the absence of cumulative voting rights.
Maryland General Corporation Law provides certain protections relating to deterring or defending hostile takeovers, which may discourage others from trying to acquire control of us and may prevent our stockholders from receiving a premium price for their stock in connection with a business combination.
Under Maryland law, "business combinations" between a Maryland corporation and certain interested stockholders or affiliates of interested stockholders are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. Also under Maryland law, control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquirer, an officer of the corporation, or an employee of the corporation who is also a director of the corporation are excluded from the vote on whether to accord voting rights to the control shares. Our board of directors has determined to make the application of these provisions of Maryland law available to us; therefore, it may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. Similarly, provisions of Title 3, Subtitle 8 of the Maryland General Corporation Law, which our board of directors could elect, provide similar anti-takeover protection.
Risks Related to Our Corporate Structure
If we are unable to fund the future capital needs of our properties, cash distributions to our stockholders and the value of our investments could decline.
When tenants do not renew their leases or otherwise vacate their space, we will often need to expend substantial funds for tenant improvements to the vacated space in order to attract replacement tenants. In addition, although we expect that our leases with tenants will require tenants to pay routine property maintenance costs, we will likely be responsible for any major structural repairs, such as repairs to the foundation, exterior walls, and rooftops.
If we need significant capital in the future to improve or maintain our properties or for any other reason, we will have to obtain financing from sources such as cash flow from operations, borrowings, property sales, or future equity offerings. These sources of funding may not be available on attractive terms or at all. If we cannot procure the necessary funding for capital improvements, our investments may generate lower cash flows or decline in value, or both, which would limit our ability to make distributions to our stockholders.
Some of our directors' loyalties to other WREF-sponsored programs could influence their judgment, resulting in actions that are not in our stockholders' best interest or that result in a disproportionate benefit to another WREF-sponsored program at our expense.
Some of our directors are also directors or officers of other WREF-sponsored programs. Specifically, three of our directors (including one of our independent directors) are also directors of other WREF-sponsored real estate programs. The loyalties of our directors serving on another board may influence the judgment of our board when considering issues for us that also may affect other WREF-sponsored programs, such as the following:
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We could enter into transactions with other WREF-sponsored programs, such as property sales or acquisitions, joint ventures, or financing arrangements. Decisions of the board or the Conflicts Committee regarding the terms of those transactions may be influenced by the board's or committee's loyalties to other WREF-sponsored programs.
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A decision of the board or the Conflicts Committee regarding the timing of a debt or equity offering could be influenced by concerns that the offering would compete with an offering of other WREF-sponsored programs.
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A decision of the board or the Conflicts Committee regarding the timing of property sales could be influenced by concerns that the sales would compete with those of other WREF-sponsored programs.
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Federal Income Tax Risks
Failure to qualify as a REIT would reduce our net income and cash available for distributions.
Our qualification as a REIT depends upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets, and other tests imposed by the Internal Revenue Code
(the "Code"). If we fail to qualify as a REIT for any taxable year, we will be subject to federal and state income tax on our taxable income at corporate rates and/or penalties. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends-paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.
Recharacterization of sale-leaseback transactions may cause us to lose our REIT status, which would reduce the return to our stockholders.
We may purchase properties and lease them back to the sellers of such properties. While we will use our best efforts to structure any such sale-leaseback transaction such that the lease will be characterized as a "true lease," thereby allowing us to be treated as the owner of the property for federal income tax purposes, we can give no assurance that the Internal Revenue Service will not challenge such characterization. In the event that any such sale-leaseback transaction is challenged and recharacterized as a financing transaction or loan for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction was so recharacterized, we might fail to satisfy the REIT qualification asset tests or income tests and, consequently, lose our REIT status. Alternatively, the amount of our REIT taxable income could be recalculated, which might also cause us to fail to meet the distribution requirement for a taxable year.
Stockholders may have current tax liability on distributions they elect to reinvest in our common stock.
Participants in our DRP will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. In addition, participants will be treated for tax purposes as having received an additional distribution to the extent the shares are purchased at a discount to fair market value, if any. As a result, and except with respect to tax-exempt entities, participants in our DRP may have to use funds from other sources to pay the tax liability on the value of the shares of common stock they receive.
Even if we qualify as a REIT for federal income tax purposes, we may be subject to other tax liabilities that reduce our cash flow and our ability to make distributions to our stockholders.
Even if we remain qualified as a REIT for federal income tax purposes, we may be subject to some federal, state, and local taxes on our income or property. For example:
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In order to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income to our stockholders (which is determined without regard to the dividends-paid deduction or net capital gain). To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal and state corporate income tax on the undistributed income.
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We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gains net income, and 100% of our undistributed income from prior years.
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If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other nonqualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.
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If we sell a property, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% "prohibited transaction" tax.
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We may perform additional, noncustomary services for tenants of our buildings through our taxable REIT subsidiary, including real estate or non-real-estate-related services; however, any earnings related to such services are subject to federal and state income taxes.
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To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions to make distributions to our stockholders, which could increase our operating costs and decrease the value of an investment in us.
To qualify as a REIT, we must distribute to our stockholders each year 90% of our REIT taxable income (which is determined without regard to the dividends-paid deduction or net capital gains). At times, we may not have sufficient funds to satisfy these distribution requirements and may need to borrow funds to maintain our REIT status and avoid the payment of income and excise taxes. These borrowing needs could result from (i) differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes; (ii) the effect of nondeductible capital expenditures; (iii) the creation of reserves; or (iv) required
debt or amortization payments. We may need to borrow funds at times when market conditions are unfavorable. Such borrowings could increase our costs and reduce the value of our common stock.
To maintain our REIT status, we may be forced to forego otherwise attractive opportunities, which could delay or hinder our ability to meet our investment objectives and lower the return to our stockholders.
To qualify as a REIT, we must satisfy tests on an ongoing basis concerning, among other things, the sources of our income, the nature of our assets, and the amounts we distribute to our stockholders. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
Because of the ownership structure of our hotel property, we face potential adverse effects from changes to the applicable tax laws.
We own one hotel property. However, under the Code, REITs are not allowed to operate hotels directly or indirectly. Accordingly, we lease our hotel property to our taxable REIT subsidiary, or TRS. As lessor, we are entitled to a percentage of the gross receipts from the operation of the hotel property. Marriott Hotel Services, Inc. manages the hotel under the Marriott
®
name pursuant to a management contract with the TRS as lessee. While the TRS structure allows the economic benefits of ownership to flow to us, the TRS is subject to tax on its income from the operations of the hotel at the federal and state levels. In addition, the TRS is subject to detailed tax regulations that affect how it may be capitalized and operated. If the tax laws applicable to our TRS are changed, we may be forced to modify the structure for owning our hotel property or selling our hotel property, which may adversely affect our cash flows. In addition, the Internal Revenue Service, the United States Treasury Department, and Congress frequently review federal income tax legislation, and we cannot predict whether, when, or to what extent new federal tax laws, regulations, interpretations, or rulings will be adopted. Any of such actions may prospectively or retroactively modify the tax treatment of the TRS and, therefore, may adversely affect our after-tax returns from our hotel property.
Foreign currency gains may threaten our REIT status, and foreign currency losses may reduce the income received from our foreign investments.
Foreign currency gains that we derive from certain of our investments will be treated as qualifying income for purposes of the REIT income tests if such gains are derived with respect to underlying income that itself qualifies for purposes of the REIT income tests, such as interest on loans that are secured by mortgages on real property. Other foreign currency gains, however, will be treated as income that does not qualify under the 95% or 75% gross income tests, unless certain technical requirements are met. No assurance can be given that these technical requirements will be met in the case of any foreign currency gains that we recognize directly or through pass-through subsidiaries, or that those technical requirements will not adversely affect our ability to satisfy the REIT qualification requirements. Although we may hedge our foreign currency risk subject to the REIT income qualification tests, we may not be able to do so successfully and may incur losses on these investments as a result of exchange rate fluctuations.
Foreign taxes we incur will not be creditable to or otherwise pass through to our stockholders.
Taxes that we pay in foreign jurisdictions may not be passed through to, or be used by our stockholders as a foreign tax credit or otherwise.
Legislative or regulatory action could adversely affect investors
.
In recent years, numerous legislative, judicial, and administrative changes have been made in the provisions of federal and state income tax laws applicable to investments similar to an investment in shares of Columbia Property Trust. Additional changes to tax laws are likely to continue to occur in the future, and we cannot assure you that any such changes will not adversely affect the taxation of our stockholders. Any such changes could have an adverse effect on an investment in shares or on the market value or the resale potential of our properties. You are urged to consult with your own tax advisor with respect to the impact of recent legislation on your ownership of shares and the status of legislative, regulatory, or administrative developments and proposals, and their potential effect on ownership of shares.
Risks Associated with Debt Financing
We have incurred and are likely to continue to incur mortgage and other indebtedness, which may increase our business risks.
As of
February 15, 2013
, our total indebtedness was approximately $1.6 billion, which includes a $450.0 million term loan, $248.7 million of bonds, and $909.4 million of mortgage loans, all with fixed interest rates, or with interest rates that are effectively fixed when considered in connection with an interest rate swap agreement; and $40.0 million outstanding on our variable-rate line of credit. We are likely to incur additional indebtedness to acquire properties, to fund property improvements and other capital expenditures, to redeem shares under our share redemption program, to pay our distributions, and for other purposes.
Significant borrowings by us increase the risks of an investment in us. If there is a shortfall between the cash flow from properties and the cash flow needed to service our indebtedness, then the amount available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt on behalf of the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity.
If any mortgages or other indebtedness contain cross-collateralization or cross-default provisions, a default on a single loan could affect multiple properties. Our unsecured credit facility with a syndicate of lenders led by JPMorgan Chase Bank, N.A. ("JPMorgan Chase Bank"), as administrative agent (the "JPMorgan Chase Credit Facility") includes a cross-default provision that provides that a payment default under any recourse obligation of $10 million or more by us, Columbia Property Trust OP, or any of our subsidiaries, constitutes a default under the line of credit. If any of our properties are foreclosed on due to a default, our ability to pay cash distributions to our stockholders will be limited.
High mortgage interest rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our net income, and the amount of cash distributions we can make.
If mortgage debt is unavailable at reasonable interest rates, we may not be able to finance the purchase of properties. If we place mortgage debt on properties, we run the risk of being unable to refinance the properties when the loans become due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance the properties, our income could be reduced. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital by issuing more stock or by borrowing more money.
Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.
When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage, or replace our advisor, WREAS II. These or other limitations may limit our flexibility and our ability to achieve our operating plans.
Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.
We expect to incur additional indebtedness in the future, which may include mortgages, unsecured bonds, term loans, or borrowings under a credit facility. Increases in interest rates will increase interest costs on our variable-interest debt instruments, which would reduce our cash flows and our ability to pay distributions. In addition, if we need to repay existing debt during periods of higher interest rates, we might sell one or more of our investments in order to repay the debt, which sale at that time might not permit realization of the maximum return on such investments. For additional information, please refer to Item 7A.,
Quantitative and Qualitative Disclosures About Market Risk,
for additional information regarding interest rate risk.
We have broad authority to incur debt, and high debt levels could hinder our ability to make distributions and could decrease the value of an investment in us.
Our policies do not limit the amount of debt we may incur. High debt levels would cause us to incur higher interest charges, would result in higher debt service payments, and could be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of an investment in us.
International Business Risks
We are subject to additional risks from our international investments
.
We purchased the Dvintsev Business Center – Tower B, located in Moscow, Russia, during 2009. We may also purchase additional properties located outside the United States. These investments may be affected by factors particular to the laws and business practices of the jurisdictions in which the properties are located. These laws and business practices may expose us to risks that are different from and in addition to those commonly found in the United States. Foreign investments include the following risks:
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the burden of complying with a wide variety of foreign laws, including:
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changing governmental rules and policies, including changes in land use and zoning laws, more stringent environmental laws, or changes in such laws; and
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existing or new laws relating to the foreign ownership of real property or mortgages and laws restricting the ability of foreign persons or companies to remove profits earned from activities within the country to the person's or company's country of origin;
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the potential for expropriation;
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possible currency transfer restrictions;
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imposition of adverse or confiscatory taxes;
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changes in real estate and other tax rates, and changes in other operating expenses in particular countries;
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possible challenges to the anticipated tax treatment of the structures that allow us to acquire and hold investments;
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adverse market conditions caused by terrorism, civil unrest, and changes in national or local governmental or economic conditions;
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the willingness of domestic or foreign lenders to make mortgage loans in certain countries and changes in the availability, cost, and terms of mortgage funds resulting from varying national economic policies;
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general political and economic instability in certain regions;
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the potential difficulty of enforcing obligations in other countries;
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our willingness, or inability as a result of the United States Foreign Corrupt Practices Act, to comply with local business customs in certain regions; and
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our advisor's limited experience and expertise in foreign countries relative to its experience and expertise in the United States.
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Investments in properties outside the United States may subject us to foreign currency risks, which may adversely affect distributions.
Investments outside the United States may be subject to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar. As a result, changes in exchange rates of any such foreign currency to U.S. dollars may affect our revenues, operating margins, and distributions and may also affect the book value of our assets and the amount of stockholders' equity. Our ability to hedge such currency risk may be limited or cost-prohibitive in certain countries.
Certain foreign currency gains may threaten our REIT status, and foreign currency losses may reduce the income received from our foreign investments. Further, bank accounts held in a foreign currency, which are not considered cash or cash equivalents, may threaten our status as a REIT.
Risks Related to Investments by Tax-Exempt Entities and Benefit Plans Subject to the Employee Retirement Income Security Act ("ERISA")
If you fail to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock, you could be subject to criminal and civil penalties.
There are special considerations that apply to employee benefit plans subject to ERISA (such as profit-sharing, Section 401(k), or pension plans) and other retirement plans or accounts subject to Section 4975 of the Code (such as an individual retirement account, or "IRA") that are investing in our shares. If you are investing the assets of such a plan or account in our common stock, you should satisfy yourself that:
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your investment is consistent with your fiduciary and other obligations under ERISA and the Code;
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your investment is made in accordance with the documents and instruments governing your plan or IRA, including your plan's or account's investment policy;
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your investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Code;
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your investment in our shares, for which no trading market may exist, is consistent with the liquidity needs of the plan or IRA;
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your investment will not produce an unacceptable amount of "unrelated business taxable income" for the plan or IRA;
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you will be able to comply with the requirements under ERISA and the Code to value the assets of the plan or IRA annually; and
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your investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.
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Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Code may result in the imposition of civil and criminal penalties and could subject the fiduciary to claims for damages or for equitable remedies. In addition, if an investment in our shares constitutes a prohibited transaction under ERISA or the Code, the fiduciary or IRA owner who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested. In the case of a prohibited transaction involving an IRA owner, the IRA may be disqualified and all of the assets of the IRA may be deemed distributed and subjected to taxation. ERISA plan fiduciaries and IRA custodians should consult with counsel before making an investment in our common shares.
With respect to the annual valuation requirements described above, we have disclosed an estimated value per share of our common stock of
$7.33
. This estimated per-share value was calculated by aggregating the value of our real estate and other assets, subtracting the fair value of our liabilities, and dividing the total by the number of our common shares outstanding, all as of
September 30, 2012
. Therefore, our estimated share value is the same as our net asset value, as it does not reflect "enterprise value," or include a premium reflective of (i) the large size of our portfolio; (ii) our rights under our advisory agreement and our potential ability to secure the services of a management team on a long-term basis; or (iii) the potential increase in our share value if we were to list our shares on a national securities exchange.
As with any valuation methodology, our methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated per-share value. Accordingly, with respect to our estimated per-share value, we can provide no assurance that (i) a stockholder would be able to realize this estimated value per share upon attempting to resell his or her shares; (ii) we would be able to achieve, for our stockholders, the estimated value per share, upon a listing of our shares of common stock on a national securities exchange, selling our real estate portfolio, or merging with another company; or (iii) the estimated share value, or the methodologies relied upon to estimate the share value, will be found by any regulatory authority to comply with Financial Industry Regulatory Authority ("FINRA"), ERISA, or any other regulatory requirements. Furthermore, the estimated value of our shares was calculated as of a particular point in time. The value of our shares will fluctuate over time in response to, among other things, changes in real estate market fundamentals, capital markets activities, and attributes specific to the properties and leases within our portfolio (for additional information, see Part II., Item 5,
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
).
If you invest in our shares through an IRA or other retirement plan, you may be limited in your ability to withdraw required minimum distributions.
If you establish an IRA or other retirement plan through which you invest in our shares, federal law may require you to withdraw required minimum distributions ("RMDs") from such plan in the future. Any share redemptions requested to satisfy these RMD requirements will be considered requests for "ordinary redemptions," as defined in our share redemption program. Our share redemption program limits the amount of ordinary redemptions that can be made in a given year. As a result, you may not be able to redeem your shares at a time in which you need liquidity to satisfy the RMD requirements under your IRA or other retirement plan. Even if you are able to redeem your shares, such redemptions will be at a price less than the price at which the shares were initially purchased. If you fail to withdraw RMDs from your IRA or other retirement plan, you may be subject to certain tax penalties.
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ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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Not applicable.
Overview
As of
December 31, 2012
, we owned interests in
61
office properties and one hotel located in
19
states, the District of Columbia, and Moscow, Russia. Of these office properties,
60
are wholly owned and
one
is owned through a consolidated subsidiary. As of
December 31, 2012
, the office properties were approximately
92.9%
leased.
Property Statistics
The tables below include statistics for properties that we own directly as well as through our consolidated subsidiary. Annualized Lease Revenue is calculated by multiplying (i) rental payments (defined as base rent plus operating expense reimbursements, if payable by the tenant on a monthly basis under the terms of a lease that have been executed, but excluding (a) rental abatements and (b) rental payments related to executed but not commenced leases for space that was covered by an existing lease), by (ii) 12. In instances in which contractual rents or operating expense reimbursements are collected on an annual, semi-annual, or quarterly basis, such amounts are multiplied by a factor of 1, 2, or 4, respectively, to calculate the annualized figure. For leases that have been executed but not commenced relating to unleased space, Annualized Lease Revenue is calculated by multiplying (i) the monthly base rental payment (excluding abatements) plus any operating expense reimbursements for the initial month of the lease term by (ii) 12.
The following table shows lease expirations of our office properties as of
December 31, 2012
, and during each of the next 10 years and thereafter. This table assumes no exercise of renewal options or termination rights.
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Year of Lease Expiration
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2012 Annualized
Lease Revenue
(in thousands)
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Rentable
Square Feet
(in thousands)
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Percentage of
2012 Annualized
Lease Revenue
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Vacant
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$
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1,458
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|
%
|
|
2013
|
|
27,187
|
|
|
885
|
|
|
5
|
%
|
|
2014
|
|
16,831
|
|
|
560
|
|
|
3
|
%
|
|
2015
|
|
35,284
|
|
|
1,007
|
|
|
7
|
%
|
|
2016
|
|
67,420
|
|
|
1,704
|
|
|
13
|
%
|
|
2017
|
|
103,822
|
|
|
3,815
|
|
|
19
|
%
|
|
2018
|
|
47,379
|
|
|
1,490
|
|
|
9
|
%
|
|
2019
|
|
22,826
|
|
|
1,081
|
|
|
4
|
%
|
|
2020
|
|
57,552
|
|
|
2,559
|
|
|
11
|
%
|
|
2021
|
|
29,804
|
|
|
913
|
|
|
6
|
%
|
|
2022
|
|
36,386
|
|
|
807
|
|
|
7
|
%
|
|
Thereafter
|
|
89,897
|
|
|
4,369
|
|
|
16
|
%
|
|
|
|
$
|
534,388
|
|
|
20,648
|
|
|
100
|
%
|
The following table shows the geographic diversification of our office properties as of
December 31, 2012
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
2012 Annualized
Lease Revenue
(in thousands)
|
|
Rentable
Square Feet
(in thousands)
|
|
Percentage of
2012 Annualized
Lease Revenue
|
|
Atlanta
|
|
$
|
75,353
|
|
|
3,462
|
|
|
15
|
%
|
|
Washington, D.C.
|
|
57,524
|
|
|
857
|
|
|
11
|
%
|
|
Northern New Jersey
|
|
54,249
|
|
|
2,177
|
|
|
10
|
%
|
|
San Francisco
|
|
44,700
|
|
|
959
|
|
|
9
|
%
|
|
Baltimore
|
|
37,613
|
|
|
1,194
|
|
|
7
|
%
|
|
Cleveland
|
|
34,143
|
|
|
1,235
|
|
|
7
|
%
|
|
Houston
|
|
32,992
|
|
|
902
|
|
|
6
|
%
|
|
Chicago
|
|
29,419
|
|
|
1,336
|
|
|
6
|
%
|
|
New York
|
|
28,083
|
|
|
360
|
|
|
5
|
%
|
|
Boston
|
|
23,073
|
|
|
1,199
|
|
|
4
|
%
|
|
Pittsburgh
|
|
14,809
|
|
|
824
|
|
|
3
|
%
|
|
Other
(1)
|
|
92,430
|
|
|
4,685
|
|
|
17
|
%
|
|
|
|
$
|
524,388
|
|
|
19,190
|
|
|
100
|
%
|
|
|
|
|
(1)
|
No more than 2% is attributable to any individual geographic location.
|
The following table shows the tenant industry diversification of our office properties as of
December 31, 2012
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry
|
|
2012 Annualized
Lease Revenue
(in thousands)
|
|
Rentable
Square Feet
(in thousands)
|
|
Percentage of
2012 Annualized
Lease Revenue
|
|
Legal Services
|
|
$
|
77,310
|
|
|
1,436
|
|
|
15
|
%
|
|
Depository Institutions
|
|
72,883
|
|
|
2,393
|
|
|
14
|
%
|
|
Communications
|
|
50,357
|
|
|
2,566
|
|
|
10
|
%
|
|
Industrial Machinery & Equipment
|
|
38,844
|
|
|
1,681
|
|
|
7
|
%
|
|
Electric, Gas & Sanitary Services
|
|
36,980
|
|
|
1,880
|
|
|
7
|
%
|
|
Business Services
|
|
30,753
|
|
|
947
|
|
|
6
|
%
|
|
Security & Commodity Brokers
|
|
26,779
|
|
|
636
|
|
|
5
|
%
|
|
Engineering & Management
|
|
26,527
|
|
|
1,043
|
|
|
5
|
%
|
|
Insurance Carriers
|
|
17,280
|
|
|
815
|
|
|
3
|
%
|
|
Electronic & Other Electric Equipment
|
|
17,271
|
|
|
781
|
|
|
3
|
%
|
|
Transportation Equipment
|
|
13,752
|
|
|
448
|
|
|
3
|
%
|
|
Other
(1)
|
|
115,652
|
|
|
4,564
|
|
|
22
|
%
|
|
|
|
$
|
524,388
|
|
|
19,190
|
|
|
100
|
%
|
|
|
|
|
(1)
|
No more than 2% is attributable to any individual industry.
|
The following table shows the tenant diversification of our office properties as of
December 31, 2012
.
|
|
|
|
|
|
|
|
|
|
|
|
Tenant
|
|
2012 Annualized
Lease Revenue
(in thousands)
|
|
Percentage of
2012 Annualized
Lease Revenue
|
|
AT&T
|
|
$
|
47,629
|
|
|
9
|
%
|
|
Wells Fargo
|
|
29,297
|
|
|
6
|
%
|
|
Jones Day
|
|
27,135
|
|
|
5
|
%
|
|
IBM
|
|
24,954
|
|
|
5
|
%
|
|
Key Bank
|
|
19,110
|
|
|
4
|
%
|
|
PSEG Services
|
|
18,515
|
|
|
4
|
%
|
|
T Rowe Price
|
|
16,651
|
|
|
3
|
%
|
|
Pershing
|
|
16,323
|
|
|
3
|
%
|
|
Westinghouse
|
|
14,809
|
|
|
3
|
%
|
|
Other
(1)
|
|
309,965
|
|
|
58
|
%
|
|
|
|
$
|
524,388
|
|
|
100
|
%
|
|
|
|
|
(1)
|
No more than 2% is attributable to any individual tenant.
|
The following table shows certain information related to significant properties as of
December 31, 2012
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Location
|
|
Rentable Square Feet
(in thousands)
|
|
Total Real Estate, Net
(in thousands)
|
|
% of Total Assets
|
|
2012 Annualized
Lease Revenue
(in thousands)
|
|
Average Annualized Lease Revenue per Square Foot
|
|
Occupancy
|
|
Market Square Buildings
|
|
Washington, DC
|
|
684
|
|
|
$
|
574,009
|
|
|
12.4
|
%
|
|
$
|
47,031
|
|
|
$
|
68.8
|
|
|
92.6
|
%
|
Other Property-Specific Information
Certain of our properties are subject to ground leases and held as collateral for debt. Refer to Schedule III listed in the index of Item 15(a) of this report, which details such properties as of
December 31, 2012
.
|
|
|
|
ITEM 3.
|
LEGAL PROCEEDINGS
|
From time to time, we are party to legal proceedings, which arise in the ordinary course of our business. We are not currently involved in any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by governmental authorities.
|
|
|
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
Not applicable.
PART II
|
|
|
|
ITEM 5.
|
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market Information
As of
January 31, 2013
, we had approximately 545.6 million shares of common stock outstanding held of record by a total of 126,901 stockholders. The number of stockholders is based on the records of DST Systems Inc., who serves as our registrar and transfer agent. There is no established public trading market for our common stock. Under our charter, certain restrictions are imposed on the ownership and transfer of shares.
To assist FINRA members who participated in our public offerings of common stock, we disclose in each annual report distributed to stockholders a per-share estimated value of our common stock, the method by which it was developed, and the date of the data used to develop the estimated value. In addition, our advisor prepares annual statements of estimated share values to assist both fiduciaries of retirement plans subject to the annual reporting requirements of ERISA and custodians of IRAs in the preparation of their reports relating to an investment in our shares. For these purposes, our estimated value of a share of our common stock was
$7.33
per share as of
September 30, 2012
.
Estimated Per-Share Value Valuation Methodology
Summary:
As we did in 2011, we engaged Altus Group U.S., Inc. ("Altus"), a third-party commercial real estate valuation firm, to appraise our assets, both real estate and other assets, to estimate the fair value of our liabilities, and to use those estimates to calculate an estimated fair value of our shares as of
September 30, 2012
. The engagement of Altus was approved by the asset management committee of our board of directors, which committee was composed only of independent directors. Altus's analyses, opinions, and conclusions were developed in conformity with the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute and in conformity with the Uniform Standards of Professional Appraisal Practice. Altus appraised each of our real estate assets individually, and the asset management committee of our board and our then advisor reviewed these analyses and conclusions.
Altus worked with our advisor and the asset management committee of our board of directors to gather information regarding our assets and liabilities. On
October 29, 2012
, Altus delivered a final report to our advisor, who shared the report with the asset management committee of our board of directors. At a subsequent meeting of our board of directors, our advisor presented the report and recommended an estimated per-share value. Our board of directors considered all information provided in light of its own extensive familiarity with our assets and, upon the recommendation of our asset management committee, unanimously agreed upon an estimated value of
$7.33
per share, which is consistent with both the advisor's recommendation and Altus's estimate.
Our estimated per-share value of
$7.33
as of
September 30, 2012
reflects a decline from our previous estimated per-share value of $7.47 as of September 30, 2011, primarily due to changes in the leasing expectations and renewal probabilities for some of the assets in our portfolio. Proactive leasing has been a focal point of our operational strategy in 2012, and has yielded more than 2.4 million square feet of new and extended leases (approximately 10% of our portfolio) during the first nine months of the year. This activity has improved our average remaining lease term from 6.3 years to 6.7 years; however, current economic conditions in certain markets have required us to offer additional tenant incentives and, in some cases, accept space contractions as conditions of the new lease contracts. The associated leasing capital has been, and is expected to continue to be, funded with a combination of cash and debt.
Consistent with the methodology used when we estimated our per-share value as of September 30, 2011, our estimated per-share value as of
September 30, 2012
was calculated by aggregating the value of our real estate and other assets, subtracting the fair value of our liabilities, and dividing the total by the number of our common shares outstanding, all as of
September 30, 2012
. The potential dilutive effect of our common stock equivalents does not impact our estimated per-share value. Our estimated per-share value is the same as our net asset value. It does not reflect "enterprise value," which includes a premium for:
|
|
|
|
•
|
the large size of our portfolio, although it may be true that some buyers are willing to pay more for a large portfolio than they are willing to pay for each property in the portfolio separately;
|
|
|
|
|
•
|
our rights under our advisory agreement as of September 30, 2012, and our potential ability to secure the services of a management team on a long-term basis; or
|
|
|
|
|
•
|
the potential increase in our share value if we were to list our shares on a national securities exchange.
|
Our key objectives are to arrive at an estimated per-share value that is supported by methodologies and assumptions that are appropriate based on our current circumstances and calculated using processes and procedures that may be repeated in future periods. We believe that this approach reflects the conservative investment principles that guided the assembly of our portfolio over the past eight years, and comports with industry-standard valuation methodologies used for nontraded real estate companies. We plan to continue to update our estimated per-share value on an annual basis.
Details:
As of
September 30, 2012
, our estimated per-share value was calculated as follows:
|
|
|
|
|
|
|
|
|
Real estate assets
|
$
|
10.00
|
|
(1)
|
|
Debt
|
(2.68
|
)
|
(2)
|
|
Other
|
0.01
|
|
(3)
|
|
Estimated net asset value per share
|
$
|
7.33
|
|
|
|
Estimated enterprise value premium
|
None assumed
|
|
|
|
Total estimated per-share value
|
$
|
7.33
|
|
|
|
|
|
|
(1)
|
Our real estate assets were appraised using valuation methods that we believe are typically used by investors for properties that are similar to ours, including capitalization of the net property operating income, 10-year discounted cash flow models, and comparison with sales of similar properties. Primary emphasis was placed on the discounted cash flow analysis, with the other approaches used to confirm the reasonableness of the value conclusion. Using this methodology, the appraised value of the real estate assets we owned as of
September 30, 2012
reflects an overall decline of
8.6%
from original purchase price, exclusive of acquisition costs, and post-acquisition capital investments. We believe that the assumptions employed in the valuation are within the ranges used for properties that are similar to ours and held by investors with similar expectations to our investors.
|
The following are the key assumptions (shown on a weighted-average basis) that are used in the discounted cash flow models to estimate the value of our real estate assets:
|
|
|
|
|
|
|
Exit capitalization rate
|
7.11
|
%
|
|
Discount rate/internal rate of return ("IRR")
|
8.02
|
%
|
|
Annual market rent growth rate
|
3.21
|
%
|
|
Annual holding period
|
10.03 years
|
|
While we believe our assumptions are reasonable, a change in these assumptions would impact the calculation of the value of our real estate assets. For example, assuming all other factors remain unchanged, a change in the weighted-average annual discount rate/IRR of 0.25% would yield a change in our total real estate asset value of
1.9%
.
|
|
|
|
(2)
|
The fair value of our debt instruments was estimated using discounted cash flow models, which incorporate assumptions that we believe reflect the terms currently available on similar borrowing arrangements to borrowers with credit profiles similar to ours.
|
|
|
|
|
(3)
|
The fair value of our non-real-estate assets and liabilities is estimated to reflect book value given their typically short-term (less than one year) settlement periods.
|
Limitations and Risks:
As with any valuation methodology, our methodology is based upon a number of estimates and assumptions that may not be accurate or complete (see footnotes in above Details section). Different parties with different assumptions and estimates could derive a different estimated per-share value. Accordingly, with respect to our estimated per-share value, we can provide no assurance that:
|
|
|
|
▪
|
a stockholder would be able to realize this estimated per-share value upon attempting to resell his or her shares;
|
|
|
|
|
▪
|
we would be able to achieve, for our stockholders, the estimated per-share value, upon a listing of our shares of common stock on a national securities exchange, selling our real estate portfolio, or merging with another company; or
|
|
|
|
|
▪
|
the estimated per-share value, or the methodologies relied upon to estimate the per-share value, will be found by any regulatory authority to comply with FINRA, ERISA, or any other regulatory requirements.
|
Furthermore, the estimated value of our shares was calculated as of a particular point in time. The value of our shares will fluctuate over time in response to, among other things, changes in real estate market fundamentals, capital markets activities, and attributes specific to the properties and leases within our portfolio.
Distributions
We intend to make distributions each taxable year (not including a return of capital for federal income tax purposes) equal to at least 90% of our taxable income. One of our primary goals is to pay regular quarterly distributions to our stockholders. The amount of distributions paid and the taxable portion in prior periods are not necessarily indicative of amounts anticipated in future periods.
When evaluating the amount of cash available to fund distributions to stockholders, we consider net cash provided by operating activities (as defined by Generally Accepted Accounting Principles ("GAAP") and presented in the accompanying GAAP-basis consolidated statements of cash flows), adjusted to exclude certain costs that were incurred for the purpose of generating future earnings and appreciation in value over the long term, including acquisition-related costs. Borrowings are used to pay distributions to the extent that distributions exceed current-period and prior-period accumulated operating cash flow.
Quarterly distributions paid to the stockholders during
2012
and
2011
were as follows (in thousands, except per-share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Total
|
|
|
Total Cash Distributed
|
$
|
67,954
|
|
|
$
|
68,030
|
|
|
$
|
68,157
|
|
|
$
|
51,879
|
|
|
$
|
256,020
|
|
|
|
Per-Share Investment Income
|
$
|
0.020
|
|
|
$
|
0.020
|
|
|
$
|
0.020
|
|
|
$
|
0.015
|
|
|
$
|
0.075
|
|
(1)
|
|
Per-Share Return of Capital
|
$
|
0.105
|
|
|
$
|
0.105
|
|
|
$
|
0.105
|
|
|
$
|
0.080
|
|
|
$
|
0.395
|
|
(2)
|
|
Total Per-Share Distribution
|
$
|
0.125
|
|
|
$
|
0.125
|
|
|
$
|
0.125
|
|
|
$
|
0.095
|
|
|
$
|
0.470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Total
|
|
|
Total Cash Distributed
|
$
|
67,485
|
|
|
$
|
67,615
|
|
|
$
|
67,771
|
|
|
$
|
67,849
|
|
|
$
|
270,720
|
|
|
|
Per-Share Investment Income
|
$
|
0.049
|
|
|
$
|
0.049
|
|
|
$
|
0.049
|
|
|
$
|
0.049
|
|
|
$
|
0.196
|
|
(1)
|
|
Per-Share Return of Capital
|
$
|
0.076
|
|
|
$
|
0.076
|
|
|
$
|
0.076
|
|
|
$
|
0.076
|
|
|
$
|
0.304
|
|
(2)
|
|
Total Per-Share Distribution
|
$
|
0.125
|
|
|
$
|
0.125
|
|
|
$
|
0.125
|
|
|
$
|
0.125
|
|
|
$
|
0.500
|
|
|
|
|
|
|
(1)
|
Approximately 16% and 39% of the distributions paid during
2012
and
2011
, respectively, were taxable to the investor as ordinary income.
|
|
|
|
|
(2)
|
Approximately 84% and 61% of the distributions paid during
2012
and
2011
, respectively, were characterized as a tax-deferred return of capital.
|
For the first three quarters of 2012, quarterly stockholder distributions were declared and paid at $0.125 per share, consistent with the rate paid throughout 2011. In the fourth quarter of 2012, our board of directors elected to reduce the quarterly stockholder distribution rate to $0.095 per share. Economic downturns in certain of our geographic markets and in certain industries in which our tenants operate have impacted our recent leasing activities and caused our current and future operating cash flows to experience some deterioration. In 2012, we renewed leases for 9.2% of our portfolio, based on square footage, which resulted in tenant concessions of $49.7 million. Furthermore, in preparing for various liquidity options, our board has decided to adjust our distribution payment policy to reserve additional operating cash flow to fund capital expenditures for our existing portfolio and to provide additional financial flexibility as we begin to shape our portfolio through the strategic sale and redeployment of capital proceeds in furtherance of our investment objectives, which include concentrating our market focu
s. Our board of directors elected to maintain the distribution rate of $0.095 for the first quarter of 2013. Stockholder distributions for the first quarter of 2013 will be paid to common stockholders of record as of March 15, 2013 in March 2013. We are continui
ng to monitor our cash flows and market conditions and to assess their impact on our future earnings and future distribution decisions.
Redemptions of Common Stock
We maintain an SRP that allows stockholders who acquired their shares directly from Columbia Property Trust to redeem their shares, subject to certain conditions and limitations as described in the SRP.
We limit the dollar value and number of shares that may be redeemed under the SRP as follows:
|
|
|
|
•
|
First, we will limit requests for all redemptions (other than those sought within two years of a stockholder's death) on a pro rata basis so that the aggregate of such redemptions during any calendar year will not exceed 5.0% of the weighted-average number of shares outstanding in the prior calendar year. Requests precluded by this test will not be considered in the test below.
|
|
|
|
|
•
|
In addition, if necessary, we will limit all redemption requests, including those sought within two years of a stockholder's death, on a pro rata basis so that the aggregate of such redemptions during any calendar year would not exceed the greater of 100% of the net proceeds from our DRP during the calendar year, or 5.0% of the weighted-average number of shares outstanding in the prior calendar year.
|
Effective
November 8, 2012
, the price paid for shares redeemed under the SRP in cases of death, "qualifying disability," or qualification for federal assistance for confinement to a "long-term care facility" changed from $7.47, our estimated per-share value as of September 30, 2011, to $7.33, our estimated per-share value as of September 30, 2012 (see
Market Information
section above). Effective December 12, 2011, the price paid for Ordinary Redemptions (as defined in the SRP) was set at
$6.25
per share. During
2012
, we received eligible redemption requests for 15.1 million shares, all of which were redeemed. Redemption requests were funded with DRP proceeds.
All of the shares that we redeemed pursuant to our SRP program during the quarter ended
December 31, 2012
are provided below (in thousands, except per-share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total
Number
of Shares
Purchased
(1)
|
|
Average Price
Paid per Share
|
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
(2)
|
|
Approximate Dollar
Value of Shares
Available That
May Yet Be
Redeemed Under
the Program
|
|
October 2012
|
|
1,405
|
|
|
$
|
6.64
|
|
|
1,405
|
|
|
(3)
|
|
November 2012
|
|
1,524
|
|
|
$
|
6.56
|
|
|
1,524
|
|
|
(3)
|
|
December 2012
|
|
1,569
|
|
|
$
|
6.49
|
|
|
1,569
|
|
|
(3)
|
|
|
|
|
(1)
|
All purchases of our equity securities by us in 2012 were made pursuant to our SRP.
|
|
|
|
|
(2)
|
We announced the commencement of the program on December 10, 2003, and amendments to the program on April 22, 2004; March 28, 2006; May 11, 2006; August 10, 2006; August 8, 2007; November 13, 2008; March 31, 2009; August 13, 2009; February 18, 2010; July 21, 2010; September 23, 2010; July 19, 2011; August 12, 2011; December 12, 2011; and February 28, 2013.
|
|
|
|
|
(3)
|
We currently limit the dollar value of shares that may be redeemed under the program as described above.
|
Unregistered Issuance of Securities
During
2012
, we did not issue any securities that were not registered under the Securities Act of 1933.
Securities Authorized for Issuance under Equity Compensation Plans
We have reserved 750,000 shares of common stock for issuance under our Stock Option Plan and 100,000 shares of common stock under the Independent Director Stock Option Plan. Both plans were approved by our stockholders in 2003, before we commenced our initial public offering. The following table provides summary information about securities issuable under our equity compensation plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan category
|
|
Number of securities to be issued upon exercise of outstanding options, warrants, and rights
|
|
Weighted-average exercise price of outstanding options, warrants, and rights
|
|
Number of securities remaining available for future issuance under equity compensation plans
(1)
|
|
Equity compensation plans
approved by security holders
|
|
29,500
|
|
|
$
|
12.00
|
|
|
820,500
|
|
|
Equity compensation plans not
approved by security holders
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
29,500
|
|
|
$
|
12.00
|
|
|
820,500
|
|
|
|
|
|
(1)
|
Includes 70,500 shares reserved for issuance under the Independent Director Stock Option Plan.
|
|
|
|
|
ITEM 6.
|
SELECTED FINANCIAL DATA
|
The following selected financial data for
2012
,
2011
,
2010
,
2009
, and
2008
should be read in conjunction with the accompanying consolidated financial statements and related notes in Item 8 hereof (amounts in thousands, except per-share data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
Total assets
|
|
$
|
5,730,949
|
|
|
$
|
5,776,567
|
|
|
$
|
5,371,685
|
|
|
$
|
5,374,064
|
|
|
$
|
5,474,774
|
|
|
Total stockholders' equity
|
|
$
|
3,163,980
|
|
|
$
|
3,346,655
|
|
|
$
|
3,455,697
|
|
|
$
|
2,718,087
|
|
|
$
|
2,576,783
|
|
|
Outstanding debt
|
|
$
|
1,650,296
|
|
|
$
|
1,469,486
|
|
|
$
|
886,939
|
|
|
$
|
946,936
|
|
|
$
|
1,268,522
|
|
|
Outstanding long-term debt
|
|
$
|
1,621,541
|
|
|
$
|
1,433,295
|
|
|
$
|
838,556
|
|
|
$
|
812,030
|
|
|
$
|
865,938
|
|
|
Obligations under capital leases
|
|
$
|
586,000
|
|
|
$
|
646,000
|
|
|
$
|
646,000
|
|
|
$
|
664,000
|
|
|
$
|
664,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
Total revenues
(1)
|
|
$
|
576,691
|
|
|
$
|
576,389
|
|
|
$
|
510,514
|
|
|
$
|
506,890
|
|
|
$
|
470,665
|
|
|
Net income (loss) attributable to the
common stockholders of Columbia Property Trust, Inc.
|
|
$
|
48,039
|
|
|
$
|
56,642
|
|
|
$
|
23,266
|
|
|
$
|
40,594
|
|
|
$
|
(22,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
252,839
|
|
|
$
|
279,158
|
|
|
$
|
270,106
|
|
|
$
|
248,527
|
|
|
$
|
258,854
|
|
|
Net cash provided by (used in) investing activities
|
|
$
|
31,047
|
|
|
$
|
(666,090
|
)
|
|
$
|
(312,708
|
)
|
|
$
|
(129,678
|
)
|
|
$
|
(915,315
|
)
|
|
Net cash (used in) provided by financing
activities
|
|
$
|
(269,729
|
)
|
|
$
|
387,610
|
|
|
$
|
(20,429
|
)
|
|
$
|
(102,745
|
)
|
|
$
|
694,933
|
|
|
Distributions paid
|
|
$
|
256,020
|
|
|
$
|
270,720
|
|
|
$
|
313,815
|
|
|
$
|
279,325
|
|
|
$
|
242,367
|
|
|
Net proceeds raised through issuance of our
common stock
(2)
|
|
$
|
118,388
|
|
|
$
|
130,289
|
|
|
$
|
483,559
|
|
|
$
|
657,563
|
|
|
$
|
821,609
|
|
|
Net debt (repayments) proceeds
(2)
|
|
$
|
(28,191
|
)
|
|
$
|
375,222
|
|
|
$
|
(74,742
|
)
|
|
$
|
(335,483
|
)
|
|
$
|
310,633
|
|
|
Investments in real estate
(2)
|
|
$
|
233,798
|
|
|
$
|
638,783
|
|
|
$
|
318,948
|
|
|
$
|
124,149
|
|
|
$
|
900,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per weighted-average common share data:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) – basic and diluted
|
|
$
|
0.09
|
|
|
$
|
0.10
|
|
|
$
|
0.04
|
|
|
$
|
0.09
|
|
|
$
|
(0.06
|
)
|
|
Distributions declared
|
|
$
|
0.47
|
|
|
$
|
0.50
|
|
|
$
|
0.57
|
|
(3)
|
$
|
0.60
|
|
|
$
|
0.60
|
|
|
Weighted-average common shares outstanding
|
|
546,688
|
|
|
542,721
|
|
|
524,848
|
|
|
467,922
|
|
|
407,051
|
|
|
|
|
|
(1)
|
Prior-period amounts adjusted to conform with current-period presentation, including classifying revenues generated by properties held for sale and by properties sold, as discontinued operations for all periods presented (see Note 12,
Assets Held for Sale and Discontinued Operations,
to the accompanying consolidating financial statements).
|
|
|
|
|
(2)
|
Activity is presented on a cash basis. Please refer to our accompanying consolidated statements of cash flows.
|
|
|
|
|
(3)
|
Consistent with 2008 and 2009, we paid total stockholder distributions of $0.60 per weighted-average share in 2010. The difference between the distributions declared per weighted-average common share for 2010, as compared with distributions declared for the previous periods presented, relates to a change in the timing of distribution declarations and payments made in the fourth quarter of 2010.
|
|
|
|
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion and analysis should be read in conjunction with the Selected Financial Data in Item 6 above and our accompanying consolidated financial statements and notes thereto. See also
Cautionary Note Regarding Forward-Looking Statements
preceding Part I.
Overview
From 2004 through 2010, we raised approximately $5.8 billion in gross equity proceeds and, along with borrowings, invested those proceeds, net of fees, into commercial real estate consisting of high-quality, income-producing office and industrial properties leased to creditworthy entities located in major metropolitan areas throughout the United States.
Following our initial growth period, we have concentrated on actively managing our assets and pursuing a variety of strategic opportunities focused on enhancing the composition of our portfolio and the total return potential for the REIT. In early 2012, we consummated a series of favorable debt transactions, which have allowed us to improve our secured-to-unsecured debt mix and to lower our total cost of borrowings without disrupting the laddering of our debt maturities or materially altering our aggregate borrowing levels. More recently, we have improved our market concentration through disposition and acquisition activities. In December 2012, we closed on the disposition of nine properties located in less desirable markets for $260.5 million, excluding closing costs (the "Nine Property Sale"). As a result of changing our disposition strategy and shortening our anticipated holding period for these assets, we recorded an impairment loss of $18.5 million on one of the properties in the Nine Property Sale, the 180 E 100 South property located in Salt Lake City, Utah, in the third quarter of 2012. After recording the $18.5 million impairment loss in the third quarter, the Nine Property Sale yielded a net gain of $3.2 million upon closing in the fourth quarter of 2012. Also in December 2012, we purchased the 333 Market Street Building, located in San Francisco, California, for $395.3 million in cash and assumed debt.
In connection with preparing for various liquidity options, we established and have carried out a plan to transition our externally advised management platform to a self-managed structure, which culminated on February 28, 2013, upon terminating the advisory and property management agreements and acquiring WREAS II and WRES, including the employees necessary to perform the requisite corporate and property management functions. Looking ahead, we will continue to prepare for liquidity options in 2013 by, among other things, further refining our portfolio in an effort to enhance the REIT's value potential and, consequently, its attractiveness to future investors. Our goal is to optimize the allocation between our traditional, stabilized core investments, and growth-oriented, core-plus and value-added investments, which have an expectation for meaningful upside potential in net operating income and value over the intermediate term. We will also continue to focus on our market concentration by building on our economic presence in key markets.
General Economic Conditions and Real Estate Market Commentary
Management reviews a number of economic forecasts and market commentaries in order to evaluate general economic conditions and to formulate a view of the current environment's effect on the real estate markets in which we operate.
As measured by the U.S. Real Gross Domestic Product ("real GDP"), the U.S. economy decreased at an annual rate of 0.1% in the fourth quarter of 2012 as compared with an increase of 3.1% in the third quarter of 2012. For the full year of 2012, real GDP increased by 2.2% compared with an increase of 1.8% in 2011. The increase in real GDP in 2012 primarily reflected positive contributions from personal consumption expenditures, nonresidential fixed investment, exports, residential fixed investment, and private inventory investment that were partly offset by negative contributions from federal government spending and from state and local government spending. While management believes the U.S. economy is likely to continue its recovery, we believe the recovery will maintain a moderate pace, with fiscal policy presenting the biggest wildcard in the outlook. Given the ongoing uncertainty surrounding the debt ceiling, the U.S. economy is expected to start 2013 on a slow pace. Real GDP is projected to hover below 2% in the first half of the year, and business growth is expected to remain below potential. But assuming lawmakers can strike a deal on the debt ceiling, or at least provide a framework by mid-year, the U.S. economy is expected to accelerate in the second half, with real GDP averaging closer to a 3% growth rate.
Real estate market fundamentals underlying the U.S. office markets saw modest improvements in the major indicators in 2012. The U.S. office market ended the fourth quarter 2012 with a vacancy rate of 12.5%, an improvement from a 13.0% vacancy rate at the end of 2011. During the fourth quarter of 2012, demand for office space strengthened despite the uncertainty surrounding the fiscal cliff. Net absorption was 20 million square feet in the fourth quarter, which is its highest level since the third quarter of 2007. However, annual absorption is 20% below the long-term trend. Sixty-six of the 80 metro areas tracked (82%) reported positive absorption. Of the total net absorption in 2012, two-thirds was in Class-A space, which is above its 35% share of the office stock, indicating a flight to quality by tenants. Most major markets had year-over-year gains in both net absorption and office jobs, indicating a broad level of recovery. Net absorption is expected to average 10 million square feet to 25 million square feet per
quarter through 2017. The average quoted rental rates of the total office market saw a slight increase from $22.95 per square foot in the fourth quarter of 2011 to $23.12 per square foot in the fourth quarter of 2012. Early 2013 economic indicators are suggesting another year of at least modest growth.
Transaction activity for the fourth quarter of 2012 was the highest seen in any quarter since the end of 2007 with a volume of $29.1 billion. Sellers motivated to close deals prior to the rise in taxes contributed to the increase, but office prices increased over the quarter, and cap rates declined slightly indicating that buyers were perhaps even more motivated. The year-end surge in closings contributed to a 2012 total volume of $77.6 billion, a 19% increase from 2011. A shift in momentum from trophy central business district towers to suburban properties and secondary markets began in 2012. Non-Major Metros saw a volume increase of over 40%, which is more than double the national average. Additionally, cap rates in secondary markets have started to decline with a sharp decrease observed in Q4. Overall, average cap rates decreased from 7.6% in October to 7.4% in November.
Despite elevated unemployment and below-average consumer confidence in the overall economy, office job growth is projected to range between 1% and 3% through 2017. With this projected job growth, future years should see solid office net absorption rates. With the expected decline in office vacancy rates nationally, rent growth is projected to expand to more markets in 2013 and more significantly in 2014. Office market rents are expected to have more upside than other property types, with a cumulative increase of 30% expected by 2017. Due to low vacancy levels and little to no new product, many of the more supply-strained metros should see the strongest growth by 2017. These include New York, Boston, Denver, and Orange County, California. Tech-exposed markets should also have strong rent growth due to above-average demand prospects. Examples of these markets include San Jose and San Francisco.
Impact of Economic Conditions on our Portfolio
We believe that the strength of our portfolio positions us favorably compared with many real estate owners during these challenging market conditions. As of December 31, 2012, our portfolio had a debt-to-real-estate-asset ratio of approximately 28.6%, which is lower than average for our industry. We believe that low leverage, coupled with ample borrowing capacity under our unsecured revolving credit facility ($460.0 million available as of February 15, 2013), provides considerable financial flexibility, which enables us to respond quickly to unanticipated funding needs and opportunities. Further, the majority of our borrowings are in the form of effectively fixed-rate financings, which helps to insulate the portfolio from interest rate risk. Diversifying our portfolio by tenant, tenant industry, geography, and lease expiration date also reduces our exposure to any one market determinant. As of December 31, 2012, our portfolio was
92.9%
leased in two countries,
19
states, plus Washington, D.C., and 26 metropolitan statistical areas. Although we believe that our portfolio is well-positioned to weather current market conditions, we are not immune to the effects of another downturn in the economy, weak real estate fundamentals, or disruption in the credit markets. If these conditions return, they would likely affect the value of our portfolio, our results of operations, and our liquidity.
Liquidity and Capital Resources
Overview
In 2011 and 2012, we actively managed our real estate portfolio with an emphasis on leasing and re-leasing space, and pursuing and closing on strategic acquisitions and selective dispositions to concentrate our market focus. During this period, we also enhanced our capital structure by continuing to raise net equity proceeds through our DRP, improving the composition, maturities and capacity of our debt portfolio while lowering our overall borrowing costs, accessing new sources of capital, and identifying additional sources of future capital.
In determining how and when to allocate cash resources, we initially consider the source of the cash. We reserve a portion of operating cash flows to fund capital expenditures for our existing portfolio. The amount of distributions that we pay to our common stockholders is determined by our board of directors and is dependent upon a number of factors, including the funds available for distribution to common stockholders, our financial condition, our capital expenditure requirements, our expectations of future sources of liquidity, and the annual distribution requirements necessary to maintain our status as a REIT under the Code. When evaluating funds available for stockholder distributions, we consider net cash provided by operating activities, as presented in the accompanying GAAP-basis consolidated statements of cash flows, adjusted to exclude certain costs that were incurred for the purpose of generating future earnings and appreciation in value over the long term, including acquisition fees and expenses. We use DRP proceeds to fund share redemptions (subject to the limitations of our share redemption program), and make residual DRP proceeds available to fund capital improvements for our existing portfolio, additional real estate investments, and other cash needs.
Short-term Liquidity and Capital Resources
During
2012
, we generated net cash flows from operating activities of
$252.8 million
, which consists primarily of receipts from tenants for rent and reimbursements, reduced by payments for operating costs, administrative expenses, and interest expense. During the same period, we paid total distributions to stockholders of
$256.0 million
, which includes
$118.4 million
reinvested
in our common stock pursuant to our DRP. We expect to use the majority of our future net cash flows from operating activities to fund capital expenditures and distributions to stockholders.
In
2012
, we sold 11 properties for net proceeds of
$304.3 million
and used these proceeds to acquire the 333 Market Street Building in San Francisco, California, which entailed a cash payment of $188.8 million and an assumed mortgage note of $206.5 million, and to fund net debt repayments of
$28.2 million
. In 2012, we also raised net equity proceeds of
$118.4 million
from the sale of our common stock under the DRP and used those proceeds to fund share redemptions of
$99.4 million
. Along with cash on hand, residual proceeds from the sale of properties and from the sale of common stock under our DRP were used to fund capital expenditures incurred in connection with leasing and maintaining the properties in our portfolio.
We believe that we have adequate liquidity and capital resources to meet our current obligations as they come due. As of
February 15, 2013
, we had access to the borrowing capacity under the JPMorgan Chase Credit Facility of $460.0 million.
Long-term Liquidity and Capital Resources
Over the long term, we expect that our primary sources of capital will include operating cash flows, proceeds from our DRP, proceeds from secured or unsecured borrowings from third-party lenders, and, if and when deemed appropriate, proceeds from strategic property sales. We expect that our primary uses of capital will continue to include stockholder distributions; redemptions of shares of our common stock under our share redemption program; capital expenditures, such as building improvements, tenant improvements, and leasing costs; repaying or refinancing debt; and selective property acquisitions, either directly or through investments in joint ventures. Over the next five years, we anticipate funding capital expenditures necessary for our properties, including building improvements, tenant improvements, and leasing commissions, of approximately $424.1 million.
Consistent with our financing objectives and operational strategy, we expect to continue to maintain low debt levels (historically less than 40% of the cost of our assets) over the long term. This conservative leverage goal could reduce the amount of current income we can generate for our stockholders, but it also reduces their risk of loss. We believe that preserving investor capital while generating stable current income is in the best interest of our stockholders. As of December 31, 2012, our debt-to-real-estate-asset ratio (calculated on a cost basis) was approximately 28.6%.
For the first three quarters of 2012, quarterly stockholder distributions were declared and paid at $0.125 per share, consistent with the rate paid throughout 2011. In the fourth quarter of 2012, our board of directors elected to reduce the quarterly stockholder distribution rate to $0.095 per share. Economic downturns in certain of our geographic markets and in certain industries in which our tenants operate have impacted our recent leasing activities and caused our current and future operating cash flows to experience some deterioration. In 2012, we renewed leases for 9.2% of our portfolio, based on square footage, which resulted in tenant concessions of $49.7 million. Furthermore, in preparing for various liquidity options, our board has decided to adjust our distribution payment policy to reserve additional operating cash flow to fund capital expenditures for our existing portfolio and to provide additional financial flexibility as we begin to shape our portfolio through the strateg
ic sale and redeployment of capital proceeds in furtherance of our investment objectives, which include concentrating our market focus. Our board of directors elected to maintain the distribution rate of $0.095 for the first quarter of 2013. Stockholder distr
ibutions for the first quarter of 2013 will be paid in March to common stockholders of record as of March 15, 2013. We are continuing to monitor our cash flows and market conditions and to assess their impact on our future earnings and future distribution decisions.
Debt Covenants
Our portfolio debt instruments, the $450 Million Term Loan, the JPMorgan Chase Credit Facility, and the unsecured senior notes, contain certain covenants and restrictions that require us to meet certain financial ratios, including the following key financial covenants and respective covenant levels as of
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
Actual Performance
|
|
|
Covenant Level
|
|
December 31, 2012
|
|
JP Morgan Chase Credit Facility and $450 Million Term Loan
|
|
|
|
|
Total debt to total asset value ratio
|
Less than 50%
|
|
34%
|
|
Secured debt to total asset value ratio
|
Less than 40%
|
|
19%
|
|
Fixed charge coverage ratio
|
Greater than 1.75x
|
|
3.76x
|
|
Unencumbered interest coverage ratio
|
Greater than 2.0x
|
|
5.01x
|
|
Unencumbered asset coverage ratio
|
Greater than 2.0x
|
|
2.73x
|
|
Unsecured Senior Notes due 2018:
|
|
|
|
|
Aggregate debt test
|
Less than 60%
|
|
28%
|
|
Debt service test
|
Greater than 1.5x
|
|
4.19x
|
|
Secured debt test
|
Less than 40%
|
|
15%
|
|
Maintenance of total unencumbered assets
|
Greater than 150%
|
|
563%
|
We were in compliance with all of our debt covenants as of
December 31, 2012
. Currently, we expect to continue to meet the requirements of our debt covenants over the short- and long-term.
Contractual Commitments and Contingencies
As of
December 31, 2012
, our contractual obligations will become payable in the following periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
2013
|
|
2014-2015
|
|
2016-2017
|
|
Thereafter
|
|
Debt obligations
|
|
$
|
1,650,068
|
|
|
$
|
28,755
|
|
|
$
|
353,036
|
|
|
$
|
670,102
|
|
|
$
|
598,175
|
|
|
Interest obligations on debt
(1)
|
|
387,193
|
|
|
74,127
|
|
|
134,069
|
|
|
82,721
|
|
|
96,276
|
|
|
Capital lease obligations
(2)
|
|
586,000
|
|
|
466,000
|
|
|
—
|
|
|
—
|
|
|
120,000
|
|
|
Operating lease obligations
|
|
224,775
|
|
|
2,633
|
|
|
5,266
|
|
|
5,412
|
|
|
211,464
|
|
|
Total
|
|
$
|
2,848,036
|
|
|
$
|
571,515
|
|
|
$
|
492,371
|
|
|
$
|
758,235
|
|
|
$
|
1,025,915
|
|
|
|
|
|
(1)
|
Interest obligations on variable-rate debt are measured at the rate at which they are effectively fixed with interest rate swap agreements (where applicable), a portion of which is reflected as
Loss on interest rate swaps
in our consolidated statements of operations of the accompanying consolidated financial statements. Interest obligations on all other debt are measured at the contractual rate. See Item 7A,
Quantitative and Qualitative Disclosure About Market Risk,
for more information regarding our interest rate swaps.
|
|
|
|
|
(2)
|
Amounts include principal obligations only. We made interest payments on these obligations of $39.8 million during
2012
, all of which was funded with interest income earned on the corresponding investments in development authority bonds.
|
Results of Operations
Overview
As of
December 31, 2012
, we owned controlling interests in
61
office properties, which were approximately
92.9%
leased, and
one
hotel. Our real estate operating results have increased in
2012
, as compared with
2011
, primarily due to a reduction in amortization expense incurred as leases in place at our properties at the time of acquisition reached maturity. In the near-term, we expect future real estate operating income to fluctuate, primarily based on acquisitions, dispositions, and leasing activities for our current portfolio.
Comparison of the year ended
December 31, 2012
versus the year ended
December 31, 2011
Continuing Operations
Rental income remained stable at
$442.3 million
for
2012
, as compared with
$441.9 million
for
2011
. Absent changes to our portfolio or the leases currently in place at our properties, rental income is expected to remain at similar levels in future periods.
Tenant reimbursements remained stable at
$104.9 million
for
2012
, as compared with
$102.9 million
for
2011
, as additional reimbursements from the Market Square Buildings were offset by fewer reimbursements for the remainder of the portfolio, primarily due to concessions offered with new and modified leases executed in 2011 and 2012. Property operating costs were
$173.5 million
for
2012
, which represents an increase as compared with
$167.4 million
for
2011
, primarily due to the acquisition of the Market Square Buildings in March 2011 and the commencement of new leases in 2011 and 2012. Absent changes to our portfolio or the leases currently in place at our properties, future tenant reimbursement fluctuations are generally expected to correspond with future property operating cost reimbursements.
Hotel income, net of hotel operating costs, was
$4.7 million
for
2012
, which represents an increase from
$3.2 million
for
2011
, due to increased room rates and hotel occupancy, primarily in the second and third quarters of 2012. Hotel income and hotel operating costs are primarily driven by the local economic conditions and, as a result, are expected to fluctuate in the future, primarily based on changes in the supply of, and demand for, hotel and banquet space in Cleveland, Ohio, similar to that offered by the Key Center Marriott hotel.
Other property income was
$6.5 million
for
2012
, which represents a decrease from
$10.9 million
for
2011
, due to a decrease in lease cancellation activity. Future other property income fluctuations are expected to relate primarily to future lease restructuring and termination activities.
Asset and property management fees were
$37.2 million
for
2012
, which represents a slight decrease from
$37.4 million
for
2011
due to contractual changes in the terms of the advisory agreements. Monthly asset management fees were capped at $2.7 million (or $32.5 million annualized) from April 2011 until June 2012. From July 2012 through December 2012, the cap on monthly asset management fees was reduced by $83,333, to approximately $2.6 million per month. For January and February 2013, asset management fees decreased by an additional $83,333 per month. Effective February 28, 2013, the advisory agreement was terminated in connection with acquiring WREAS II. Thus, going forward, no asset management fees will be incurred, as such services will be performed by employees of Columbia Property Trust. (See Note 10,
Related Party Transactions and Agreements,
of the accompanying consolidated financial statements for additional details.)
Depreciation was
$114.1 million
for
2012
, which represents a slight increase from
$110.7 million
for
2011
, primarily due to the acquisition of the Market Square Buildings in March 2011. Excluding the impact of acquisitions, dispositions, and changes to the leases currently in place at our properties, depreciation is expected to continue to increase in future periods, as compared to historical periods, due to ongoing capital improvements to our properties.
Amortization was
$97.6 million
for
2012
, which represents a decrease from
$111.5 million
for
2011
, primarily due to the expiration of in-place leases at our properties in 2011 and 2012. Future amortization is expected to fluctuate, primarily based on the expiration of additional in-place leases, offset by amortization of deferred lease costs incurred in connection with recent leasing activity and in-place leases at acquired properties.
General and administrative expenses were
$25.2 million
for
2012
, which represents a slight increase from
$23.7 million
for
2011
, due to fees paid under the Transition Services Agreement effective July 1, 2012, as described in Note 10,
Related-Party Transactions and Agreements,
of the accompanying consolidated financial statements. General and administrative expenses are expected to increase in the near-term as we incur fees under the consulting agreement described in Note 10,
Related-Party Transactions and Agreements,
of the accompanying consolidated financial statements.
Acquisition fees and expenses were
$1.9 million
for
2012
, which represents a decrease from
$11.3 million
for
2011
. 2012 acquisition fees and expenses are attributable to the 333 Market Street acquisition in San Francisco, California. 2011 acquisition fees and expenses include expenses related to the Market Square Buildings in Washington, D.C., and fees charged as a percentage of equity proceeds under the advisory agreement in place through July
2011, which fees have been discontinued. We expect future acquisition fees and expenses to fluctuate based on future acquisition activity.
Interest expense remained stable
at
$106.4 million
for
2012
, as compared with
$106.3 million
for
2011
. Future interest expense is expected to increase due to the 333 Market Street Building mortgage note assumed at acquisition in December 2012.
Interest and other income was
$39.9 million
for
2012
, which represents a decrease from
$42.4 million
for
2011
, primarily due to the settlement of litigation in 2011, related to a prospective acquisition that did not close. Interest income is expected to remain
relatively consistent in future periods given that the majority of this activity consists of interest income earned on investments in development authority bonds, which had a weighted-average remaining term of approximately 2.9 years as of
December 31, 2012
. Interest income earned on investments in development authority bonds is entirely offset by interest expense incurred on the corresponding capital leases.
We recognized a loss on interest rate swaps that does not qualify for hedge accounting treatment of approximately
$1.2 million
for
2012
, as compared with
$38.4 million
for
2011
, primarily due to writing off $15.1 million of cumulative unrealized market value adjustments on the interest rate swap on the 80 Park Plaza Building mortgage note upon settling of this swap contract in December 2011, prior to maturity. We anticipate future gains and losses on interest rate swaps that do not qualify for hedge accounting treatment will fluctuate, primarily due to changes in the estimated fair value of our interest rate swaps relative to then-current market conditions. Market value adjustments to swaps that qualify for hedge accounting treatment are recorded directly to equity, and therefore do not impact net income.
We recognized a gain on early extinguishment of debt of
$53.0 million
for 2011 in connection with settling the 222 East 41
st
Street Building mortgage note and the 80 Park Place Building mortgage note and their related swaps in December 2011, which is partially offset by the $15.1 million write-off of cumulative unrealized losses on the 80 Park Plaza interest rate swap described above.
Net income attributable to Columbia Property Trust was
$48.0 million
, or
$0.09
per share, for
2012
, which represents a decrease from
$56.6 million
, or
$0.10
per share, for
2011
. The decrease is primarily due to settling the debt and swaps on the 80 Park Plaza Building and the 222 East 41st Street Building for a net gain in 2011, partially offset by lower amortization expense due to the expiration and restructuring of in-place leases in 2012. We expect future net income to fluctuate based on future leasing activity and future acquisition and disposition activity. Should the U.S. economic recovery remain sluggish, or the U.S. real estate markets remain depressed for a prolonged period of time, the creditworthiness of our tenants and our ability to achieve market rents comparable to the leases currently in place at our properties may suffer and could lead to a decline in net income over the long term.
Discontinued Operations
Income from discontinued operations was
$7.5 million
for
2012
, as compared with
$8.6 million
for
2011
. As further explained in Note 12,
Assets Held for Sale and Discontinued Operations,
to the accompanying consolidated financial statements, properties meeting certain criterion for disposal are classified as "discontinued operations" in the accompanying consolidated statements of operations for all periods presented. For 2012 and 2011, discontinued operations include the nine properties disposed of in the Nine Property Sale, which closed for a net gain of
$3.2 million
after recognizing an $18.5 million impairment loss on the 180 E 100 South Building, one of the properties in the Nine Property Sale; 5995 Opus Parkway and Emerald Point, which sold for total gains of $16.9 million in January 2012; and the Manhattan Towers property, which was transferred to an affiliate of its lender in connection with settling a $75.0 million mortgage note through a deed in lieu of foreclosure transaction in September 2011.
Comparison of the year ended
December 31, 2010
versus the year ended
December 31, 2011
Continuing Operations
Rental income was
$441.9 million
for
2011
, which represents an increase from
$396.1 million
for
2010
, primarily due to properties acquired or placed in service during 2010 and the first three months of 2011.
Tenant reimbursements and property operating costs were
$102.9 million
and
$167.4 million
, respectively, for
2011
, which represents an increase from tenant reimbursements and property operating costs of
$93.4 million
and
$151.5 million
, respectively, for
2010
, primarily due to properties acquired or placed in service during 2010 and 2011.
Hotel income, net of hotel operating costs, was
$3.2 million
for
2011
, which represents an increase from
$2.8 million
for
2010
, primarily due to an increase in the average occupancy rate during 2011.
Other property income was
$10.9 million
for
2011
, which represents an increase from
$1.2 million
for
2010
, primarily due to fees earned in connection with lease terminations at 4100-4300 Wildwood Parkway, Bannockburn Lake II, and other properties.
Asset and property management fees were
$37.4 million
for
2011
, which represents an increase from
$34.2 million
for
2010
, primarily due to properties acquired and placed into service during 2010 and 2011.
Depreciation was
$110.7 million
for
2011
, which represents an increase from
$92.6 million
for
2010
, primarily due to growth in the portfolio in 2010 and the first three months of 2011.
Amortization was
$111.5 million
for
2011
, which represents an increase from
$103.5 million
for
2010
, primarily due to growth in the portfolio in 2010 and the first three months of 2011.
General and administrative expenses remained relatively consistent at
$23.7 million
for
2011
as compared with
$23.2 million
for
2010
.
Acquisition fees and expenses were
$11.3 million
for
2011
, which represents an increase from
$10.8 million
for
2010
, primarily due to the acquisition of the Market Square Buildings in March 2011, partially offset by the impact of closing our third public offering effective June 30, 2010. Through July 31, 2011, acquisition fees were incurred at 2.0% of gross offering proceeds, subject to certain limitations; effective August 1, 2011, acquisition fees are incurred at 1.0% of the property purchase price (excluding acquisition expenses).
Interest expense was
$106.3 million
for
2011
, which represents an increase from
$82.0 million
for
2010
, primarily due to debt used to fund the acquisition of the Market Square Buildings, including incremental short-term borrowings, a $250.0 million unsecured bond offering, and a $325.0 million mortgage note secured by the Market Square Buildings.
Interest and other income remained relatively consistent at
$42.4 million
for
2011
and
$43.1 million
for
2010
.
Loss on interest rate swaps was
$38.4 million
for
2011
, which represents an increase from
$19.1 million
for
2010
, primarily due to writing off $15.1 million of cumulative unrealized market value adjustments on the interest rate swap on the 80 Park Plaza Building mortgage note upon settling of this swap contract in December 2011, prior to maturity.
We recognized a gain on early extinguishment of debt of
$53.0 million
for
2011
in connection with settling the 222 East 41
st
Street Building mortgage note and the 80 Park Place Building mortgage note and their related swaps in December 2011, which is partially offset by the $15.1 million write-off of cumulative unrealized losses on the 80 Park Plaza interest rate swap described above.
We recognized net income attributable to Columbia Property Trust of
$56.6 million
(
$0.10
per share) for
2011
, which represents an increase from
$23.3 million
(
$0.04
per share) for
2010
. The increase is primarily attributable to gains recognized on negotiated settlements of debt and related interest rate swap agreements in 2011. Growth in our portfolio in 2010 and 2011 generated additional real estate operating income, which is offset by additional interest expense, resulting from increasing the percentage of borrowings used in our capital structure during 2011.
Discontinued Operations
Income from discontinued operations was
$8.6 million
for 2011 as compared with
$3.5 million
for 2010. As further explained in Note 12,
Assets Held for Sale and Discontinued Operations,
to the accompanying consolidated financial statements, properties meeting certain criterion for disposal are classified as "Discontinued Operations" in the accompanying consolidated statements of operations for all periods presented. Therefore, the properties sold in 2012, including the nine properties in the Nine Property Sale, 5595 Opus Parkway, and Emerald Point, have been classified as discontinued operations for 2012, 2011, and 2010. Additionally, discontinued operations for 2011 and 2010 include the Manhattan Towers property, which was transferred to an affiliate of its lender in connection with settling a $75.0 million mortgage note through a deed in lieu of foreclosure transaction in September 2011.
Funds From Operations and Adjusted Funds From Operations
Funds from Operations ("FFO"), as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), is a non-GAAP financial measure considered by some equity REITs in evaluating operating performance. FFO is computed as GAAP net income (loss), regardless of classification, as continuing or discontinuing operations, adjusted to exclude: extraordinary items, gains (or losses) from property sales (including deemed sales and settlements of pre-existing relationships), depreciation and amortization of real estate assets, impairment losses related to sales of real estate assets, and adjustments for earnings allocated to noncontrolling interests in consolidated partnerships. Effective December 31, 2011, we adjusted our calculation of FFO to be consistent with NAREIT's recent Accounting and Financial Standards Hot Topics, which clarify that impairment losses on real estate assets should be excluded from FFO. We believe it is useful to consider GAAP net income, adjusted to exclude the above-mentioned items, when assessing our performance, because excluding the above-described adjustments highlights the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be readily apparent from GAAP net income alone. We do not, however, believe that FFO is the best measure of the sustainability of our operating performance. Changes in the GAAP accounting and reporting rules that were put into effect after the establishment of NAREIT's definition of FFO in 1999 are resulting in the inclusion of a number of items in FFO that do not correlate with the sustainability of our operating performance (e.g., acquisition expenses, market value adjustments to interest rate swaps, and amortization of certain in-place lease intangible assets and liabilities, among others). Therefore, in addition to FFO, we present Adjusted Funds from Operations ("AFFO"), a non-GAAP financial measure. AFFO is calculated by adjusting FFO to exclude the income and expenses that we believe are not reflective of the sustainability of our ongoing operating performance, as further explained below:
|
|
|
|
•
|
Additional amortization of lease assets (liabilities).
GAAP implicitly assumes that the value of intangible lease assets (liabilities) diminishes predictably over time and, thus, requires these charges to be recognized ratably over the respective lease terms. Such intangible lease assets (liabilities) arise from the allocation of acquisition price related to direct costs associated with obtaining a new tenant, the value of opportunity costs associated with lost rentals, the value of tenant relationships, and the value of effective rental rates of in-place leases that are above or below market rates of comparable leases at the time of acquisition. Like real estate values, market lease rates in aggregate have historically risen or fallen with local market conditions. As a result, we believe that by excluding these charges, AFFO provides useful supplemental information that is reflective of the performance of our real estate investments, which is useful in assessing the sustainability of our operations.
|
|
|
|
|
•
|
Straight-line rental income.
In accordance with GAAP, rental payments are recognized as income on a straight-line basis over the terms of the respective leases. Thus, for any given period, straight-line rental income represents the difference between the contractual rental billings for that period and the average rental billings over the lease term for the same length of time. This application results in income recognition that can differ significantly from the current contract terms. By adjusting for this item, we believe AFFO provides useful supplemental information reflective of the realized economic impact of our leases, which is useful in assessing the sustainability of our operating performance.
|
|
|
|
|
•
|
Loss on interest rate swaps and remeasurement of loss on foreign currency.
These items relate to fair value adjustments, which are based on the impact of current market fluctuations, underlying market conditions and the performance of the specific holding, which is not attributable to our current operating performance. By adjusting for this item, we believe that AFFO provides useful supplemental information by focusing on the changes in our core operating fundamentals (rather than anticipated gains or losses that may never be realized), which is useful in assessing the sustainability of our operations.
|
|
|
|
|
•
|
Noncash interest expense.
This item represents amortization of financing costs paid in connection with executing our debt instruments, and the accretion of premiums (and amortization of discounts) on certain of our debt instruments. GAAP requires these items to be recognized over the remaining term of the respective debt instrument, which may not correlate with the ongoing operations of our real estate portfolio. By excluding these items, we believe that AFFO provides supplemental information that allows for better comparability of reporting periods, which is useful in assessing the sustainability of our operations.
|
|
|
|
|
•
|
Real estate acquisition-related costs
. Acquisition expenses are incurred for investment purposes (i.e., to promote portfolio appreciation and generation of future earnings over the long term) and, therefore, do not correlate with the ongoing operations of our portfolio. By excluding these items, we believe that AFFO provides supplemental information that allows for better comparability of reporting periods, which is useful in assessing the sustainability of our operations.
|
|
|
|
|
•
|
Gain on early extinguishment of debt
. This item represents gains resulting from debt settled prior to the stated maturity date, which do not correlate with our ongoing operating performance. By adjusting for this item, we believe that AFFO provides better comparability of reporting periods, which is useful in assessing the sustainability of our operations.
|
Reconciliations of net income to FFO and to AFFO (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
|
Reconciliation of Net Income to Funds From Operations and Adjusted Funds
From Operations:
|
|
|
|
|
|
|
Net income attributable to the common stockholders of Columbia Property
Trust, Inc.
|
$
|
48,039
|
|
|
$
|
56,642
|
|
|
$
|
23,266
|
|
|
Adjustments:
|
|
|
|
|
|
|
Depreciation of real estate assets
|
120,307
|
|
|
119,772
|
|
|
102,558
|
|
|
Amortization of lease-related costs
|
102,234
|
|
|
120,384
|
|
|
117,569
|
|
|
Impairment loss on real estate assets
|
18,467
|
|
|
5,817
|
|
|
—
|
|
|
(Gain) loss on disposition of discontinued operations
|
(20,117
|
)
|
|
—
|
|
|
161
|
|
|
Total Funds From Operations adjustments
|
220,891
|
|
|
245,973
|
|
|
220,288
|
|
|
Funds From Operations
|
268,930
|
|
|
302,615
|
|
|
243,554
|
|
|
Other income (expenses) included in net income, which do not correlate with
our operations:
|
|
|
|
|
|
|
Additional amortization of lease assets (liabilities)
|
(1,752
|
)
|
|
2,423
|
|
|
6,791
|
|
|
Straight-line rental income
|
(11,033
|
)
|
|
(22,165
|
)
|
|
(6,544
|
)
|
|
(Gain) loss on interest rate swaps
|
(173
|
)
|
|
28,635
|
|
|
9,485
|
|
|
Remeasurement loss on foreign currency
|
—
|
|
|
—
|
|
|
686
|
|
|
Noncash interest expense
|
3,881
|
|
|
23,967
|
|
|
18,703
|
|
|
Gain on early extinguishment of debt
|
—
|
|
|
(66,540
|
)
|
|
—
|
|
|
Subtotal
|
(9,077
|
)
|
|
(33,680
|
)
|
|
29,121
|
|
|
Real estate acquisition-related costs
|
1,876
|
|
|
11,250
|
|
|
10,779
|
|
|
Adjusted Funds From Operations
|
$
|
261,729
|
|
|
$
|
280,185
|
|
|
$
|
283,454
|
|
Portfolio Information
As of
December 31, 2012
, we owned controlling interests in
61
office properties and one hotel, which includes
83
operational buildings. These properties are composed of approximately
21.0 million
square feet of commercial space located in
19
states; the District of Columbia; and Moscow, Russia. Of these office properties,
60
are wholly owned and
one
is owned through a consolidated subsidiary. As of
December 31, 2012
, the office properties were approximately
92.9%
leased. Annualized Lease Revenue is defined in Item 2,
Properties
.
As of
December 31, 2012
, our five highest geographic concentrations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
2012 Annualized
Lease Revenue
(in thousands)
|
|
Rentable
Square Feet
(in thousands)
|
|
Percentage of
2012 Annualized
Lease Revenue
|
|
Atlanta
|
|
$
|
75,353
|
|
|
3,462
|
|
|
15
|
%
|
|
Washington, D.C.
|
|
57,524
|
|
|
857
|
|
|
11
|
%
|
|
Northern New Jersey
|
|
54,249
|
|
|
2,177
|
|
|
10
|
%
|
|
San Francisco
|
|
44,700
|
|
|
959
|
|
|
9
|
%
|
|
Baltimore
|
|
37,613
|
|
|
1,194
|
|
|
7
|
%
|
|
|
|
$
|
269,439
|
|
|
8,649
|
|
|
52
|
%
|
As of
December 31, 2012
, our five highest tenant industry concentrations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry
|
|
2012 Annualized
Lease Revenue
(in thousands)
|
|
Rentable
Square Feet
(in thousands)
|
|
Percentage of
2012 Annualized
Lease Revenue
|
|
Legal Services
|
|
$
|
77,310
|
|
|
1,436
|
|
|
15
|
%
|
|
Depository Institutions
|
|
72,883
|
|
|
2,393
|
|
|
14
|
%
|
|
Communications
|
|
50,357
|
|
|
2,566
|
|
|
10
|
%
|
|
Industrial Machinery & Equipment
|
|
38,844
|
|
|
1,681
|
|
|
7
|
%
|
|
Electric, Gas & Sanitary Services
|
|
36,980
|
|
|
1,880
|
|
|
7
|
%
|
|
|
|
$
|
276,374
|
|
|
9,956
|
|
|
53
|
%
|
As of
December 31, 2012
, our five highest tenant concentrations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Tenant
|
|
2012 Annualized
Lease Revenue
(in thousands)
|
|
Percentage of
2012 Annualized
Lease Revenue
|
|
AT&T
|
|
$
|
47,629
|
|
|
9
|
%
|
|
Wells Fargo
|
|
29,297
|
|
|
6
|
%
|
|
Jones Day
|
|
27,135
|
|
|
5
|
%
|
|
IBM
|
|
24,954
|
|
|
5
|
%
|
|
Key Bank
|
|
19,110
|
|
|
4
|
%
|
|
|
|
$
|
148,125
|
|
|
29
|
%
|
For more information on our portfolio, see Item 2.
Properties
.
Election as a REIT
We have elected to be taxed as a REIT under the Code, and have operated as such beginning with our taxable year ended December 31, 2003. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our adjusted taxable income, as defined in the Code, to our stockholders, computed without regard to the dividends-paid deduction and by excluding our net capital gain. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income for that year and for the four years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially affect our net income and net cash available for distribution to our stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT for federal income tax purposes.
Wells TRS II, LLC ("Wells TRS"); Wells KCP TRS, LLC ("Wells KCP TRS"); and Wells Energy TRS, LLC ("Wells Energy TRS") (collectively, the "TRS Entities") are wholly owned subsidiaries of Columbia Property Trust and are organized as Delaware limited liability companies and include the operations of, among other things, a full-service hotel. We have elected to treat the TRS Entities as taxable REIT subsidiaries. We may perform certain additional, noncustomary services for tenants of our buildings through the the TRS Entities; however, any earnings related to such services are subject to federal and state income taxes. In addition, for us to continue to qualify as a REIT, we must limit our investments in taxable REIT subsidiaries to 25% of the value of our total assets. Deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted rates expected to be in effect when the temporary differences reverse.
No provisions for federal income taxes have been made in our accompanying consolidated financial statements, other than the provisions relating to Wells TRS and Wells KCP TRS, as we made distributions in excess of taxable income for the periods presented. We are subject to certain state and local taxes related to property operations in certain locations, which have been provided for in our accompanying consolidated financial statements.
Inflation
We are exposed to inflation risk, as income from long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that are intended to protect us from, and mitigate the risk of, the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per-square-foot basis, or in some cases, annual reimbursement of operating expenses above a
certain per-square-foot allowance. However, due to the long-term nature of the leases, the leases may not reset frequently enough to fully cover inflation.
Application of Critical Accounting Policies
Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.
Investment in Real Estate Assets
We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of our assets by class are as follows:
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Buildings
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40 years
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Building improvements
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5-25 years
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Site improvements
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15 years
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Tenant improvements
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Shorter of economic life or lease term
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Intangible lease assets
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Lease term
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Evaluating the Recoverability of Real Estate Assets
We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate and related intangible assets of both operating properties and properties under construction, in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present that suggest that the carrying amounts of real estate assets and related intangible assets (liabilities) may not be recoverable, we assess the recoverability of these assets by determining whether the respective carrying values will be recovered through the estimated undiscounted future operating cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying values, we adjust the carrying value of the real estate assets and related intangible assets to the estimated fair values, pursuant to the property, plant, and equipment accounting standard for the impairment or disposal of long-lived assets, and recognize an impairment loss. Estimated fair values are calculated based on the following information, in order of preference, depending upon availability: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of future cash flows, including estimated salvage value. Certain of our assets may be carried at more than an amount that could be realized in a current disposition transaction.
Projections of expected future operating cash flows require that we estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. The subjectivity of assumptions used in the future cash flow analysis, including discount rates, could result in an incorrect assessment of the property's fair value and could result in the misstatement of the carrying value of our real estate assets and related intangible assets and net income (loss).
During 2012, we focused on improving our market concentration by assembling, marketing, and negotiating the Nine Property Sale. As a result, we evaluated the recoverability of the carrying values of these assets pursuant to the accounting policy outlined above and determined that the carrying value of the 180 E 100 South property in Salt Lake City, Utah, one of the properties in the Nine Property Sale, to no longer be recoverable due to refining our disposition strategy and shortening our expected holding period for this asset in the third quarter of 2012. As a result, we reduced the carrying value of the 180 E 100 South property to reflect fair value and recorded a corresponding property impairment loss of
$18.5 million
in the third quarter of 2012.
During the third quarter of 2011, we evaluated the recoverability of the carrying value of the Manhattan Towers property and determined that it was not recoverable, as defined by the accounting policy outlined above. The Manhattan Towers property is located in Manhattan Beach, California, and includes two office buildings with total occupancy of 22%. In the third quarter of 2011, upon considering the economic impact of various property disposition scenarios not previously contemplated, including the likelihood of achieving the projected returns associated with each scenario, we opted to transfer the Manhattan Towers property
to an affiliate of the lender in full settlement of a
$75.0 million
nonrecourse mortgage loan through a deed in lieu of foreclosure transaction, which closed on
September 6, 2011
. As a result of this transaction, we reduced the carrying value of the Manhattan Towers property to its fair value, estimated based on the present value of estimated future property cash flows, by recognizing a property impairment loss of approximately
$5.8 million
, which is included in operating income from discontinued operations in the statement of operations, and recognized a gain on early extinguishment of debt of
$13.5 million
, which is reflected as gain on disposition of discontinued operations in the statement of operations.
The fair value measurements used in this evaluation of nonfinancial assets are considered to be Level 3 valuations within the fair value hierarchy outlined above, as there are significant unobservable inputs. Examples of inputs that were utilized in the fair value calculations include estimated holding periods, discount rates, market capitalization rates, expected lease rental rates, and potential sales prices. The table below represents the detail of the adjustments recognized for the years ended
2012
and
2011
(in thousands) using Level 3 inputs.
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Property
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Net Book Value
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Impairment Loss Recognized
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Fair Value
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For the year ended December 31, 2012
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180 E 100 South
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$
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30,847
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$
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(18,467
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)
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$
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12,380
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For the year ended December 31, 2011
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Manhattan Towers
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$
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65,317
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$
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(5,817
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)
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$
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59,500
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Allocation of Purchase Price of Acquired Assets
Upon the acquisition of real properties, we allocate the purchase price of properties to tangible assets, consisting of land and building, site improvements, and identified intangible assets and liabilities, including the value of in-place leases, based in each case on our estimate of their fair values.
The fair values of the tangible assets of an acquired property (which includes land and building) are determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to land and building based on our determination of the relative fair value of these assets. We determine the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors we consider in performing these analyses include an estimate of carrying costs during the expected lease-up periods, considering current market conditions and costs to execute similar leases, including leasing commissions and other related costs. In estimating carrying costs, we include real estate taxes, insurance, and other operating expenses during the expected lease-up periods based on current market demand.
Intangible Assets and Liabilities Arising from In-Place Leases where We are the Lessor
As further described below, in-place leases where we are the lessor may have values related to direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease, tenant relationships, and effective contractual rental rates that are above or below market rates:
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•
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Direct costs associated with obtaining a new tenant, including commissions, tenant improvements, and other direct costs, are estimated based on management's consideration of current market costs to execute a similar lease. Such direct costs are included in intangible lease origination costs in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.
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•
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The value of opportunity costs associated with lost rentals avoided by acquiring an in-place lease is calculated based on the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. Such opportunity costs are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.
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•
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The value of tenant relationships is calculated based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. Values associated with tenant relationships are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.
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•
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The value of effective rental rates of in-place leases that are above or below the market rates of comparable leases is calculated based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be received pursuant to the in-place leases and (ii) management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining terms of the leases. The capitalized above-market and below-market lease values are recorded as intangible lease assets or liabilities and amortized as an adjustment to rental income over the remaining terms of the respective leases.
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Evaluating the Recoverability of Intangible Assets and Liabilities
The values of intangible lease assets and liabilities are determined based on assumptions made at the time of acquisition and have defined useful lives, which correspond with the lease terms. There may be instances in which intangible lease assets and liabilities become impaired and we are required to write off the remaining asset or liability immediately or over a shorter period of time. Lease restructurings, including lease terminations and lease extensions, may impact the value and useful life of in-place leases. In-place leases that are terminated, partially terminated, or modified will be evaluated for impairment if the original in-place lease terms have been modified. In the event that the discounted cash flows of the original in-place lease stream do not exceed the discounted modified in-place lease stream, we adjust the carrying value of the intangible lease assets to the discounted cash flows and recognize an impairment loss. For in-place lease extensions that are executed more than one year prior to the original in-place lease expiration date, the useful life of the in-place lease will be extended over the new lease term with the exception of those in-place lease components, such as lease commissions and tenant allowances, which have been renegotiated for the extended term. Renegotiated in-place lease components, such as lease commissions and tenant allowances, will be amortized over the shorter of the useful life of the asset or the new lease term.
Intangible Assets and Liabilities Arising from In-Place Leases where We are the Lessee
In-place ground leases where we are the lessee may have value associated with effective contractual rental rates that are above or below market rates. Such values are calculated based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place lease and (ii) management's estimate of fair market lease rates for the corresponding in-place lease, measured over a period equal to the remaining terms of the leases. The capitalized above-market and below-market in-place lease values are recorded as intangible lease liabilities or assets and amortized as an adjustment to property operating cost over the remaining term of the respective leases.
Related-Party Transactions and Agreements
During the periods presented, we were party to agreements with WREAS II, our advisor, and its affiliates, whereby we incurred and paid fees and reimbursements to WREAS II and its affiliates for certain advisory services and property management services. On February 28, 2013, we terminated the related agreements and acquired WREAS II and WRES, including the employees necessary to perform the corresponding corporate and property management functions. See Note 10,
Related-Party Transition and Agreements,
of our accompanying consolidated financial statements for details of our related-party transactions, agreements, and fees.
Commitments and Contingencies
We are subject to certain commitments and contingencies with regard to certain transactions. Refer to Note 6,
Commitments and Contingencies,
of our accompanying consolidated financial statements for further explanation. Examples of such commitments and contingencies include:
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•
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obligations under operating leases;
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•
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obligations under capital leases;
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•
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commitments under existing lease agreements; and
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Subsequent Events
We have evaluated subsequent events in connection with the preparation of our consolidated financial statements and notes thereto included in this report on Form 10-K and noted the following items in addition to those disclosed elsewhere in this report:
Chairman of the Board
On January 1, 2013, our board of directors ("the Board") unanimously appointed John L. Dixon as its Chairman, succeeding the former Chairman of the Board, Leo F. Wells, III. Mr. Wells and the other board members believe that having an independent Board Chairman is in keeping with corporate governance best practices and will benefit the company as it continues to prepare for a successful liquidity event. Mr. Wells, who will continue to serve the company as a member of the Board, had served as Chairman of the Board since the company's inception and previously served as president of the company from its inception until July 2010. Mr. Dixon has served the company as an independent director since 2008 and brings more than 40 years of experience in the financial services industry to the leadership of the company.
Executive Officers
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•
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Effective February 28, 2013, Douglas P. Williams resigned as an executive officer of the company, including his positions as Executive Vice President, Secretary, Treasurer, and Principal Financial Officer. Mr. Williams also indicated that, for personal reasons, he would not stand for re-election as a director. Mr. Williams informed us of these decisions on February 25, 2013. Mr. Williams will remain an executive officer of WREF.
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•
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Effective February 28, 2013, the board of directors unanimously appointed Wendy W. Gill as an executive officer to succeed Mr. Williams as the company's Treasurer and Principal Accounting Officer, and to serve as the company's interim Principal Financial Officer. Ms. Gill currently serves as Columbia Property Trust's Senior Vice President of Corporate Operations and Chief Accounting Officer.
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Name Change and Other Related Changes
On February 25, 2013, we filed Articles of Amendment with the Maryland State Department of Assessments and Taxation (the "SDAT") to change our name from Wells Real Estate Investment Trust II, Inc. to Columbia Property Trust, Inc. The name change was approved by our board of directors and effective upon filing with the SDAT. In connection with our name change, we also changed the name of our operating partnership to Columbia Property Trust Operating Partnership, L.P.; WREAS II to Columbia Property Trust Advisory Services, LLC; and WRES to Columbia Property Trust Services, LLC. We expect to effect a similar name change for the TRS Entities in the near future.
On February 26, 2013, in connection with our name change and transition to self-management, our board of directors approved certain amendments to our bylaws, our share redemption program, and our corporate governance documents to be effective as of February 28, 2013. We amended our bylaws to reflect our new name and management structure, as well as to conform with changes made to our charter, as approved at our Annual Meeting of Stockholders on July 18, 2012. We amended our share redemption program to change our name, update the contact information for redemption requests, and adjust how we handle the pro-rata redemptions. In addition, we amended our Corporate Governance Guidelines, Nominating and Corporate Governance Committee Charter, Audit Committee Charter, Code of Ethics, Whistleblower Policy, and Insider Trader Policy to reflect our new name, as well as to reflect our new management structure. Our corporate governance documents are available on our website at
www.columbiapropertytrust.com
.
Commencement of Self-Management
On February 28, 2013, the WREAS II Assignment Option and WRES Assignment Option closed, and in connection therewith, the Renewal Advisory Agreement and Renewal Investor Services Agreement terminated. These agreements and options are described in Note 10,
Related Party Transactions and Agreements,
of the accompanying consolidated financial statements.
Investor Services Agreement
Effective February 28, 2013, upon the closing of the WREAS II Assignment Option, we entered into the Investor Services Agreement with WREF, which requires WREF to provide the stockholder and communication services to us previously provided for under the 2012 Investor Services Agreement and the Renewal Investor Services Agreement and provides for us to compensate WREF for the services based on a reimbursement of costs and payroll plus a premium. These agreements are described in Note 10,
Related Party Transactions and Agreements,
of the accompanying consolidated financial statements.
Consulting Services Agreement
On February 28, 2013, we entered a consulting services agreement with WREF (the "Consulting Services Agreement"). Under the Consulting Services Agreement, WREF will provide consulting services with respect to the same matters that WREAS II and its affiliates provided advisory services under the Renewal Advisory Agreement. Payments under the Consulting Services Agreement will be monthly fees in the same amount as the asset management fees that would have been paid under the Renewal Advisory Agreement through December 31, 2013, if the Renewal Advisory Agreement was not terminated. If we elect to terminate the Consulting Services Agreement early for cause, we would not be required to make further payments under the agreement other than fees earned by WREF and unpaid at the time of termination. If we terminate the Consulting Services Agreement other than for cause, we would be required to make a fee acceleration payment, which is calculated as the fees incurred in the last month prior to termination, adjusted for partial months, multiplied by the number of months remaining between the time of termination and December 31, 2013.
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ITEM 7A.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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As a result of our debt facilities, we are exposed to interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flow, primarily through a low to moderate level of overall borrowings. However, we currently have a substantial amount of debt outstanding. We manage our ratio of fixed- to floating-rate debt with the objective of achieving a mix that we believe is appropriate in light of anticipated changes in interest rates. We closely monitor interest rates and will continue to consider the sources and terms of our borrowing facilities to determine whether we have appropriately guarded ourselves against the risk of increasing interest rates in future periods.
Additionally, we have entered into interest rate swaps, and may enter into other interest rate swaps, caps, or other arrangements to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes; however, certain of our derivatives may not qualify for hedge accounting treatment. All of our debt was entered into for other-than-trading purposes. As of December 31, 2012 and 2011, the estimated fair value of our line of credit and notes payable and bonds was $1.7 billion and $1.5 billion, respectively.
Our financial instruments consist of both fixed- and variable-rate debt. As of
December 31, 2012
, our consolidated debt consisted of the following, in thousands:
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2013
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2014
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2015
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2016
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2017
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Thereafter
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Total
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Maturing debt:
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Effectively variable-rate debt
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$
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—
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$
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—
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$
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42,000
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$
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—
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|
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$
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—
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$
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—
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$
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42,000
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Effectively fixed-rate debt
|
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$
|
28,755
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|
|
$
|
101,481
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|
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$
|
211,104
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$
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491,963
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|
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$
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178,139
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$
|
596,854
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$
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1,608,296
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Average interest rate:
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Effectively variable-rate debt
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—
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%
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—
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%
|
|
2.62
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%
|
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—
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%
|
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—
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%
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—
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%
|
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2.62
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%
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Effectively fixed-rate debt
|
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5.94
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%
|
|
5.07
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%
|
|
4.76
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%
|
|
2.91
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%
|
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5.28
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%
|
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5.43
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%
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4.54
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%
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Our financial instruments consist of both fixed-rate and variable-rate debt. Our variable-rate borrowings consist of the JPMorgan Chase Credit Facility, the $450 Million Term Loan, the 333 Market Street Building mortgage note, and the Three Glenlake Building mortgage note. However, only the JPMorgan Chase Credit Facility bears interest at an effectively variable rate, as the variable rate on the $450.0 Million Term Loan, the 333 Market Street Building mortgage note, and the Three Glenlake Building mortgage note have been effectively fixed through the interest rate swap agreements described below.
As of
December 31, 2012
, we had
$42.0 million
outstanding under the JPMorgan Chase Credit Facility; $450.0 million outstanding on the $450 Million Term Loan;
$208.3 million
outstanding on the 333 Market Street Building mortgage note;
$26.3 million
outstanding on the Three Glenlake Building mortgage note;
$248.7 million
in 5.875% bonds outstanding; and $675.0
million outstanding on fixed-rate, term mortgage loans. The weighted-average interest rate of all our debt instruments was 4.49% as of
December 31, 2012
.
On February 3, 2012, we closed on the $450 Million Term Loan, a four-year, unsecured term loan with a syndicate of banks led by JPMorgan Chase Bank (the "
$450 Million
Term Loan"), which yielded initial gross proceeds of $375.0 million. The $450 Million Term Loan provided for two accordion options, both of which have been exercised, resulting in additional gross proceeds of $40.0 million in the second quarter of 2012 and $35.0 million in the third quarter of 2012, for total outstanding borrowings of $450.0 million as of
December 31, 2012
. The $450 Million Term Loan bears interest at the London Interbank Offered Rate ("LIBOR"), plus an applicable base margin; however, we effectively fixed the interest rate on the initial borrowing and subsequent borrowings under the accordion options (assuming no change in our corporate credit rating) at 2.63% per annum with interest rate swaps executed contemporaneously with the loan and the accordion options. The $450 Million Term Loan matures on February 3, 2016, provided that certain conditions are met prior to that date. Furthermore, provided that certain additional conditions are met prior to, and at maturity, the $450 Million Term Loan shall become eligible for a one-year extension upon paying an extension fee equal to 0.15% of the outstanding balance. The total proceeds from the $450 Million Term Loan were used to repay temporary borrowings, and thereby create additional borrowing capacity, under the JPMorgan Chase Credit Facility. The majority of these temporary borrowings were drawn to settle mortgage loans during the second half of 2011 and early 2012.
During the first quarter of 2012, we used cash on hand and proceeds from the JPMorgan Chase Credit Facility to fully repay the Highland Landmark Building mortgage note of $33.8 million at its maturity. During
2012
and
2011
, we made interest payments of approximately $50.1 million and $53.1 million, respectively, related to our line of credit and notes payable. In addition, we made interest payments of approximately $14.7 million and $7.2 million in 2012 and 2011, respectively, related to our 2018 Bonds Payable.
Approximately $1,608.3 million of our total debt outstanding as of
December 31, 2012
, is subject to fixed rates, either directly or when coupled with an interest rate swap agreement. As of
December 31, 2012
, these balances incurred interest expense at an average interest rate of 4.54% and have expirations ranging from 2013 through 2023. A change in the market interest rate impacts the net financial instrument position of our fixed-rate debt portfolio; however, it has no impact on interest incurred or cash flows. The amounts outstanding on our variable-rate debt facilities in the future will largely depend upon the level of investor proceeds raised under our DRP and the rate at which we are able to employ such proceeds in acquisitions of real properties.
We do not believe there is any exposure to increases in interest rates related to the capital lease obligations of $586.0 million at
December 31, 2012
, as the obligations are at fixed interest rates.
Foreign Currency Risk
We are also subject to foreign exchange risk arising from our foreign operations in Russia. Foreign operations represented 2.0% and 1.9% of total assets at
December 31, 2012
and
2011
, respectively, and 1.1%, 0.7%, and 0.6% of total revenue for
2012
,
2011
, and
2010
, respectively. As compared with rates in effect at
December 31, 2012
, an increase or decrease in the U.S. dollar to Russian rouble exchange rate by 10% would not materially impact the accompanying consolidated financial statements.
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ITEM 8.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
The financial statements and supplementary data filed as part of this report are set forth beginning on page F-1 of this report.
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ITEM 9.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
There were no disagreements with our independent registered public accountants during
2012
,
2011
, or
2010
.
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ITEM 9A.
|
CONTROLS AND PROCEDURES
|
Management's Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods in SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as a process designed by, or under the supervision of, the Principal Executive Officer and Principal Financial Officer and effected by our management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
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•
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pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets;
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•
|
provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and/or members of the board of directors; and
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•
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
|
Because of the inherent limitations of internal control over financial reporting, including the possibility of human error and the circumvention or overriding of controls, material misstatements may not be prevented or detected on a timely basis. In addition, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes and conditions or that the degree of compliance with policies or procedures may deteriorate. Accordingly, even internal
controls determined to be effective can provide only reasonable assurance that the information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized, and represented within the time periods required.
Our management has assessed the effectiveness of our internal control over financial reporting at
December 31, 2012
. To make this assessment, we used the criteria for effective internal control over financial reporting described in Internal Control
–
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management believes that our system of internal control over financial reporting met those criteria, and therefore our management has concluded that we maintained effective internal control over financial reporting as of
December 31, 2012
.
This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended
December 31, 2012
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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ITEM 9B.
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OTHER INFORMATION
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Property Management Agreement
On December 28, 2012, we entered an amendment to the Property Management Agreement solely to provide that immediately upon the closing of the WRES Assignment Option, the Property Management Agreement will terminate (the "Amendment to the Property Management Agreement"). The Property Management Agreement is described in Note 10,
Related Party Transactions and Agreements,
of the accompanying consolidated financial statements.
Executive Officers
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•
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Effective February 28, 2013, Douglas P. Williams resigned as an executive officer of the company, including his positions as Executive Vice President, Secretary, Treasurer, and Principal Financial Officer. Mr. Williams also indicated that, for personal reasons, he would not stand for re-election as a director. Mr. Williams informed us of these decisions on February 25, 2013. Mr. Williams will remain an executive officer of WREF.
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Effective February 28, 2013, the board of directors unanimously appointed Wendy W. Gill as an executive officer to succeed Mr. Williams as the company's Treasurer and Principal Accounting Officer, and to serve as the company's interim Principal Financial Officer. Ms. Gill, 38, currently serves as our Chief Accounting Officer, a role she has held since 2007, and Senior Vice President of Corporate Operations. Since our inception in 2003, Ms. Gill has provided oversight to the company's accounting and financial operations as an employee of WREF. Ms. Gill joined WREF in 2002 as Director of Financial Reporting and Accounting. From 2007 to 2011, Ms. Gill served as Vice President and Chief Accounting Officer for WREF, in which capacity she was responsible for the financial and reporting functions for the real estate programs sponsored by WREF, including the public REITs, various public and private limited partnerships, and 1031 Exchange programs. Prior to joining WREF she was a manager at Arthur Andersen in the firm's Atlanta and Washington, D.C. offices, working with various publicly traded and privately held companies, with a focus on the real estate, hospitality and financial services industries. Ms. Gill holds a Certified Public Accountant (CPA) designation from the Maryland State Board of Public Accountancy and is a member of the Georgia Society of Certified Public Accountants.
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Name Change and Other Related Changes
On February 25, 2013, we filed Articles of Amendment with the SDAT to change our name from Wells Real Estate Investment Trust II, Inc. to Columbia Property Trust, Inc. The name change was approved by our board of directors and became effective upon filing with the SDAT. In connection with our name change, we also changed the name of our operating partnership to Columbia Property Trust Operating Partnership, L.P.; WREAS II to Columbia Property Trust Advisory Services, LLC; and WRES to Columbia Property Trust Services, LLC. We expect to effect a similar name change for the TRS Entities in the near future.
On February 26, 2013, in connection with our name change and transition to self-management, our board of directors approved certain amendments to our bylaws, our share redemption program, and our corporate governance documents to be effective as of February 28, 2013. We amended our bylaws to reflect our new name and management structure, as well as to conform with changes made to our charter, as approved at our Annual Meeting of Stockholders on July 18, 2012. We amended our share redemption program to change our name, update the contact information for redemption requests, and adjust how we handle the pro-rata redemptions. In addition, we amended our Corporate Governance Guidelines, Nominating and Corporate Governance Committee
Charter, Audit Committee Charter, Code of Ethics, Whistleblower Policy, and Insider Trader Policy to reflect our new name, as well as to reflect our new management structure. Our corporate governance documents are available on our website at
www.columbiapropertytrust.com
.
Commencement of Self-Management
On February 28, 2013, the WREAS II Assignment Option and WRES Assignment Option closed, and in connection therewith, the Renewal Advisory Agreement and Renewal Investor Services Agreement terminated.
Investor Services Agreement
Effective February 28, 2013, upon the closing of the WREAS II Assignment Option, we entered into the Investor Services Agreement with WREF, which requires WREF to provide the stockholder and communication services to us, previously provided for under the 2012 Investor Services Agreement and the Renewal Investor Services Agreement and provides for us to compensate WREF for the services based on a reimbursement of costs and payroll plus a premium.
Consulting Services Agreement
On February 28, 2013, we entered a consulting services agreement with WREF (the "Consulting Services Agreement"). Under the Consulting Services Agreement, WREF will provide consulting services with respect to the same matters that WREAS II and its affiliates provided advisory services under the Renewal Advisory Agreement. Payments under the Consulting Services Agreement will be monthly fees in the same amount as the asset management fees that would have been paid under the Renewal Advisory Agreement through December 31, 2013, if the Renewal Advisory Agreement was not terminated. If we elect to terminate the Consulting Services Agreement early for cause, we would not be required to make further payments under the agreement other than fees earned by WREF and unpaid at the time of termination. If we terminate the Consulting Services Agreement other than for cause, we would be required to make a fee acceleration payment, which is calculated as the fees incurred in the last month prior to termination, adjusted for partial months, multiplied by the number of months remaining between the time of termination and December 31, 2013.
PART III
We will file a definitive Proxy Statement for our
2013
Annual Meeting of Stockholders (the "
2013
Proxy Statement") with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the
2013
Proxy Statement that specifically address the items required to be set forth herein are incorporated by reference.
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ITEM 10.
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DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
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We have adopted a Code of Ethics that applies to all of our executive officers and directors, including but not limited to, our principal executive officer and principal financial officer. Our Code of Ethics may be found at
http://www.columbiapropertytrust.com.
The other information required by this Item is incorporated by reference from our
2013
Proxy Statement.
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ITEM 11.
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EXECUTIVE COMPENSATION
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The information required by this Item is incorporated by reference from our
2013
Proxy Statement.
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ITEM 12.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
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The information required by this Item is incorporated by reference from our
2013
Proxy Statement.
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ITEM 13.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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Certain information required by this Item is incorporated by reference from our
2013
Proxy Statement.
Transactions with Related Persons
As discussed in Item 1.
Business
, during 2012, we established and carried out a plan to transition our external management platform to a self-managed structure. Effective February 28, 2013, services previously provided by our advisor and property manager will be provided by our employees (other than the services provided by WREF under the Investor Services Agreement). Our Conflicts Committee reviews and approves all related-party transactions requiring disclosure under Rule 404(a) of Regulation S-K, meaning any transaction, arrangement or relationship in which (i) the amount involved may be expected to exceed $120,000 in any fiscal year, (ii) we will be a participant, and (iii) a related person has a direct or indirect material interest. A related person is an executive officer, director or nominee for election as director, or a greater than 5% beneficial owner of our common stock, or an immediate family member of the foregoing. Approval of a related-party transaction requires a majority of the Conflicts Committee to find the transaction is fair and reasonable to us. Through February 27, 2013, prior to entering a related-party transaction other than the advisory agreement, a majority of the Conflicts Committee was also required to conclude that the transaction was fair and reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties. In addition, our Code of Ethics lists examples of types of transactions with affiliates that would create prohibited conflicts of interest. Under the Code of Ethics, our officers and directors are required to promptly bring potential conflicts of interest to the attention of the chairman of our Audit Committee. The Conflicts Committee reviewed the material transactions between our affiliates and us. Set forth below is a description of such transactions.
Our Relationship with WREF and WREAS II
Advisory Agreement
From our inception through February 27, 2013, a subsidiary of WREF, including most recently WREAS II, provided our day-to-day management under the terms of several, uninterrupted advisory agreements with WREAS II dated most recently December 29, 2011; March 30, 2011; June 29, 2012; and December 28, 2012 (the "Advisory Agreement"). Among the services provided by our advisor, under the terms of the Advisory Agreement, were the following:
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real estate acquisition services;
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asset management services;
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real estate disposition services;
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•
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property management oversight services; and
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•
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administrative services.
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Our advisor was at all times subject to the supervision of our board of directors and had only such authority as we delegated to it as our agent. We renewed the Advisory Agreement (the "Renewal Advisory Agreement") with our advisor, WREAS II, in December 2012. The Renewal Advisory Agreement remained in place through February 27, 2013, and was substantially the same as the advisory agreement that was in effect through
December 31, 2012
, except for a reduced monthly asset management fee and a cap on acquisition and disposition fees payable for 2012 and 2013 in aggregate. The WREAS II Assignment Option closed on February 28, 2013, and the Renewal Advisory Agreement terminated on that date.
From January 1,
2012
, through the most recent date practicable, which was
December 31, 2012
, we have compensated our advisor as set forth below under the terms of the Advisory Agreement:
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Asset management fees were incurred monthly at one-twelfth of
0.625%
of the lesser of (i) gross cost, as defined, of all of our properties (other than those that failed to meet specified occupancy thresholds) and investments in joint ventures, or (ii) the aggregate value of our interest in the properties and joint ventures as established with the most recent asset-based valuation, until the monthly payment equals
$2.7 million
(or
$32.5 million
annualized), as of the last day of each preceding month. From April 2011 through June 2012, asset management fees were capped at
$2.7 million
per month (or
$32.5 million
annualized) following the March 2011 acquisition of the Market Square Buildings. Effective July 1, 2012, the cap on monthly asset management fees charged under the advisory agreement was reduced by
$83,333
(or, a total savings of
$0.5 million
for the six months ended
December 31, 2012
), resulting in a cap of
$2.6 million
. From July 2012 through December 2012, asset management fees were capped at
$2.6 million
per month. With respect to (ii) above, our published net asset-based valuations did not impact asset management fees incurred to date due to the continued applicability of the caps described above. Asset management fees from January 1,
2012
to
December 31, 2012
, totaled approximately
$32.0 million
.
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We reimbursed our advisor for all costs and expenses it incurred in fulfilling its asset management and administrative duties, which may have included wages, salaries, taxes, insurance, benefits, information technology, legal and travel, and other out-of-pocket expenses of employees engaged in ongoing management, administration, operations, and marketing functions on our behalf. We did not, however, reimburse our advisor for personnel costs in connection with services for which our advisor received acquisition fees or real estate commissions. Administrative reimbursements, net of reimbursements from tenants, from January 1,
2012
through
December 31, 2012
, totaled approximately
$11.1 million
.
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Acquisition fees were previously incurred at 1% of the property purchase price (excluding acquisition expenses); however, in no event could total acquisition fees for the 2012 and 2013 calendar years exceed $1.5 million in aggregate. Acquisition fees from January 1,
2012
through
December 31, 2012
, totaled approximately
$1.5 million
.
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The disposition fee payable for the sale of any property for which WREAS II provided substantial services was the lesser of (i)
0.3%
or (ii) the broker fee paid to a third-party broker in connection with the sale. Disposition fees payable to WREAS II from
July 1, 2012
through December 31,
2013
have an aggregate cap of
$1.5 million
. Disposition fees from January 1,
2012
through
December 31, 2012
, totaled
$1.3 million
, related to the Nine Property Sale.
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Effective July 1, 2012, monthly occupancy costs of
$21,000
were incurred for WREAS II's dedicated office space. Occupancy costs from January 1,
2012
through
December 31, 2012
, totaled approximately
$126,000
.
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In addition to the Advisory Agreement, we have also entered into the following contracts with WREF and its subsidiaries:
Transition Services Agreement
We have entered into an agreement with WREAS II and WREF for transition services (the "Transition Services Agreement"), for the period from
July 1, 2012
to
December 31, 2013
, pursuant to which (i) WREF is required to transfer the assets and employees necessary to provide the services under the Advisory Agreement (other than investor services and property management) to WREAS II by January 1, 2013, provided that if WREF is not able to transfer certain assets by then, WREF must use its commercially reasonable best efforts to transfer such delayed assets as promptly as possible, but no later than
June 30, 2013
; and (ii) we have the option to acquire WREAS II at any time during
2013
(the "WREAS II Assignment Option"). The WREAS II Assignment Option closed as of February 28, 2013. No payment is associated with the assignment; however, we are required to pay WREF for the work required to transfer sufficient employees, proprietary systems and processes, and assets to WREAS II to prepare for a successful transition to self-management. Accordingly, pursuant to the Transition Services Agreement, we are obligated to pay WREF a total of
$6.0 million
payable in
12
monthly installments of
$0.5 million
commencing on July 31, 2012. In addition, Columbia Property Trust and WREF will each pay half of any out-of-pocket and third-party costs and expenses incurred in connection with providing the services provided that our obligation to reimburse WREF for such expenses is limited to approximately
$250,000
in the aggregate. Pursuant to the Transition Services Agreement, at the close of the WREAS II Assignment Option, we entered into a consulting services agreement with WREF as described below. The Transition Services Agreement is terminable if there is a material breach by WREF that is not cured or if WREF is in an insolvency proceeding. Otherwise, if we
elect to terminate the agreement early, all remaining payments due under the agreement will be accelerated such that WREF receives
$6.0 million
in the aggregate. Payments under the Transition Services Agreement from January 1,
2012
through
December 31, 2012
, totaled approximately
$3.0 million
.
Amendment to Transition Services Agreement
On December 28, 2012, the Transition Services Agreement was amended as follows:
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We may, at our option, acquire WRES, the entity charged with carrying out property management functions on behalf of WREAS II, for consideration of approximately
$2.8 million
payable to Wells Real Estate Funds in monthly installments from July 2013 through December 2013 under the Transition Services Agreement. As further explained in Item 1.
Business
, the company closed the above-described option effective February 28, 2013.
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Upon terminating the Advisory Agreement and effecting the WREAS II Assignment Option, we will enter into a new investor services agreement with WREF, which provides for the payment of various fees and reimbursement of third- party expenses to WREF (the "Investor Services Agreement") in connection with the provision of such services.
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•
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Adjustments to acquisition and disposition fees as discussed above.
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2012 Investor Services Agreement
Effective
July 1, 2012
, stockholder and communication services and expense reimbursements related thereto were separated out of the Advisory Agreement and covered under a separate agreement (the "2012 Investor Services Agreement"). The 2012 Investor Services Agreement requires WREF to provide the stockholder and communications services to us previously provided under the advisory agreement in effect through
June 30, 2012
. As the sole consideration for these services, we reimbursed WREF for expenses incurred in connection with carrying out such services, subject to the cap on "portfolio general and administrative expenses" and "personnel expenses" included in the Advisory Agreement and, thus, did not incur a separate fee.
Renewal Investor Services Agreement
The Renewal Investor Services Agreement, which was effective
January 1, 2013
, is between us and WREF (the "Renewal Investor Services Agreement"). It is substantially the same as the investor services agreement that was in effect through
December 31, 2012
. This agreement terminated on February 28, 2013, upon the exercise of the WREAS II Assignment Option.
Investor Services Agreement
Upon the exercise of the WREAS II Assignment Option, we entered into the Investor Services Agreement with WREF, which requires WREF to provide the same stockholder and communication services to us previously provided for under the 2012 Investor Services Agreement and, more recently, the Renewal Investor Services Agreement, and provides for us to compensate WREF for the services based on a reimbursement of costs and payroll plus a premium.
Consulting Services Agreement
Also upon the exercise of the WREAS II Assignment Option, we entered a consulting services agreement with WREF (the "Consulting Services Agreement"). Under the Consulting Services Agreement, WREF will provide consulting services with respect to the same matters that WREAS II and its affiliates would provide advisory services under the Renewal Advisory Agreement. Payments under the Consulting Services Agreement will be monthly fees in the same amount as the asset management fees that would have been paid under the Renewal Advisory Agreement through December 31, 2013, if the Renewal Advisory Agreement was not terminated. If we elect to terminate the Consulting Services Agreement early for cause, we would not be required to make further payments under the agreement other than fees earned by WREF and unpaid at the time of termination. If we terminate the Consulting Services Agreement other than for cause, we would be required to make a fee acceleration payment, which is calculated as the fees incurred in the last month prior to termination, adjusted for partial months, multiplied by the number of months remaining between the time of termination and December 31, 2013.
Our Relationship with Wells Management
Through June 30, 2012, Columbia Property Trust was party to a property management, leasing, and construction management agreement with WREAS II (the "Property Management Agreement"). Wells Management assigned all of its rights, title, and interest in the Property Management Agreement to WREAS II on January 1, 2011. Columbia Property Trust consented to such assignment as required by the Prior Property Management Agreement, as described in Note, 10
Related-Party Transactions and Agreements,
of the accompanying notes to the financial statements. As part of this assignment, Wells Management guaranteed the performance of all of the WREAS II obligations under the Prior Property Management Agreement. Mr. Wells indirectly owns 100% of Wells
Management. In consideration for supervising the management, leasing, and construction of certain of our properties, we paid the following fees to WREAS II under the Property Management Agreement:
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For each property for which WREAS II provided property management services, we paid WREAS II a market-based property management fee based on gross monthly income of the property.
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For each property for which WREAS II provided leasing agent services, WREAS II was entitled to: (i) a one-time fee in an amount not to exceed one month's rent for the initial rent-up of a newly constructed building; (ii) a market-based commission based on the net rent payable during the term of a new lease; (iii) a market-based commission based on the net rent payable during the term of any renewal or extension of any tenant lease; and (iv) a market-based commission based on the net rent payable with respect to expansion space for the remaining portion of the initial lease term.
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For each property for which WREAS II provided construction management services, WREAS II was entitled to receive from us that portion of lease concessions for tenant-directed improvements that are specified in the lease or lease renewal, subject to a limit of 5% of such lease concessions and a management fee to be determined for other construction management activities.
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Effective July 1, 2012, we entered into a new agreement with Wells Management for property management services, which was substantially the same as the Property Management Agreement, except that Wells Management is party to the agreement instead of WREAS II and will also provide us with portfolio-level property management services previously provided under the Advisory Agreement. These portfolio-level services shall be subject to the cap on "portfolio general and administrative expenses" and "personnel expenses" included in the Advisory Agreement as described above. The Property Management Agreement was terminated on February 28, 2013, when the WRES Assignment Option was effected. Going forward, our employees will provide the services previously provided by Wells Management.
Property management and construction fees incurred from January 1,
2012
through
December 31, 2012
totaled
$4.7 million
.
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ITEM 14.
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PRINCIPAL ACCOUNTANT FEES AND SERVICES
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The information required by this Item is incorporated by reference from our
2013
Proxy Statement.
PART IV
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ITEM 15.
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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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(a) 1. A list of the financial statements contained herein is set forth on page F-1 hereof.
(a) 2. Schedule III
–
Real Estate Assets and Accumulated Depreciation
Information with respect to this item begins on page S-1 hereof. Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto.
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(a) 3.
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The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.
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(b) See (a) 3 above.
(c) See (a) 2 above.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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COLUMBIA PROPERTY TRUST, INC.
(Registrant)
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Dated:
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February 28, 2013
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By:
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/s/ WENDY W. GILL
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WENDY W. GILL
Principal Financial Officer, Principal Accounting Officer, and Treasurer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity as and on the date indicated.
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Signature
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Title
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Date
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/s/ Charles R. Brown
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Independent Director
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Charles R. Brown
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February 28, 2013
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/s/ Richard W. Carpenter
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Independent Director
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Richard W. Carpenter
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February 28, 2013
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/s/ Bud Carter
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Independent Director
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Bud Carter
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February 28, 2013
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/s/ John L. Dixon
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Independent Director
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John L. Dixon
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February 28, 2013
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/s/ E. Nelson Mills
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President, Chief Executive Officer and Director
(Principal Executive Officer)
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E. Nelson Mills
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February 28, 2013
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/s/ George W. Sands
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Independent Director
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George W. Sands
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February 28, 2013
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/s/ Neil H. Strickland
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Independent Director
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Neil H. Strickland
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February 28, 2013
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/s/ Leo F. Wells, III
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Director
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Leo F. Wells, III
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February 28, 2013
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/s/ Douglas P. Williams
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Director
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Douglas P. Williams
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February 28, 2013
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EXHIBIT INDEX
TO
2012
FORM 10-K OF
COLUMBIA PROPERTY TRUST, INC.
The following documents are filed as exhibits to this report. Exhibits that are not required for this report are omitted.
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Ex.
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Description
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3.1*
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Second Amended and Restated Articles of Incorporation as Amended by the First Articles of Amendment.
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3.2*
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Second Amended and Restated Bylaws.
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4.1*
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Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates).
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4.2*
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Third Amended and Restated Distribution Reinvestment Plan.
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10.1
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Advisory Agreement between the Company and Wells Real Estate Advisory Services II, LLC effective as of January 1, 2012, incorporated by reference to the Company's Annual Report on Form 10-K filed with the Commission on February 29, 2012.
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10.2
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Term Loan Agreement dated as of February 3, 2012, by and among Wells Operating Partnership II, L.P., as Borrower, J.P. Morgan Securities LLC and PNC Capital Markets LLC, as Joint Lead Arrangers and Joint Bookrunners, JPMorgan Chase Bank, N.A., as Administrative Agent and PNC Bank, National Association, as Syndication Agent and Regions Bank, U.S. Bank National Association, TD Bank, N.A. and Union Bank, N.A., as Documentation Agents and the Financial Institutions and their Assignees as Lenders (incorporated by reference to Exhibit 10.2 to the Company's quarterly Report on Form 10-Q filed with the Commission on May 4, 2012).
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10.3
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Supplemental Indenture dated as of February 3, 2012 among Wells Operating Partnership II, L.P., the Guarantors Party Hereto and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 10.3 to the Company's quarterly Report on Form 10-Q filed with the Commission on May 4, 2012).
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10.4
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Advisory Agreement between the Company and Wells Real Estate Advisory Services II, LLC effective as of April 1, 2012 (incorporated by reference to Exhibit 10.1 to the Company's quarterly Report on Form 10-Q filed with the Commission on August 6, 2012).
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10.5
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Initial Term Advisory Agreement between the Company and Wells Real Estate Advisory Services II, LLC effective as of July 1, 2012 (incorporated by reference to Exhibit 10.2 to the Company's quarterly Report on Form 10-Q filed with the Commission on August 6, 2012).
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10.6
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Transition Services Agreement between the Company, Wells Real Estate Advisory Services II, LLC and Wells Real Estate Funds, Inc. effective as of July 1, 2012 (incorporated by reference to Exhibit 10.3 to the Company's quarterly Report on Form 10-Q filed with the Commission on August 6, 2012).
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10.7
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Investor Services Agreement between the Company and Wells Real Estate Funds, Inc. effective as of July 1, 2012 (incorporated by reference to Exhibit 10.4 to the Company's quarterly Report on Form 10-Q filed with the Commission on August 6, 2012).
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10.8
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Master Property Management, Leasing and Construction Management Agreement between the Company, Wells Operating Partnership II, L.P., and Wells Management Company, Inc. effective as of July 1, 2012 (incorporated by reference to Exhibit 10.5 to the Company's quarterly Report on Form 10-Q filed with the Commission on August 6, 2012).
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10.9*
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Renewal Advisory Agreement between the Company and Wells Real Estate Advisory Services II, LLC dated December 28, 2012 and effective as of January 1, 2013.
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10.10*
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Renewal Investor Services Agreement between the Company and Wells Real Estate Funds, Inc. dated as of December 28, 2012 and effective as of January 1, 2013.
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10.11*
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Amendment to Transition Services Agreement between the Company, Wells Real Estate Advisory Services II, LLC, Wells Real Estate Services, LLC, Wells Management Company, Inc. ("Wells Management") and Wells Real Estate Funds, Inc. dated and effective as of December 28, 2013.
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10.12*
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Amendment to Master Property Management, Leasing and Construction Management Agreement between the Company, Wells Operating Partnership II, L.P., and Wells Management Company, Inc. dated as of December 28, 2012.
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21.1*
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Subsidiaries of Columbia Property Trust, Inc.
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23.1*
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Consent of Deloitte & Touche LLP.
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23.2*
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Consent of Frazier & Deeter, LLC.
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|
31.1*
|
Certification of the Principal Executive Officer of the Company, pursuant to Securities Exchange Act Rules 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2*
|
Certification of the Principal Financial Officer of the Company, pursuant to Securities Exchange Act Rules 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1*
|
Certification of the Principal Executive Officer and Principal Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
99.1*
|
Sixth Amended and Restated Share Redemption Program.
|
|
99.2*
|
Columbia Property Trust, Inc. Unaudited Pro Forma Financial Statements.
|
|
99.3*
|
Wells Real Estate Advisory Services II, LLC and Wells Real Estate Services, LLC Carve-Out Combined Financial Statements.
|
|
101.INS**
|
XBRL Instance Document.
|
|
101.SCH**
|
XBRL Taxonomy Extension Schema.
|
|
101.CAL**
|
XBRL Taxonomy Extension Calculation Linkbase.
|
|
101.DEF**
|
XBRL Taxonomy Extension Definition Linkbase.
|
|
101.LAB**
|
XBRL Taxonomy Extension Label Linkbase.
|
|
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase.
|
|
|
|
|
*
|
Filed herewith.
|
|
**
|
Furnished with this Form 10-K.
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Columbia Property Trust, Inc.:
We have audited the accompanying consolidated balance sheets of Columbia Property Trust, Inc. (formerly Wells Real Estate Investment Trust II, Inc.) and subsidiaries (the "Company") as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2012. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Columbia Property Trust, Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/S/ Deloitte & Touche LLP
Atlanta, Georgia
February 28, 2013
COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
Assets:
|
|
|
|
|
Real estate assets, at cost:
|
|
|
|
|
Land
|
$
|
789,237
|
|
|
$
|
704,336
|
|
|
Buildings and improvements, less accumulated depreciation of $580,334 and $514,961, as of
December 31, 2012 and 2011, respectively
|
3,468,218
|
|
|
3,472,971
|
|
|
Intangible lease assets, less accumulated amortization of $315,840 and $343,463, as of December 31,
2012 and 2011, respectively
|
341,460
|
|
|
391,989
|
|
|
Construction in progress
|
12,680
|
|
|
8,414
|
|
|
Real estate assets held for sale, less accumulated depreciation and amortization of $9,551, as of
December 31, 2011
|
—
|
|
|
37,508
|
|
|
Total real estate assets
|
4,611,595
|
|
|
4,615,218
|
|
|
Cash and cash equivalents
|
53,657
|
|
|
39,468
|
|
|
Tenant receivables, net of allowance for doubtful accounts of $117 and $3,728, as of December 31, 2012
and 2011, respectively
|
134,099
|
|
|
130,549
|
|
|
Prepaid expenses and other assets
|
29,373
|
|
|
32,831
|
|
|
Deferred financing costs, less accumulated amortization of $8,527 and $5,590, as of
December 31, 2012 and 2011, respectively
|
10,490
|
|
|
9,442
|
|
|
Intangible lease origination costs, less accumulated amortization of $230,930 and $236,679, as of
December 31, 2012 and 2011, respectively
|
206,927
|
|
|
231,338
|
|
|
Deferred lease costs, less accumulated amortization of $24,222 and $22,390, as of
December 31, 2012 and 2011, respectively
|
98,808
|
|
|
68,289
|
|
|
Investment in development authority bonds
|
586,000
|
|
|
646,000
|
|
|
Other assets held for sale, less accumulated amortization of $2,260, as of December 31, 2011
|
—
|
|
|
3,432
|
|
|
Total assets
|
$
|
5,730,949
|
|
|
$
|
5,776,567
|
|
|
Liabilities:
|
|
|
|
|
Line of credit and notes payable
|
$
|
1,401,618
|
|
|
$
|
1,221,060
|
|
|
Bonds payable, net of discount of $1,322 and $1,574, as of December 31, 2012 and 2011, respectively
|
248,678
|
|
|
248,426
|
|
|
Accounts payable, accrued expenses, and accrued capital expenditures
|
102,858
|
|
|
72,349
|
|
|
Due to affiliates
|
1,920
|
|
|
3,329
|
|
|
Deferred income
|
28,071
|
|
|
35,079
|
|
|
Intangible lease liabilities, less accumulated amortization of $84,326 and $74,326, as of December 31,
2012 and 2011, respectively
|
98,298
|
|
|
89,581
|
|
|
Obligations under capital leases
|
586,000
|
|
|
646,000
|
|
|
Liabilities held for sale
|
—
|
|
|
624
|
|
|
Total liabilities
|
2,467,443
|
|
|
2,316,448
|
|
|
Commitments and Contingencies (Note 6)
|
—
|
|
|
—
|
|
|
Redeemable Common Stock
|
99,526
|
|
|
113,147
|
|
|
Equity:
|
|
|
|
|
Common stock, $0.01 par value, 900,000,000 shares authorized, 547,603,642 and 546,197,750 shares
issued and outstanding as of December 31, 2012 and 2011, respectively
|
5,476
|
|
|
5,462
|
|
|
Additional paid-in capital
|
4,897,782
|
|
|
4,880,806
|
|
|
Cumulative distributions in excess of earnings
|
(1,634,531
|
)
|
|
(1,426,550
|
)
|
|
Redeemable common stock
|
(99,526
|
)
|
|
(113,147
|
)
|
|
Other comprehensive (loss) income
|
(5,221
|
)
|
|
84
|
|
|
Total Columbia Property Trust, Inc. stockholders' equity
|
3,163,980
|
|
|
3,346,655
|
|
|
Nonredeemable noncontrolling interests
|
—
|
|
|
317
|
|
|
Total equity
|
3,163,980
|
|
|
3,346,972
|
|
|
Total liabilities, redeemable common stock, and equity
|
$
|
5,730,949
|
|
|
$
|
5,776,567
|
|
See accompanying notes.
COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
|
Revenues:
|
|
|
|
|
|
|
Rental income
|
$
|
442,284
|
|
|
$
|
441,907
|
|
|
$
|
396,122
|
|
|
Tenant reimbursements
|
104,863
|
|
|
102,944
|
|
|
93,412
|
|
|
Hotel income
|
23,049
|
|
|
20,600
|
|
|
19,819
|
|
|
Other property income
|
6,495
|
|
|
10,938
|
|
|
1,161
|
|
|
|
576,691
|
|
|
576,389
|
|
|
510,514
|
|
|
Expenses:
|
|
|
|
|
|
|
Property operating costs
|
173,466
|
|
|
167,427
|
|
|
151,509
|
|
|
Hotel operating costs
|
18,362
|
|
|
17,394
|
|
|
17,035
|
|
|
Asset and property management fees:
|
|
|
|
|
|
|
Related-party
|
34,394
|
|
|
34,568
|
|
|
30,970
|
|
|
Other
|
2,826
|
|
|
2,787
|
|
|
3,245
|
|
|
Depreciation
|
114,107
|
|
|
110,699
|
|
|
92,613
|
|
|
Amortization
|
97,649
|
|
|
111,465
|
|
|
103,537
|
|
|
General and administrative
|
25,163
|
|
|
23,735
|
|
|
23,216
|
|
|
Acquisition fees and expenses
|
1,876
|
|
|
11,250
|
|
|
10,779
|
|
|
|
467,843
|
|
|
479,325
|
|
|
432,904
|
|
|
Real estate operating income
|
108,848
|
|
|
97,064
|
|
|
77,610
|
|
|
Other income (expense):
|
|
|
|
|
|
|
Interest expense
|
(106,391
|
)
|
|
(106,305
|
)
|
|
(82,038
|
)
|
|
Interest and other income
|
39,871
|
|
|
42,395
|
|
|
43,083
|
|
|
Loss on interest rate swaps
|
(1,225
|
)
|
|
(38,383
|
)
|
|
(19,061
|
)
|
|
Gain on the early extinguishment of debt
|
—
|
|
|
53,018
|
|
|
—
|
|
|
|
(67,745
|
)
|
|
(49,275
|
)
|
|
(58,016
|
)
|
|
Income before income tax (expense) benefit
|
41,103
|
|
|
47,789
|
|
|
19,594
|
|
|
Income tax (expense) benefit
|
(586
|
)
|
|
276
|
|
|
226
|
|
|
Income from continuing operations
|
40,517
|
|
|
48,065
|
|
|
19,820
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
Operating (loss) income from discontinued operations
|
(12,591
|
)
|
|
(4,931
|
)
|
|
3,681
|
|
|
Gain (loss) on disposition of discontinued operations
|
20,117
|
|
|
13,522
|
|
|
(161
|
)
|
|
Income from discontinued operations
|
7,526
|
|
|
8,591
|
|
|
3,520
|
|
|
Net income
|
48,043
|
|
|
56,656
|
|
|
23,340
|
|
|
Less: net income attributable to nonredeemable noncontrolling interests
|
(4
|
)
|
|
(14
|
)
|
|
(74
|
)
|
|
Net income attributable to the common stockholders of
Columbia Property Trust,
Inc.
|
$
|
48,039
|
|
|
$
|
56,642
|
|
|
$
|
23,266
|
|
|
Per-share information – basic and diluted:
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
0.07
|
|
|
$
|
0.09
|
|
|
$
|
0.04
|
|
|
Income from discontinued operations
|
$
|
0.01
|
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
Net income attributable to the common stockholders of
Columbia Property Trust, Inc.
|
$
|
0.09
|
|
|
$
|
0.10
|
|
|
$
|
0.04
|
|
|
Weighted-average common shares outstanding – basic and diluted
|
546,688
|
|
|
542,721
|
|
|
524,848
|
|
See accompanying notes.
COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
|
Net income attributable to the common stockholders of Columbia Property
Trust,
Inc.
|
$
|
48,039
|
|
|
$
|
56,642
|
|
|
$
|
23,266
|
|
|
Market value adjustment to interest rate swap
|
(5,305
|
)
|
|
11,223
|
|
|
(3,110
|
)
|
|
Comprehensive income attributable to the common stockholders of
Columbia Property Trust, Inc.
|
42,734
|
|
|
67,865
|
|
|
20,156
|
|
|
Comprehensive income attributable to noncontrolling interests
|
4
|
|
|
14
|
|
|
74
|
|
|
Comprehensive income
|
$
|
42,738
|
|
|
$
|
67,879
|
|
|
$
|
20,230
|
|
See accompanying notes.
COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Cumulative
Distributions
in Excess of
Earnings
|
|
Redeemable
Common
Stock
|
|
Other
Comprehensive
Loss
|
|
Total Columbia Property Trust, Inc.
Stockholders'
Equity
|
|
Nonredeemable
Noncontrolling
Interests
|
|
Total
Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
499,895
|
|
|
$
|
4,999
|
|
|
$
|
4,461,980
|
|
|
$
|
(935,019
|
)
|
|
$
|
(805,844
|
)
|
|
$
|
(8,029
|
)
|
|
$
|
2,718,087
|
|
|
$
|
5,274
|
|
|
$
|
2,723,361
|
|
|
Issuance of common stock
|
49,199
|
|
|
492
|
|
|
487,609
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
488,101
|
|
|
—
|
|
|
488,101
|
|
|
Redemptions of common stock
|
(8,187
|
)
|
|
(82
|
)
|
|
(72,689
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(72,771
|
)
|
|
—
|
|
|
(72,771
|
)
|
|
Decrease in redeemable common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
644,655
|
|
|
—
|
|
|
644,655
|
|
|
—
|
|
|
644,655
|
|
|
Distributions to common stockholders
($0.57 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(300,719
|
)
|
|
—
|
|
|
—
|
|
|
(300,719
|
)
|
|
—
|
|
|
(300,719
|
)
|
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(176
|
)
|
|
(176
|
)
|
|
Acquisition of noncontrolling interest in consolidated joint venture
|
—
|
|
|
—
|
|
|
(3,341
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,341
|
)
|
|
(4,825
|
)
|
|
(8,166
|
)
|
|
Commissions and discounts on stock sales and
related dealer-manager fees
|
—
|
|
|
—
|
|
|
(34,294
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(34,294
|
)
|
|
—
|
|
|
(34,294
|
)
|
|
Offering costs
|
—
|
|
|
—
|
|
|
(4,177
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,177
|
)
|
|
—
|
|
|
(4,177
|
)
|
|
Net income attributable to common
stockholders of Columbia Property Trust, Inc.
|
—
|
|
|
—
|
|
|
—
|
|
|
23,266
|
|
|
—
|
|
|
—
|
|
|
23,266
|
|
|
—
|
|
|
23,266
|
|
|
Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
74
|
|
|
74
|
|
|
Market value adjustment to interest rate swap
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
(3,110
|
)
|
|
(3,110
|
)
|
|
—
|
|
|
(3,110
|
)
|
|
Balance, December 31, 2010
|
540,907
|
|
|
$
|
5,409
|
|
|
$
|
4,835,088
|
|
|
$
|
(1,212,472
|
)
|
|
$
|
(161,189
|
)
|
|
$
|
(11,139
|
)
|
|
$
|
3,455,697
|
|
|
$
|
347
|
|
|
$
|
3,456,044
|
|
COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Cumulative
Distributions
in Excess of
Earnings
|
|
Redeemable
Common
Stock
|
|
Other
Comprehensive
(Loss) Income
|
|
Total Columbia Property
Trust, Inc.
Stockholders'
Equity
|
|
Nonredeemable
Noncontrolling
Interests
|
|
Total
Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
540,907
|
|
|
$
|
5,409
|
|
|
$
|
4,835,088
|
|
|
$
|
(1,212,472
|
)
|
|
$
|
(161,189
|
)
|
|
$
|
(11,139
|
)
|
|
$
|
3,455,697
|
|
|
$
|
347
|
|
|
$
|
3,456,044
|
|
|
Issuance of common stock
|
14,808
|
|
|
148
|
|
|
130,141
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
130,289
|
|
|
—
|
|
|
130,289
|
|
|
Redemptions of common stock
|
(9,517
|
)
|
|
(95
|
)
|
|
(84,423
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(84,518
|
)
|
|
—
|
|
|
(84,518
|
)
|
|
Decrease in redeemable common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48,042
|
|
|
—
|
|
|
48,042
|
|
|
—
|
|
|
48,042
|
|
|
Distributions to common stockholders
($0.50 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(270,720
|
)
|
|
—
|
|
|
—
|
|
|
(270,720
|
)
|
|
—
|
|
|
(270,720
|
)
|
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44
|
)
|
|
(44
|
)
|
|
Net income attributable to common
stockholders of Columbia Property Trust, Inc.
|
—
|
|
|
—
|
|
|
—
|
|
|
56,642
|
|
|
—
|
|
|
—
|
|
|
56,642
|
|
|
—
|
|
|
56,642
|
|
|
Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
14
|
|
|
Market value adjustment to interest rate swap
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,223
|
|
|
11,223
|
|
|
—
|
|
|
11,223
|
|
|
Balance, December 31, 2011
|
546,198
|
|
|
$
|
5,462
|
|
|
$
|
4,880,806
|
|
|
$
|
(1,426,550
|
)
|
|
$
|
(113,147
|
)
|
|
$
|
84
|
|
|
$
|
3,346,655
|
|
|
$
|
317
|
|
|
$
|
3,346,972
|
|
COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Cumulative
Distributions
in Excess of
Earnings
|
|
Redeemable
Common
Stock
|
|
Other
Comprehensive
Income (Loss)
|
|
Total Columbia Property Trust, Inc.
Stockholders'
Equity
|
|
Nonredeemable
Noncontrolling
Interests
|
|
Total
Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
546,198
|
|
|
$
|
5,462
|
|
|
$
|
4,880,806
|
|
|
$
|
(1,426,550
|
)
|
|
$
|
(113,147
|
)
|
|
$
|
84
|
|
|
$
|
3,346,655
|
|
|
$
|
317
|
|
|
$
|
3,346,972
|
|
|
Issuance of common stock
|
16,666
|
|
|
167
|
|
|
118,221
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
118,388
|
|
|
—
|
|
|
118,388
|
|
|
Redemptions of common stock
|
(15,260
|
)
|
|
(153
|
)
|
|
(101,243
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(101,396
|
)
|
|
—
|
|
|
(101,396
|
)
|
|
Decrease in redeemable common stock
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,621
|
|
|
—
|
|
|
13,621
|
|
|
—
|
|
|
13,621
|
|
|
Distributions to common stockholders
($0.47 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(256,020
|
)
|
|
—
|
|
|
—
|
|
|
(256,020
|
)
|
|
—
|
|
|
(256,020
|
)
|
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
(15
|
)
|
|
Offering costs
|
—
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
(7
|
)
|
|
Acquisition of noncontrolling interest in
consolidated joint ventures
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
(306
|
)
|
|
(301
|
)
|
|
Net income attributable to the common stockholders of Columbia Property Trust, Inc.
|
—
|
|
|
—
|
|
|
—
|
|
|
48,039
|
|
|
—
|
|
|
—
|
|
|
48,039
|
|
|
—
|
|
|
48,039
|
|
|
Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
4
|
|
|
Market value adjustment to interest rate swap
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,305
|
)
|
|
(5,305
|
)
|
|
—
|
|
|
(5,305
|
)
|
|
Balance, December 31, 2012
|
547,604
|
|
|
$
|
5,476
|
|
|
$
|
4,897,782
|
|
|
$
|
(1,634,531
|
)
|
|
$
|
(99,526
|
)
|
|
$
|
(5,221
|
)
|
|
$
|
3,163,980
|
|
|
$
|
—
|
|
|
$
|
3,163,980
|
|
See accompanying notes.
COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net income
|
$
|
48,043
|
|
|
$
|
56,656
|
|
|
$
|
23,340
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Straight-line rental income
|
(11,033
|
)
|
|
(22,165
|
)
|
|
(6,544
|
)
|
|
Depreciation
|
120,307
|
|
|
119,772
|
|
|
102,558
|
|
|
Amortization
|
100,482
|
|
|
122,807
|
|
|
124,360
|
|
|
(Gain) loss on interest rate swaps
|
(173
|
)
|
|
28,635
|
|
|
9,485
|
|
|
(Gain) loss on sale of real estate assets
|
(20,117
|
)
|
|
—
|
|
|
161
|
|
|
Impairment losses on real estate assets
|
18,467
|
|
|
5,817
|
|
|
—
|
|
|
Gains on early extinguishment of debt
|
—
|
|
|
(66,540
|
)
|
|
—
|
|
|
Remeasurement gain on foreign currency
|
—
|
|
|
—
|
|
|
686
|
|
|
Noncash interest expense
|
3,881
|
|
|
23,967
|
|
|
18,703
|
|
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
Increase in tenant receivables, net
|
(4,767
|
)
|
|
(1,438
|
)
|
|
(2,895
|
)
|
|
Decrease (increase) in prepaid expenses and other assets
|
2,344
|
|
|
(4,443
|
)
|
|
(4,219
|
)
|
|
Increase in accounts payable and accrued expenses
|
4,270
|
|
|
8,114
|
|
|
2,418
|
|
|
Decrease in due to affiliates
|
(1,411
|
)
|
|
(1,146
|
)
|
|
(360
|
)
|
|
(Decrease) increase in deferred income
|
(7,454
|
)
|
|
9,122
|
|
|
2,413
|
|
|
Net cash provided by operating activities
|
252,839
|
|
|
279,158
|
|
|
270,106
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
Net proceeds from the sale of real estate
|
304,264
|
|
|
—
|
|
|
15,219
|
|
|
Investment in real estate and earnest money paid
|
(233,798
|
)
|
|
(638,783
|
)
|
|
(318,948
|
)
|
|
Deferred lease costs paid
|
(39,419
|
)
|
|
(27,307
|
)
|
|
(8,979
|
)
|
|
Net cash provided by (used in) investing activities
|
31,047
|
|
|
(666,090
|
)
|
|
(312,708
|
)
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
Financing costs paid
|
(4,198
|
)
|
|
(12,395
|
)
|
|
(7,338
|
)
|
|
Proceeds from lines of credit and notes payable
|
599,000
|
|
|
1,543,500
|
|
|
88,000
|
|
|
Repayments of lines of credit and notes payable
|
(627,191
|
)
|
|
(1,168,278
|
)
|
|
(162,742
|
)
|
|
Proceeds from issuance of bonds payable
|
—
|
|
|
248,237
|
|
|
—
|
|
|
Issuance of common stock
|
118,388
|
|
|
130,289
|
|
|
483,559
|
|
|
Redemptions of common stock
|
(99,381
|
)
|
|
(82,892
|
)
|
|
(72,757
|
)
|
|
Distributions paid to stockholders
|
(137,632
|
)
|
|
(140,431
|
)
|
|
(150,246
|
)
|
|
Distributions paid to stockholders and reinvested in shares of our common stock
|
(118,388
|
)
|
|
(130,289
|
)
|
|
(163,569
|
)
|
|
Redemption of noncontrolling interests
|
(301
|
)
|
|
(87
|
)
|
|
—
|
|
|
Commissions on stock sales and related dealer-manager fees paid
|
—
|
|
|
—
|
|
|
(29,801
|
)
|
|
Offering costs paid
|
(11
|
)
|
|
—
|
|
|
(5,285
|
)
|
|
Distributions paid to nonredeemable noncontrolling interests
|
(15
|
)
|
|
(44
|
)
|
|
(250
|
)
|
|
Net cash (used in) provided by financing activities
|
(269,729
|
)
|
|
387,610
|
|
|
(20,429
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
14,157
|
|
|
678
|
|
|
(63,031
|
)
|
|
Effect of foreign exchange rate on cash and cash equivalents
|
32
|
|
|
(92
|
)
|
|
(812
|
)
|
|
Cash and cash equivalents, beginning of period
|
39,468
|
|
|
38,882
|
|
|
102,725
|
|
|
Cash and cash equivalents, end of period
|
$
|
53,657
|
|
|
$
|
39,468
|
|
|
$
|
38,882
|
|
See accompanying notes.
COLUMBIA PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
,
2011
, AND
2010
On February 25, 2013, Wells Real Estate Investment Trust II, Inc. changed its name to Columbia Property Trust, Inc. ("Columbia Property Trust"). Columbia Property Trust is a Maryland corporation that operates in a manner as to qualify as a real estate investment trust ("REIT") for federal income tax purposes and engages in the acquisition and ownership of commercial real estate properties, including properties that have operating histories, are newly constructed, or are under construction. Columbia Property Trust was incorporated in 2003, commenced operations in 2004, and conducts business primarily through Columbia Property Trust Operating Partnership, L.P., formerly known as Wells Operating Partnership II, L.P. ("Columbia Property Trust OP"), a Delaware limited partnership. Columbia Property Trust is the general partner and sole owner of Columbia Property Trust OP and possesses full legal control and authority over it operations. Columbia Property Trust OP acquires, develops, owns, leases, and operates real properties directly, through wholly owned subsidiaries, or through joint ventures. References to Columbia Property Trust, "we," "us," or "our" herein shall include Columbia Property Trust and all subsidiaries of Columbia Property Trust, direct and indirect, and consolidated joint ventures.
From inception through February 27, 2013, Columbia Property Trust has operated as an externally advised REIT pursuant to an advisory agreement under which a subsidiary of Wells Real Estate Funds ("WREF"), including most recently Wells Real Estate Advisory Services II, LLC ("WREAS II"), and its affiliates performed certain key functions on behalf of Columbia Property Trust, including, among others, managing the day-to-day operations, investing capital proceeds, and arranging financings. Also during this period of time, a subsidiary of WREF, including most recently Wells Real Estate Services, LLC ("WRES"), provided the personnel necessary to carry out property management services on behalf of Wells Management Company, Inc. ("Wells Management") and its affiliates pursuant to the property management agreement described in Note 10,
Related-Party Transactions and Agreements
.
On February 28, 2013, Columbia Property Trust terminated the above-mentioned advisory agreement and property management agreement, and acquired WREAS II and WRES. As a result, the services described above will be performed by employees of Columbia Property Trust going forward (other than the services to be provided by WREF under the Investor Services Agreement). Contemporaneous with this transaction, Columbia Property Trust entered into a consulting agreement and an investor services agreement with WREF for the remainder of 2013. While no fees were paid to execute this transaction, Columbia Property Trust will pay fees to WREF for consulting and investor services for the remainder of 2013. For additional details about this transaction and the related agreements, please refer to Note 10.
Related-Party Transactions and Agreements.
Columbia Property Trust typically invests in high-quality, income-generating office properties leased to creditworthy companies and governmental entities. As of
December 31, 2012
, Columbia Property Trust owned interests in
61
office properties and
one
hotel, which include
83
operational buildings, comprising approximately
21.0 million
square feet of commercial space located in
19
states; the District of Columbia; and Moscow, Russia. Of these office properties,
60
are wholly owned and
one
is owned through a consolidated subsidiary. As of
December 31, 2012
, the office properties were approximately
92.9%
leased.
From December 2003 through June 2010, Columbia Property Trust raised proceeds through
three
uninterrupted public offerings of shares of its common stock. Columbia Property Trust is continuing to offer shares of its common stock to its current investors through its distribution reinvestment plan ("DRP") pursuant to a registration statement on Form S-3. Columbia Property Trust typically invests in high-quality, income-generating office properties leased to creditworthy companies and governmental entities.
As of
December 31, 2012
, Columbia Property Trust had raised gross offering proceeds from the sale of common stock under its public offerings of approximately
$6.1 billion
. After deductions from such gross offering proceeds for selling commissions and dealer-manager fees of approximately
$509.5 million
, acquisition fees of approximately
$116.8 million
, other organization and offering expenses of approximately
$75.9 million
, and common stock redemptions pursuant to its share redemption program of approximately
$654.9 million
, Columbia Property Trust had received aggregate net offering proceeds of approximately
$4.7 billion
. Substantially all of Columbia Property Trust's net offering proceeds have been invested in real estate.
Columbia Property Trust's stock is not listed on a public securities exchange. However, Columbia Property Trust's charter requires that in the event Columbia Property Trust's stock is not listed on a national securities exchange by October 2015, Columbia Property Trust must either seek stockholder approval to extend or amend this listing deadline or seek stockholder approval to begin liquidating investments and distributing the resulting proceeds to the stockholders. If Columbia Property Trust seeks stockholder approval to extend or amend this listing date and does not obtain it, Columbia Property Trust would then be required to seek stockholder approval to liquidate. In this circumstance, if Columbia Property Trust seeks and does not obtain approval to liquidate, Columbia Property Trust would not be required to list or liquidate and could continue to operate indefinitely as an unlisted company.
|
|
|
|
2.
|
Summary of Significant Accounting Policies
|
Basis of Presentation
The consolidated financial statements of Columbia Property Trust have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and include the accounts of Columbia Property Trust, Columbia Property Trust OP, and any variable interest entity ("VIE") in which Columbia Property Trust or Columbia Property Trust OP was deemed the primary beneficiary. With respect to entities that are not VIEs, Columbia Property Trust's consolidated financial statements shall also include the accounts of any entity in which Columbia Property Trust, Columbia Property Trust OP, or its subsidiaries own a controlling financial interest and any limited partnership in which Columbia Property Trust, Columbia Property Trust OP, or its subsidiaries own a controlling general partnership interest. In determining whether Columbia Property Trust or Columbia Property Trust OP has a controlling interest, the following factors are considered, among other things: the ownership of voting interests, protective rights, and participatory rights of the investors.
All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.
Fair Value Measurements
Columbia Property Trust estimates the fair value of its assets and liabilities (where currently required under GAAP) consistent with the provisions of Accounting Standard Codification ("ASC") 820,
Fair Value Measurements
("ASC 820"). Under this standard, fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. While various techniques and assumptions can be used to estimate fair value, depending on the nature of the asset or liability, the accounting standard for fair value measurements and disclosures provides the following fair value technique parameters and hierarchy, depending upon availability:
Level 1 – Assets or liabilities for which the identical term is traded on an active exchange, such as publicly traded instruments or futures contracts.
Level 2 – Assets and liabilities valued based on observable market data for similar instruments.
Level 3 – Assets or liabilities for which significant valuation assumptions are not readily observable in the market. Such assets or liabilities are valued based on the best available data, some of which may be internally developed. Significant assumptions may include risk premiums that a market participant would consider.
Real Estate Assets
Real estate assets are stated at cost, less accumulated depreciation and amortization. Amounts capitalized to real estate assets consist of the cost of acquisition or construction, and any tenant improvements or major improvements and betterments that extend the useful life of the related asset. All repairs and maintenance are expensed as incurred. Additionally, Columbia Property Trust capitalizes interest while the development of a real estate asset is in progress. No interest was capitalized during
2012
and
2011
, respectively.
Columbia Property Trust is required to make subjective assessments as to the useful lives of its depreciable assets. Columbia Property Trust considers the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of its assets by class are as follows:
|
|
|
|
|
|
|
|
|
Buildings
|
|
40 years
|
|
|
Building improvements
|
|
5-25 years
|
|
|
Site improvements
|
|
15 years
|
|
|
Tenant improvements
|
|
Shorter of economic life or lease term
|
|
|
Intangible lease assets
|
|
Lease term
|
Evaluating the Recoverability of Real Estate Assets
Columbia Property Trust continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets, of both operating properties and properties under construction, in which Columbia Property Trust has an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present that suggest that the carrying amounts of real estate assets and related intangible assets (liabilities) may not be recoverable, Columbia Property Trust assesses the recoverability of these assets by determining whether the respective carrying values will be recovered through the estimated undiscounted future operating cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying values, Columbia Property Trust adjusts the carrying value of the real estate assets and related intangible assets to the estimated fair values, pursuant to the property, plant, and equipment accounting standard for the impairment or disposal of long-lived assets, and recognizes an impairment loss. Estimated fair values are calculated based on the following information, in order of preference, depending upon availability: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of future cash flows, including estimated salvage value. Certain of Columbia Property Trust's assets may be carried at more than an amount that could be realized in a current disposition transaction.
In the third quarter of
2012
, Columbia Property Trust focused on refining the portfolio by marketing and negotiating the sale of a collection of
nine
assets in outlying markets (the "Nine Property Sale"). Columbia Property Trust evaluated the recoverability of the carrying values of these assets pursuant to the accounting policy outlined above and determined that the carrying value of the 180 E 100 South property in Salt Lake City, Utah, one of the properties in the Nine Property Sale, was no longer recoverable due to the change in disposition strategy and the shortening of the expected hold period for this asset in the third quarter of
2012
. As a result, Columbia Property Trust reduced the carrying value of the 180 E 100 South property to reflect fair value and recorded a corresponding property impairment loss of
$18.5 million
in the third quarter of
2012
.
During the third quarter of
2011
, Columbia Property Trust evaluated the recoverability of the carrying value of the Manhattan Towers property and determined that it was not recoverable, as defined by the accounting policy outlined above. The Manhattan Towers property is located in Manhattan Beach, California, and includes
two
office buildings, which had total occupancy of
22%
. In the third quarter of
2011
, upon considering the economic impact of various property disposition scenarios not previously contemplated, including the likelihood of achieving the projected returns associated with each scenario, Columbia Property Trust opted to transfer the Manhattan Towers property to an affiliate of the lender in full settlement of a
$75.0 million
nonrecourse mortgage loan through a deed in lieu of foreclosure transaction, which closed on
September 6, 2011
. As a result of this transaction, Columbia Property Trust reduced the carrying value of the Manhattan Towers property to its fair value, estimated based on the present value of estimated future property cash flows, by recognizing a property impairment loss of approximately
$5.8 million
, which is included in operating income (loss) from discontinued operations in the statement of operations; and recognized a gain on early extinguishment of debt of
$13.5 million
, which is reflected as gain on disposition of discontinued operations in the statement of operations.
The fair value measurements used in this evaluation of nonfinancial assets are considered to be Level 3 valuations within the fair value hierarchy outlined above, as there are significant unobservable inputs. Examples of inputs that were utilized in the fair value calculations include estimated holding periods, discount rates, market capitalization rates, expected lease rental rates, and potential sales prices. The table below represents the detail of the adjustments recognized for
2012
and
2011
(in thousands) using Level 3 inputs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Net Book Value
|
|
Impairment Loss Recognized
|
|
Fair Value
|
|
For the year ended December 31, 2012
|
|
180 E 100 South
|
|
$
|
30,847
|
|
|
$
|
(18,467
|
)
|
|
$
|
12,380
|
|
|
For the year ended December 31, 2011
|
|
Manhattan Towers
|
|
$
|
65,317
|
|
|
$
|
(5,817
|
)
|
|
$
|
59,500
|
|
Assets Held for Sale
Columbia Property Trust classifies assets as held for sale according to ASC 360,
Accounting for the Impairment or Disposal of Long-Lived Assets
("ASC 360"). According to ASC 360, assets are considered held for sale when the following criteria are met:
|
|
|
|
•
|
Management, having the authority to approve the action, commits to a plan to sell the property.
|
|
|
|
|
•
|
The property is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such property.
|
|
|
|
|
•
|
An active program to locate a buyer and other actions required to complete the plan to sell the property have been initiated.
|
|
|
|
|
•
|
The sale of the property is probable, and transfer of the property is expected to qualify for recognition as a completed sale, within one year.
|
|
|
|
|
•
|
The property is being actively marketed for sale at a price that is reasonable in relation to its current fair value.
|
|
|
|
|
•
|
Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
|
At such time that a property is determined to be held for sale, its carrying amount is reduced to the lower of its depreciated book value or its estimated fair value, less costs to sell, and depreciation is no longer recognized. As of
December 31, 2011
, Emerald Point and 5995 Opus Parkway were classified as held for sale at their respective depreciated book values (see Note 12,
Assets Held for Sale and Discontinued Operations,
for additional detail). Both 5995 Opus Parkway and Emerald Point were sold in
January 2012
.
Allocation of Purchase Price of Acquired Assets
Upon the acquisition of real properties, Columbia Property Trust allocates the purchase price of properties to tangible assets, consisting of land, building, site improvements, and identified intangible assets and liabilities, including the value of in-place leases, based in each case on Columbia Property Trust's estimate of their fair values in accordance with ASC 820 (see
Fair Value Measurements
section above for additional details).
The fair values of the tangible assets of an acquired property (which includes land, building, and site improvements) are determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to land, building, and site improvements based on management's determination of the relative fair value of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases, including leasing commissions and other related costs. In estimating carrying costs, management includes real estate taxes, insurance, and other operating expenses during the expected lease-up periods based on current market demand.
Intangible Assets and Liabilities Arising from In-Place Leases where Columbia Property Trust is the Lessor
As further described below, in-place leases with Columbia Property Trust as the lessor may have values related to: direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease, tenant relationships, and effective contractual rental rates that are above or below market rates:
|
|
|
|
•
|
Direct costs associated with obtaining a new tenant, including commissions, tenant improvements, and other direct costs, are estimated based on management's consideration of current market costs to execute a similar lease. Such direct costs are included in intangible lease origination costs in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.
|
|
|
|
|
•
|
The value of opportunity costs associated with lost rentals avoided by acquiring an in-place lease is calculated based on contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. Such opportunity costs ("Absorption Period Costs") are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.
|
|
|
|
|
•
|
The value of tenant relationships is calculated based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. Values associated with tenant relationships are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.
|
|
|
|
|
•
|
The value of effective rental rates of in-place leases that are above or below the market rates of comparable leases is calculated based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be received pursuant to the in-place leases and (ii) management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining terms of the leases. The capitalized above-market and below-market lease values are recorded as intangible lease assets or liabilities and amortized as an adjustment to rental income over the remaining terms of the respective leases.
|
As of
December 31, 2012
and
2011
, Columbia Property Trust had the following gross intangible in-place lease assets and liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Lease Assets
|
|
Intangible
Lease
Origination
Costs
|
|
Intangible
Below-Market
In-Place Lease
Liabilities
|
|
|
Above-Market
In-Place
Lease Assets
|
|
|
Absorption
Period Costs
|
|
|
|
December 31, 2012
|
Gross
|
$
|
86,696
|
|
|
$
|
459,931
|
|
|
$
|
437,857
|
|
|
$
|
182,624
|
|
|
|
Accumulated Amortization
|
(56,259
|
)
|
|
(248,600
|
)
|
|
(230,930
|
)
|
|
(84,326
|
)
|
|
|
Net
|
$
|
30,437
|
|
|
$
|
211,331
|
|
|
$
|
206,927
|
|
|
$
|
98,298
|
|
|
December 31, 2011
|
Gross
|
$
|
109,457
|
|
|
$
|
515,322
|
|
|
$
|
468,017
|
|
|
$
|
163,907
|
|
|
|
Accumulated Amortization
|
(68,706
|
)
|
|
(265,844
|
)
|
|
(236,679
|
)
|
|
(74,326
|
)
|
|
|
Net
|
$
|
40,751
|
|
|
$
|
249,478
|
|
|
$
|
231,338
|
|
|
$
|
89,581
|
|
During
2012
,
2011
, and
2010
, Columbia Property Trust recognized the following amortization of intangible lease assets and liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Lease Assets
|
|
Intangible
Lease
Origination
Costs
|
|
Intangible
Below-Market
In-Place Lease
Liabilities
|
|
Above-Market
In-Place
Lease Assets
|
|
Absorption
Period Costs
|
|
|
For the years ended December 31,
|
|
|
|
|
|
|
|
|
2012
|
$
|
8,900
|
|
|
$
|
48,997
|
|
|
$
|
42,866
|
|
|
$
|
15,324
|
|
|
2011
|
$
|
14,244
|
|
|
$
|
62,902
|
|
|
$
|
50,006
|
|
|
$
|
17,203
|
|
|
2010
|
$
|
17,445
|
|
|
$
|
60,666
|
|
|
$
|
50,433
|
|
|
$
|
14,472
|
|
The remaining net intangible assets and liabilities as of
December 31, 2012
will be amortized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Lease Assets
|
|
Intangible
Lease
Origination
Costs
|
|
Intangible
Below-Market
In-Place Lease
Liabilities
|
|
Above-Market
In-Place
Lease Assets
|
|
Absorption
Period Costs
|
|
|
For the years ending December 31,
|
|
|
|
|
|
|
|
|
2013
|
$
|
6,629
|
|
|
$
|
39,767
|
|
|
$
|
39,383
|
|
|
$
|
14,795
|
|
|
2014
|
6,224
|
|
|
35,771
|
|
|
36,425
|
|
|
14,362
|
|
|
2015
|
5,810
|
|
|
32,018
|
|
|
32,980
|
|
|
12,828
|
|
|
2016
|
5,665
|
|
|
25,676
|
|
|
26,382
|
|
|
10,398
|
|
|
2017
|
2,514
|
|
|
18,635
|
|
|
19,495
|
|
|
8,306
|
|
|
Thereafter
|
3,595
|
|
|
59,464
|
|
|
52,262
|
|
|
37,609
|
|
|
|
$
|
30,437
|
|
|
$
|
211,331
|
|
|
$
|
206,927
|
|
|
$
|
98,298
|
|
|
Weighted-Average Amortization Period
|
4 years
|
|
|
6 years
|
|
|
6 years
|
|
|
7 years
|
|
Intangible Assets and Liabilities Arising from In-Place Leases where Columbia Property Trust is the Lessee
In-place ground leases where Columbia Property Trust is the lessee may have value associated with effective contractual rental rates that are above or below market rates at the time of execution or assumption. Such values are calculated based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place lease and (ii) management's estimate of fair market lease rates for the corresponding in-place lease at the time of execution or assumption, measured over a period equal to the remaining terms of the leases. The capitalized above-market and below-market in-place lease values are recorded as intangible lease liabilities and assets, respectively, and are amortized as an adjustment to property operating cost over the remaining term of the respective leases. Columbia Property Trust had gross below-market lease assets of approximately
$110.7 million
as of
December 31, 2012
and 2011, net of accumulated amortization of
$11.0 million
and
$8.9 million
as of
December 31, 2012
and
2011
, respectively. Columbia Property Trust recognized amortization of these assets of approximately
$2.1 million
for the
years
ended
2012
,
2011
, and
2010
.
As of
December 31, 2012
, the remaining net below-market lease asset will be amortized as follows (in thousands):
|
|
|
|
|
|
|
|
For the year ending December 31:
|
|
|
2013
|
$
|
2,069
|
|
|
2014
|
2,069
|
|
|
2015
|
2,069
|
|
|
2016
|
2,069
|
|
|
2017
|
2,069
|
|
|
Thereafter
|
89,347
|
|
|
|
$
|
99,692
|
|
|
Weighted-Average Amortization Period
|
49 years
|
|
Cash and Cash Equivalents
Columbia Property Trust considers all highly liquid investments purchased with an original maturity of
three
months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value as of
December 31, 2012
and
2011
.
Tenant Receivables, net
Tenant receivables are comprised of rental and reimbursement billings due from tenants and the cumulative amount of future adjustments necessary to present rental income on a straight-line basis. Tenant receivables are recorded at the original amount earned, less an allowance for any doubtful accounts, which approximates fair value. Management assesses the realizability of tenant receivables on an ongoing basis and provides for allowances as such balances, or portions thereof, become uncollectible.
Columbia Property Trust adjusted the allowance for doubtful accounts by recording a provision for doubtful accounts, net of recoveries, in general and administrative expenses of approximately $
0.2 million
and $
0.3 million
for
2012
and
2011
, respectively.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets primarily are comprised of earnest money and deposits paid in connection with future acquisitions and borrowings, escrow accounts held by lenders to pay future real estate taxes, insurance and tenant improvements, notes receivable, nontenant receivables, prepaid taxes, insurance and operating costs, hotel inventory, and deferred tax assets. Prepaid expenses and other assets will be expensed as incurred or reclassified to other asset accounts upon being put into service in future periods.
Deferred Financing Costs
Deferred financing costs are comprised of costs incurred in connection with securing financing from third-party lenders and are capitalized and amortized over the term of the related financing arrangements. Columbia Property Trust recognized amortization of deferred financing costs for the years ended
December 31, 2012
,
2011
, and
2010
, of approximately
$3.2 million
,
$8.4 million
, and
$4.1 million
, respectively, which is included in interest expense in the accompanying consolidated statements of operations.
Deferred Lease Costs
Deferred lease costs include (i) costs incurred to procure leases, which are capitalized and recognized as amortization expense on a straight-line basis over the terms of the lease, and (ii) common area maintenance costs that are recoverable from tenants under the terms of the existing leases. Such costs are capitalized and recognized as operating expenses over the shorter of the lease term or the recovery period provided for in the lease. Columbia Property Trust recognized amortization of deferred lease costs of approximately
$10.9 million
,
$6.8 million
, and
$4.7 million
for
2012
,
2011
, and
2010
, respectively, the majority of which is recorded as amortization. Upon receiving notification of a tenant's intention to terminate a lease, unamortized deferred lease costs are amortized over the shortened lease period.
Investments in Development Authority Bonds and Obligations Under Capital Leases
In connection with the acquisition of certain real estate assets, Columbia Property Trust has assumed investments in development authority bonds and corresponding obligations under capital leases of land or buildings. The county development authority issued bonds to developers to finance the initial development of these projects, a portion of which was then leased back to the developer under a capital lease. This structure enabled the developer to receive property tax abatements over the concurrent terms of the
development authority bonds and capital leases. The remaining property tax abatement benefits transferred to Columbia Property Trust upon assumption of the bonds and corresponding capital leases at acquisition. The development authority bonds and the obligations under the capital leases are both recorded at their net present values, which Columbia Property Trust believes approximates fair value. The related amounts of interest income and expense are recognized as earned in equal amounts and, accordingly, do not impact net income. In December 2012, Columbia Property Trust settled the
$60.0 million
development authority bond and related obligation under capital lease related to One Glenlake Parkway at expiration. In connection with the September 2010 sale of New Manchester One, the related development and authority bond and capital lease obligation, both equal to
$18.0 million
, were transferred to the buyer. See Note 12,
Discontinued Operations and Assets Held for Sale
, for additional details.
Line of Credit and Notes Payable
Certain mortgage notes included in line of credit and notes payable in the accompanying consolidated balance sheets were assumed upon the acquisition of real properties. When debt is assumed, Columbia Property Trust records the loan at fair value with a corresponding adjustment to building. The fair value adjustment is amortized to interest expense over the term of the loan using the effective interest method.
As of
December 31, 2012
and
2011
, the estimated fair value of Columbia Property Trust's line of credit and notes payable was approximately
$1,433.1 million
and
$1,282.6 million
, respectively. Columbia Property Trust estimated the fair values of its line of credit by obtaining estimates for similar facilities from multiple market participants as of the respective reporting dates. The fair values of the notes payable were estimated based on discounted cash flow analyses using the current incremental borrowing rates for similar types of borrowing arrangements as of the respective reporting dates. The discounted cash flow method of assessing fair value results in a general approximation of value, and such value may never actually be realized.
Bonds Payable
On April 4, 2011, Columbia Property Trust sold
$250.0 million
of its
seven-year
unsecured
5.875%
senior notes at
99.295%
of their face value (the "2018 Bonds Payable"). The discount on bonds payable is amortized to interest expense over the term of the bonds using the effective-interest method.
The estimated fair value of Columbia Property Trust's 2018 Bonds Payable as of
December 31, 2012
and
2011
, was approximately
$250.9 million
and
$251.1 million
, respectively. The fair value of the 2018 Bonds Payable was estimated based on discounted cash flow analyses using the current incremental borrowing rates for similar types of borrowing as the 2018 Bonds Payable arrangements as of the respective reporting dates. The discounted cash flow method of assessing fair value results in a general approximation of value, and such value may never actually be realized.
Noncontrolling Interests
Noncontrolling interests represent the equity interests of consolidated subsidiaries that are not owned by Columbia Property Trust. Noncontrolling interests are adjusted for contributions, distributions, and earnings attributable to the noncontrolling interest holders of the consolidated joint ventures. Pursuant to the terms of the consolidated joint venture agreements, all earnings and distributions are allocated to joint ventures in accordance with the terms of the respective joint venture agreements. Earnings allocated to such noncontrolling interest holders are recorded as net (income) loss attributable to noncontrolling interests in the accompanying consolidated statements of operations.
In
April 2012
, Columbia Property Trust purchased the remaining
0.7%
interest in the One Robbins Road and Four Robbins Road Buildings for
$0.3 million
from an unaffiliated party. The purchase price approximated the book value of the noncontrolling interest at the time of purchase.
Redeemable Common Stock
Under Columbia Property Trust's share redemption program ("SRP"), the decision to honor redemptions, subject to certain plan requirements and limitations, falls outside the control of Columbia Property Trust. As a result, Columbia Property Trust records redeemable common stock in the temporary equity section of its consolidated balance sheet. Total redemptions (including those tendered within two years of a stockholder's death) are limited to the extent that they would cause both (i) the aggregate amount paid for all redemptions during the then-current calendar year to exceed
100%
of the net proceeds raised under the DRP during such calendar year and (ii) the total number of shares redeemed during the then-current calendar year to exceed
5.0%
of the weighted-average number of shares outstanding in the prior calendar year. Therefore, Columbia Property Trust measures redeemable common stock at the greater of these limits (or, for the periods presented in this report,
5.0%
of the weighted-average number of shares outstanding in the prior calendar year, multiplied by the maximum price at which future shares could be redeemed), less the amount incurred to redeem shares during the current calendar year. The maximum price at which shares could be redeemed
(i.e., in cases of death, disability, or qualification for federal assistance for confinement to a long-term care facility) was measured at the most recently reported net asset value per share of
$7.33
and
$7.47
as of
December 31, 2012
and
2011
, respectively.
Preferred Stock
Columbia Property Trust is authorized to issue up to
100.0 million
shares of one or more classes or series of preferred stock with a par value of
$0.01
per share. Columbia Property Trust's board of directors may determine the relative rights, preferences, and privileges of each class or series of preferred stock issued, which may be more beneficial than the rights, preferences, and privileges attributable to Columbia Property Trust's common stock. To date, Columbia Property Trust has not issued any shares of preferred stock.
Common Stock
The par value of Columbia Property Trust's issued and outstanding shares of common stock is classified as common stock, with the remainder allocated to additional paid-in capital.
Distributions
To maintain its status as a REIT, Columbia Property Trust is required by the Internal Revenue Code of 1986, as amended (the "Code"), to make distributions to stockholders each taxable year equal to at least
90%
of its REIT taxable income, computed without regard to the dividends-paid deduction and by excluding net capital gains attributable to stockholders ("REIT taxable income"). Distributions to the stockholders are determined by the board of directors of Columbia Property Trust and are dependent upon a number of factors relating to Columbia Property Trust, including funds available for payment of distributions, financial condition, the timing of property acquisitions, capital expenditure requirements, and annual distribution requirements in order to maintain Columbia Property Trust's status as a REIT under the Code.
Interest Rate Swap Agreements
Columbia Property Trust enters into interest rate swap contracts to mitigate its interest rate risk on the related financial instruments. Columbia Property Trust does not enter into derivative or interest rate transactions for speculative purposes; however, certain of its derivatives may not qualify for hedge accounting treatment. Columbia Property Trust records the fair value of its interest rate swaps either as prepaid expenses and other assets or as accounts payable, accrued expenses, and accrued capital expenditures. Changes in the fair value of the effective portion of interest rate swaps that are designated as cash flow hedges are recorded as other comprehensive income, while changes in the fair value of the ineffective portion of a hedge, if any, is recognized currently in earnings. Changes in the fair value of interest rate swaps that do not qualify for hedge accounting treatment are recorded as loss on interest rate swaps. Amounts received or paid under interest rate swap agreements are recorded as interest expense for contracts that qualify for hedge accounting treatment and as loss on interest rate swaps for contracts that do not qualify for hedge accounting treatment.
The following tables provide additional information related to Columbia Property Trust's interest rate swaps as of
December 31, 2012
and
2011
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value as of
|
|
|
|
|
|
December 31,
|
|
Instrument Type
|
|
Balance Sheet Classification
|
|
2012
|
|
2011
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Accounts payable
|
|
$
|
(5,305
|
)
|
|
$
|
—
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Accounts payable
|
|
$
|
(13,109
|
)
|
|
$
|
(1,722
|
)
|
Columbia Property Trust applied the provisions of ASC 820 in recording its interest rate swaps at fair value. The fair values of the interest rate swaps, classified under Level 2, were determined using a third-party proprietary model that is based on prevailing market data for contracts with matching durations, current and anticipated London Interbank Offered Rate ("LIBOR") information, and reasonable estimates about relevant future market conditions. Columbia Property Trust has determined that the fair value, as determined by the third party, is reasonable. The fair value of Columbia Property Trust's interest rate swaps were
$(18.4) million
and
$(1.7) million
at
December 31, 2012
and
2011
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2012
|
|
2011
|
|
Market value adjustment to interest rate swaps designated as hedging instruments and
included in other comprehensive income
|
$
|
(5,305
|
)
|
|
$
|
11,223
|
|
|
Loss on interest rate swap recognized through earnings
|
$
|
(1,225
|
)
|
|
$
|
(38,383
|
)
|
During the periods presented, there was no hedge ineffectiveness required to be recognized into earnings on the interest rate swaps that qualified for hedge accounting treatment.
Revenue Recognition
All leases on real estate assets held by Columbia Property Trust are classified as operating leases, and the related base rental income is generally recognized on a straight-line basis over the terms of the respective leases. Tenant reimbursements are recognized as revenue in the period that the related operating cost is incurred and are billed to tenants pursuant to the terms of the underlying leases. Rental income and tenant reimbursements collected in advance are recorded as deferred income in the accompanying consolidated balance sheets. Lease termination fees are recorded as other property income and recognized once the tenant has lost the right to lease the space and Columbia Property Trust has satisfied all obligations under the related lease or lease termination agreement.
In conjunction with certain acquisitions, Columbia Property Trust has entered into master lease agreements with various sellers, whereby the sellers are obligated to pay rent pertaining to certain nonrevenue-producing spaces either at the time of, or subsequent to, the property acquisition. These master leases were established at the time of acquisition to mitigate the potential negative effects of lost rental revenues and expense reimbursement income. Columbia Property Trust records payments received under master lease agreements as a reduction of the basis of the underlying property rather than rental income. There were no proceeds received from master leases during
2012
,
2011
, and
2010
.
Columbia Property Trust owns a full-service hotel through a taxable REIT subsidiary. Revenues derived from the operations of the hotel include, but are not limited to, revenues from rental of rooms, food and beverage sales, telephone usage, and other service revenues. Revenue is recognized when rooms are occupied, when services have been performed, and when products are delivered.
Earnings Per Share
Basic earnings per share is calculated as net income attributable to the common stockholders of Columbia Property Trust divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share equals basic earnings per share, adjusted to reflect the dilution that would occur if all outstanding securities convertible into common shares or contracts to issue common shares were converted/exercised and the related proceeds were used to repurchase common shares. As the exercise price of Columbia Property Trust's director stock options exceeds the current offering price of Columbia Property Trust's common stock, the impact of assuming that the outstanding director stock options have been exercised is anti-dilutive. Therefore, basic earnings per share equals diluted earnings per share for each of the periods presented.
Income Taxes
Columbia Property Trust has elected to be taxed as a REIT under the Code, and has operated as such beginning with its taxable year ended December 31, 2003. To qualify as a REIT, Columbia Property Trust must meet certain organizational and operational requirements, including a requirement to distribute at least
90%
of its REIT taxable income, as defined by the Code, to its stockholders. As a REIT, Columbia Property Trust generally is not subject to income tax on income it distributes to stockholders. Columbia Property Trust's stockholder distributions typically exceed its taxable income due to the inclusion of noncash expenses, such as depreciation, in taxable income. As a result, Columbia Property Trust typically does not incur federal income taxes other than as described in the following paragraph. Columbia Property Trust is, however, subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in the accompanying consolidated financial statements.
Wells TRS II, LLC ("Wells TRS"); Wells KCP TRS, LLC ("Wells KCP TRS"); and Wells Energy TRS, LLC ("Wells Energy TRS") (collectively, the "TRS Entities") are wholly owned subsidiaries of Columbia Property Trust, are organized as Delaware limited liability companies, and operate, among other things, a full-service hotel. Columbia Property Trust has elected to treat the TRS Entities as taxable REIT subsidiaries. Columbia Property Trust may perform certain additional, noncustomary services for tenants of its buildings through the TRS Entities; however, any earnings related to such services are subject to federal and state income taxes. In addition, for Columbia Property Trust to continue to qualify as a REIT, Columbia Property Trust must limit its investments in taxable REIT subsidiaries to
25%
of the value of the total assets. The TRS Entities' deferred tax assets and liabilities represent
temporary differences between the financial reporting basis and the tax basis of assets and liabilities based on the enacted rates expected to be in effect when the temporary differences reverse. If applicable, Columbia Property Trust records interest and penalties related to uncertain tax positions as general and administrative expense in the accompanying consolidated statements of operations.
Operating Segments
Columbia Property Trust operates in a single reporting segment, and the presentation of Columbia Property Trust's financial condition and performance is consistent with the way in which Columbia Property Trust's operations are managed.
Reclassification
Certain prior period amounts may be reclassified to conform with the current-period financial statement presentation, including assets held for sale and discontinued operations (see Note 12,
Assets Held for Sale and Discontinued Operations
).
|
|
|
|
3.
|
Real Estate Transactions
|
Acquisitions
During 2012 and 2011, Columbia Property Trust acquired interests in the following properties (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Name
|
|
City
|
|
State
|
|
Acquisition
Date
|
|
Land
|
|
Buildings
and
Improvements
|
|
Deferred Lease Costs
|
|
Intangible
Lease
Assets
|
|
Intangible
Lease
Origination
|
|
Below-
Market
Lease
Liability
|
|
Notes Payable Step Up
|
|
Swap
|
|
Total
Purchase
Price
|
|
Lease
Details
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333 Market Street
|
|
San Francisco
|
|
CA
|
|
12/21/2012
|
|
$
|
114,483
|
|
|
$
|
273,203
|
|
|
$
|
—
|
|
|
$
|
19,637
|
|
|
$
|
26,824
|
|
|
$
|
(25,507
|
)
|
|
$
|
(1,830
|
)
|
|
$
|
(11,560
|
)
|
|
$
|
395,250
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
$
|
114,483
|
|
|
$
|
273,203
|
|
|
$
|
—
|
|
|
$
|
19,637
|
|
|
$
|
26,824
|
|
|
$
|
(25,507
|
)
|
|
$
|
(1,830
|
)
|
|
$
|
(11,560
|
)
|
|
$
|
395,250
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Square Buildings
|
|
Washington, DC
|
|
N/A
|
|
3/7/2011
|
|
$
|
152,629
|
|
|
$
|
412,548
|
|
|
$
|
—
|
|
|
$
|
45,858
|
|
|
$
|
12,031
|
|
|
$
|
(19,680
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
603,386
|
|
|
(2)
|
|
544 Lakeview
(3)
|
|
Vernon Hills
|
|
IL
|
|
4/1/2011
|
|
3,006
|
|
|
3,100
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,106
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
$
|
155,635
|
|
|
$
|
415,648
|
|
|
$
|
—
|
|
|
$
|
45,858
|
|
|
$
|
12,031
|
|
|
$
|
(19,680
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
609,492
|
|
|
|
|
|
|
|
(1)
|
As of the acquisition date, 333 Market Street was
100%
leased to Wells Fargo Bank, N.A. through 2026.
|
|
|
|
|
(2)
|
As of the acquisition date, the Market Square Buildings were
96.2%
leased to
41
tenants, including Fulbright and Jaworski (
18.8%
), Shearman and Sterling (
16.6%
), and Edison Electric Institute (
11.3%
).
|
|
|
|
|
(3)
|
Columbia Property Trust acquired a
50.0%
controlling interest in a consolidated joint venture that owns
100.0%
of 544 Lakeview, by paying
$0.9 million
in cash and assuming (i) a mortgage note of $
9.1 million
, which was included on the consolidated balance sheets as of September 30, 2011, net of discount of $
0.4 million
, and (ii) escrow balances of approximately $
3.2 million
.
|
|
|
|
|
(4)
|
As of the acquisition date, the Lakeview Building was vacant.
|
The acquisitions of 333 Market Street and 544 Lakeview are immaterial and, as a result, pro forma financial information is not provided.
Financial information for Market Square Buildings Acquisition
Columbia Property Trust recognized revenues of $
38.7 million
and a net loss of $
16.2 million
from the Market Square Buildings acquisition for the period from
March 7, 2011
through
December 31, 2011
. The net loss includes acquisition-related expenses of $
9.4 million
. Please refer to Note 2,
Summary of Significant Accounting Policies,
for a discussion of the estimated useful life for each asset class.
The following unaudited pro forma statements of operations presented for the years ended
December 31, 2011
and
2010
, have been prepared for Columbia Property Trust to give effect to the acquisition of the Market Square Buildings as if the acquisition occurred on January 1, 2010. The unaudited pro forma financial information has been prepared for informational purposes only and is not necessarily indicative of future results or of actual results that would have been achieved had the acquisition of the Market Square Buildings acquisition been consummated as of January 1, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2011
|
|
2010
|
|
Revenues
(1)
|
$
|
585,129
|
|
|
$
|
555,161
|
|
|
Net income attributable to common stockholders
|
$
|
53,567
|
|
|
$
|
1,974
|
|
|
|
|
|
(1)
|
Prior-period amounts adjusted to conform with current-period presentation, including classifying revenues generated by properties held for sale and by properties sold, as discontinued operations for all periods presented (see Note 12,
Assets Held for Sale and Discontinued Operations
).
|
Dispositions
On
December 12, 2012
, Columbia Property Trust closed on the
Nine
Property Sale for
$260.5 million
, exclusive of closing costs to an unaffiliated third party. The following properties make up the portfolio of assets sold in the Nine Property Sale: One West Fourth Street, 180 E 100 South, Baldwin Point, Tampa Commons, Lakepointe 5, Lakepointe 3, 11950 Corporate Boulevard, Edgewater Corporate Center, and 2000 Park Lane. In connection with changing the disposition strategy for these assets, Columbia Property Trust recorded an impairment loss of
$18.5 million
on the 180 E 100 South property in the third quarter of 2012. After reflecting this impairment loss, upon closing in the fourth quarter of 2012, the
Nine
Property Sale yielded a net gain of
$3.2 million
, which is included in income from discontinued operations in the accompanying consolidated statement of operations.
In January 2012, Columbia Property Trust closed on the sale of the Emerald Point Building for
$37.3 million
, exclusive of transaction costs, and on the sale of the 5995 Opus Parkway for
$22.8 million
, exclusive of transaction costs, resulting in a gain on disposition of discontinued operations of
$16.9 million
.
On
September 6, 2011
, Columbia Property Trust transferred the Manhattan Towers property, an office building located in Manhattan Beach, California, to an affiliate of its lender in connection with settling a
$75.0 million
mortgage note through a deed in lieu of foreclosure transaction, resulting in a
$13.5 million
gain on extinguishment of debt.
For further discussion of impairment related to these dispositions, see section
Evaluating the Recoverability of Real Estate Assets
of Note 2,
Summary of Significant Accounting Policies.
For further discussion of the financial impact of these dispositions see Note 12,
Assets Held for Sale and Discontinued Operations.
|
|
|
|
4.
|
Line of Credit and Notes Payable
|
As of
December 31, 2012
and 2011, Columbia Property Trust had the following line of credit and notes payable indebtedness outstanding (excluding bonds payable; see Note 5,
Bonds Payable
) in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate as of December 31, 2012
|
|
Term Debt or Interest Only
|
|
|
|
Outstanding Balance as of
December 31,
|
|
Facility
|
|
|
|
Maturity
|
|
2012
|
|
2011
|
|
$450 Million Term Loan
|
|
LIBOR + 185 bp
|
|
(1)
|
|
Interest only
|
|
|
2/3/2016
|
|
$
|
450,000
|
|
|
$
|
—
|
|
|
Market Square Buildings mortgage note
|
|
5.07
|
%
|
|
|
Interest only
|
|
|
7/1/2023
|
|
325,000
|
|
|
325,000
|
|
|
333 Market Street Building mortgage note
|
|
LIBOR + 202 bp
|
|
(2)
|
|
Interest only
|
|
|
7/1/2015
|
|
208,308
|
|
|
—
|
|
|
100 East Pratt Street Building mortgage note
|
|
5.08
|
%
|
|
|
Interest only
|
|
|
6/11/2017
|
|
105,000
|
|
|
105,000
|
|
|
Wildwood Buildings mortgage note
|
|
5.00
|
%
|
|
|
Interest only
|
|
|
12/1/2014
|
|
90,000
|
|
|
90,000
|
|
|
263 Shuman Boulevard Building mortgage note
|
|
5.55
|
%
|
|
|
Interest only
|
|
|
7/1/2017
|
|
49,000
|
|
|
49,000
|
|
|
JPMorgan Chase Credit Facility
|
|
2.62
|
%
|
(3)
|
|
Interest only
|
|
|
5/7/2015
|
|
42,000
|
|
|
484,000
|
|
|
SanTan Corporate Center mortgage notes
|
|
5.83
|
%
|
|
|
Interest only
|
|
|
10/11/2016
|
|
39,000
|
|
|
39,000
|
|
|
One Glenlake Building mortgage note
(4)
|
|
5.80
|
%
|
|
|
Term debt
|
|
|
12/10/2018
|
|
37,204
|
|
|
—
|
|
|
Three Glenlake Building mortgage note
|
|
LIBOR + 90 bp
|
|
(5)
|
|
Interest only
|
(6)
|
|
7/31/2013
|
|
26,264
|
|
|
25,958
|
|
|
215 Diehl Road Building mortgage note
|
|
5.55
|
%
|
|
|
Interest only
|
|
|
7/1/2017
|
|
21,000
|
|
|
21,000
|
|
|
544 Lakeview Building mortgage note
|
|
5.54
|
%
|
|
|
Interest only
|
|
|
12/1/2014
|
|
8,842
|
|
|
8,707
|
|
|
One West Fourth Street Building mortgage note
(4)
|
|
5.80
|
%
|
|
|
Term debt
|
|
|
12/10/2018
|
|
—
|
|
|
39,555
|
|
|
Highland Landmark Building mortgage note
|
|
4.81
|
%
|
|
|
Interest only
|
|
|
1/10/2012
|
|
—
|
|
|
33,840
|
|
|
Total indebtedness
|
|
|
|
|
|
|
|
|
|
$
|
1,401,618
|
|
|
$
|
1,221,060
|
|
|
|
|
|
(1)
|
Columbia Property Trust is party to an interest rate swap agreement, which effectively fixes its interest rate on the
$450 million
Term Loan at
2.63%
per annum and terminates on February 3, 2016. This interest rate swap agreement qualifies for hedge accounting treatment; therefore, changes in fair value are recorded as a market value adjustment to interest rate swap in the accompanying consolidated statements of other comprehensive income.
|
|
|
|
|
(2)
|
Columbia Property Trust is party to an interest rate swap agreement, which effectively fixes its interest rate on the 333 Market Street Building mortgage note at
4.75%
per annum and terminates on July 1, 2015. This interest rate swap agreement does not qualify for hedge accounting treatment; therefore, changes in fair value are recorded as loss on interest rate swaps in the accompanying consolidated statements of operations.
|
|
|
|
|
(3)
|
The JPMorgan Chase Bank, N.A. (the "JPMorgan Chase Bank") unsecured debt bears interest at a rate based on, at the option of Columbia Property Trust,
LIBOR for one-, two-, three-, or six-month periods
, plus an applicable margin ranging from
1.25%
to
2.05%
, or the alternate base rate for any day is the greatest of the rate of interest publicly announced by JPMorgan Chase Bank as its
prime rate
in effect in its principal office in New York City for such day plus an applicable margin ranging from
1.60%
to
2.40%
.
|
|
|
|
|
(4)
|
As part of the Nine Property Sale, the outstanding balance on the One West Fourth Street Building mortgage note was transferred to the One Glenlake Building.
|
|
|
|
|
(5)
|
Columbia Property Trust is party to an interest rate swap agreement, which effectively fixes its interest rate on the Three Glenlake Building mortgage note at
5.95%
per annum and terminates on
July 31, 2013
. This interest rate swap agreement does not qualify for hedge accounting treatment; therefore, changes in fair value are recorded as loss on interest rate swaps in the accompanying consolidated statements of operations.
|
|
|
|
|
(6)
|
Interest is due monthly; however, under the terms of the loan agreement, a portion of the monthly debt service amount accrues and is added to the outstanding balance of the note over the term.
|
Unsecured Line of Credit and Term Loan
On February 3, 2012, Columbia Property Trust closed on a
four
-year, unsecured term loan with a syndicate of banks led by JPMorgan Chase Bank (the "
$450 Million
Term Loan"), which yielded initial gross proceeds of
$375.0 million
, provided for
two
accordion options, both of which have been exercised, resulting in additional gross proceeds of
$35.0 million
in the second quarter of 2012 and
$40.0 million
in the third quarter of 2012, for total outstanding borrowings of
$450.0 million
as of
December 31, 2012
. The
$450 Million
Term Loan bears interest at
LIBOR
, plus an applicable base margin; however, Columbia Property Trust effectively fixed the interest rate and subsequent borrowings under the accordion options (assuming no change in its corporate credit rating) at
2.63%
per annum with interest rate swaps executed contemporaneously with the loan and subsequent accordion options. The
$450 Million
Term Loan matures on February 3, 2016, provided that certain conditions are met prior to that date. Furthermore, provided that certain additional conditions are met prior to, and at, maturity, the
$450 Million
Term Loan will become eligible for a one-year extension upon paying an extension fee equal to
0.15%
of the outstanding balance. The total proceeds from
the
$450 Million
Term Loan were used to repay temporary borrowings, and thereby create additional borrowing capacity, under the JPMorgan Chase Credit Facility (the "JPMorgan Chase Credit Facility"). The majority of these temporary borrowings were drawn to settle mortgage loans during the second half of 2011 and during 2012.
In December 2012, in connection with the closing of the purchase of the 333 Market Street Building in San Francisco, California, Columbia Property Trust assumed a
$206.5 million
mortgage note payable (the "333 Market Street Building mortgage note"), which is secured by the 333 Market Street Building. At the time of acquisition, Columbia Property Trust marked the 333 Market Street Building mortgage note to its fair value of
$208.3 million
. The fair value of the 333 Market Street Building mortgage note was estimated by obtaining estimates for similar facilities from multiple market participants as of the respective reporting dates. Therefore, the fair values determined are considered to be based on observable market data for similar instruments (Level 2). The 333 Market Street Building mortgage note is due on July 1, 2015, and requires monthly interest-only payments. The 333 Market Street Building mortgage note bears interest at
LIBOR
; however, the related interest rate swap, also assumed at acquisition, effectively fixes the interest rate at
4.75%
per annum.
Columbia Property Trust is subject to a
$25.0 million
limitation on letters of credit that may be issued under the JPMorgan Chase Credit Facility. The JPMorgan Chase Credit Facility contains the following restrictive covenants:
|
|
|
|
•
|
limits the ratio of debt to total asset value, as defined, to
50%
or less during the term of the facility;
|
|
|
|
|
•
|
limits the ratio of secured debt to total asset value, as defined, to
40%
or less during the term of the facility;
|
|
|
|
|
•
|
requires the ratio of unencumbered asset value, as defined, to total unsecured debt to be at least
2:1
at all times;
|
|
|
|
|
•
|
requires maintenance of certain interest and fixed-charge coverage ratios;
|
|
|
|
|
•
|
limits the ratio of secured recourse debt to total asset value, as defined, to
10%
or less at all times;
|
|
|
|
|
•
|
requires maintenance of certain minimum tangible net worth balances; and
|
|
|
|
|
•
|
limits investments that fall outside Columbia Property Trust's core investments of improved office properties located in the United States.
|
As of
December 31, 2012
, Columbia Property Trust believes it was in compliance with the restrictive covenants on its outstanding debt obligations.
The estimated fair value of Columbia Property Trust's line of credit and notes payable as of
December 31, 2012
and
2011
was approximately
$1,433.1 million
and
$1,282.6 million
, respectively. Columbia Property Trust estimated the fair value of its line of credit by obtaining estimates for similar facilities from multiple market participants as of the respective reporting dates. Therefore, the fair values determined are considered to be based on observable market data for similar instruments (Level 2). The fair values of all other debt instruments were estimated based on discounted cash flow analyses using the current incremental borrowing rates for similar types of borrowing arrangements as of the respective reporting dates. The discounted cash flow method of assessing fair value results in a general approximation of value, and such value may never actually be realized.
Interest Paid and Extinguishment of Debt
As of
December 31, 2012
and
2011
, Columbia Property Trust's weighted-average interest rate on its line of credit and notes payable was approximately
4.25%
and
4.39%
, respectively. Columbia Property Trust made interest payments, including amounts capitalized, of approximately $
50.1 million
, $
45.9 million
, and $
40.7 million
during
2012
,
2011
, and
2010
, respectively, of which approximately $
0.5 million
was capitalized during
2010
.
Debt Maturities
On January 10, 2012, Columbia Property Trust used cash on hand and proceeds from the JPMorgan Chase Credit Facility to fully repay the Highland Landmark Building mortgage note of
$33.8 million
at its maturity.
The following table summarizes the aggregate maturities of Columbia Property Trust's line of credit, term loan, and notes payable as of
December 31, 2012
(in thousands):
|
|
|
|
|
|
|
|
2013
|
$
|
28,755
|
|
|
2014
|
101,481
|
|
|
2015
|
253,104
|
|
|
2016
|
491,963
|
|
|
2017
|
178,139
|
|
|
Thereafter
|
348,176
|
|
|
Total
|
$
|
1,401,618
|
|
In
2011
, Columbia Property Trust issued
$250.0 million
of its
seven
-year, unsecured
5.875%
senior notes at
99.295%
of their face value. Columbia Property Trust received proceeds from the 2018 Bonds Payable, net of fees, of
$246.7 million
. The 2018 Bonds Payable require semi-annual interest payments in April and October based on a contractual annual interest rate of
5.875%
, which is subject to adjustment in certain circumstances. In the accompanying consolidated balance sheets, the 2018 Bonds Payable are shown net of the initial issuance discount of approximately
$1.8 million
, which is amortized to interest expense over the term of the 2018 Bonds Payable using the effective interest method. The principal amount of the 2018 Bonds Payable is due and payable on the maturity date, April 1, 2018. Interest payments of
$14.7 million
and
$7.2 million
were made on the 2018 Bonds Payable during
2012
and
2011
.
The restrictive covenants on the 2018 Bonds Payable as defined pursuant to an indenture (the "Indenture") include:
|
|
|
|
•
|
limits to Columbia Property Trust's ability to merge or consolidate with another entity or transfer all or substantially all of Columbia Property Trust's property and assets, subject to important exceptions and qualifications;
|
|
|
|
|
•
|
a limitation on the ratio of debt to total assets, as defined, to
60%
;
|
|
|
|
|
•
|
limits to Columbia Property Trust's ability to incur debt if the consolidated income available for debt service to annual debt service charge, as defined, for four previous consecutive fiscal quarters is less than
1.5:1
on a pro forma basis;
|
|
|
|
|
•
|
limits to Columbia Property Trust's ability to incur liens if, on an aggregate basis for Columbia Property Trust, the secured debt amount would exceed
40%
of the value of the total assets; and
|
|
|
|
|
•
|
a requirement that the ratio of unencumbered asset value, as defined, to total unsecured debt be at least
150%
at all times.
|
As of
December 31, 2012
, Columbia Property Trust believes it was in compliance with the restrictive covenants on its 2018 Bonds Payable. The 2018 Bonds Payable were originally issued through a private offering.
The estimated fair value of the 2018 Bonds Payable as of
December 31, 2012
and
2011
was approximately
$250.9 million
and
$251.1 million
, respectively. The fair value of the 2018 Bonds Payable was estimated based on discounted cash flow analyses using the current incremental borrowing rates for similar types of borrowing as the 2018 Bonds Payable arrangements, as of the respective reporting dates (Level 2). The discounted cash flow method of assessing fair value results in a general approximation of value, and such value may never actually be realized.
|
|
|
|
6.
|
Commitments and Contingencies
|
Obligations Under Operating Leases
Columbia Property Trust owns
four
properties that are subject to ground leases with expiration dates of
October 21, 2059
;
December 31, 2058
;
February 28, 2062
; and
July 31, 2099
. As of
December 31, 2012
, the remaining required payments under the terms of these ground leases are as follows (in thousands):
|
|
|
|
|
|
|
|
2013
|
$
|
2,633
|
|
|
2014
|
2,633
|
|
|
2015
|
2,633
|
|
|
2016
|
2,633
|
|
|
2017
|
2,779
|
|
|
Thereafter
|
211,464
|
|
|
Total
|
$
|
224,775
|
|
Obligations Under Capital Leases
Certain properties are subject to capital leases of land and/or buildings. Each of these obligations requires payments equal to the amounts of principal and interest receivable from related investments in development authority bonds, which mature in
2013
and
2021
. The required payments under the terms of the leases are as follows as of
December 31, 2012
(in thousands):
|
|
|
|
|
|
|
|
2013
|
$
|
499,993
|
|
|
2014
|
7,200
|
|
|
2015
|
7,200
|
|
|
2016
|
7,200
|
|
|
2017
|
7,200
|
|
|
Thereafter
|
148,800
|
|
|
|
677,593
|
|
|
Amounts representing interest
|
(91,593
|
)
|
|
Total
|
$
|
586,000
|
|
Commitments Under Existing Lease Agreements
Certain lease agreements include provisions that, at the option of the tenant, may obligate Columbia Property Trust to expend capital to expand an existing property or provide other expenditures for the benefit of the tenant. As of
December 31, 2012
, no tenants have exercised such options that had not been materially satisfied.
Litigation
Columbia Property Trust is subject to various legal proceedings, claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any reasonably possible loss relating to these matters using the latest information available. Columbia Property Trust records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, Columbia Property Trust accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, Columbia Property Trust accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, Columbia Property Trust discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, Columbia Property Trust discloses the nature and estimate of the possible loss of the litigation. Columbia Property Trust does not disclose information with respect to litigation where the possibility of an unfavorable outcome is considered to be remote. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of Columbia Property Trust. Columbia Property Trust
is not currently involved in any legal proceedings of which management would consider the outcome to be reasonably likely to have a material adverse effect on the results of operations or financial condition of Columbia Property Trust.
Stock Option Plan
Columbia Property Trust maintains a stock option plan that provides for grants of "nonqualified" stock options to be made to selected employees (the "Stock Option Plan"). A total of
750,000
shares have been authorized and reserved for issuance under the Stock Option Plan. As of
December 31, 2012
, no stock options have been granted under the plan. The stock option plan terminates on September 22, 2013.
Under the Stock Option Plan, the exercise price per share for the options must be the greater of (1)
$11.00
or (2) the fair market value (as defined in the Stock Option Plan) on the date the option is granted. The Conflicts Committee of Columbia Property Trust's board of directors may grant options under the plan. The Conflicts Committee has the authority to set the term and vesting period of the stock options as long as no option has a term greater than
five
years from the date the stock option is granted. In the event of a corporate transaction or other recapitalization event, the Conflicts Committee will adjust the number of shares, class of shares, exercise price, or other terms of the Stock Option Plan to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Stock Option Plan or with respect to any option as necessary. No stock option may be exercised if such exercise would jeopardize Columbia Property Trust's status as a REIT under the Code, and no stock option may be granted if the grant, when combined with those issuable upon exercise of outstanding options or warrants granted to Columbia Property Trust's advisor, directors, officers, or any of their affiliates, would exceed
10%
of Columbia Property Trust's outstanding shares. No option may be sold, pledged, assigned, or transferred by an option holder in any manner other than by will or the laws of descent or distribution.
Independent Director Stock Option Plan
Columbia Property Trust maintains an independent director stock option plan that provides for grants of stock to be made to independent directors of Columbia Property Trust (the "Director Plan").
On
April 24, 2008
, the Conflicts Committee of the Board of Directors suspended the Independent Director Stock Option Plan in connection with the registration of a public offering of shares of its common stock in certain states. A total of
100,000
shares have been authorized and reserved for issuance under the Director Plan.
Under the Director Plan, options to purchase
2,500
shares of common stock at
$12.00
per share were granted upon initially becoming an independent director of Columbia Property Trust. Of these options,
20%
are exercisable immediately on the date of grant. An additional
20%
of these options become exercisable on each anniversary for four years following the date of grant. Additionally, effective on the date of each annual stockholder meeting, beginning in 2004, each independent director was granted options to purchase
1,000
additional shares of common stock at the greater of (1)
$12.00
per share or (2) the fair market value (as defined in the Director Plan) on the last business day preceding the date of the annual stockholder meeting. These options are
100%
exercisable
two
years after the date of grant. All options granted under the Director Plan expire no later than the tenth anniversary of the date of grant and may expire sooner if the independent director dies, is disabled, or ceases to serve as a director. In the event of a corporate transaction or other recapitalization event, the Conflicts Committee will adjust the number of shares, class of shares, exercise price, or other terms of the Director Plan to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Director Plan or with respect to any option as necessary. No stock option may be exercised if such exercise would jeopardize Columbia Property Trust's status as a REIT under the Code, and no stock option may be granted if the grant, when combined with those issuable upon exercise of outstanding options or warrants granted to Columbia Property Trust's advisor, directors, officers, or any of their affiliates, would exceed
10%
of Columbia Property Trust's outstanding shares. No option may be sold, pledged, assigned, or transferred by an independent director in any manner other than by will or the laws of descent or distribution.
A summary of stock option activity under Columbia Property Trust's Director Plan during
2012
,
2011
, and
2010
, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
Exercise
Price
|
|
Exercisable
|
|
Outstanding as of December 31, 2009
|
|
29,500
|
|
|
$12
|
|
28,500
|
|
|
Granted
|
|
—
|
|
|
|
|
|
|
Terminated
|
|
—
|
|
|
|
|
|
|
Outstanding as of December 31, 2010
|
|
29,500
|
|
|
$12
|
|
29,000
|
|
|
Granted
|
|
—
|
|
|
|
|
|
|
Terminated
|
|
—
|
|
|
|
|
|
|
Outstanding as of December 31, 2011
|
|
29,500
|
|
|
$12
|
|
29,500
|
|
|
Granted
|
|
—
|
|
|
|
|
|
|
Terminated
|
|
—
|
|
|
|
|
|
|
Outstanding as of December 31, 2012
|
|
29,500
|
|
|
$12
|
|
29,500
|
|
Columbia Property Trust has evaluated the fair values of options granted under the Columbia Property Trust Director Plan using the Black-Scholes-Merton model and concluded that such values are insignificant as of the end of the period presented. The weighted-average contractual remaining life for options that were exercisable as of
December 31, 2012
was approximately
2.5
years.
Distribution Reinvestment Plan
Columbia Property Trust maintains a distribution reinvestment plan that allows common stockholders to elect to reinvest an amount equal to the distributions declared on their common shares in additional shares of Columbia Property Trust's common stock in lieu of receiving all of cash distributions. Under the DRP, shares may be purchased by participating stockholders at
95.5%
of the estimated per-share value (
$7.00
). Participants in the DRP may purchase fractional shares so that
100%
of the distributions will be used to acquire shares of Columbia Property Trust's stock. The board of directors, by majority vote, may amend or terminate the DRP for any reason, provided that any amendment that adversely affects the rights or obligations of a participant (as determined in the sole discretion of the board of directors) will only take effect upon
10
days' written notice to participants.
Share Redemption Program
Columbia Property Trust maintains a share redemption program, or SRP, that allows stockholders who acquired their shares directly from Columbia Property Trust to redeem their shares, subject to certain conditions and limitations as described in the SRP. Total shares of approximately
15.1 million
and
9.4 million
were redeemed under the SRP during
2012
and
2011
, respectively.
Columbia Property Trust limits the dollar value and number of shares that may be redeemed under the SRP as follows:
|
|
|
|
•
|
First, Columbia Property Trust will limit requests for all redemptions (other than those sought within two years of a stockholder's death) on a pro rata basis so that the aggregate of such redemptions during any calendar year will not exceed
5.0%
of the weighted-average number of shares outstanding in the prior calendar year. Requests precluded by this test will not be considered in the test below.
|
|
|
|
|
•
|
In addition, if necessary, Columbia Property Trust will limit all redemption requests, including those sought within two years of a stockholder's death, on a pro rata basis so that the aggregate of such redemptions during any calendar year would not exceed the greater of
100%
of the net proceeds from its DRP during the calendar year, or
5.0%
of weighted-average number of shares outstanding in the prior calendar year.
|
Effective
November 8, 2012
, the price paid for shares redeemed under the SRP in cases of death, "qualifying disability," or qualification for federal assistance for confinement to a "long-term care facility," changed from
$7.47
, the estimated per share value as of September 30, 2011, to
$7.33
, the estimated per-share value as of September 30, 2012. The price paid for all Ordinary Redemptions (as defined in the SRP) is
$6.25
per share.
8.
Operating Leases
Columbia Property Trust's real estate assets are leased to tenants under operating leases for which the terms vary, including certain provisions to extend the lease agreement, options for early terminations, subject to specified penalties, and other terms and conditions as negotiated. Columbia Property Trust retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant; however, such deposits generally are not significant. Therefore, exposure to credit risk exists to the extent that the receivables exceed this amount. Security deposits related to tenant leases are included in accounts payable, accrued expenses, and accrued capital expenditures in the accompanying consolidated balance sheets.
Based on
2012
annualized lease revenue, AT&T comprised approximately
9%
of Columbia Property Trust's portfolio as of
December 31, 2012
. Tenants in the legal services, banking industries, and communications industries each comprise
15%
,
14%
, and
10%
, respectively, of Columbia Property Trust's
2012
annualized base rent. Columbia Property Trust's properties are located in
19
states; the District of Columbia; and Moscow, Russia.
As of
December 31, 2012
, approximately
14%
,
11%
, and
10%
of Columbia Property Trust's office properties are located in metropolitan Atlanta, the District of Columbia, and Northern New Jersey, respectively.
The future minimum rental income from Columbia Property Trust's investment in real estate assets under noncancelable operating leases, excluding properties under development, as of
December 31, 2012
, is as follows (in thousands):
|
|
|
|
|
|
|
|
2013
|
$
|
418,995
|
|
|
2014
|
422,738
|
|
|
2015
|
408,386
|
|
|
2016
|
381,546
|
|
|
2017
|
308,358
|
|
|
Thereafter
|
1,214,588
|
|
|
Total
|
$
|
3,154,611
|
|
|
|
|
|
9.
|
Supplemental Disclosures of Noncash Investing and Financing Activities
|
Outlined below are significant noncash investing and financing activities for the
years
ended
December 31, 2012
,
2011
, and
2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
|
Other assets assumed upon acquisition of properties
|
$
|
130
|
|
|
$
|
3,202
|
|
|
$
|
—
|
|
|
Other liabilities assumed upon acquisition of property
|
$
|
—
|
|
|
$
|
1,174
|
|
|
$
|
—
|
|
|
Interest rate swap assumed upon acquisition of property
|
$
|
11,560
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Notes payable assumed at acquisition
|
$
|
208,330
|
|
|
$
|
8,607
|
|
|
$
|
—
|
|
|
Noncash interest accruing to notes payable
|
$
|
306
|
|
|
$
|
15,891
|
|
|
$
|
14,922
|
|
|
Market value adjustment to interest rate swaps that qualify for hedge accounting treatment
|
$
|
(5,305
|
)
|
|
$
|
—
|
|
|
$
|
9,485
|
|
|
Accrued capital expenditures and deferred lease costs
|
$
|
16,325
|
|
|
$
|
7,751
|
|
|
$
|
2,210
|
|
|
Commissions on stock sales and related dealer-manager fees due to affiliate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
Accrued deferred financing costs
|
$
|
35
|
|
|
$
|
48
|
|
|
$
|
—
|
|
|
Accrued redemptions of common stock
|
$
|
3,655
|
|
|
$
|
1,640
|
|
|
$
|
14
|
|
|
Settlement of redeemable controlling interest through issuance of common stock
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
Discounts applied to issuance of common stock
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,542
|
|
|
Settlement of Manhattan Towers mortgage note by transferring property to lender
|
$
|
—
|
|
|
$
|
75,000
|
|
|
$
|
—
|
|
|
Transfer of development authority bonds
|
$
|
60,000
|
|
|
$
|
—
|
|
|
$
|
18,000
|
|
|
Nonrefundable earnest money for property sales
|
$
|
—
|
|
|
$
|
880
|
|
|
$
|
—
|
|
|
Decrease in redeemable common stock
|
$
|
13,621
|
|
|
$
|
48,042
|
|
|
$
|
644,655
|
|
|
|
|
|
10.
|
Related-Party Transactions and Agreements
|
Advisory Agreement
During the periods presented through February 28, 2013, Columbia Property Trust was party to uninterrupted advisory agreements with WREAS II, pursuant to which WREAS II acted as Columbia Property Trust's external advisor and performed certain key functions on behalf of Columbia Property Trust, including, among others, the investment of capital proceeds and management of day-to-day operations (the "Advisory Agreement”). WREAS II executed master services agreements with Wells Capital, Inc. ("Wells Capital") and Wells Management, wherein WREAS II could retain the use of Wells Capital's and Wells Management's employees, as necessary, to perform the services required under the Advisory Agreement, and in return, would reimburse Wells Capital and Wells Management for the associated personnel costs. Further, under the terms of the Advisory Agreement, Wells Real Estate Funds, Inc. ("WREF") guaranteed WREAS II's performance of services and any amounts payable to Columbia Property Trust in connection therewith. As discussed in detail below, in connection with Columbia Property Trust's transition to a self-managed structure, the most recent advisory agreement dated December 28, 2012 (the "Renewal Advisory Agreement") was terminated effective February 28, 2013.
Under the terms of the Advisory Agreement, Columbia Property Trust incurred fees and reimbursements payable to WREAS II and its affiliates for services as described below:
|
|
|
|
•
|
Asset management fees were incurred monthly at one-twelfth of
0.625%
of the lesser of (i) gross cost, as defined, of all properties of Columbia Property Trust (other than those that failed to meet specified occupancy thresholds) and investments in joint ventures, or (ii) the aggregate value of Columbia Property Trust's interest in the properties and joint ventures as established with the most recent asset-based valuation, until the monthly payment equals
$2.7 million
(or
$32.5 million
annualized), as of the last day of each preceding month. From April 2011 through June 2012, asset management fees were capped at
$2.7 million
per month (or
$32.5 million
annualized) following the March 2011 acquisition of the Market Square Buildings. Effective July 1, 2012, monthly asset management fees charged under the Advisory Agreement were reduced by
$83,333
(or, a total savings of
$0.5 million
for the six months ended
December 31, 2012
), resulting in a cap of
$2.6 million
. From July 2012 through December 2012, asset management fees were paid at a cap of
$2.6 million
per month. Under the Renewal Advisory Agreement, the management fee reduction increased from
$83,333
to
$166,667
per
|
month for a total potential annual savings to Columbia Property Trust of approximately
$1.0 million
. With respect to (ii) above, Columbia Property Trust's published net asset-based valuations did not impact asset management fees incurred to date, due to the continued applicability of the caps described above.
|
|
|
|
•
|
Reimbursement for all costs and expenses WREAS II and its affiliates incurred in fulfilling its duties as the asset portfolio manager, generally including (i) wages and salaries and other employee-related expenses of WREAS II and its affiliates' employees, who performed a full range of real estate services for Columbia Property Trust, including management, administration, operations, and marketing, and were billed to Columbia Property Trust based on the amount of time spent on Columbia Property Trust by such personnel, provided that such expenses were not reimbursed if incurred in connection with services for which WREAS II and its affiliates could have received a disposition fee (described below) or an acquisition fee; and (ii) amounts paid for IRA custodial service costs allocated to Columbia Property Trust accounts. The Advisory Agreement limited the amount of reimbursements to the advisor of "portfolio general and administrative expenses" and "personnel expenses," as defined, to the extent they would exceed
$18.2 million
and
$10.0 million
, respectively, for the period from January 1, 2012 through
December 31, 2012
.
|
|
|
|
|
•
|
Effective August 1, 2011, acquisition fees were incurred at
1.0%
of property purchase price (excluding acquisition expenses); however, in no event could total acquisition fees for the calendar year exceed
2.0%
of total gross offering proceeds. Columbia Property Trust also reimbursed WREAS II and its affiliates for expenses it paid to third parties in connection with acquisitions or potential acquisitions. Under the Renewal Advisory Agreement, acquisition fees payable to WREAS II for 2012 and 2013 had an aggregate cap of
$1.5 million
, discussed below, Columbia Property Trust paid acquisition fees of
$1.5 million
related to the acquisition on the 333 Market Street Building in San Francisco, California, in December 2012, and as a result, no additional acquisition fees are required to be paid by Columbia Property Trust to WREAS II in 2013.
|
|
|
|
|
•
|
For any property sold by Columbia Property Trust, other than part of a "bulk sale" of assets, as defined, a disposition fee equal to
1.0%
of the sales price, with the limitation that the total real estate commissions (including such disposition fee) for any Columbia Property Trust property sold may not exceed the lesser of (i)
6.0%
of the sales price of each property or (ii) the level of real estate commissions customarily charged in light of the size, type, and location of the property. Under the Renewal Advisory Agreement, the disposition fee payable for the sale of any property for which WREAS II provided substantial services was reduced from
1.0%
to the lesser of (i)
0.3%
or (ii) the broker fee paid to a third-party broker in connection with the sale. In addition, pursuant to the terms of the Amendment to Transition Services Agreement discussed below, the amount of the disposition fee payable to WREAS II with respect to the Nine Property Sale would equal the amount of the broker fee paid to the third-party broker (approximately
0.5%
).
In December 2012, Columbia Property Trust paid disposition fees of
$1.3 million
related to the Nine Property Sale.
|
|
|
|
|
•
|
Reimbursement of organization and offering costs paid by WREAS II and its affiliates on behalf of Columbia Property Trust, not to exceed
2.0%
of gross offering proceeds.
|
|
|
|
|
•
|
Effective July 1, 2012, occupancy costs of
$21,000
(
$252,000
annualized) are incurred for WREAS II's dedicated office space. In 2012, Columbia Property Trust paid occupancy fees of
$126,000
.
|
Transition Services Agreement
For the period from July 1, 2012 through December 31, 2013, Columbia Property Trust, WREAS II, and WREF have entered into an agreement for transition services (the "Transition Services Agreement") related to Columbia Property Trust's transition to a self-managed structure, pursuant to which (i) WREF is required to transfer the assets and employees necessary to provide the services under the Advisory Agreement (other than investor services and property management) to WREAS II by January 1, 2013; provided that if WREF is not able to transfer certain assets by then, WREF must use its commercially reasonable best efforts to transfer such delayed assets as promptly as possible, but no later than
June 30, 2013
; and (ii) Columbia Property Trust has the option to acquire WREAS II at any time during
2013
(the "WREAS II Assignment Option"). The WREAS II Assignment Option closed as of February 28, 2013. No payment is associated with the assignment; however, Columbia Property Trust is required to pay WREF for the work required to transfer sufficient employees, proprietary systems and processes, and assets to WREAS II to prepare for a successful transition to a self-managed structure. Accordingly, pursuant to the Transition Services Agreement, Columbia Property Trust is obligated to pay WREF a total of
$6.0 million
payable in
12
monthly installments of
$0.5 million
commencing on July 31, 2012. In addition, Columbia Property Trust and WREF will each pay half of any out-of-pocket and third-party costs and expenses incurred in connection with providing these services, provided that Columbia Property Trust's obligation to reimburse WREF for such expenses is limited to approximately
$250,000
in the aggregate. Pursuant to the Transition Services Agreement, at the close of the WREAS II Assignment Option, Columbia Property Trust entered into a consulting services agreement with WREF as described below. The Transition Services Agreement is terminable if there is a material breach by WREF that is
not cured, or if WREF is in an insolvency proceeding. Otherwise, if Columbia Property Trust elects to terminate the agreement early, all remaining payments due under the agreement will be accelerated such that WREF receives
$6.0 million
in the aggregate.
Amendment to Transition Services Agreement
On December 28, 2012, the Transition Services Agreement was amended (the "Amendment to the Transition Services Agreement")as follows:
|
|
|
|
•
|
The company may, at its option, acquire WRES, the entity charged with carrying out property management functions on behalf of WREAS II, for consideration of approximately
$2.8 million
payable to Wells Real Estate Funds in monthly installments from July 2013 through December 2013 under the Transition Services Agreement (the "WRES Assignment Option"). As further explained in Note 1,
Organization
, the company closed the above-described option on February 28, 2013.
|
|
|
|
|
•
|
Upon terminating the Advisory Agreement and effecting the WREAS II Assignment Option, Columbia Property Trust will enter into a new investor services agreement with WREF, which provides for the payment of various fees and reimbursement of third-party expenses to WREF (the "Investor Services Agreement") in connection with the provision of such services.
|
|
|
|
|
•
|
Adjustments to acquisition and disposition fees as discussed above.
|
2012 Investor Services Agreement
Effective
July 1, 2012
, stockholder and communications services and expense reimbursements related thereto were separated out of the Advisory Agreement and covered under a separate agreement (the "2012 Investor Services Agreement"). The 2012 Investor Services Agreement required WREF to provide the stockholder and communications services to Columbia Property Trust previously provided under the advisory agreement dated March 30, 2011. As the sole consideration for these services, Columbia Property Trust reimbursed WREF for expenses incurred in connection with carrying out such services, subject to the cap on "portfolio general and administrative expenses" and "personnel expenses" included in the Advisory Agreement and, thus, did not incur a separate fee.
Renewal Investor Services Agreement
The Renewal Investor Services Agreement, which is effective
January 1, 2013
, is between Columbia Property Trust and WREF (the "Renewal Investor Services Agreement"). The Renewal Advisory Agreement is substantially the same as the investor services agreement that was in effect through
December 31, 2012
; however, it will terminate upon the earlier to occur of (a)
December 31, 2013
, and (b) the exercise of the WREAS II Assignment Option. The WREAS II Assignment Option closed as of February 28, 2013, and this agreement terminated on that date.
Investor Services Agreement
Effective February 28, 2013, upon the effective date of the WREAS II Assignment Option, Columbia Property Trust entered into the Investor Services Agreement with WREF, which requires WREF to provide the stockholder and communication services to Columbia Property Trust previously provided for under the 2012 Investor Services Agreement and the Renewal Investor Services Agreement, and provides for Columbia Property Trust to compensate WREF for the services based on a reimbursement of costs and payroll plus a premium.
Consulting Services Agreement
On February 28, 2013, the WREAS II Assignment Option and WRES Assignment Option closed, and in connection therewith, the Renewal Advisory Agreement and Renewal Investor Services Agreement terminated and Columbia Property Trust entered a consulting services agreement with WREF (the "Consulting Services Agreement"). Under the Consulting Services Agreement, WREF will provide consulting services with respect to the same matters that WREAS II and its affiliates would provide advisory services under the Renewal Advisory Agreement. Payments under the Consulting Services Agreement will be monthly fees in the same amount as the asset management fees that would have been paid under the Renewal Advisory Agreement through December 31, 2013, if the Renewal Advisory Agreement was not terminated. If Columbia Property Trust elects to terminate the Consulting Services Agreement early for cause, Columbia Property Trust would not be required to make further payments under the agreement other than fees earned by WREF and unpaid at the time of termination. If Columbia Property Trust terminates the Consulting Services Agreement other than for cause, Columbia Property Trust would be required to make a fee acceleration payment, which is calculated as the fees incurred in the last month prior to termination, adjusted for partial months, multiplied by the number of months remaining between the time of termination and December 31, 2013.
Property Management, Leasing and Construction Agreement
Columbia Property Trust and WREAS II were party to master property management, leasing, and construction agreements (the "Property Management Agreement"). On February 28, 2013, Columbia Property Trust terminated the Property Management Agreement contemporaneous with acquiring WRES, a subsidiary of WREF, that contains the personnel charged with carrying out property management, leasing, and construction services. As a result, these services will be performed by employees of Columbia Property Trust in the future. While no fee was paid to execute this transaction, pursuant to the Amendment to the Transition Services Agreement discussed above, Columbia Property Trust is obligated to pay additional transition service fees to WREF totaling
$2.8 million
from July through December 2013 for the transition of property management services to WRES.
During the periods presented, WREAS II received the following fees and reimbursements in consideration for supervising the management, leasing, and construction of certain Columbia Property Trust properties:
|
|
|
|
•
|
Property management fees in an amount equal to a percentage negotiated for each property managed by WREAS II of the gross monthly income collected for that property for the preceding month;
|
|
|
|
|
•
|
Leasing commissions for new, renewal, or expansion leases entered into with respect to any property for which Wells Management serves as leasing agent, equal to a percentage as negotiated for that property of the total base rental and operating expenses to be paid to Columbia Property Trust during the applicable term of the lease, provided, however, that no commission shall be payable as to any portion of such term beyond
ten
years;
|
|
|
|
|
•
|
Initial lease-up fees for newly constructed properties under the agreement, generally equal to one month's rent;
|
|
|
|
|
•
|
Fees equal to a specified percentage of up to
5.0%
of all construction build-out funded by Columbia Property Trust, given as a leasing concession, and overseen by WREAS II; and
|
|
|
|
|
•
|
Other fees as negotiated with the addition of each specific property covered under the agreement.
|
Wells Management, an affiliate of WREAS II, guaranteed the performance of all of WREAS II's obligations under the Property Management Agreement.
Related Party Costs
Pursuant to the terms of the agreements described above, Columbia Property Trust incurred the following related-party costs during
2012
,
2011
, and
2010
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
|
Asset management fees
|
$
|
32,000
|
|
|
$
|
32,094
|
|
|
$
|
30,552
|
|
|
Administrative reimbursements, net
(1)
|
11,099
|
|
|
11,609
|
|
|
13,099
|
|
|
Property management fees
|
4,462
|
|
|
4,546
|
|
|
3,564
|
|
|
Transition services
|
3,008
|
|
|
—
|
|
|
—
|
|
|
Acquisition fees
|
1,500
|
|
|
1,307
|
|
|
9,671
|
|
|
Disposition fees
|
1,311
|
|
|
—
|
|
|
—
|
|
|
Occupancy costs
|
126
|
|
|
—
|
|
|
—
|
|
|
Construction fees
(2)
|
220
|
|
|
211
|
|
|
185
|
|
|
Commissions, net of discounts
(3)(4)
|
—
|
|
|
—
|
|
|
21,909
|
|
|
Dealer-manager fees, net of discounts
(3)
|
—
|
|
|
—
|
|
|
7,843
|
|
|
Other offering costs
(3)
|
—
|
|
|
—
|
|
|
4,177
|
|
|
Total
|
$
|
53,726
|
|
|
$
|
49,767
|
|
|
$
|
91,000
|
|
|
|
|
|
(1)
|
Administrative reimbursements are presented net of reimbursements from tenants of approximately
$4.4 million
,
$4.0 million
, and
$3.5 million
for the years ended
December 31, 2012
,
2011
, and
2010
, respectively.
|
|
|
|
|
(2)
|
Construction fees are capitalized to real estate assets as incurred.
|
|
|
|
|
(3)
|
Commissions, dealer-manager fees, and other offering costs were charged against equity as incurred.
|
|
|
|
|
(4)
|
Substantially all commissions were re-allowed to participating broker/dealers during 2010.
|
Columbia Property Trust incurred no related-party incentive fees, listing fees, or leasing commissions during
2012
,
2011
, and
2010
, respectively.
Due to Affiliates
The detail of amounts due to WREAS II and its affiliates is provided below as of
December 31, 2012
and
2011
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
Administrative reimbursements
|
$
|
1,360
|
|
|
$
|
217
|
|
|
Asset and property management fees
|
560
|
|
|
3,112
|
|
|
Total
|
$
|
1,920
|
|
|
$
|
3,329
|
|
Columbia Property Trust's income tax basis net income during
2012
,
2011
, and
2010
(in thousands) follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
GAAP basis financial statement net income attributable to the common
stockholders of Columbia Property Trust, Inc.
|
$
|
48,039
|
|
|
$
|
56,642
|
|
|
$
|
23,266
|
|
|
Increase (decrease) in net income resulting from:
|
|
|
|
|
|
|
Depreciation and amortization expense for financial reporting purposes in
excess of amounts for income tax purposes
|
81,681
|
|
|
101,498
|
|
|
96,695
|
|
|
Rental income accrued for financial reporting purposes in excess of amounts for income tax purposes
|
(24,798
|
)
|
|
(11,203
|
)
|
|
(1,739
|
)
|
|
Net amortization of above-/below-market lease intangibles for financial
reporting purposes (less than) in excess of amounts for income tax purposes
|
(3,423
|
)
|
|
(2,960
|
)
|
|
3,328
|
|
|
Loss (gain) on interest rate swaps that do not qualify for hedge accounting
treatment for financial reporting purposes in excess of amounts for income
tax purposes
|
(173
|
)
|
|
(35,487
|
)
|
|
9,485
|
|
|
Bad debt expense for financial reporting purposes (less than) in excess of
amounts for income tax purposes
|
(5,034
|
)
|
|
(229
|
)
|
|
2,024
|
|
|
Gains or losses on disposition of real property for financial reporting purposes that are (more) less favorable than amounts for income tax purposes
|
(61,198
|
)
|
|
(16,282
|
)
|
|
(433
|
)
|
|
Other expenses for financial reporting purposes (less than) in excess of
amounts for income tax purposes
|
7,349
|
|
|
15,603
|
|
|
13,155
|
|
|
Income tax basis net income, prior to dividends-paid deduction
|
$
|
42,443
|
|
|
$
|
107,582
|
|
|
$
|
145,781
|
|
As of
December 31, 2012
, the tax basis carrying value of Columbia Property Trust's total assets was approximately $
6.1 billion
. For income tax purposes, distributions to common stockholders are characterized as ordinary income, capital gains, or as a return of a stockholder's invested capital. Columbia Property Trust's distributions per common share are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Ordinary income
|
16
|
%
|
|
39
|
%
|
|
45
|
%
|
|
Capital gains
|
—
|
|
|
—
|
|
|
—
|
|
|
Return of capital
|
84
|
%
|
|
61
|
%
|
|
55
|
%
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
As of
December 31, 2012
, returns for the calendar years
2008
through
2012
remain subject to examination by U.S. or various state tax jurisdictions.
Income taxes for financial reporting purposes differ from the amount computed by applying the statutory federal rate primarily due to the effect of state income taxes (net of federal benefit). A reconciliation of the federal statutory income tax rate to Wells TRS's effective tax rate for
December 31, 2012
,
2011
, and
2010
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
|
Federal statutory income tax rate
|
34.00
|
%
|
|
34.00
|
%
|
|
34.00
|
%
|
|
State income taxes, net of federal benefit
|
2.12
|
%
|
|
0.93
|
%
|
|
1.34
|
%
|
|
Interest expense related to notes payable step up
|
6.98
|
%
|
|
(2.27
|
)%
|
|
—
|
%
|
|
Other
|
—
|
%
|
|
0.22
|
%
|
|
0.28
|
%
|
|
Effective tax rate
|
43.10
|
%
|
|
32.88
|
%
|
|
35.62
|
%
|
As of
December 31, 2012
and
2011
, Columbia Property Trust had no deferred tax liabilities. As of
December 31, 2012
and
2011
, respectively, Columbia Property Trust had a deferred tax asset of $
0.8 million
and $
1.3 million
included in prepaid expenses and other assets in the accompanying consolidated balance sheets. Columbia Property Trust has assessed its ability to realize this deferred tax asset and determined that it is more likely than not that the deferred tax asset of $
0.8 million
as of
December 31, 2012
is realizable.
|
|
|
|
12.
|
Assets Held for Sale and Discontinued Operations
|
Assets Held for Sale
In accordance with GAAP, assets that meet certain criteria for disposal are required to be classified as "held for sale" in the accompanying balance sheets. Emerald Point, a four-story office building in Dublin, California, and 5995 Opus Parkway, a five-story office building in Minnetonka, Minnesota, were subject to firm sales contracts and, thus, classified as "held for sale" in the accompanying consolidated balance sheet as of
December 31, 2011
. The Emerald Point sale closed on
January 9, 2012
, for
$37.3 million
, exclusive of transaction costs, and the 5995 Opus Parkway sale closed on
January 12, 2012
, for
$22.8 million
, exclusive of transaction costs.
The major classes of assets and liabilities classified as held for sale as of
December 31, 2011
is provided below (in thousands):
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2011
|
|
Real estate assets held for sale:
|
|
|
Real estate assets, at cost:
|
|
|
Land
|
$
|
11,536
|
|
|
Buildings and improvements, less accumulated depreciation of $6,509
|
25,972
|
|
|
Intangible lease assets, less accumulated amortization of $3,042
|
—
|
|
|
Total real estate assets held for sale, net
|
$
|
37,508
|
|
|
|
|
|
Other assets held for sale:
|
|
|
Tenant receivables
|
$
|
1,747
|
|
|
Prepaid expenses and other assets
|
39
|
|
|
Intangible lease origination costs, less accumulated amortization of $2,018
|
—
|
|
|
Deferred lease costs, less accumulated amortization of $242
|
1,646
|
|
|
Total other assets held for sale, net
|
$
|
3,432
|
|
|
|
|
|
Liabilities held for sale:
|
|
|
Accounts payable, accrued expenses, and accrued capital expenditures
|
$
|
176
|
|
|
Due to affiliates
|
2
|
|
|
Deferred income
|
446
|
|
|
Total liabilities held for sale
|
$
|
624
|
|
Discontinued Operations
The historical operating results and gains from the disposition of certain assets, including assets "held for sale" and operating properties sold, are required to be reflected in a separate section ("discontinued operations") in the consolidated statements of operations for all periods presented. As a result, the revenues and expenses of the properties included in the Nine Property Sale, Emerald Point, 5995 Opus Parkway, and the Manhattan Towers property are included in income from discontinued operations in the accompanying consolidated statements of operations for all periods presented.
The following table shows the revenues and expenses of the above-described discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
|
Revenues:
|
|
|
|
|
|
|
Rental income
|
$
|
30,644
|
|
|
$
|
39,640
|
|
|
$
|
50,932
|
|
|
Tenant reimbursements
|
1,598
|
|
|
2,712
|
|
|
6,241
|
|
|
Other property income
|
—
|
|
|
515
|
|
|
280
|
|
|
|
32,242
|
|
|
42,867
|
|
|
57,453
|
|
|
Expenses:
|
|
|
|
|
|
|
Property operating costs
|
10,732
|
|
|
15,672
|
|
|
18,495
|
|
|
Asset and property management fees
|
2,547
|
|
|
2,644
|
|
|
4,048
|
|
|
Depreciation
|
6,200
|
|
|
9,073
|
|
|
9,945
|
|
|
Amortization
|
4,585
|
|
|
8,919
|
|
|
14,032
|
|
|
Impairment loss on real estate assets
|
18,467
|
|
|
5,817
|
|
|
—
|
|
|
General and administrative
|
198
|
|
|
428
|
|
|
382
|
|
|
Total expenses
|
42,729
|
|
|
42,553
|
|
|
46,902
|
|
|
Real estate operating (loss) income
|
(10,487
|
)
|
|
314
|
|
|
10,551
|
|
|
Other income (expense):
|
|
|
|
|
|
|
Interest expense
|
(2,105
|
)
|
|
(5,249
|
)
|
|
(7,686
|
)
|
|
Interest and other income
|
1
|
|
|
4
|
|
|
816
|
|
|
Operating (loss) income from discontinued operations
|
(12,591
|
)
|
|
(4,931
|
)
|
|
3,681
|
|
|
Gain (loss) on sale of real assets
|
20,117
|
|
|
—
|
|
|
(161
|
)
|
|
Gain on early extinguishment of debt
|
—
|
|
|
13,522
|
|
|
—
|
|
|
Gain (loss) on disposition of discontinued operations
|
20,117
|
|
|
13,522
|
|
|
(161
|
)
|
|
Income from discontinued operations
|
$
|
7,526
|
|
|
$
|
8,591
|
|
|
$
|
3,520
|
|
13.
Quarterly Results (unaudited)
Presented below is a summary of the unaudited quarterly financial information for the years ended
December 31, 2012
and
2011
(in thousands, except per-share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Revenues
(1)
|
$
|
142,928
|
|
|
$
|
142,334
|
|
|
$
|
146,486
|
|
|
$
|
144,943
|
|
|
Net income (loss) attributable to common stockholders of Columbia
Property Trust, Inc.
|
$
|
31,131
|
|
|
$
|
10,914
|
|
|
$
|
(5,859
|
)
|
|
$
|
11,853
|
|
|
Basic and diluted net income (loss) attributable to common stockholders
of Columbia Property Trust, Inc. per share
|
$
|
0.06
|
|
|
$
|
0.02
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
Distributions declared per share
|
$
|
0.125
|
|
|
$
|
0.125
|
|
|
$
|
0.125
|
|
|
$
|
0.095
|
|
|
|
|
|
(1)
|
Prior-period amounts adjusted to conform with current-period presentation, including classifying revenues generated by properties held for sale and by properties sold, as discontinued operations for all periods presented (see Note 12,
Assets Held for Sale and Discontinued Operations
).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Revenues
(1)
|
$
|
133,913
|
|
|
$
|
143,141
|
|
|
$
|
148,909
|
|
|
$
|
150,426
|
|
|
Net income (loss) attributable to common stockholders of Columbia
Property Trust, Inc.
|
$
|
2,411
|
|
|
$
|
(4,482
|
)
|
|
$
|
5,102
|
|
|
$
|
53,611
|
|
|
Basic and diluted net income (loss) attributable to common stockholders
of Columbia Property Trust, Inc. per share
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.01
|
|
|
$
|
0.10
|
|
|
Distributions declared per share
|
$
|
0.125
|
|
|
$
|
0.125
|
|
|
$
|
0.125
|
|
|
$
|
0.125
|
|
|
|
|
|
(1)
|
Prior-period amounts adjusted to conform with current-period presentation, including classifying revenues generated by properties held for sale and by properties sold, as discontinued operations for all periods presented (see Note 12,
Assets Held for Sale and Discontinued Operations
).
|
14. Financial Information for Parent Guarantor, Other Guarantor Subsidiaries, and Non-Guarantor Subsidiaries
The 2018 Bonds Payable (see Note 5,
Bonds Payable
) are guaranteed by Columbia Property Trust and certain direct and indirect subsidiaries of each of Columbia Property Trust and Columbia Property Trust OP. On February 3, 2012, in connection with the execution of the
$450 Million
Term Loan, Columbia Property Trust added
two
subsidiaries as guarantors to the
$450 Million
Term Loan, the JPMorgan Chase Credit Facility, and the 2018 Bonds Payable, which resulted in the reclassification of prior-period amounts between the guarantor and non-guarantor groupings within the condensed consolidating financial statements to conform with the current period presentation. In accordance with SEC Rule 3-10(d), Columbia Property Trust includes herein condensed consolidating financial information in lieu of separate financial statements of the subsidiary issuer (Columbia Property Trust OP) and Subsidiary Guarantors, as defined in the bond indenture, because all of the following criteria are met:
|
|
|
|
(1)
|
The subsidiary issuer (Columbia Property Trust OP) and all Subsidiary Guarantors are
100%
owned by the parent company guarantor (Columbia Property Trust);
|
|
|
|
|
(2)
|
The guarantees are full and unconditional; and
|
|
|
|
|
(3)
|
The guarantees are joint and several.
|
Columbia Property Trust uses the equity method with respect to its investment in subsidiaries included in its condensed consolidating financial statements. Set forth below are Columbia Property Trust's condensed consolidating balance sheets as of
December 31, 2012
and
2011
(in thousands), as well as its condensed consolidating statements of operations and its condensed consolidating statements of comprehensive income for
2012
,
2011
, and
2010
(in thousands); and its condensed consolidating statements of cash flows for
2012
,
2011
, and
2010
(in thousands).
Condensed Consolidating Balance Sheets
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
|
Columbia Property Trust
(Parent)
|
|
Columbia Property Trust OP
(the Issuer)
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Consolidating
Adjustments
|
|
Columbia Property Trust
(Consolidated)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate assets, at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
$
|
—
|
|
|
$
|
6,241
|
|
|
$
|
214,425
|
|
|
$
|
568,571
|
|
|
$
|
—
|
|
|
$
|
789,237
|
|
|
Buildings and improvements, net
|
—
|
|
|
16,513
|
|
|
1,550,988
|
|
|
1,900,717
|
|
|
—
|
|
|
3,468,218
|
|
|
Intangible lease assets, net
|
—
|
|
|
—
|
|
|
120,311
|
|
|
221,149
|
|
|
—
|
|
|
341,460
|
|
|
Construction in progress
|
—
|
|
|
5,252
|
|
|
2,268
|
|
|
5,160
|
|
|
—
|
|
|
12,680
|
|
|
Total real estate assets
|
—
|
|
|
28,006
|
|
|
1,887,992
|
|
|
2,695,597
|
|
|
—
|
|
|
4,611,595
|
|
|
Cash and cash equivalents
|
20,914
|
|
|
4,822
|
|
|
13,673
|
|
|
14,248
|
|
|
—
|
|
|
53,657
|
|
|
Investment in subsidiaries
|
3,068,106
|
|
|
2,679,950
|
|
|
—
|
|
|
—
|
|
|
(5,748,056
|
)
|
|
—
|
|
|
Tenant receivables, net of allowance
|
—
|
|
|
22
|
|
|
62,412
|
|
|
75,888
|
|
|
(4,223
|
)
|
|
134,099
|
|
|
Prepaid expenses and other assets
|
178,131
|
|
|
203,589
|
|
|
1,408
|
|
|
26,929
|
|
|
(380,684
|
)
|
|
29,373
|
|
|
Deferred financing costs, net
|
—
|
|
|
8,498
|
|
|
—
|
|
|
1,992
|
|
|
—
|
|
|
10,490
|
|
|
Intangible lease origination costs, net
|
—
|
|
|
—
|
|
|
105,748
|
|
|
101,179
|
|
|
—
|
|
|
206,927
|
|
|
Deferred lease costs, net
|
—
|
|
|
68
|
|
|
38,619
|
|
|
60,121
|
|
|
—
|
|
|
98,808
|
|
|
Investment in development authority
bonds
|
—
|
|
|
—
|
|
|
466,000
|
|
|
120,000
|
|
|
—
|
|
|
586,000
|
|
|
Total assets
|
$
|
3,267,151
|
|
|
$
|
2,924,955
|
|
|
$
|
2,575,852
|
|
|
$
|
3,095,954
|
|
|
$
|
(6,132,963
|
)
|
|
$
|
5,730,949
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit and notes payable
|
$
|
—
|
|
|
$
|
492,000
|
|
|
$
|
145,974
|
|
|
$
|
1,142,644
|
|
|
$
|
(379,000
|
)
|
|
$
|
1,401,618
|
|
|
Bonds payable, net
|
—
|
|
|
248,678
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
248,678
|
|
|
Accounts payable, accrued expenses, and
accrued capital expenditures
|
3,645
|
|
|
12,417
|
|
|
26,594
|
|
|
64,425
|
|
|
(4,223
|
)
|
|
102,858
|
|
|
Due to affiliates
|
—
|
|
|
960
|
|
|
1,485
|
|
|
1,159
|
|
|
(1,684
|
)
|
|
1,920
|
|
|
Deferred income
|
—
|
|
|
81
|
|
|
14,619
|
|
|
13,371
|
|
|
—
|
|
|
28,071
|
|
|
Intangible lease liabilities, net
|
—
|
|
|
—
|
|
|
32,589
|
|
|
65,709
|
|
|
—
|
|
|
98,298
|
|
|
Obligations under capital leases
|
—
|
|
|
—
|
|
|
466,000
|
|
|
120,000
|
|
|
—
|
|
|
586,000
|
|
|
Total liabilities
|
3,645
|
|
|
754,136
|
|
|
687,261
|
|
|
1,407,308
|
|
|
(384,907
|
)
|
|
2,467,443
|
|
|
Redeemable Common Stock
|
99,526
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
99,526
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Columbia Property Trust,
Inc. stockholders' equity
|
3,163,980
|
|
|
2,170,819
|
|
|
1,888,591
|
|
|
1,688,646
|
|
|
(5,748,056
|
)
|
|
3,163,980
|
|
|
Total equity
|
3,163,980
|
|
|
2,170,819
|
|
|
1,888,591
|
|
|
1,688,646
|
|
|
(5,748,056
|
)
|
|
3,163,980
|
|
|
Total liabilities, redeemable
common stock, and equity
|
$
|
3,267,151
|
|
|
$
|
2,924,955
|
|
|
$
|
2,575,852
|
|
|
$
|
3,095,954
|
|
|
$
|
(6,132,963
|
)
|
|
$
|
5,730,949
|
|
Condensed Consolidating Balance Sheets
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
|
Columbia Property Trust
(Parent)
|
|
Columbia Property Trust OP
(the Issuer)
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Consolidating
Adjustments
|
|
Columbia Property Trust
(Consolidated)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate assets, at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
223,522
|
|
|
$
|
480,814
|
|
|
$
|
—
|
|
|
$
|
704,336
|
|
|
Building and improvements, net
|
—
|
|
|
—
|
|
|
1,635,910
|
|
|
1,837,061
|
|
|
—
|
|
|
3,472,971
|
|
|
Intangible lease assets, net
|
—
|
|
|
—
|
|
|
153,070
|
|
|
238,919
|
|
|
—
|
|
|
391,989
|
|
|
Construction in progress
|
—
|
|
|
—
|
|
|
4,224
|
|
|
4,190
|
|
|
—
|
|
|
8,414
|
|
|
Real estate assets held for sale,
net
|
—
|
|
|
—
|
|
|
—
|
|
|
37,508
|
|
|
—
|
|
|
37,508
|
|
|
Total real estate assets
|
—
|
|
|
—
|
|
|
2,016,726
|
|
|
2,598,492
|
|
|
—
|
|
|
4,615,218
|
|
|
Cash and cash equivalents
|
11,291
|
|
|
10,597
|
|
|
9,133
|
|
|
8,447
|
|
|
—
|
|
|
39,468
|
|
|
Investment in subsidiaries
|
3,275,979
|
|
|
2,786,248
|
|
|
—
|
|
|
—
|
|
|
(6,062,227
|
)
|
|
—
|
|
|
Tenant receivables, net of allowance
|
—
|
|
|
—
|
|
|
58,435
|
|
|
77,471
|
|
|
(5,357
|
)
|
|
130,549
|
|
|
Prepaid expenses and other assets
|
177,444
|
|
|
202,126
|
|
|
2,056
|
|
|
29,009
|
|
|
(377,804
|
)
|
|
32,831
|
|
|
Deferred financing costs, net
|
—
|
|
|
8,287
|
|
|
—
|
|
|
1,155
|
|
|
—
|
|
|
9,442
|
|
|
Intangible lease origination costs, net
|
—
|
|
|
—
|
|
|
133,052
|
|
|
98,286
|
|
|
—
|
|
|
231,338
|
|
|
Deferred lease costs, net
|
—
|
|
|
—
|
|
|
28,650
|
|
|
39,639
|
|
|
—
|
|
|
68,289
|
|
|
Investment in development authority
bonds
|
—
|
|
|
—
|
|
|
466,000
|
|
|
180,000
|
|
|
—
|
|
|
646,000
|
|
|
Other assets held for sale, net
|
—
|
|
|
—
|
|
|
—
|
|
|
3,432
|
|
|
—
|
|
|
3,432
|
|
|
Total assets
|
$
|
3,464,714
|
|
|
$
|
3,007,258
|
|
|
$
|
2,714,052
|
|
|
$
|
3,035,931
|
|
|
$
|
(6,445,388
|
)
|
|
$
|
5,776,567
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lines of credit and notes payable
|
$
|
—
|
|
|
$
|
484,000
|
|
|
$
|
147,730
|
|
|
$
|
966,123
|
|
|
$
|
(376,793
|
)
|
|
$
|
1,221,060
|
|
|
Bonds payable, net
|
—
|
|
|
248,426
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
248,426
|
|
|
Accounts payable, accrued expenses,
and accrued capital expenditures
|
1,652
|
|
|
5,696
|
|
|
24,871
|
|
|
45,487
|
|
|
(5,357
|
)
|
|
72,349
|
|
|
Due to affiliates
|
—
|
|
|
2,779
|
|
|
1,178
|
|
|
383
|
|
|
(1,011
|
)
|
|
3,329
|
|
|
Deferred income
|
—
|
|
|
—
|
|
|
22,280
|
|
|
12,799
|
|
|
—
|
|
|
35,079
|
|
|
Intangible lease liabilities, net
|
—
|
|
|
—
|
|
|
39,224
|
|
|
50,357
|
|
|
—
|
|
|
89,581
|
|
|
Obligations under capital leases
|
—
|
|
|
—
|
|
|
466,000
|
|
|
180,000
|
|
|
—
|
|
|
646,000
|
|
|
Liabilities held for sale
|
—
|
|
|
—
|
|
|
—
|
|
|
624
|
|
|
—
|
|
|
624
|
|
|
Total liabilities
|
1,652
|
|
|
740,901
|
|
|
701,283
|
|
|
1,255,773
|
|
|
(383,161
|
)
|
|
2,316,448
|
|
|
Redeemable Common Stock
|
113,147
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
113,147
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Columbia Property
Trust, Inc. stockholders'
equity
|
3,349,915
|
|
|
2,266,357
|
|
|
2,012,769
|
|
|
1,779,841
|
|
|
(6,062,227
|
)
|
|
3,346,655
|
|
|
Nonredeemable noncontrolling
interests
|
—
|
|
|
—
|
|
|
—
|
|
|
317
|
|
|
—
|
|
|
317
|
|
|
Total equity
|
3,349,915
|
|
|
2,266,357
|
|
|
2,012,769
|
|
|
1,780,158
|
|
|
(6,062,227
|
)
|
|
3,346,972
|
|
|
Total liabilities, redeemable
common stock, and equity
|
$
|
3,464,714
|
|
|
$
|
3,007,258
|
|
|
$
|
2,714,052
|
|
|
$
|
3,035,931
|
|
|
$
|
(6,445,388
|
)
|
|
$
|
5,776,567
|
|
Consolidating Statements of Operations
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2012
|
|
|
Columbia Property Trust
(Parent)
|
|
Columbia Property Trust OP
(the Issuer)
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Consolidating
Adjustments
|
|
Columbia Property Trust
(Consolidated)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
$
|
—
|
|
|
$
|
1,649
|
|
|
$
|
220,603
|
|
|
$
|
223,674
|
|
|
$
|
(3,642
|
)
|
|
$
|
442,284
|
|
|
Tenant reimbursements
|
—
|
|
|
103
|
|
|
40,444
|
|
|
66,773
|
|
|
(2,457
|
)
|
|
104,863
|
|
|
Hotel income
|
—
|
|
|
—
|
|
|
—
|
|
|
23,049
|
|
|
—
|
|
|
23,049
|
|
|
Other property income
|
—
|
|
|
86
|
|
|
4,230
|
|
|
2,775
|
|
|
(596
|
)
|
|
6,495
|
|
|
|
—
|
|
|
1,838
|
|
|
265,277
|
|
|
316,271
|
|
|
(6,695
|
)
|
|
576,691
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating costs
|
—
|
|
|
1,634
|
|
|
67,104
|
|
|
107,695
|
|
|
(2,967
|
)
|
|
173,466
|
|
|
Hotel operating costs
|
—
|
|
|
—
|
|
|
—
|
|
|
22,004
|
|
|
(3,642
|
)
|
|
18,362
|
|
|
Asset and property management fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related-party
|
29,933
|
|
|
58
|
|
|
2,234
|
|
|
3,310
|
|
|
(1,141
|
)
|
|
34,394
|
|
|
Other
|
—
|
|
|
—
|
|
|
1,412
|
|
|
1,414
|
|
|
—
|
|
|
2,826
|
|
|
Depreciation
|
—
|
|
|
710
|
|
|
52,733
|
|
|
60,664
|
|
|
—
|
|
|
114,107
|
|
|
Amortization
|
—
|
|
|
357
|
|
|
47,718
|
|
|
49,574
|
|
|
—
|
|
|
97,649
|
|
|
Impairment loss on real estate assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
General and administrative
|
49
|
|
|
21,436
|
|
|
2,369
|
|
|
1,309
|
|
|
—
|
|
|
25,163
|
|
|
Acquisition fees and expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
1,876
|
|
|
—
|
|
|
1,876
|
|
|
|
29,982
|
|
|
24,195
|
|
|
173,570
|
|
|
247,846
|
|
|
(7,750
|
)
|
|
467,843
|
|
|
Real estate operating (loss) income
|
(29,982
|
)
|
|
(22,357
|
)
|
|
91,707
|
|
|
68,425
|
|
|
1,055
|
|
|
108,848
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
—
|
|
|
(32,469
|
)
|
|
(40,239
|
)
|
|
(58,622
|
)
|
|
24,939
|
|
|
(106,391
|
)
|
|
Interest and other income
|
7,988
|
|
|
16,960
|
|
|
29,229
|
|
|
10,633
|
|
|
(24,939
|
)
|
|
39,871
|
|
|
Loss on interest rate swaps
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,225
|
)
|
|
—
|
|
|
(1,225
|
)
|
|
Income (loss) from equity investment
|
70,033
|
|
|
95,902
|
|
|
—
|
|
|
—
|
|
|
(165,935
|
)
|
|
—
|
|
|
|
78,021
|
|
|
80,393
|
|
|
(11,010
|
)
|
|
(49,214
|
)
|
|
(165,935
|
)
|
|
(67,745
|
)
|
|
Income (loss) before income tax
benefit (expense)
|
48,039
|
|
|
58,036
|
|
|
80,697
|
|
|
19,211
|
|
|
(164,880
|
)
|
|
41,103
|
|
|
Income tax benefit (expense)
|
—
|
|
|
(14
|
)
|
|
(200
|
)
|
|
(372
|
)
|
|
—
|
|
|
(586
|
)
|
|
Income (loss) from continuing
operations
|
48,039
|
|
|
58,022
|
|
|
80,497
|
|
|
18,839
|
|
|
(164,880
|
)
|
|
40,517
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from
discontinued operations
|
—
|
|
|
—
|
|
|
2,632
|
|
|
(15,223
|
)
|
|
—
|
|
|
(12,591
|
)
|
|
(Loss) gain on disposition of
discontinued operations
|
—
|
|
|
—
|
|
|
(383
|
)
|
|
20,500
|
|
|
—
|
|
|
20,117
|
|
|
Income from discontinued operations
|
—
|
|
|
—
|
|
|
2,249
|
|
|
5,277
|
|
|
—
|
|
|
7,526
|
|
|
Net income (loss)
|
48,039
|
|
|
58,022
|
|
|
82,746
|
|
|
24,116
|
|
|
(164,880
|
)
|
|
48,043
|
|
|
Net income (loss) attributable to
noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
Net income (loss) attributable to the
common stockholders of Columbia
Property Trust, Inc.
|
$
|
48,039
|
|
|
$
|
58,022
|
|
|
$
|
82,746
|
|
|
$
|
24,112
|
|
|
$
|
(164,880
|
)
|
|
$
|
48,039
|
|
Consolidating Statements of Operations
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2011
|
|
|
Columbia Property Trust
(Parent)
|
|
Columbia Property Trust OP
(the Issuer)
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Consolidating
Adjustments
|
|
Columbia Property Trust
(Consolidated)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
227,439
|
|
|
$
|
219,366
|
|
|
$
|
(4,898
|
)
|
|
$
|
441,907
|
|
|
Tenant reimbursements
|
—
|
|
|
—
|
|
|
41,195
|
|
|
61,749
|
|
|
—
|
|
|
102,944
|
|
|
Hotel income
|
—
|
|
|
—
|
|
|
—
|
|
|
20,600
|
|
|
—
|
|
|
20,600
|
|
|
Other property income
|
—
|
|
|
145
|
|
|
433
|
|
|
11,041
|
|
|
(681
|
)
|
|
10,938
|
|
|
|
—
|
|
|
145
|
|
|
269,067
|
|
|
312,756
|
|
|
(5,579
|
)
|
|
576,389
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating costs
|
—
|
|
|
—
|
|
|
67,598
|
|
|
100,365
|
|
|
(536
|
)
|
|
167,427
|
|
|
Hotel operating costs
|
—
|
|
|
—
|
|
|
—
|
|
|
22,292
|
|
|
(4,898
|
)
|
|
17,394
|
|
|
Asset and property management fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related-party
|
29,511
|
|
|
—
|
|
|
1,654
|
|
|
3,548
|
|
|
(145
|
)
|
|
34,568
|
|
|
Other
|
—
|
|
|
—
|
|
|
1,838
|
|
|
949
|
|
|
—
|
|
|
2,787
|
|
|
Depreciation
|
—
|
|
|
—
|
|
|
52,714
|
|
|
57,985
|
|
|
—
|
|
|
110,699
|
|
|
Amortization
|
—
|
|
|
—
|
|
|
51,320
|
|
|
60,145
|
|
|
—
|
|
|
111,465
|
|
|
General and administrative
|
43
|
|
|
18,124
|
|
|
2,106
|
|
|
3,462
|
|
|
—
|
|
|
23,735
|
|
|
Acquisition fees and expenses
|
1,307
|
|
|
—
|
|
|
—
|
|
|
9,943
|
|
|
—
|
|
|
11,250
|
|
|
|
30,861
|
|
|
18,124
|
|
|
177,230
|
|
|
258,689
|
|
|
(5,579
|
)
|
|
479,325
|
|
|
Real estate operating (loss) income
|
(30,861
|
)
|
|
(17,979
|
)
|
|
91,837
|
|
|
54,067
|
|
|
—
|
|
|
97,064
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
—
|
|
|
(28,329
|
)
|
|
(43,015
|
)
|
|
(52,572
|
)
|
|
17,611
|
|
|
(106,305
|
)
|
|
Interest and other income (expense)
|
2,129
|
|
|
17,830
|
|
|
29,231
|
|
|
10,816
|
|
|
(17,611
|
)
|
|
42,395
|
|
|
Loss on interest rate swaps
|
—
|
|
|
—
|
|
|
—
|
|
|
(38,383
|
)
|
|
—
|
|
|
(38,383
|
)
|
|
Income (loss) from equity investment
|
85,374
|
|
|
118,245
|
|
|
—
|
|
|
—
|
|
|
(203,619
|
)
|
|
—
|
|
|
Gain on the early extinguishment of
debt
|
—
|
|
|
—
|
|
|
—
|
|
|
53,018
|
|
|
—
|
|
|
53,018
|
|
|
|
87,503
|
|
|
107,746
|
|
|
(13,784
|
)
|
|
(27,121
|
)
|
|
(203,619
|
)
|
|
(49,275
|
)
|
|
Income (loss) before income tax
(expense) benefit
|
56,642
|
|
|
89,767
|
|
|
78,053
|
|
|
26,946
|
|
|
(203,619
|
)
|
|
47,789
|
|
|
Income tax (expense) benefit
|
—
|
|
|
—
|
|
|
(303
|
)
|
|
579
|
|
|
—
|
|
|
276
|
|
|
Income (loss) from continuing
operations
|
56,642
|
|
|
89,767
|
|
|
77,750
|
|
|
27,525
|
|
|
(203,619
|
)
|
|
48,065
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from
discontinued operations
|
—
|
|
|
—
|
|
|
2,714
|
|
|
(7,645
|
)
|
|
—
|
|
|
(4,931
|
)
|
|
Gain on disposition of discontinued
operations
|
—
|
|
|
—
|
|
|
—
|
|
|
13,522
|
|
|
—
|
|
|
13,522
|
|
|
Income from discontinued operations
|
—
|
|
|
—
|
|
|
2,714
|
|
|
5,877
|
|
|
—
|
|
|
8,591
|
|
|
Net income (loss)
|
56,642
|
|
|
89,767
|
|
|
80,464
|
|
|
33,402
|
|
|
(203,619
|
)
|
|
56,656
|
|
|
Less: net income attributable to
noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
(14
|
)
|
|
Net income (loss) attributable to the
common stockholders of Columbia
Property Trust, Inc.
|
$
|
56,642
|
|
|
$
|
89,767
|
|
|
$
|
80,464
|
|
|
$
|
33,388
|
|
|
$
|
(203,619
|
)
|
|
$
|
56,642
|
|
Consolidating Statements of Operations
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2010
|
|
|
Columbia Property Trust
(Parent)
|
|
Columbia Property Trust OP
(the Issuer)
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Consolidating
Adjustments
|
|
Columbia Property Trust
(Consolidated)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
222,667
|
|
|
$
|
178,330
|
|
|
$
|
(4,875
|
)
|
|
$
|
396,122
|
|
|
Tenant reimbursements
|
—
|
|
|
—
|
|
|
39,766
|
|
|
53,646
|
|
|
—
|
|
|
93,412
|
|
|
Hotel income
|
—
|
|
|
—
|
|
|
—
|
|
|
19,819
|
|
|
—
|
|
|
19,819
|
|
|
Other property income
|
—
|
|
|
184
|
|
|
324
|
|
|
1,471
|
|
|
(818
|
)
|
|
1,161
|
|
|
|
—
|
|
|
184
|
|
|
262,757
|
|
|
253,266
|
|
|
(5,693
|
)
|
|
510,514
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating costs
|
—
|
|
|
—
|
|
|
66,426
|
|
|
85,717
|
|
|
(634
|
)
|
|
151,509
|
|
|
Hotel operating costs
|
—
|
|
|
—
|
|
|
—
|
|
|
21,910
|
|
|
(4,875
|
)
|
|
17,035
|
|
|
Asset and property management
fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related-party
|
26,831
|
|
|
—
|
|
|
1,407
|
|
|
2,916
|
|
|
(184
|
)
|
|
30,970
|
|
|
Other
|
—
|
|
|
—
|
|
|
2,027
|
|
|
1,218
|
|
|
—
|
|
|
3,245
|
|
|
Depreciation
|
—
|
|
|
—
|
|
|
50,199
|
|
|
42,414
|
|
|
—
|
|
|
92,613
|
|
|
Amortization
|
—
|
|
|
—
|
|
|
53,305
|
|
|
50,232
|
|
|
—
|
|
|
103,537
|
|
|
General and administrative
|
75
|
|
|
20,834
|
|
|
925
|
|
|
1,382
|
|
|
—
|
|
|
23,216
|
|
|
Acquisition fees and expenses
|
9,670
|
|
|
—
|
|
|
206
|
|
|
903
|
|
|
—
|
|
|
10,779
|
|
|
|
36,576
|
|
|
20,834
|
|
|
174,495
|
|
|
206,692
|
|
|
(5,693
|
)
|
|
432,904
|
|
|
Real estate operating (loss) income
|
(36,576
|
)
|
|
(20,650
|
)
|
|
88,262
|
|
|
46,574
|
|
|
—
|
|
|
77,610
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
—
|
|
|
(5,456
|
)
|
|
(47,649
|
)
|
|
(44,606
|
)
|
|
15,673
|
|
|
(82,038
|
)
|
|
Interest and other income
|
1,116
|
|
|
15,721
|
|
|
29,236
|
|
|
12,683
|
|
|
(15,673
|
)
|
|
43,083
|
|
|
Loss on interest rate swaps
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,061
|
)
|
|
—
|
|
|
(19,061
|
)
|
|
Income (loss) from equity
investment
|
58,726
|
|
|
58,906
|
|
|
—
|
|
|
—
|
|
|
(117,632
|
)
|
|
—
|
|
|
|
59,842
|
|
|
69,171
|
|
|
(18,413
|
)
|
|
(50,984
|
)
|
|
(117,632
|
)
|
|
(58,016
|
)
|
|
Income (loss) before income tax
(expense) benefit
|
23,266
|
|
|
48,521
|
|
|
69,849
|
|
|
(4,410
|
)
|
|
(117,632
|
)
|
|
19,594
|
|
|
Income tax (expense) benefit
|
—
|
|
|
—
|
|
|
(230
|
)
|
|
456
|
|
|
—
|
|
|
226
|
|
|
Income (loss) from continuing
operations
|
23,266
|
|
|
48,521
|
|
|
69,619
|
|
|
(3,954
|
)
|
|
(117,632
|
)
|
|
19,820
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from
discontinued operations
|
—
|
|
|
—
|
|
|
2,769
|
|
|
912
|
|
|
—
|
|
|
3,681
|
|
|
Loss on disposition of discontinued
operations
|
—
|
|
|
—
|
|
|
—
|
|
|
(161
|
)
|
|
—
|
|
|
(161
|
)
|
|
Income from discontinued operations
|
—
|
|
|
—
|
|
|
2,769
|
|
|
751
|
|
|
—
|
|
|
3,520
|
|
|
Net income (loss)
|
23,266
|
|
|
48,521
|
|
|
72,388
|
|
|
(3,203
|
)
|
|
(117,632
|
)
|
|
23,340
|
|
|
Less: net income attributable to
noncontrolling interests
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(73
|
)
|
|
—
|
|
|
(74
|
)
|
|
Net income (loss) attributable to the
common stockholders of Columbia
Property Trust, Inc.
|
$
|
23,266
|
|
|
$
|
48,520
|
|
|
$
|
72,388
|
|
|
$
|
(3,276
|
)
|
|
$
|
(117,632
|
)
|
|
$
|
23,266
|
|
Consolidating Statements of Comprehensive Income
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2012
|
|
|
Columbia Property Trust
(Parent)
|
|
Columbia Property Trust OP
(the Issuer)
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Consolidating
Adjustments
|
|
Columbia Property Trust
(Consolidated)
|
|
Net income (loss) attributable to the
common stockholders of Columbia
Property Trust, Inc.
|
$
|
48,039
|
|
|
$
|
58,022
|
|
|
$
|
82,746
|
|
|
$
|
24,112
|
|
|
$
|
(164,880
|
)
|
|
$
|
48,039
|
|
|
Market value adjustment to interest
rate swap
|
(5,305
|
)
|
|
(5,305
|
)
|
|
—
|
|
|
—
|
|
|
5,305
|
|
|
(5,305
|
)
|
|
Comprehensive income (loss)
attributable to the common
stockholders of Columbia Property
Trust, Inc.
|
42,734
|
|
|
52,717
|
|
|
82,746
|
|
|
24,112
|
|
|
(159,575
|
)
|
|
42,734
|
|
|
Comprehensive income attributable to
noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
Comprehensive income (loss)
|
$
|
42,734
|
|
|
$
|
52,717
|
|
|
$
|
82,746
|
|
|
$
|
24,116
|
|
|
$
|
(159,575
|
)
|
|
$
|
42,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2011
|
|
|
Columbia Property Trust
(Parent)
|
|
Columbia Property Trust OP
(the Issuer)
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Consolidating
Adjustments
|
|
Columbia Property Trust
(Consolidated)
|
|
Net income (loss) attributable to the
common stockholders of Columbia
Property Trust, Inc.
|
$
|
56,642
|
|
|
$
|
89,767
|
|
|
$
|
80,464
|
|
|
$
|
33,388
|
|
|
$
|
(203,619
|
)
|
|
$
|
56,642
|
|
|
Market value adjustment to interest
rate swap
|
11,223
|
|
|
—
|
|
|
—
|
|
|
11,223
|
|
|
(11,223
|
)
|
|
11,223
|
|
|
Comprehensive income (loss)
attributable to the common
stockholders of Columbia Property
Trust, Inc.
|
67,865
|
|
|
89,767
|
|
|
80,464
|
|
|
44,611
|
|
|
(214,842
|
)
|
|
67,865
|
|
|
Comprehensive income attributable to
noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
14
|
|
|
Comprehensive income (loss)
|
$
|
67,865
|
|
|
$
|
89,767
|
|
|
$
|
80,464
|
|
|
$
|
44,625
|
|
|
$
|
(214,842
|
)
|
|
$
|
67,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2010
|
|
|
Columbia Property Trust
(Parent)
|
|
Columbia Property Trust OP
(the Issuer)
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Consolidating
Adjustments
|
|
Columbia Property Trust
(Consolidated)
|
|
Net income (loss) attributable to the
common stockholders of Columbia
Property Trust, Inc.
|
$
|
23,266
|
|
|
$
|
48,520
|
|
|
$
|
72,388
|
|
|
$
|
(3,276
|
)
|
|
$
|
(117,632
|
)
|
|
$
|
23,266
|
|
|
Market value adjustment to interest
rate swap
|
(3,110
|
)
|
|
—
|
|
|
—
|
|
|
(3,110
|
)
|
|
3,110
|
|
|
(3,110
|
)
|
|
Comprehensive income (loss)
attributable to the common
stockholders of Columbia Property
Trust, Inc.
|
20,156
|
|
|
48,520
|
|
|
72,388
|
|
|
(6,386
|
)
|
|
(114,522
|
)
|
|
20,156
|
|
|
Comprehensive income attributable to
noncontrolling interests
|
—
|
|
|
1
|
|
|
—
|
|
|
73
|
|
|
—
|
|
|
74
|
|
|
Comprehensive income (loss)
|
$
|
20,156
|
|
|
$
|
48,521
|
|
|
$
|
72,388
|
|
|
$
|
(6,313
|
)
|
|
$
|
(114,522
|
)
|
|
$
|
20,230
|
|
Consolidating Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2012
|
|
|
Columbia Property Trust
(Parent)
|
|
Columbia Property Trust OP
(the Issuer)
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Columbia Property Trust
(Consolidated)
|
|
Cash flows from operating activities:
|
$
|
(49
|
)
|
|
$
|
(83,489
|
)
|
|
$
|
191,117
|
|
|
$
|
145,260
|
|
|
$
|
252,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of real estate
|
30,441
|
|
|
273,823
|
|
|
—
|
|
|
—
|
|
|
304,264
|
|
|
Investment in real estate and related assets
|
—
|
|
|
(193,410
|
)
|
|
(33,488
|
)
|
|
(46,319
|
)
|
|
(273,217
|
)
|
|
Net cash provided by (used in) investing
activities
|
30,441
|
|
|
80,413
|
|
|
(33,488
|
)
|
|
(46,319
|
)
|
|
31,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Borrowings, net of fees
|
—
|
|
|
595,731
|
|
|
—
|
|
|
(929
|
)
|
|
594,802
|
|
|
Repayments
|
—
|
|
|
(591,000
|
)
|
|
—
|
|
|
(36,191
|
)
|
|
(627,191
|
)
|
|
Issuance of common stock, net of redemptions
and fees
|
18,996
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,996
|
|
|
Distributions
|
(256,020
|
)
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
(256,035
|
)
|
|
Intercompany transfers, net
|
216,255
|
|
|
(7,430
|
)
|
|
(153,089
|
)
|
|
(55,736
|
)
|
|
—
|
|
|
Redemption of noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
(301
|
)
|
|
(301
|
)
|
|
Net cash used in financing activities
|
(20,769
|
)
|
|
(2,699
|
)
|
|
(153,089
|
)
|
|
(93,172
|
)
|
|
(269,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
9,623
|
|
|
(5,775
|
)
|
|
4,540
|
|
|
5,769
|
|
|
14,157
|
|
|
Effect of foreign exchange rate on cash and cash
equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
32
|
|
|
Cash and cash equivalents, beginning of period
|
11,291
|
|
|
10,597
|
|
|
9,133
|
|
|
8,447
|
|
|
39,468
|
|
|
Cash and cash equivalents, end of period
|
$
|
20,914
|
|
|
$
|
4,822
|
|
|
$
|
13,673
|
|
|
$
|
14,248
|
|
|
$
|
53,657
|
|
Consolidating Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2011
|
|
|
Columbia Property Trust
(Parent)
|
|
Columbia Property Trust OP
(the Issuer)
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Columbia Property Trust
(Consolidated)
|
|
Cash flows from operating activities:
|
$
|
508
|
|
|
$
|
(78,219
|
)
|
|
$
|
207,710
|
|
|
$
|
149,159
|
|
|
$
|
279,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate and related assets
|
(606,116
|
)
|
|
—
|
|
|
(19,588
|
)
|
|
(40,386
|
)
|
|
(666,090
|
)
|
|
Net cash used in investing activities
|
(606,116
|
)
|
|
—
|
|
|
(19,588
|
)
|
|
(40,386
|
)
|
|
(666,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Borrowings, net of fees
|
—
|
|
|
1,454,978
|
|
|
—
|
|
|
324,364
|
|
|
1,779,342
|
|
|
Repayments
|
—
|
|
|
(806,500
|
)
|
|
(63,396
|
)
|
|
(298,382
|
)
|
|
(1,168,278
|
)
|
|
Issuance of common stock, net of redemptions and
fees
|
47,397
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47,397
|
|
|
Distributions
|
(270,720
|
)
|
|
—
|
|
|
—
|
|
|
(44
|
)
|
|
(270,764
|
)
|
|
Intercompany transfers
|
831,941
|
|
|
(570,649
|
)
|
|
(125,681
|
)
|
|
(135,611
|
)
|
|
—
|
|
|
Redemptions of noncontrolling interest
|
—
|
|
|
(87
|
)
|
|
—
|
|
|
—
|
|
|
(87
|
)
|
|
Net cash provided by (used in) financing
activities
|
608,618
|
|
|
77,742
|
|
|
(189,077
|
)
|
|
(109,673
|
)
|
|
387,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
3,010
|
|
|
(477
|
)
|
|
(955
|
)
|
|
(900
|
)
|
|
678
|
|
|
Effect of foreign exchange rate on cash and cash
equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
(92
|
)
|
|
(92
|
)
|
|
Cash and cash equivalents, beginning of period
|
8,281
|
|
|
11,074
|
|
|
10,088
|
|
|
9,439
|
|
|
38,882
|
|
|
Cash and cash equivalents, end of period
|
$
|
11,291
|
|
|
$
|
10,597
|
|
|
$
|
9,133
|
|
|
$
|
8,447
|
|
|
$
|
39,468
|
|
Consolidating Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2010
|
|
|
Columbia Property Trust
(Parent)
|
|
Columbia Property Trust OP
(the Issuer)
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Columbia Property Trust
(Consolidated)
|
|
Cash flows from operating activities:
|
$
|
(9,745
|
)
|
|
$
|
(47,814
|
)
|
|
$
|
191,570
|
|
|
$
|
136,095
|
|
|
$
|
270,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from the sale of real estate
|
15,219
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,219
|
|
|
Investment in real estate and related assets
|
(11,632
|
)
|
|
(286,727
|
)
|
|
(11,852
|
)
|
|
(17,716
|
)
|
|
(327,927
|
)
|
|
Net cash provided by (used in) investing activities
|
3,587
|
|
|
(286,727
|
)
|
|
(11,852
|
)
|
|
(17,716
|
)
|
|
(312,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Borrowings, net of fees
|
—
|
|
|
80,662
|
|
|
—
|
|
|
—
|
|
|
80,662
|
|
|
Repayments
|
—
|
|
|
(16,000
|
)
|
|
(90,000
|
)
|
|
(56,742
|
)
|
|
(162,742
|
)
|
|
Issuance of common stock, net of redemptions and
fees
|
375,716
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
375,716
|
|
|
Distributions
|
(313,815
|
)
|
|
—
|
|
|
—
|
|
|
(250
|
)
|
|
(314,065
|
)
|
|
Intercompany transfers
|
(108,381
|
)
|
|
256,712
|
|
|
(89,187
|
)
|
|
(59,144
|
)
|
|
—
|
|
|
Redemptions of noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net cash provided by (used in) financing
activities
|
(46,480
|
)
|
|
321,374
|
|
|
(179,187
|
)
|
|
(116,136
|
)
|
|
(20,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
(52,638
|
)
|
|
(13,167
|
)
|
|
531
|
|
|
2,243
|
|
|
(63,031
|
)
|
|
Effect of foreign exchange rate on cash and cash
equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
(812
|
)
|
|
(812
|
)
|
|
Cash and cash equivalents, beginning of period
|
60,919
|
|
|
24,241
|
|
|
9,557
|
|
|
8,008
|
|
|
102,725
|
|
|
Cash and cash equivalents, end of period
|
$
|
8,281
|
|
|
$
|
11,074
|
|
|
$
|
10,088
|
|
|
$
|
9,439
|
|
|
$
|
38,882
|
|
Columbia Property Trust has evaluated subsequent events in connection with the preparation of its consolidated financial statements and notes thereto included in this report on Form 10-K and notes the following item in addition to those disclosed elsewhere in this report:
Chairman of the Board
On January 1, 2013, the board of directors ("the Board") unanimously appointed John L. Dixon as its Chairman, succeeding the former Chairman of the Board, Leo F. Wells, III. Mr. Wells and the other board members believe that having an independent Board Chairman is in keeping with corporate governance best practices and will benefit the company as it continues to prepare for a successful liquidity event. Mr. Wells, who will continue to serve the company as a member of the board, had served as Chairman of the Board since the company's inception and previously served as president of the company from its inception until July 2010. Mr. Dixon has served the company as an independent director since 2008 and brings more than
40
years of experience in the financial services industry to the leadership of the company.
Executive Officers
|
|
|
|
•
|
Effective February 28, 2013, Douglas P. Williams resigned as an executive officer of the company, including his positions as Executive Vice President, Secretary, Treasurer, and Principal Financial Officer. Mr. Williams also indicated that, for personal reasons, he would not stand for re-election as a director. Mr. Williams informed us of these decisions on February 25, 2013. Mr. Williams will remain an executive officer of WREF.
|
|
|
|
|
•
|
Effective February 28, 2013, the board of directors unanimously appointed Wendy W. Gill as an executive officer to succeed Mr. Williams as the company's Treasurer and Principal Accounting Officer, and to serve as the company's interim Principal
|
Financial Officer. Ms. Gill currently serves as Columbia Property Trust's Senior Vice President of Corporate Operations and Chief Accounting Officer.
Name Change and Other Related Changes
On February 25, 2013, the company filed Articles of Amendment with the Maryland State Department of Assessments and Taxation (the "SDAT") to change its name from Wells Real Estate Investment Trust II, Inc. to Columbia Property Trust, Inc. The name change was approved by the board of directors and effective upon filing with the SDAT. In connection with the name change, Columbia Property Trust also changed the name of its operating partnership to Columbia Property Trust Operating Partnership, L.P.; WREAS II to Columbia Property Trust Advisory Services, LLC; and WRES to Columbia Property Trust Services, LLC. Columbia Property Trust expects to effect a similar name change for the TRS Entities in the near future.
On February 26, 2013, in connection with the name change and transition to self-management, the board of directors approved certain amendments to the bylaws, the share redemption program, and the corporate governance documents to be effective as of February 28, 2013. Columbia Property Trust amended its bylaws to reflect the new name and management structure, as well as to conform with changes made to the charter as approved at its Annual Meeting of Stockholders on July 18, 2012. Columbia Property Trust amended its share redemption program to change the company name, update the contact information for redemption requests, and adjust how pro-rata redemptions are handled. In addition, Columbia Property Trust amended its Corporate Governance Guidelines, Nominating and Corporate Governance Committee Charter, Audit Committee Charter, Code of Ethics, Whistleblower Policy, and Insider Trader Policy to reflect the new name, as well as to reflect the new management structure. The corporate governance documents are available on the company's website at
www.columbiapropertytrust.com
.
Commencement of Self-Management
On February 28, 2013, the WREAS II Assignment Option and WRES Assignment Option closed, and in connection therewith, the Renewal Advisory Agreement and Renewal Investor Services Agreement terminated.
Investor Services Agreement
Effective February 28, 2013, upon the closing of the WREAS II Assignment Option, Columbia Property Trust entered into the Investor Services Agreement with WREF, which requires WREF to provide the stockholder and communication services to Columbia Property Trust previously provided for under the 2012 Investor Services Agreement and the Renewal Investor Services Agreement, and provides for Columbia Property Trust to compensate WREF for the services based on a reimbursement of costs and payroll plus a premium.
Consulting Services Agreement
On February 28, 2013, Columbia Property Trust entered a consulting services agreement with WREF (the "Consulting Services Agreement"). Under the Consulting Services Agreement, WREF will provide consulting services with respect to the same matters that WREAS II and its affiliates provided advisory services under the Renewal Advisory Agreement. Payments under the Consulting Services Agreement will be monthly fees in the same amount as the asset management fees that would have been paid under the Renewal Advisory Agreement through December 31, 2013, if the Renewal Advisory Agreement was not terminated. If Columbia Property Trust elects to terminate the Consulting Services Agreement early for cause, Columbia Property Trust would not be required to make further payments under the agreement other than fees earned by WREF and unpaid at the time of termination. If Columbia Property Trust terminates the Consulting Services Agreement other than for cause, Columbia Property Trust would be required to make a fee acceleration payment, which is calculated as the fees incurred in the last month prior to termination, adjusted for partial months, multiplied by the number of months remaining between the time of termination and December 31, 2013.
Columbia Property Trust, Inc.
Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization
December 31, 2012
(in thousands)
|
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|
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|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Gross Amount at Which Carried at
December 31, 2012
|
|
|
|
|
|
|
|
Life on Which Depreciation and Amortization is Computed (f)
|
|
|
|
|
|
|
|
|
|
Initial Costs
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Location
|
|
Ownership Percentage
|
|
Encumbrances
|
|
Land
|
|
Buildings and Improvements
|
|
Total
|
|
Costs Capitalized Subsequent to Acquisition
|
|
Land
|
|
Buildings and Improvements
|
|
Total
|
|
Accumulated Depreciation and Amortization
|
|
Date of Construction
|
|
Date Acquired
|
|
|
WEATHERFORD CENTER HOUSTON
|
|
Houston, TX
|
|
100
|
%
|
|
None
|
|
|
$
|
6,100
|
|
|
$
|
28,905
|
|
|
$
|
35,005
|
|
|
$
|
(1,460
|
)
|
|
$
|
6,241
|
|
|
$
|
27,304
|
|
|
$
|
33,545
|
|
|
$
|
5,539
|
|
|
1980
|
|
2/10/2004
|
|
0 to 40 years
|
|
333 & 777 REPUBLIC DRIVE
|
|
Allen Park, MI
|
|
100
|
%
|
|
None
|
|
|
4,400
|
|
|
12,716
|
|
|
17,116
|
|
|
(781
|
)
|
|
4,502
|
|
|
11,833
|
|
|
16,335
|
|
|
2,876
|
|
|
2000
|
|
3/31/2004
|
|
0 to 40 years
|
|
9 TECHNOLOGY DRIVE
|
|
Westborough, MA
|
|
100
|
%
|
|
None
|
|
|
5,570
|
|
|
38,218
|
|
|
43,788
|
|
|
(5,229
|
)
|
|
5,627
|
|
|
32,932
|
|
|
38,559
|
|
|
8,504
|
|
|
1987
|
|
5/27/2004
|
|
0 to 40 years
|
|
180 PARK AVENUE
|
|
Florham Park, NJ
|
|
100
|
%
|
|
None
|
|
|
10,802
|
|
|
62,595
|
|
|
73,397
|
|
|
2,267
|
|
|
11,050
|
|
|
64,614
|
|
|
75,664
|
|
|
33,886
|
|
|
1982
|
|
6/23/2004
|
|
0 to 40 years
|
|
ONE GLENLAKE PARKWAY
|
|
Atlanta, GA
|
|
100
|
%
|
|
37,204
|
|
|
5,846
|
|
|
66,681
|
|
|
72,527
|
|
|
(120
|
)
|
|
5,934
|
|
|
66,473
|
|
|
72,407
|
|
|
20,304
|
|
|
2003
|
|
6/25/2004
|
|
0 to 40 years
|
|
80 M STREET
|
|
Washington, DC
|
|
100
|
%
|
|
None
|
|
26,248
|
|
|
76,269
|
|
|
102,517
|
|
|
(5,992
|
)
|
|
26,806
|
|
|
69,719
|
|
|
96,525
|
|
|
19,596
|
|
|
2001
|
|
6/29/2004
|
|
0 to 40 years
|
|
3333 FINLEY ROAD
|
|
Downers Grove, IL
|
|
100
|
%
|
|
None
|
|
6,925
|
|
|
34,575
|
|
|
41,500
|
|
|
630
|
|
|
7,015
|
|
|
35,115
|
|
|
42,130
|
|
|
8,383
|
|
|
1999
|
|
8/4/2004
|
|
0 to 40 years
|
|
1501 OPUS PLACE
|
|
Downers Grove, IL
|
|
100
|
%
|
|
None
|
|
3,579
|
|
|
17,220
|
|
|
20,799
|
|
|
328
|
|
|
3,625
|
|
|
17,502
|
|
|
21,127
|
|
|
4,213
|
|
|
1988
|
|
8/4/2004
|
|
0 to 40 years
|
|
2500 WINDY RIDGE PARKWAY
|
|
Atlanta, GA
|
|
100
|
%
|
|
32,000
|
|
|
7,410
|
|
|
60,601
|
|
|
68,011
|
|
|
1,667
|
|
|
7,485
|
|
|
62,193
|
|
|
69,678
|
|
|
14,627
|
|
|
1985
|
|
9/20/2004
|
|
0 to 40 years
|
|
4100 - 4300 WILDWOOD PARKWAY
|
|
Atlanta, GA
|
|
100
|
%
|
|
25,000
|
|
|
13,761
|
|
|
31,785
|
|
|
45,546
|
|
|
(1,086
|
)
|
|
13,898
|
|
|
30,562
|
|
|
44,460
|
|
|
7,513
|
|
|
1996
|
|
9/20/2004
|
|
0 to 40 years
|
|
4200 WILDWOOD PARKWAY
|
|
Atlanta, GA
|
|
100
|
%
|
|
33,000
|
|
|
8,472
|
|
|
44,221
|
|
|
52,693
|
|
|
(697
|
)
|
|
8,546
|
|
|
43,450
|
|
|
51,996
|
|
|
12,766
|
|
|
1998
|
|
9/20/2004
|
|
0 to 40 years
|
|
800 NORTH FREDERICK
|
|
Gaithersburg, MD
|
|
100
|
%
|
|
None
|
|
|
22,758
|
|
|
43,174
|
|
|
65,932
|
|
|
582
|
|
|
20,195
|
|
|
46,319
|
|
|
66,514
|
|
|
16,309
|
|
|
1986
|
|
10/22/2004
|
|
0 to 40 years
|
|
THE CORRIDORS III
|
|
Downers Grove, IL
|
|
100
|
%
|
|
None
|
|
|
2,524
|
|
|
35,016
|
|
|
37,540
|
|
|
(1,761
|
)
|
|
2,558
|
|
|
33,221
|
|
|
35,779
|
|
|
9,216
|
|
|
2001
|
|
11/1/2004
|
|
0 to 40 years
|
|
HIGHLAND LANDMARK III
|
|
Downers Grove, IL
|
|
100
|
%
|
|
None
|
|
|
3,028
|
|
|
47,454
|
|
|
50,482
|
|
|
(3,594
|
)
|
|
3,055
|
|
|
43,833
|
|
|
46,888
|
|
|
11,813
|
|
|
2000
|
|
12/27/2004
|
|
0 to 40 years
|
|
180 PARK AVENUE 105
|
|
Florham Park, NJ
|
|
100
|
%
|
|
None
|
|
|
4,501
|
|
|
47,957
|
|
|
52,458
|
|
|
(8,200
|
)
|
|
4,501
|
|
|
39,757
|
|
|
44,258
|
|
|
9,044
|
|
|
2001
|
|
3/14/2005
|
|
0 to 40 years
|
|
4241 IRWIN SIMPSON
|
|
Mason, OH
|
|
100
|
%
|
|
None
|
|
|
1,270
|
|
|
28,688
|
|
|
29,958
|
|
|
719
|
|
|
1,299
|
|
|
29,378
|
|
|
30,677
|
|
|
6,887
|
|
|
1997
|
|
3/17/2005
|
|
0 to 40 years
|
|
8990 DUKE ROAD
|
|
Mason, OH
|
|
100
|
%
|
|
None
|
|
|
520
|
|
|
8,681
|
|
|
9,201
|
|
|
193
|
|
|
522
|
|
|
8,872
|
|
|
9,394
|
|
|
2,394
|
|
|
2001
|
|
3/17/2005
|
|
0 to 40 years
|
|
215 DIEHL ROAD
|
|
Naperville, IL
|
|
100
|
%
|
|
21,000
|
|
|
3,452
|
|
|
17,456
|
|
|
20,908
|
|
|
2,941
|
|
|
3,472
|
|
|
20,377
|
|
|
23,849
|
|
|
6,702
|
|
|
1988
|
|
4/19/2005
|
|
0 to 40 years
|
|
100 EAST PRATT
|
|
Baltimore, MD
|
|
100
|
%
|
|
105,000
|
|
|
31,234
|
|
|
140,217
|
|
|
171,451
|
|
|
30,344
|
|
|
31,777
|
|
|
170,018
|
|
|
201,795
|
|
|
47,429
|
|
|
1975/1991
|
|
5/12/2005
|
|
0 to 40 years
|
|
COLLEGE PARK PLAZA
|
|
Indianapolis, IN
|
|
100
|
%
|
|
None
|
|
|
2,822
|
|
|
22,910
|
|
|
25,732
|
|
|
(1,401
|
)
|
|
2,822
|
|
|
21,509
|
|
|
24,331
|
|
|
7,106
|
|
|
1998
|
|
6/21/2005
|
|
0 to 40 years
|
|
ONE ROBBINS ROAD
|
|
Westford, MA
|
|
100
|
%
|
|
None
|
|
|
5,391
|
|
|
33,788
|
|
|
39,179
|
|
|
19
|
|
|
5,391
|
|
|
33,807
|
|
|
39,198
|
|
|
8,648
|
|
|
1981
|
|
8/18/2005
|
|
0 to 40 years
|
|
FOUR ROBBINS ROAD
|
|
Westford, MA
|
|
100
|
%
|
|
None
|
|
|
2,950
|
|
|
32,544
|
|
|
35,494
|
|
|
—
|
|
|
2,950
|
|
|
32,544
|
|
|
35,494
|
|
|
12,992
|
|
|
2001
|
|
8/18/2005
|
|
0 to 40 years
|
|
1900 UNIVERSITY CIRCLE
|
|
East Palo Alto, CA
|
|
100
|
%
|
|
None
|
|
|
8,722
|
|
|
107,730
|
|
|
116,452
|
|
|
(25,215
|
)
|
|
8,803
|
|
|
82,434
|
|
|
91,237
|
|
|
16,176
|
|
|
2001
|
|
9/20/2005
|
|
0 to 40 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbia Property Trust, Inc.
Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization
December 31, 2012
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount at Which Carried at
December 31, 2012
|
|
|
|
|
|
|
|
Life on Which Depreciation and Amortization is Computed (f)
|
|
|
|
|
|
|
|
|
|
Initial Costs
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Location
|
|
Ownership Percentage
|
|
Encumbrances
|
|
Land
|
|
Buildings and Improvements
|
|
Total
|
|
Costs Capitalized Subsequent to Acquisition
|
|
Land
|
|
Buildings and Improvements
|
|
Total
|
|
Accumulated Depreciation and Amortization
|
|
Date of Construction
|
|
Date Acquired
|
|
|
1950 UNIVERSITY CIRCLE
|
|
East Palo Alto, CA
|
|
100
|
%
|
|
None
|
|
|
10,040
|
|
|
93,716
|
|
|
103,756
|
|
|
1,374
|
|
|
10,134
|
|
|
94,996
|
|
|
105,130
|
|
|
18,378
|
|
|
2002
|
|
9/20/2005
|
|
0 to 40 years
|
|
2000 UNIVERSITY CIRCLE
|
|
East Palo Alto, CA
|
|
100
|
%
|
|
None
|
|
|
8,731
|
|
|
76,842
|
|
|
85,573
|
|
|
600
|
|
|
8,819
|
|
|
77,354
|
|
|
86,173
|
|
|
16,112
|
|
|
2003
|
|
9/20/2005
|
|
0 to 40 years
|
|
MACARTHUR RIDGE
|
|
Irving, TX
|
|
100
|
%
|
|
None
|
|
|
2,680
|
|
|
42,269
|
|
|
44,949
|
|
|
1,078
|
|
|
2,680
|
|
|
43,347
|
|
|
46,027
|
|
|
6,381
|
|
|
1998
|
|
11/15/2005
|
|
0 to 40 years
|
|
5 HOUSTON CENTER
|
|
Houston, TX
|
|
100
|
%
|
|
None
|
|
|
8,186
|
|
|
147,653
|
|
|
155,839
|
|
|
(19,711
|
)
|
|
8,186
|
|
|
127,942
|
|
|
136,128
|
|
|
34,698
|
|
|
2002
|
|
12/20/2005
|
|
0 to 40 years
|
|
KEY CENTER TOWER
|
|
Cleveland, OH
|
|
100
|
%
|
|
None
|
|
(b)
|
7,269
|
|
|
244,424
|
|
|
251,693
|
|
|
12,790
|
|
|
7,454
|
|
|
257,029
|
|
|
264,483
|
|
|
69,038
|
|
|
1991
|
|
12/22/2005
|
|
0 to 40 years
|
|
KEY CENTER MARRIOTT
|
|
Cleveland, OH
|
|
100
|
%
|
|
None
|
|
|
3,473
|
|
|
34,458
|
|
|
37,931
|
|
|
10,797
|
|
|
3,629
|
|
|
45,099
|
|
|
48,728
|
|
|
13,022
|
|
|
1991
|
|
12/22/2005
|
|
0 to 40 years
|
|
ONE SANTAN CORPORATE CENTER
|
|
Chandler, AZ
|
|
100
|
%
|
|
18,000
|
|
|
4,871
|
|
|
24,669
|
|
|
29,540
|
|
|
(1,496
|
)
|
|
4,948
|
|
|
23,096
|
|
|
28,044
|
|
|
5,219
|
|
|
2000
|
|
4/18/2006
|
|
0 to 40 years
|
|
TWO SANTAN CORPORATE CENTER
|
|
Chandler, AZ
|
|
100
|
%
|
|
21,000
|
|
|
3,174
|
|
|
21,613
|
|
|
24,787
|
|
|
(1,752
|
)
|
|
3,245
|
|
|
19,790
|
|
|
23,035
|
|
|
3,611
|
|
|
2003
|
|
4/18/2006
|
|
0 to 40 years
|
|
263 SHUMAN BOULEVARD
|
|
Naperville, IL
|
|
100
|
%
|
|
49,000
|
|
|
7,142
|
|
|
41,535
|
|
|
48,677
|
|
|
6,890
|
|
|
7,233
|
|
|
48,334
|
|
|
55,567
|
|
|
14,717
|
|
|
1986
|
|
7/20/2006
|
|
0 to 40 years
|
|
4300 CENTREWAY PLACE
|
|
Arlington, TX
|
|
100
|
%
|
|
None
|
|
|
2,539
|
|
|
13,919
|
|
|
16,458
|
|
|
(2,754
|
)
|
|
2,557
|
|
|
11,147
|
|
|
13,704
|
|
|
2,338
|
|
|
1998
|
|
9/15/2006
|
|
0 to 40 years
|
|
80 PARK PLAZA
|
|
Newark, NJ
|
|
100
|
%
|
|
None
|
|
|
31,766
|
|
|
109,952
|
|
|
141,718
|
|
|
6,333
|
|
|
32,221
|
|
|
115,830
|
|
|
148,051
|
|
|
39,607
|
|
|
1979
|
|
9/21/2006
|
|
0 to 40 years
|
|
INTERNATIONAL FINANCIAL TOWER
|
|
Jersey City, NJ
|
|
100
|
%
|
|
None
|
|
|
29,061
|
|
|
141,544
|
|
|
170,605
|
|
|
13,674
|
|
|
29,712
|
|
|
154,567
|
|
|
184,279
|
|
|
39,035
|
|
|
1989
|
|
10/31/2006
|
|
0 to 40 years
|
|
STERLING COMMERCE
|
|
Irving, TX
|
|
100
|
%
|
|
None
|
|
|
8,639
|
|
|
43,980
|
|
|
52,619
|
|
|
403
|
|
|
8,752
|
|
|
44,270
|
|
|
53,022
|
|
|
17,989
|
|
|
1999
|
|
12/21/2006
|
|
0 to 40 years
|
|
ONE CENTURY PLACE
|
|
Nashville, TN
|
|
100
|
%
|
|
None
|
|
|
8,955
|
|
|
58,339
|
|
|
67,294
|
|
|
(7,582
|
)
|
|
9,106
|
|
|
50,606
|
|
|
59,712
|
|
|
9,510
|
|
|
1991
|
|
1/4/2007
|
|
0 to 40 years
|
|
120 EAGLE ROCK
|
|
East Hanover, NJ
|
|
100
|
%
|
|
None
|
|
|
2,726
|
|
|
30,078
|
|
|
32,804
|
|
|
(5,399
|
)
|
|
2,762
|
|
|
24,643
|
|
|
27,405
|
|
|
3,662
|
|
|
1990
|
|
3/27/2007
|
|
0 to 40 years
|
|
PASADENA CORPORATE PARK
|
|
Pasadena, CA
|
|
100
|
%
|
|
None
|
|
|
53,099
|
|
|
59,630
|
|
|
112,729
|
|
|
756
|
|
|
53,099
|
|
|
60,386
|
|
|
113,485
|
|
|
9,615
|
|
|
1965/2000/ 2002/2003
|
|
7/11/2007
|
|
0 to 40 years
|
|
7031 COLUMBIA GATEWAY DRIVE
|
|
Columbia, MD
|
|
100
|
%
|
|
None
|
|
|
10,232
|
|
|
54,070
|
|
|
64,302
|
|
|
35
|
|
|
10,232
|
|
|
54,105
|
|
|
64,337
|
|
|
11,542
|
|
|
2000
|
|
7/12/2007
|
|
0 to 40 years
|
|
222 EAST 41ST STREET
|
|
New York City, NY
|
|
100
|
%
|
|
None
|
|
(b)
|
—
|
|
|
324,520
|
|
|
324,520
|
|
|
(1,034
|
)
|
|
—
|
|
|
323,486
|
|
|
323,486
|
|
|
54,355
|
|
|
2001
|
|
8/17/2007
|
|
0 to 40 years
|
|
BANNOCKBURN LAKE III
|
|
Bannockburn, IL
|
|
100
|
%
|
|
None
|
|
|
7,635
|
|
|
11,002
|
|
|
18,637
|
|
|
(1,879
|
)
|
|
7,663
|
|
|
9,095
|
|
|
16,758
|
|
|
1,115
|
|
|
1987
|
|
9/10/2007
|
|
0 to 40 years
|
|
1200 MORRIS DRIVE
|
|
Wayne, PA
|
|
100
|
%
|
|
None
|
|
|
3,723
|
|
|
20,597
|
|
|
24,320
|
|
|
5,377
|
|
|
3,786
|
|
|
25,911
|
|
|
29,697
|
|
|
6,330
|
|
|
1985
|
|
9/14/2007
|
|
0 to 40 years
|
|
SOUTH JAMAICA STREET
|
|
Englewood, CO
|
|
100
|
%
|
|
None
|
|
|
13,429
|
|
|
109,781
|
|
|
123,210
|
|
|
3,252
|
|
|
13,735
|
|
|
112,727
|
|
|
126,462
|
|
|
23,693
|
|
|
2002/2003/ 2007
|
|
9/26/2007
|
|
0 to 40 years
|
|
15815 25TH AVENUE WEST
|
|
Lynnwood, WA
|
|
100
|
%
|
|
None
|
|
|
3,896
|
|
|
17,144
|
|
|
21,040
|
|
|
462
|
|
|
3,965
|
|
|
17,537
|
|
|
21,502
|
|
|
3,051
|
|
|
2007
|
|
11/5/2007
|
|
0 to 40 years
|
|
16201 25TH AVENUE WEST
|
|
Lynnwood, WA
|
|
100
|
%
|
|
None
|
|
|
2,035
|
|
|
9,262
|
|
|
11,297
|
|
|
216
|
|
|
2,071
|
|
|
9,442
|
|
|
11,513
|
|
|
1,218
|
|
|
2007
|
|
11/5/2007
|
|
0 to 40 years
|
|
13655 RIVERPORT DRIVE
|
|
St. Louis, MO
|
|
100
|
%
|
|
None
|
|
|
6,138
|
|
|
19,105
|
|
|
25,243
|
|
|
8
|
|
|
6,138
|
|
|
19,113
|
|
|
25,251
|
|
|
3,617
|
|
|
1998
|
|
2/1/2008
|
|
0 to 40 years
|
|
11200 WEST PARKLAND AVENUE
|
|
Milwaukee, WI
|
|
100
|
%
|
|
None
|
|
|
3,219
|
|
|
15,394
|
|
|
18,613
|
|
|
2,556
|
|
|
3,219
|
|
|
17,950
|
|
|
21,169
|
|
|
4,293
|
|
|
1990
|
|
3/3/2008
|
|
0 to 40 years
|
|
LENOX PARK BUILDINGS
|
|
Atlanta, GA
|
|
100
|
%
|
|
216,000
|
|
(a)
|
28,478
|
|
|
225,067
|
|
|
253,545
|
|
|
4,224
|
|
|
28,858
|
|
|
228,911
|
|
|
257,769
|
|
|
34,031
|
|
|
1992/1999/ 2001/2002
|
|
5/8/2008
|
|
0 to 40 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbia Property Trust, Inc.
Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization
December 31, 2012
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount at Which Carried at
December 31, 2012
|
|
|
|
|
|
|
|
Life on Which Depreciation and Amortization is Computed (f)
|
|
|
|
|
|
|
|
|
|
Initial Costs
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Location
|
|
Ownership Percentage
|
|
Encumbrances
|
|
Land
|
|
Buildings and Improvements
|
|
Total
|
|
Costs Capitalized Subsequent to Acquisition
|
|
Land
|
|
Buildings and Improvements
|
|
Total
|
|
Accumulated Depreciation and Amortization
|
|
Date of Construction
|
|
Date Acquired
|
|
|
LINDBERGH CENTER
|
|
Atlanta, GA
|
|
100
|
%
|
(b)
|
250,000
|
|
(b), (c)
|
—
|
|
|
262,468
|
|
|
262,468
|
|
|
3,252
|
|
|
—
|
|
|
265,720
|
|
|
265,720
|
|
|
36,665
|
|
|
2002
|
|
7/1/2008
|
|
0 to 40 years
|
|
THREE GLENLAKE BUILDING
|
|
Sandy Springs, GA
|
|
100
|
%
|
|
26,264/ 120,000
|
|
(d)
|
7,517
|
|
|
88,784
|
|
|
96,301
|
|
|
891
|
|
|
8,055
|
|
|
89,137
|
|
|
97,192
|
|
|
13,062
|
|
|
2008
|
|
7/31/2008
|
|
0 to 40 years
|
|
1580 WEST NURSERY ROAD
|
|
Linthicum, MD
|
|
100
|
%
|
|
None
|
|
|
11,410
|
|
|
78,988
|
|
|
90,398
|
|
|
1,212
|
|
|
11,745
|
|
|
79,865
|
|
|
91,610
|
|
|
13,874
|
|
|
1992
|
|
9/5/2008
|
|
0 to 40 years
|
|
DVINTSEV BUSINESS CENTER -- TOWER B
|
|
Moscow, Russia
|
|
100
|
%
|
(a)
|
None
|
|
(b)
|
—
|
|
|
66,387
|
|
|
66,387
|
|
|
(6,174
|
)
|
|
—
|
|
|
60,213
|
|
|
60,213
|
|
|
5,764
|
|
|
2009
|
|
5/29/2009
|
|
0 to 40 years
|
|
STERLING COMMERCE CENTER
|
|
Columbus, OH
|
|
100
|
%
|
|
None
|
|
|
1,793
|
|
|
31,501
|
|
|
33,294
|
|
|
2,893
|
|
|
1,793
|
|
|
34,394
|
|
|
36,187
|
|
|
3,979
|
|
|
1990/1995/ 1996/1998
|
|
3/8/2010
|
|
0 to 40 years
|
|
550 KING STREET BUILDINGS
|
|
Boston, MA
|
|
100
|
%
|
|
None
|
|
|
8,632
|
|
|
74,625
|
|
|
83,257
|
|
|
7,975
|
|
|
8,632
|
|
|
82,600
|
|
|
91,232
|
|
|
11,036
|
|
|
1984
|
|
4/1/2010
|
|
0 to 40 years
|
|
CRANBERRY WOODS DRIVE
|
|
Cranberry Township, PA
|
|
100
|
%
|
|
None
|
|
|
15,512
|
|
|
173,062
|
|
|
188,574
|
|
|
1,210
|
|
|
15,512
|
|
|
174,272
|
|
|
189,784
|
|
|
17,591
|
|
|
2009/2010
|
|
6/1/2010
|
|
0 to 40 years
|
|
HOUSTON ENERGY CENTER I
|
|
Houston, TX
|
|
100
|
%
|
|
None
|
|
|
4,734
|
|
|
79,344
|
|
|
84,078
|
|
|
5,037
|
|
|
4,734
|
|
|
84,381
|
|
|
89,115
|
|
|
8,352
|
|
|
2008
|
|
6/28/2010
|
|
0 to 40 years
|
|
SUNTRUST BUILDING
|
|
Orlando, FL
|
|
100
|
%
|
|
None
|
|
|
1,222
|
|
|
20,402
|
|
|
21,624
|
|
|
938
|
|
|
1,222
|
|
|
21,340
|
|
|
22,562
|
|
|
2,250
|
|
|
1959
|
|
8/25/2010
|
|
0 to 40 years
|
|
CHASE CENTER BUILDING
|
|
Columbus, OH
|
|
100
|
%
|
|
None
|
|
|
5,148
|
|
|
24,743
|
|
|
29,891
|
|
|
2,804
|
|
|
5,148
|
|
|
27,547
|
|
|
32,695
|
|
|
2,861
|
|
|
1972/1982
|
|
10/21/2010
|
|
0 to 40 years
|
|
MARKET SQUARE BUILDINGS
|
|
Washington, DC
|
|
100
|
%
|
|
325,000
|
|
|
152,629
|
|
|
450,757
|
|
|
603,386
|
|
|
11,873
|
|
|
152,629
|
|
|
462,630
|
|
|
615,259
|
|
|
41,253
|
|
|
1990
|
|
3/7/2011
|
|
0 to 40 years
|
|
544 LAKEVIEW
|
|
Vernon Hills, IL
|
|
50
|
%
|
(e)
|
9,100
|
|
|
3,006
|
|
|
3,100
|
|
|
6,106
|
|
|
14
|
|
|
3,006
|
|
|
3,114
|
|
|
6,120
|
|
|
141
|
|
|
1994
|
|
4/1/2011
|
|
0 to 40 years
|
|
333 MARKET STREET
|
|
San Francisco, CA
|
|
100
|
%
|
|
206,500
|
|
|
114,483
|
|
|
292,840
|
|
|
407,323
|
|
|
—
|
|
|
114,483
|
|
|
292,840
|
|
|
407,323
|
|
|
246
|
|
|
1979
|
|
12/21/2012
|
|
0 to 40 years
|
|
TOTAL REAL ESTATE ASSETS
|
|
|
|
|
|
$
|
785,507
|
|
|
$
|
4,676,965
|
|
|
$
|
5,462,472
|
|
|
$
|
45,297
|
|
|
$
|
789,237
|
|
|
$
|
4,718,532
|
|
|
$
|
5,507,769
|
|
|
$
|
896,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
As a result of the acquisition of the Lenox Park Buildings, Columbia Property Trust acquired investments in bonds and certain obligations under capital leases in the amount of
$216.0 million
.
|
|
|
|
|
(b)
|
Property is owned subject to a long-term ground lease.
|
|
|
|
|
(c)
|
As a result of the acquisition of the Lindbergh Center Building, Columbia Property Trust acquired investments in bonds and certain obligations under capital leases in the amount of
$250.0 million
.
|
|
|
|
|
(d)
|
As a result of the acquisition of the Three Glenlake Building, Columbia Property Trust acquired investments in bonds and certain obligations under capital leases in the amount of
$120.0 million
.
|
|
|
|
|
(e)
|
Columbia Property Trust owns a
50%
controlling interest in a consolidated joint venture that owns
100%
of 544 Lakeview.
|
|
|
|
|
(f)
|
Columbia Property Trust assets are depreciated or amortized using the straight-line method over the useful lives of the assets by class. Generally, tenant improvements are amortized over the shorter of economic life or lease term, lease intangibles are amortized over the respective lease term, building improvements are depreciated over
5
-
25
years, site improvements are depreciated over
15
years, and buildings are depreciated over
40
years.
|
Columbia Property Trust, Inc.
Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
|
Real Estate:
|
|
|
|
|
|
|
Balance at beginning of year
|
$
|
5,483,193
|
|
|
$
|
4,999,902
|
|
|
$
|
4,767,664
|
|
|
Additions to/improvements of real estate
|
453,541
|
|
|
676,230
|
|
|
297,023
|
|
|
Sale/transfer of real estate
|
(328,804
|
)
|
|
(70,082
|
)
|
|
(18,143
|
)
|
|
Impairment of real estate
|
(18,467
|
)
|
|
(5,817
|
)
|
|
—
|
|
|
Write-offs of building and tenant improvements
|
(301
|
)
|
|
(228
|
)
|
|
—
|
|
|
Write-offs of intangible assets
(1)
|
(1,311
|
)
|
|
(6,978
|
)
|
|
(52
|
)
|
|
Write-offs of fully depreciated assets
|
(80,082
|
)
|
|
(109,834
|
)
|
|
(46,590
|
)
|
|
Balance at end of the year
|
$
|
5,507,769
|
|
|
$
|
5,483,193
|
|
|
$
|
4,999,902
|
|
|
Accumulated Depreciation and Amortization:
|
|
|
|
|
|
|
Balance at beginning of year
|
$
|
867,975
|
|
|
$
|
769,863
|
|
|
$
|
635,080
|
|
|
Depreciation and amortization expense
|
181,155
|
|
|
225,139
|
|
|
184,155
|
|
|
Sale/transfer of real estate
|
(71,654
|
)
|
|
(12,258
|
)
|
|
(2,763
|
)
|
|
Write-offs of tenant improvements
|
(196
|
)
|
|
(16
|
)
|
|
25
|
|
|
Write-offs of intangible assets
(1)
|
(1,024
|
)
|
|
(4,915
|
)
|
|
(44
|
)
|
|
Write-offs of fully depreciated assets
|
(80,082
|
)
|
|
(109,838
|
)
|
|
(46,590
|
)
|
|
Balance at end of the year
|
$
|
896,174
|
|
|
$
|
867,975
|
|
|
$
|
769,863
|
|
|
|
|
|
(1)
|
Consists of write-offs of intangible lease assets related to lease restructurings, amendments, and terminations.
|
Exhibit 10.9
RENEWAL ADVISORY AGREEMENT
THIS RENEWAL ADVISORY AGREEMENT, effective as of January 1, 2013 (the “Agreement”), is between WELLS REAL ESTATE INVESTMENT TRUST II, INC., a Maryland corporation (the “Company”), and WELLS REAL ESTATE ADVISORY SERVICES II, LLC, a Georgia limited liability corporation (the “Advisor”).
W I T N E S S E T H
WHEREAS, the Company desires to avail itself of the experience, sources of information, advice, assistance and certain facilities available to the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of, the Board of Directors of the Company all as provided herein;
WHEREAS, the Advisor is willing to undertake to render such services, subject to the supervision of the Board of Directors, on the terms and conditions hereinafter set forth;
WHEREAS, the Company and the Advisor were previously parties to an advisory agreement that became effective April 1, 2012, covering the period from April 1, 2012 through June 30, 2012 (the “April Advisory Agreement”);
WHEREAS, on June 29, 2012, the Company and the Advisor entered into an initial term advisory agreement effective as of July 1, 2012, covering the period from July 1, 2012 through December 31, 2012 (the “Initial Term Advisory Agreement”);
WHEREAS, the Company and Wells Real Estate Funds, Inc. (“Wells REF”) have entered into an Investor Services Agreement dated June 29, 2012 and effective as of July 1, 2012 (the “Investor Services Agreement”);
WHEREAS, the Company and Wells Management Company, Inc. have entered into a Master Property Management, Leasing and Construction Management Agreement effective as of July 1, 2012 (the “Master Property Management, Leasing and Construction Management Agreement”);
WHEREAS, the Board of Directors and the Advisor now desire to enter this new advisory agreement between the Company and the Advisor to be effective upon the expiration of the Initial Term Advisory Agreement, with this new advisory agreement covering the period from January 1, 2013, through December 31, 2013 (as specified in Paragraph 14);
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:
1.
Definitions
.
As used in this Agreement, the following terms have the definitions hereinafter indicated:
Acquisition Expenses
. Any and all expenses, excluding the fee payable to the Advisor pursuant to Paragraph 8(b), incurred by the Company, the Advisor, or any Affiliate of either in connection with the selection, acquisition or development of any Property, whether or not acquired, including, without limitation, legal fees and expenses, travel and communications expenses, costs of appraisals, nonrefundable option payments on property not acquired, accounting fees and expenses, and title insurance premiums.
Acquisition Fees
. Any and all fees and commissions, exclusive of Acquisition Expenses, paid by any Person to any other Person (including any fees or commissions paid by or to any Affiliate of the Company or the Advisor) in connection with purchase, development or construction of any Property. Included in the computation of such fees or commissions shall be any real estate commissions, acquisition fees, finder's fees, selection fees, Development Fees, Construction Fees, nonrecurring management fees, loan fees, points, or any other fees or commissions of a similar nature. Excluded shall be Development Fees and Construction Fees paid to Persons not Affiliated with the Advisor in connection with the actual development and construction of a Property.
Adjusted Cost
. (A) As of any date of determination and until such time as the Company completes an Asset-based Valuation, the sum of: (a) the actual amount invested on behalf of the Company in the Properties as of the date of determination;
plus
(b) (1) with respect to Joint Ventures, the actual amount invested on behalf of the Company in the Joint Ventures as of the date of determination,
plus
(2) the Company's allocable share of capital improvements relating to building improvements and/or initial leaseup of space in the building (such improvements to exclude any expenditures of capital for normal building improvement, maintenance and repair and tenant improvements relating to existing leases or lease renewals) made by the Joint Venture from cash flows generated by the Joint Venture;
less
(c) the amounts invested in Properties or Joint Ventures relating to Vacant Properties plus any additions to Adjusted Cost related to such Joint Ventures pursuant clause (b)(2) above;
less
(d) any amounts recognized on the Company's consolidated financial statements on or before such date of determination as impairments to the carrying value of the Properties or Joint Venture investments in accordance with Generally Accepted Accounting Principles, excluding any temporary impairments or impairment charges related to Vacant Properties for which the amount invested has been deducted from the foregoing calculation. In all cases, “Adjusted Cost” excludes the Lindbergh/Energy Center Adjusted Cost.
(B) On and after such time as the Company completes an Asset-based Valuation, “Adjusted Cost” means, as of any date of determination, the lesser of (1) the amount determined in accordance with Paragraph (A) above, or (2) the aggregate value of the Company's interest in the Properties and Joint Ventures as established in connection with the most recent Asset-based Valuation,
plus,
with respect to any Properties purchased or Joint Ventures entered into after the date of the most recent Asset-based Valuation, the adjusted cost for such Properties or Joint Ventures determined in accordance with Paragraph (A) above; until such time as the next Asset-based Valuation by the Company, at which time the Adjusted Cost of such properties will be determined in accordance with Paragraph (A) above .
In all cases, “Adjusted Cost” excludes the Lindbergh/Energy Center Adjusted Cost.
Advisor
. Wells Real Estate Advisory Services II, LLC, a Georgia limited liability corporation, any successor advisor to the Company, or any Person(s) to which Wells Real Estate Advisory Services II, LLC or any successor advisor subcontracts substantially all of its functions.
Affiliate or Affiliated
. An Affiliate of another Person includes only the following: (i) any Person directly or indirectly controlling, controlled by, or under common control with such other Person; (ii) any Person directly or indirectly owning, controlling, or holding with the power to vote 10% or more of the outstanding voting securities of such other Person; (iii) any legal entity for which such Person acts as an executive officer, director, trustee, or general partner; (iv) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person; and (v) any executive officer, director, trustee, or general partner of such other Person. An entity shall not be deemed to control or be under common control with an Advisor-sponsored program unless (i) the entity owns 10% or more of the voting equity interests of such program or (ii) a majority of the board (or equivalent governing body) of such program is comprised of Affiliates of the entity.
Appraised Value
. The “As Is” fair market value according to an appraisal made by an Independent Appraiser.
April Advisory Agreement.
The agreement between the Advisor and the Company that became effective April 1, 2012, covering the period from April 1, 2012 through June 30, 2012.
Articles of Incorporation
. The Articles of Incorporation of the Company under Title 2 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time.
Asset-based Valuation
. An estimate of the value of a share of the Company's common stock approved by the Board of Directors of the Company and based in part on an estimate of the value of the Company's assets (as opposed to an estimate based solely on the most recent price paid for a share of the Company's common stock in an offering of such shares).
Asset Management Fee
. The Asset Management Fee payable to the Advisor as defined in Paragraph 8(a).
Asset Management Fee Ceiling
. The ceiling on the Asset Management Fee as defined in Paragraph 8(a).
Asset Management Fee Percentage
. The Asset Management Fee Percentage equals (1) 0.625%, until the monthly payment of the Asset Management Fee under this Agreement equals $2,708,333.33; (2) thereafter, the Fixed Fee Percentage for so long as the sum of Adjusted Cost plus the Lindbergh/Energy Center Adjusted Cost, as of any date of determination, is less than $6,500,000,000; and (3) 0.50% commencing when the sum of Adjusted Cost plus the Lindbergh/Energy Center Adjusted Cost, as of any date of determination, is at least $6,500,000,000.
Average Invested Assets
. For a specified period, the average of the aggregate book value of the assets of the Company invested, directly or indirectly, in Properties and Loans secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such period.
Board of Directors or Board
. The persons holding such office, as of any particular time, under the Articles of Incorporation of the Company, whether they be the Directors named therein or additional or successor Directors.
Bulk Liquidation
. A liquidation of all or substantially all of the Company's assets effected in a transaction or series of transactions with three or fewer buyers or their Affiliates that are closed in a period of 12 months or less.
Bylaws
. The bylaws of the Company, as the same are in effect from time to time.
Capped O&O Expenses
. All Organizational and Offering Expenses other than selling commissions and the dealer manager fee as described under “Plan of Distribution” in any registration statement relating to a public offering and filed with the U.S. Securities and Exchange Commission.
Cash from Financings
. Net cash proceeds realized by the Company from the financing of Property or from the refinancing of any Company indebtedness.
Cash from Sales
. Net cash proceeds realized by the Company from the sale, exchange or other disposition of any of its assets after deduction of all expenses incurred in connection therewith. Cash from Sales shall not include Cash from Financings.
Cash from Sales and Financings
. The total sum of Cash from Sales and Cash from Financings.
Ceiling Excess
. The extent to which the sum of the three previous monthly Asset Management Fee payments exceeds the Asset Management Fee Ceiling, as defined in Paragraph 8(a).
Code
. Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean such provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable regulations as in effect from time to time.
Company
. Wells Real Estate Investment Trust II, Inc., a corporation organized under the laws of the State of Maryland.
Competitive Real Estate Commission
. A real estate or brokerage commission for the purchase or sale of property which is reasonable, customary, and competitive in light of the size, type, and location of the property.
Conflicts Committee
. “Conflicts Committee” shall have the meaning set forth in the Articles of Incorporation.
Construction Fee
. A fee or other remuneration for acting as general contractor and/or construction manager to construct improvements, supervise and coordinate projects or to provide major repairs or rehabilitation on a Property.
Contract Sales Price
. The total consideration received by the Company for the sale of a Property.
Cumulative Return
. For the period for which the calculation is being made, the percentage resulting from dividing (A) the total Distributions paid on each Distribution date during such period (excluding Distributions paid out of Cash from Sales and Financings), by (B) the product of (i) the weighted average Invested Capital for such period (calculated on a daily basis) and (ii) the number of years (including fractions thereof) which have elapsed during such period.
Development Fee
. A fee for the packaging of a Property, including negotiating and approving plans, and undertaking to assist in obtaining zoning and necessary variances and necessary financing for the Property, either initially or at a later date.
Director
. A member of the Board of Directors of the Company.
Disposition Fee
. The Disposition Fee as defined in Paragraph 8(c).
Distributions
. Any distributions of money or other property by the Company to owners of Shares, including distributions that may constitute a return of capital for federal income tax purposes.
Fixed Fee Percentage
. The Fixed Fee Percentage equals the quotient of (A) (x) $32,500,000, less (y) the product of (1) 0.50% times (2) the Lindbergh/Energy Center Adjusted Cost; divided by (B) the Adjusted Cost.
Gross Proceeds
. The aggregate purchase price of all Shares sold for the account of the Company through an Offering, without deduction for Organization and Offering Expenses.
Guaranteed Obligations
. The Guaranteed Obligations as defined in Paragraph 30.
Guarantor
. The Guarantor as defined in Paragraph 30.
Independent Appraiser
. A person or entity with no material current or prior business or personal relationship with the Advisor or the Directors, who is engaged to a substantial extent in the business of rendering opinions regarding the value of assets of the type held by the Company, and who is a qualified appraiser of real estate as determined by the Board. Membership in a nationally recognized appraisal society such as the American Institute of Real Estate Appraisers (“M.A.I.”) or the Society of Real Estate Appraisers (“S.R.E.A.”) shall be conclusive evidence of such qualification.
Invested Capital
. The amount calculated by multiplying the total number of Shares purchased by stockholders by the issue price, reduced by the portion of any Distribution that is attributable to Net Sales Proceeds and by any amounts paid by the Company to repurchase Shares pursuant to the Company's plan for redemption of Shares.
Investor Services Agreement.
The investor services agreement between Wells Real Estate Funds, Inc. and the Company dated as of June 29, 2012 and effective as of July 1, 2012, and any successor agreement.
Joint Venture
. Any joint venture, limited liability company or other Affiliate of the Company that owns, in whole or in part on behalf of the Company, any Properties.
Lindbergh/Energy Center Adjusted Cost
. (A) As of any date of determination and until such time as the Company completes an Asset-based Valuation, the actual amount, if any, invested in the two Properties commonly known as AT&T Lindbergh Center and in one Property commonly known as Energy Center I for so long as such Properties are owned on behalf of the Company less any amounts recognized on or before such date of determination as impairments to the carrying value of AT&T Lindbergh Center and Energy Center I in accordance with Generally Accepted Accounting Principles. In all cases, the Lindbergh/Energy Center Adjusted Cost shall be reduced as appropriate if either the AT&T Lindbergh Center (treated as one Property) or Energy Center I is considered a Vacant Property, as defined herein.
(B) On or after such time as the Company completes an Asset-based Valuation, “Lindbergh/Energy Center Adjusted Cost” means, as of any date of determination, the lesser of (1) the amount determined in accordance with Paragraph (A) above, or (2) the value of the Company's interest in the AT&T Lindbergh Center and in Energy Center I as established in connection with the Company's most recent Asset-based Valuation. In all cases, the Lindbergh/Energy Center Adjusted Cost shall be reduced as appropriate if either
the AT&T Lindbergh Center (treated as one Property) or Energy Center I is considered a Vacant Property, as defined herein.
Listing
. The listing of the Shares on a national securities exchange or over-the-counter market.
Master Property Management, Leasing and Construction Management Agreement.
The agreement by and between Wells Management Company, Inc., the Company and the Partnership effective as of July 1, 2012, and any successor agreement.
NASAA Guidelines
. The NASAA Statement of Policy Regarding Real Estate Investment Trusts as in effect on the date hereof.
Net Asset Value
. The excess of (i) the aggregate of the Adjusted Cost plus the Lindbergh/Energy Center Adjusted Cost over (ii) the aggregate outstanding amount of debt of the Company, the Partnership, and the Joint Ventures (as adjusted for the Company's interest in such Joint Ventures) and any accrued interest thereon.
Net Income
. For any period, the total revenues applicable to such period, less the total expenses applicable to such period excluding additions to reserves for depreciation, bad debts or other similar non-cash reserves; provided, however, Net Income for purposes of calculating total allowable Operating Expenses (as defined herein) shall exclude the gain from the sale of the Company's assets.
Net Sales Proceeds
. In the case of a transaction described in clause (i) (A) of the definition of Sale, the proceeds of any such transaction less the amount of all real estate commissions and closing costs paid by the Company. In the case of a transaction described in clause (i) (B) of such definition, Net Sales Proceeds means the proceeds of any such transaction less the amount of any legal and other selling expenses incurred in connection with such transaction. In the case of a transaction described in clause (i) (C) of such definition, Net Sales Proceeds means the proceeds of any such transaction actually distributed to the Company from the joint venture. In the case of a transaction described in clause (ii) of the definition of Sale, Net Sales Proceeds means the proceeds of such transaction or series of transactions less all amounts generated thereby and reinvested in one or more Properties within 180 days thereafter and less the amount of any real estate commissions, closing costs, and legal and other selling expenses incurred by or allocated to the Company in connection with such transaction or series of transactions. Net Sales Proceeds shall not include any reserves established by the Company in its sole discretion.
Offering
. Any offering of Shares that is registered with the SEC, excluding Shares offered under any employee benefit plan.
Operating Expenses
. All costs and expenses incurred by the Company, as determined under generally accepted accounting principles, which in any way are related to the operation of the Company or to Company business, including fees paid to the Advisor, but excluding (i) the expenses of raising capital such as Organization and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and tax incurred in connection with the issuance, distribution, transfer, registration and Listing of the Shares, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation, amortization and bad loan reserves, (v) incentive fees paid in compliance with Section IV.F. of the NASAA Guidelines and (vi) Acquisition Fees, Acquisition Expenses, real estate commissions on resale of property, and other expenses connected with the acquisition, disposition, and ownership of real estate interests, mortgage loans or other property (such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property).
Organization and Offering Expenses
. All expenses incurred by and to be paid from the assets of the Company in connection with and in preparing the Company for registration of and subsequently offering and distributing its Shares to the public, which may include but are not limited to, total underwriting and brokerage discounts and commissions (including fees of the underwriters' attorneys); expenses for printing, engraving and mailing; salaries of employees while engaged in sales activity; charges of transfer agents, registrars, trustees, escrow holders, depositaries and experts; and expenses of qualification of the sale of the securities under Federal and State laws, including taxes and fees, accountants' and attorneys' fees.
Partnership
. Wells Operating Partnership II, L.P., a Delaware limited partnership formed to own and operate properties on behalf of the Company.
Person
. An individual, corporation, partnership, estate, trust (including a trust qualified under Section 401(a) or 501(c) (17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity, or any government or any agency or political subdivision thereof, and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
Personnel Expenses
. All wages and salaries and other employee-related expenses of all employees of Advisor or its Affiliates to the extent engaged in the management, administration, operations, and marketing of the Company, including taxes, insurance and benefits relating to such employees, including those personnel expenses reimbursable under the Investor Services Agreement and Section 3.2 of the Master Property Management, Leasing and Construction Management Agreement that were previously reimbursed under the April Advisory Agreement, but excluding those personnel expenses reimbursable under Section 3.1 of the Master Property Management, Leasing and Construction Management Agreement and any other agreement between the Company and the Advisor or its Affiliates that is not mentioned herein.
Portfolio G&A Expenses
. Those categories of portfolio general and administrative costs described on Schedule A attached hereto, which include general and administrative costs reimbursable pursuant to this Agreement, the Investor Services Agreement and the Master Property Management, Leasing and Construction Management Agreement plus the personnel expenses related to portfolio-level property management services that are reimbursable pursuant to Section 3.2 of the Master Property Management, Leasing and Construction Management Agreement and were previously reimbursed under the April Advisory Agreement, but excluding costs reimbursable pursuant to any other agreement between the Company and the Advisor or its Affiliates that is not mentioned herein.
Property or Properties
. Any real property or properties transferred or conveyed to the Company or the Partnership, either directly or indirectly.
Property Manager
. Any entity that has been retained to perform and carry out property management services at one or more of the Properties, excluding persons, entities or independent contractors retained or hired to perform facility management or other services or tasks at a particular Property, the costs for which are passed through to and ultimately paid by the tenant at such Property.
REIT
. A “real estate investment trust” under Sections 856 through 860 of the Code.
Sale or Sales
. (i) Any transaction or series of transactions whereby: (A) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, including the transfer of any Property that is the subject of a ground lease, and including any event with respect to any Property which gives rise to a significant amount of insurance proceeds or condemnation
awards; (B) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Company or the Partnership in any joint venture in which it is a co-venturer or partner; or (C) any joint venture in which the Company or the Partnership as a co-venturer or partner sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, including any event with respect to any Property which gives rise to insurance claims or condemnation awards, but (ii) not including any transaction or series of transactions specified in clause (i) (A), (i) (B), or (i) (C) above in which the proceeds of such transaction or series of transactions are reinvested in one or more Properties within 180 days thereafter.
Shares
. The Company's shares of common stock, par value $0.01 per share.
Stockholders
. The registered holders of the Shares.
Stockholders' 8% Return
. As of each date, an aggregate amount equal to an 8% Cumulative Return.
Subordinated Incentive Fee
. The fee payable to the Advisor under certain circumstances if the Shares are listed on a national securities exchange or over-the-counter market as defined in Paragraph 8(e).
Subordinated Performance Fee Due Upon Termination
. Subordinated Performance Fee Due Upon Termination means a fee equal to (1) 10% of the amount, if any, as of the Termination Date by which (a) the sum of (i) the Appraised Value of the Company's Properties; plus, without duplication (ii) the fair market value of the Company's interests in Joint Ventures; plus (iii) the fair market value of any other tangible assets of the Company; less (iv) all liabilities of the Company and the Partnership ; plus (v) total Distributions through the Termination Date; exceeds (b) the sum of Invested Capital, plus Distributions attributable to Net Sales Proceeds, plus total Distributions required to be made to the stockholders in order to pay the Stockholders' 8% Return from inception through the termination date; less (2) any prior payment to the Advisor of a Subordinated Share of Net Sales Proceeds. For the purpose of the foregoing calculations, all asset values and liabilities shall be adjusted to exclude the portion of such amounts allocable to minority interest holders not otherwise considered in the calculation of the value of Joint Ventures.
Subordinated Share of Net Sales Proceeds
. The Subordinated Share of Net Sales Proceeds as defined in Paragraph 8(d).
Termination Date
. The date of termination of the Agreement.
Transition Services Agreement
. The Transition Services Agreement between Wells Real Estate Funds, Inc. and the Company dated as of June 29, 2012 and effective as of July 1, 2012, and any successor agreement.
Vacant Property
. A Property that (i) for over thirty percent (30%) of its leasable square feet does not have third-party tenant leases in place; or (ii) has not collected at least seventy percent (70%) of the Property's total potential rental revenue based upon full occupancy, except if not attaining seventy percent is a result of tenant improvements, concessions or similar leasing incentives contained in leases approved by the Board for (i) the period from acquisition until the applicable measurement date, if less than six months or (ii) for the six months immediately preceding the date of measurement.
2%/25% Guidelines
. The requirement pursuant to the NASAA Guidelines that, in any 12-month period, total Operating Expenses not exceed the greater of 2% of the Company's Average Invested Assets during such 12-month period or 25% of the Company's Net Income over the same 12-month period.
2.
Appointment
.
The Company hereby appoints the Advisor to serve as its advisor and asset manager on the terms and conditions set forth in this Agreement, and the Advisor hereby accepts such appointment.
3.
Duties and Authority of the Advisor
.
The Advisor undertakes to use its reasonable efforts to present to the Company potential investment opportunities to provide a continuing and suitable investment program consistent with (i) the investment objectives and policies of the Company as determined and adopted from time to time by the Board and (ii) the investment allocation method described at Paragraph 11(b) of this Agreement. The services of the Advisor are to be of scope and quality not less than those generally performed by professional asset managers of other similar property portfolios. The Advisor shall make available the full benefit of the judgment, experience and advice of the members of the Advisor's organization and staff with respect to the duties it will perform under this Agreement. To facilitate the Advisor's performance of these undertakings, but subject to the restrictions included in Paragraphs 4 and 7 and to the continuing and exclusive authority of the Board over the management of the Company and the Partnership, the Company hereby delegates to the Advisor the authority to, and the Advisor hereby agrees to, either directly or by engaging an Affiliate:
(a)
serve as the Company's investment and financial advisor and provide research and economic and statistical data in connection with the Company's assets and investment policies;
(b)
provide the daily management of the Company and perform and supervise the various administrative functions reasonably necessary for the management of the Company;
(c)
maintaining the accounting and other record-keeping functions at the Company level; and
(d)
investigate, select, and, on behalf of the Company, engage and conduct business with such Persons as the Advisor deems necessary to the proper performance of its obligations hereunder, including but not limited to consultants, accountants, correspondents, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, banks, builders, developers, property owners, mortgagors, and any and all agents for any of the foregoing, including Affiliates of the Advisor, and Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services, including but not limited to entering into contracts in the name of the Company with any of the foregoing;
(e)
consult with the officers and the Board of the Company and assist the Board in the formulation and implementation of the Company's financial policies, and, as necessary, furnish the Board with advice and recommendations with respect to the making of investments consistent with the investment objectives and policies of the Company and in connection with any borrowings proposed to be undertaken by the Company;
(f)
conduct periodic on-site property visits to some or all (as the Advisor deems reasonably necessary) of the Properties to inspect the physical condition of the Properties and to evaluate the performance of the related Property Manager of its duties;
(g)
review, analyze and comment upon the operating budgets, capital budgets and leasing plans prepared and submitted by each Property Manager and aggregate these property budgets into the Company's overall budget;
(h)
review and analyze on-going financial information pertaining to each Property and the overall portfolio of Properties;
(i)
formulate and oversee the implementation of strategies for the administration, promotion, management, operation, maintenance, improvement, financing and refinancing, marketing, leasing, and disposition of Properties on an overall portfolio basis;
(j)
subject to the provisions of Paragraphs 3(i) and 4 hereof, (i) locate, analyze and select potential investments in Properties, (ii) structure and negotiate the terms and conditions of transactions pursuant to which investment in Properties will be made; (iii) make investments in Properties on behalf of the Company or the Partnership in compliance with the investment objectives and policies of the Company; (iv) arrange for financing and refinancing and make other changes in the asset or capital structure of, and dispose of, reinvest the proceeds from the sale of, or otherwise deal with the investments in, Property; (v) enter into leases and service contracts for Property, including oversight of Affiliated companies that perform property management services for the Company;
(k)
obtain the prior approval of the Board for any and all investments in Properties (as well as any financing acquired by the Company or the Partnership in connection with such investment);
(l)
if a transaction requires approval by the Board of Directors, deliver to the Board of Directors all documents required by them to properly evaluate the proposed investment in the Property;
(m)
negotiate on behalf of the Company with banks or lenders for loans to be made to the Company, and negotiate on behalf of the Company with investment banking firms and broker-dealers or negotiate private sales of Shares and other securities or obtain loans for the Company, but in no event in such a way so that the Advisor shall be acting as broker-dealer or underwriter; and provided, further, that any fees and costs payable to third parties incurred by the Advisor in connection with the foregoing shall be the responsibility of the Company;
(n)
obtain reports (which may be prepared by the Advisor or its Affiliates), where appropriate, concerning the value of investments or contemplated investments of the Company in Properties;
(o)
from time to time, or at any time reasonably requested by the Board, provide information or make reports to the Board related to its performance of services to the Company under this Agreement;
(p)
from time to time, or at any time reasonably requested by the Board, make reports to the Board of the investment opportunities it has presented to other Advisor-sponsored programs or that it has pursued directly or through an Affiliate;
(q)
provide the Company with all necessary cash management services;
(r)
deliver to or maintain on behalf of the Company copies of all appraisals obtained in connection with the investments in Properties;
(s)
notify the Board of all proposed material transactions before they are completed;
(t)
at the direction of Company management, prepare the Company's periodic reports and other filings made under the Securities Exchange Act of 1934, as amended, and the Company's registration statements as well as all related prospectuses, prospectus supplements and supplemental sales literature and assist in connection with the filing of such documents with the appropriate regulatory authorities; and
(u)
do all things necessary to assure its ability to render the services described in this Agreement.
Notwithstanding the foregoing list of duties of the Advisor, the Advisor has no obligation
hereunder to provide the Stockholder and communication services that are the subject of the Investor Services Agreement nor the property management services that are the subject of the Master Property Management, Leasing and Construction Management Agreement, nor any other services provided for pursuant to any other agreements entered into between the Company and the Advisor and its Affiliates not mentioned herein.
4.
Modification or Revocation of Authority of Advisor
.
The Board may, at any time upon the giving of notice to the Advisor, modify or revoke the authority or approvals set forth in Paragraph 3, provided however, that such modification or revocation shall be effective upon receipt by the Advisor and shall not be applicable to investment transactions to which the Advisor has committed the Company prior to the date of receipt by the Advisor of such notification.
5.
Bank Accounts
. The Advisor may establish and maintain one or more bank accounts in its own name for the account of the Company or in the name of the Company and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of the Company, under such terms and conditions as the Board may approve, provided that no funds shall be commingled with the funds of the Advisor; and the Advisor shall from time to time render appropriate accountings of such collections and payments to the Board and to the auditors of the Company.
6.
Records; Access
. The Advisor shall maintain appropriate records of all its activities hereunder and make such records available for inspection by the Board and by counsel, auditors and authorized agents of the Company, at any time or from time to time during normal business hours. The Advisor shall at all reasonable times have access to the books and records of the Company.
7.
Limitations on Activities
. Anything else in this Agreement to the contrary notwithstanding, the Advisor shall refrain from taking any action which, in its sole judgment made in good faith, would (a) adversely affect the status of the Company as a REIT, (b) subject the Company to regulation under the Investment Company Act of 1940, as amended, or (c) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company, its Shares or its other securities, or the Articles of Incorporation or Bylaws, except if such action shall be ordered by the Board, in which case the Advisor shall notify promptly the Board of the Advisor's judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event the Advisor shall have no liability for acting in accordance with the specific instructions of the Board so given. Notwithstanding the foregoing, the Advisor, its directors, officers, employees and stockholders, and stockholders, directors and officers of the Advisor's Affiliates shall not be liable to the Company or to the Board or stockholders for any act or omission by the Advisor, its directors, officers or employees, or stockholders, directors or officers of the Advisor's Affiliates except as provided in Paragraphs 18 and 19 of this Agreement.
8.
Fees
.
(a)
Asset Management Fee
. Subject to the overall limitations contained below in this Paragraph 8(a), commencing
on the date hereof, the Advisor shall be paid for the asset management services included in the services described in Paragraph 3 a monthly fee (the “Asset Management Fee”) in an amount equal to one-twelfth of the sum of (i) the product of the Asset Management Fee Percentage multiplied by the Adjusted Cost calculated on the last day of each preceding month, plus (ii) 0.50% of the Lindbergh/Energy Center Adjusted Cost
as of the last day of
each preceding month.
For purposes of clarity, the Asset Management Fee payment due in January 2013 will be based on December 31, 2012 Adjusted Cost amounts, notwithstanding that December 31, 2012 precedes the effective date of this Agreement
.
Notwithstanding
the foregoing, if this Agreement is in effect for less than a full month, the amount of the Asset Management Fee shall be prorated to account for the percentage of the month in which this Agreement is in effect.
Notwithstanding the foregoing, the aggregate Asset Management Fee payable to the Advisor in any three-month period pursuant to this Paragraph 8(a) shall not exceed 0.25% of the average Net Asset Value during such three-month period, calculated based on Net Asset Value as of the last day of each preceding month during the three-month period (the “Asset Management Fee Ceiling”). To the extent the sum of the three previous monthly asset management fee payments exceeds the Asset Management Fee Ceiling (such amount the “Ceiling Excess”), each next succeeding monthly payment of the Asset Management Fee will be reduced, with the amount by which the Asset Management Fee is reduced to be applied against the Ceiling Excess until the Ceiling Excess is eliminated. In no event, however, will the Advisor be required to make a cash payment on account of any Ceiling Excess.
(b)
Acquisition Fees
. The Advisor shall receive, as compensation for services rendered in connection with the investigation, selection and acquisition (by purchase, investment or exchange) of Properties, Acquisition Fees in an amount equal to 1% of the amount actually paid for the purchase of such Property, inclusive of any debt incurred for the purchase of such Property, but exclusive of Acquisition Fees and Acquisition Expenses incurred in connection with such acquisition. With respect to the acquisition of a Property through any Joint Venture, the Acquisition Fee payable to the Advisor shall equal the product of (x) the Company's percentage equity interest in the Joint Venture and (y) 1% of the amount actually paid by the Joint Venture for the purchase of such Property, inclusive of any debt incurred for the purchase of such Property, but exclusive of Acquisition Fees and Acquisition Expenses incurred in connection with such acquisition. Notwithstanding the foregoing, the aggregate amount of Acquisition Fees payable to the Advisor for the term of this Agreement pursuant to this Paragraph 8(b) shall not exceed the Acquisition Fee Limit. Notwithstanding anything herein to the contrary, the payment of Acquisition Fees by the Company shall also be subject to the limitation provided for in Section 8.7 of the Articles of Incorporation. The Acquisition Fee Limit shall be an amount equal to $1,500,000 less all Acquisition Fees payable to Advisor for Properties acquired during 2012 pursuant to the provisions of the Initial Term Advisory Agreement, the April Advisory Agreement or any predecessor advisory agreement or otherwise. If the Company enters into a definitive agreement for the purchase of a Property for which an Acquisition Fee is otherwise payable hereunder and any due diligence period in such agreement has expired prior to the termination of this Agreement, but the closing of such purchase occurs after the termination of this Agreement and prior to December 31, 2013, then the Advisor shall be entitled to receive such Acquisition Fee subject to the Acquisition Fee Limit and the other conditions hereof.
(c)
Disposition Fee
. If the Advisor or an Affiliate provides a substantial amount of the services (as determined by the Conflicts Committee) in connection with the Sale of one or more Properties, the Advisor or such Affiliate shall receive at closing a Disposition Fee equal to the lesser of (i) the broker fee actually paid to a third party broker in connection with the sale of such Property or Properties or (ii) 0.30% of the sales price of such Property or Properties; provided, however, that no Disposition Fee shall be payable to the Advisor for Property Sales if such Sales involve the Company selling all or substantially all of its Properties in one or more transactions designed to effectuate a business combination transaction or Bulk Liquidation of the Company (as opposed to a Company liquidation not constituting a Bulk Liquidation, in which case the Disposition Fee would be payable if the Advisor or an Affiliate provides a substantial amount of services as provided above). Any Disposition Fee payable under this section may be paid in addition to real estate commissions paid to non-Affiliates, provided that the total real estate commissions (including such Disposition Fee) paid to all Persons by the Company for each Property shall not exceed an amount equal to the lesser of (i) 6.0% of the aggregate Contract Sales Price of each Property, or (ii) the Competitive Real Estate Commission for each Property.
(d)
Subordinated Share of Net Sales Proceeds
. The Subordinated Share of Net Sales Proceeds shall be payable to the Advisor in an amount equal to 10% of Net Sales Proceeds remaining after the Stockholders have received Distributions equal to the sum of (i) the Stockholders' 8% Return, and (ii) 100% of Invested Capital plus Distributions attributable to Net Sales Proceeds. Following Listing, no Subordinated Share of Net Sales Proceeds will be paid to the Advisor.
(e)
Subordinated Incentive Fee
. Upon Listing, the Advisor shall be entitled to the Subordinated Incentive Fee in an amount equal to 10.0% of the amount by which (i) the market value of the outstanding stock of the Company, measured by taking the average closing price or average of bid and asked price, as the case may be, over a period of 30 days during which the Shares are traded, with such period beginning 180 days after Listing (the “Market Value”), plus the total of all Distributions paid to Stockholders from the Company's inception until the date that Market Value is determined, exceeds (ii) the sum of (A) 100% of Invested Capital plus Distributions attributable to Net Sales Proceeds, and (B) the total Distributions required to be paid to the Stockholders in order to pay the Stockholders' 8% Return from inception through the date Market Value is determined. The Company shall have the option to pay such fee in the form of cash, Shares, a promissory note to be negotiated in light of then-existing market conditions or any combination of the foregoing. The Subordinated Incentive Fee will be reduced by the amount of any prior payment to the Advisor of a Subordinated Share of Net Sales Proceeds. In the event the Subordinated Incentive Fee is paid to the Advisor following Listing, no other performance fee or Subordinated Share of Net Sales Proceeds, including the Subordinated Performance Fee Due Upon Termination, will be paid to the Advisor.
(f)
Changes to Fee Structure
. In the event of Listing, the Company and the Advisor shall negotiate in good faith to establish a fee structure appropriate for a perpetual-life entity.
(g)
Fee Credit
. Within 15 days of the end of each month in which this Agreement is in effect, the Advisor shall credit an amount of $166,667 against all earned but unpaid fees owed to the Advisor under this Agreement, which amount represents a reduction in the monthly fees earned by the Advisor pursuant to this Paragraph 8 during the term of this Agreement. Notwithstanding the foregoing, if this Agreement is in effect for less than a full month, the amount credited to the Company shall be prorated to account for the percentage of the month in which this Agreement was in effect.
9.
Expenses
.
(a)
Reimbursable Expenses
. In addition to the compensation paid to the Advisor pursuant to Paragraph 8 hereof, the Company shall pay directly or reimburse the Advisor for all of the expenses paid or incurred by the Advisor (to the extent not reimbursable by another party, such as the dealer manager) in connection with the services it provides to the Company pursuant to this Agreement, including, but not limited to:
(i)
the Organization and Offering Expenses; provided, however, that within 60 days after the end of the month in which an Offering terminates, the Advisor shall reimburse the Company to the extent (i) Capped O&O Expenses borne by the Company exceed 2.0% of the Gross Proceeds raised in a completed offering and (ii) Organization and Offering Expenses borne by the Company exceed 15% of the Gross Proceeds raised in a completed Offering;
(ii)
Acquisition Fees and Acquisition Expenses payable to unaffiliated Persons incurred in connection with the selection and acquisition of Properties;
(iii)
the actual cost of goods and services used by the Company and obtained from entities not affiliated with the Advisor;
(iv)
interest and other costs for borrowed money, including discounts, points and other similar fees;
(v)
taxes and assessments on income or Property and taxes as an expense of doing business;
(vi)
costs associated with insurance required in connection with the business of the Company or by the Board;
(vii)
all expenses in connection with payments to the Board and meetings of the Board;
(viii)
expenses associated with Listing or with the issuance and distribution of securities other than the Shares, such as selling commissions and fees, advertising expenses, taxes, legal and accounting fees, listing and registration fees;
(ix)
expenses of organizing, redomesticating, merging, liquidating or dissolving the Company or of amending the Articles of Incorporation or the Bylaws;
(x)
expenses of preparing the annual report and proxy statements and other reports required by governmental entities;
(xi)
administrative service expenses, including all costs and expenses incurred by Advisor in fulfilling its duties hereunder, such as reasonable wages and salaries (but excluding bonuses) and other employee-related expenses of all employees of Advisor or its Affiliates to the extent engaged in the management, administration, operations, and marketing of the Company, including taxes, insurance and benefits relating to such employees, and legal, travel and other out-of-pocket expenses that are directly related to their services provided hereunder; and
(xii)
audit, accounting and legal fees.
No reimbursement shall be made for costs of personnel of the Advisor or its Affiliates to the extent that such personnel perform services in connection with services for which the Advisor receives the Acquisition Fee or the Disposition Fee.
(b)
Other Services
. Should the Board request that the Advisor or any director, officer or employee thereof render services for the Company other than set forth in Paragraph 3, such services shall be separately compensated at such rates and in such amounts as are agreed by the Advisor and the Conflicts Committee, subject to the limitations contained in the Articles of Incorporation, and shall not be deemed to be services pursuant to the terms of this Agreement.
(c)
Timing of and Limitations on Reimbursements
.
(i)
Expenses incurred by the Advisor on behalf of the Company and payable pursuant to this Paragraph 9 shall be reimbursed no less than monthly to the Advisor. The Advisor shall prepare a statement documenting the expenses of the Company during each quarter, and shall deliver such statement to the Company within 45 days after the end of each quarter.
(ii)
The Company shall not reimburse the Advisor at the end of any fiscal quarter Operating Expenses that, in the four consecutive fiscal quarters then ended (the “Expense Year”), exceed (the “Excess Amount”) the greater of 2% of Average Invested Assets or 25% of Net Income (the “2%/25% Guidelines”) for such year unless the Conflicts Committee determines that such excess was justified, based on unusual and nonrecurring factors which the Conflicts Committee deems sufficient. If the
Conflicts Committee does not approve such excess as being so justified, any Excess Amount paid to the Advisor during a fiscal quarter shall be repaid to the Company. If the Conflicts Committee determines such excess was justified, then within 60 days after the end of any fiscal quarter of the Company for which total reimbursed Operating Expenses for the Expense Year exceed the 2%/25% Guidelines, the Advisor, at the direction of the Conflicts Committee, shall send to the stockholders a written disclosure of such fact, together with an explanation of the factors the Conflicts Committee considered in determining that such excess expenses were justified. The Company will ensure that such determination will be reflected in the minutes of the meetings of the Board of Directors. All figures used in the foregoing computation shall be determined in accordance with generally accepted accounting principles applied on a consistent basis.
(iii)
The Company shall not reimburse the Advisor or its Affiliates for Portfolio G&A Expenses or Personnel Expenses incurred during the term of this Agreement if such reimbursement would cause total reimbursements during the term of this Agreement to exceed $18,167,000 for Portfolio G&A Expenses or $10,000,000 for Personnel Expenses; provided that these caps assume a term of 12 months and shall be prorated as necessary to the extent the term of this Agreement is less than 12 months; provided further that these caps shall not be applicable for unbudgeted expenses deemed by the Conflicts Committee to be justified.
(d)
Occupancy Costs.
The Company shall reimburse the Advisor for occupancy costs at a fixed amount of $21,000 per month. Notwithstanding Paragraph 9(c)(i) above, this amount shall be paid to the Advisor on the first business day of each month in which this agreement is in effect. No other amounts related to the Company's occupancy of space at 6200 The Corners Parkway in Norcross Georgia, such as tenant improvement costs, operating expenses, or common area maintenance, shall be due.
10.
Fidelity Bond
. The Advisor shall maintain a fidelity bond for the benefit of the Company which bond shall insure the Company from losses of up to $10,000,000 and shall be of the type customarily purchased by entities performing services similar to those provided to the Company by the Advisor.
11.
Other Activities of the Advisor
.
(a)
General
. Nothing herein contained shall prevent the Advisor from engaging in other activities, including, without limitation, the rendering of advice to other Persons (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates; nor shall this Agreement limit or restrict the right of any director, officer, employee, or stockholder of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other partnership, corporation, firm, individual, trust or association. The Advisor may, with respect to any investment in which the Company is a participant, also render advice and service to each and every other participant therein. The Advisor shall report to the Board the existence of any condition or circumstance, existing or anticipated, of which it has knowledge, which creates or could create a conflict of interest between the Advisor's obligations to the Company and its obligations to or its interest in any other partnership, corporation, firm, individual, trust or association.
(b)
Policy with Respect to Allocation of Investment Opportunities
. Before the Advisor presents an investment opportunity that would in its judgment be suitable for the Company to another Advisor-sponsored program, the Advisor shall determine in its sole discretion that the investment opportunity is more suitable for such other program than for the Company based on factors such as the following: the investment objectives and criteria of each program; the cash requirements and anticipated cash flow of each program; the size of the investment opportunity; the effect of the acquisition on diversification of each program's investments by type of commercial property,
geographic area and tenant base; the estimated income tax effects of the purchase on each entity; the policies of each program relating to leverage; the funds of each entity available for investment and the length of time such funds have been available for investment; the size of the investment; the credit quality of the tenants; and the existence of special factors, such as whether the property is adjacent to another property owned by a program. In the event that an investment opportunity becomes available that is, in the sole discretion of the Advisor, equally suitable for both the Company and another Advisor-sponsored program, then the Advisor may offer the other program the investment opportunity if it has had the longest period of time elapse since it was offered an investment opportunity. The Advisor will use its reasonable efforts to fairly allocate investment opportunities in accordance with such allocation method and will promptly disclose any material deviation from such policy or the establishment of a new policy, which shall be allowed provided (1) the Board is provided with notice of such policy at least 60 days prior to such policy becoming effective and (2) such policy provides for the reasonable allocation of investment opportunities among such programs. The Advisor shall provide the Conflicts Committee with any information reasonably requested so that the Conflicts Committee can ensure that the allocation of investment opportunities is applied fairly. Nothing herein shall be deemed to prevent the Advisor or an Affiliate from pursuing an investment opportunity directly rather than offering it to the Company or another Advisor-sponsored program so long as the Advisor is fulfilling its obligation to present a continuing and suitable investment program to the Company which is consistent with the investment policies and objectives of the Company.
12.
Relationship of Advisor and Company
. The Company and the Advisor are not partners or joint venturers with each other, and nothing in this Agreement shall be construed to make them such partners or joint venturers or impose any liability as such on either of them.
13.
Representations and Warranties
.
(a)
Of the Company
. To induce the Advisor to enter into this Agreement, the Company hereby represents and warrants that:
(i)
The Company is a corporation, duly organized, validly existing and in good standing under the laws of the State of Maryland with all requisite corporate power and authority and all material licenses, permits and authorizations necessary to carry out the transactions contemplated by this Agreement.
(ii)
The Company's execution, delivery and performance of this Agreement have been duly authorized. This Agreement constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The Company's execution and delivery of this Agreement and its fulfillment of and compliance with the respective terms hereof do not and will not (A) conflict with or result in a breach of the terms, conditions or provisions of, (B) constitute a default under, (C) result in the creation of any lien, security interest, charge or encumbrance upon the assets of the Company pursuant to, (D) give any third party the right to modify, terminate or accelerate any obligation under, (E) result in a violation of or (F) require any authorization, consent, approval, exception or other action by or notice to any court or administrative or governmental body pursuant to, the Articles of Incorporation or Bylaws or any law, statute, rule or regulation to which the Company is subject, or any agreement, instrument, order, judgment or decree by which the Company is bound, in any such case in a manner that would have a material adverse effect on the ability of the Company to perform any of its obligations under this Agreement.
(b)
Of the Advisor
. To induce Company to enter into this Agreement, the Advisor represents and warrants that:
(i)
The Advisor is a corporation, duly organized, validly existing and in good standing under the laws of the State of Georgia with all requisite corporate power and authority and all material licenses, permits and authorizations necessary to carry out the transactions contemplated by this Agreement.
(ii)
The Advisor's execution, delivery and performance of this Agreement have been duly authorized. This Agreement constitutes a valid and binding obligation of the Advisor, enforceable against the Advisor in accordance with its terms. The Advisor's execution and delivery of this Agreement and its fulfillment of and compliance with the respective terms hereof do not and will not (A) conflict with or result in a breach of the terms, conditions or provisions of, (B) constitute a default under, (C) result in the creation of any lien, security interest, charge or encumbrance upon the Advisor's assets pursuant to, (D) give any third party the right to modify, terminate or accelerate any obligation under, (E) result in a violation of or (F) require any authorization, consent, approval, exemption or other action by or notice to any court or administrative or governmental body pursuant to, the Advisor's articles of incorporation or bylaws, or any law, statute, rule or regulation to which the Advisor is subject, or any agreement, instrument, order, judgment or decree by which the Advisor is bound, in any such case in a manner that would have a material adverse effect on the ability of the Advisor to perform any of its obligations under this Agreement.
(iii)
The Advisor has received copies of the (A) Articles of Incorporation, (B) Bylaws, (C) registration statements relating to the Company's past and ongoing public offerings, and (D) the Partnership's limited partnership agreement and is familiar with the terms thereof, including without limitation the investment limitations included therein. Advisor warrants that it will use reasonable care to avoid any act or omission that would conflict with the terms of the foregoing in the absence of the express direction of the Conflicts Committee.
(iv)
The Advisor will maintain the resources necessary to ensure the proper performance of the services to be provided under this Agreement.
14.
Term; Termination of Agreement
. This Agreement shall commence on January 1, 2013, and continue in force through December 31, 2013. This Agreement may be continued for an unlimited number of successive one-year renewals (with caps and limits stated in this Agreement to be adjusted as appropriate) upon mutual consent of the parties. The Company, acting through the Board, will evaluate the performance of the Advisor annually before renewing the Agreement, and each such renewal shall be for a term of no more than one year. Notwithstanding the foregoing, this Agreement shall automatically terminate upon the exercise of the WREAS II Assignment Option (as defined in the Transition Services Agreement).
15.
Termination by Either Party
. This Agreement may be terminated upon 60 days written notice without cause or penalty, by either party (by majority of the Conflicts Committee or a majority of the Board of Directors of the Advisor, as the case may be). The provisions of Paragraphs 1, 6, 7, and 17 through 30 survive termination of this Agreement.
16.
Assignment to an Affiliate
. This Agreement may be assigned by the Advisor to an Affiliate with the approval of a majority of the Conflicts Committee. The Advisor may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board. This Agreement shall not be assigned by the Company without the consent of the Advisor, except in the case of an assignment by the Company to a corporation or other organization which is a successor to all of the assets, rights and
obligations of the Company, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company is bound by this Agreement.
17.
Payments to and Duties of Advisor upon Termination
. Payments to the Advisor pursuant to this Paragraph 17 shall be subject to the 2%/25% Guidelines to the extent applicable.
(a)
After the Termination Date, the Advisor shall not be entitled to compensation for further services hereunder except it shall be entitled to receive from the Company within 30 days after the effective date of such termination the following:
(i)
all unpaid reimbursements of expenses and all earned but unpaid fees payable to the Advisor prior to termination of this Agreement; and
(ii)
the Subordinated Performance Fee Due Upon Termination, provided that no Subordinated Performance Fee Due Upon Termination will be paid if the Company has paid or is obligated to pay the Subordinated Incentive Fee.
(b)
The Advisor shall promptly upon termination:
(i)
pay over to the Company all money collected and held for the account of the Company pursuant to this Agreement, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled;
(ii)
deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;
(iii)
deliver to the Board all assets, including Properties, and documents of the Company then in the custody of the Advisor; and
(iv)
cooperate with the Company to provide an orderly management transition.
18.
Indemnification by the Company
. The Company shall indemnify and hold harmless the Advisor and its Affiliates, including their respective officers, directors, partners and employees (collectively, “Indemnitees”), from all liability, claims, damages or losses arising in the performance of their duties hereunder, and related expenses, including reasonable attorneys' fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance, subject to any limitations imposed by the laws of the State of Maryland or the Articles of Incorporation as in effect on July 1, 2012. Notwithstanding the foregoing, the Indemnitees shall not be entitled to indemnification or be held harmless pursuant to this Paragraph 18 for any activity which the Advisor shall be required to indemnify or hold harmless the Company pursuant to Paragraph 19. Any indemnification of the Indemnitees may be made only out of the net assets of the Company and not from Stockholders.
19.
Indemnification by Advisor
. The Advisor shall indemnify and hold harmless the Company from contract or other liability, claims, damages, taxes or losses and related expenses including attorneys' fees, to the extent that such liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and are incurred by reason of the Advisor's bad faith, fraud, willful misfeasance, misconduct, or reckless disregard of its duties.
20.
Notices
. Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication
is required by the Articles of Incorporation, the Bylaws, or accepted by the party to whom it is given, and shall be given by being delivered by hand or by overnight mail or other overnight delivery service to the addresses set forth herein:
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To the Board and to the Company:
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Wells Real Estate Investment Trust II, Inc.
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6200 The Corners Parkway, Suite 250
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Norcross, Georgia 30092
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To the Advisor:
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Wells Real Estate Advisory Services II, LLC
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6200 The Corners Parkway, Suite 250
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Norcross, Georgia 30092
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Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Paragraph 20.
21.
Modification
. This Agreement shall not be changed, modified, terminated, or discharged, in whole or in part, except by an instrument in writing signed by both parties hereto, or their respective successors or assignees.
22.
Severability
. The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.
23.
Construction
. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Georgia.
24.
Entire Agreement
. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
25.
Indulgences, Not Waivers
. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
26.
Gender
. Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
27.
Titles Not to Affect Interpretation
. The titles of paragraphs and subparagraphs contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.
28.
Execution in Counterparts
. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when the counterparts hereof, taken together, bear the signatures of all of the parties reflected hereon as the signatories.
29.
Name
. Wells Real Estate Funds, Inc. has a proprietary interest in the name “Wells.” Accordingly, and in recognition of this right, if at any time the Company ceases to retain Wells Real Estate Advisory Services II, LLC or an Affiliate thereof to perform the services of Advisor, the Company will, promptly after receipt of written request from Wells Real Estate Funds, Inc., cease to conduct business under or use the name “Wells” or any derivative thereof and the Company shall use its best efforts to change the name of the Company to a name that does not contain the name “Wells” or any other word or words that might, in the sole discretion of the Advisor, be susceptible of indication of some form of relationship between the Company and the Advisor or any Affiliate thereof. Consistent with the foregoing, it is specifically recognized that the Advisor or one or more of its Affiliates has in the past and may in the future organize, sponsor or otherwise permit to exist other investment vehicles (including vehicles for investment in real estate) and financial and service organizations having “Wells” as a part of their name, all without the need for any consent (and without the right to object thereto) by the Company or its Board.
30.
Parent Guarantee
. Wells Real Estate Funds, Inc., a Georgia corporation and the parent company of the Advisor (the “
Guarantor
”), does hereby in all respects guarantee the due and proper performance of the services to be provided and the full and timely payment of the amounts payable under this Agreement by the Advisor, which guarantee shall extend to include any renewal or amendment to this Agreement, provided Guarantor's obligations are not materially increased by such renewal or amendment without the Guarantor's consent, such consent not to be unreasonably withheld. If the Advisor fails to perform all or any of its obligations, duties, undertakings, and covenants to provide services or make payments (collectively, the “
Guaranteed Obligations
”) under this Agreement (unless relieved from the performance of any part of this Agreement by statute, by the decision of a court or tribunal of competent jurisdiction or by written waiver of the Company), upon written notice from the Company, the Guarantor shall perform or cause to be performed such Guaranteed Obligations. The termination of the Advisor shall constitute a termination of this guarantee with respect to the future performance of the Guaranteed Obligations, but no termination of Advisor shall terminate or limit the obligations of the Guarantor under this guarantee arising or accruing prior to such termination of the Advisor. This guarantee will be applicable to and binding upon the successors and assigns of Guarantor. Guarantor joins in this Agreement as a signatory hereto for the purposes set forth in this Paragraph 30.
[Signatures appear on next page.]
IN WITNESS WHEREOF, the parties hereto have executed this Renewal Advisory Agreement as of the
28th
day of
December, 2012
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WELLS REAL ESTATE INVESTMENT TRUST II, INC.
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By:
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/s/ George W. Sands
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Name:
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George W. Sands
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Title:
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Authorized Signatory
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WELLS REAL ESTATE ADVISORY SERVICES II, LLC
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By:
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WELLS REAL ESTATE FUNDS, INC., its sole member
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By:
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/s/ Robert M. McCullough
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Name:
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Robert M. McCullough
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Title:
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Corporate Chief Financial Officer
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The undersigned joins in this Advisory Agreement for the purposes set forth in Paragraph 30 hereof.
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WELLS REAL ESTATE FUNDS, INC.
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By:
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/s/ Robert M. McCullough
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Name:
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Robert M. McCullough
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Title:
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Corporate Chief Financial Officer
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Schedule A
Portfolio General and Administrative Costs
Portfolio & Asset Management
Call center
Capital Markets
Facilities
FPA, Tax, Treasury, & AP
Internal Audit
Investor Communications/Marketing
Legal/Compliance
Portfolio Accounting & Reporting
Transfer Agent
Exhibit 10.11
AMENDMENT TO TRANSITION SERVICES AGREEMENT
THIS AMENDMENT TO TRANSITION SERVICES AGREEMENT
(together with the Schedules and Exhibits attached hereto, the “
Amendment
”), dated December
28th
, 2012 (the “
Effective Date
”), is by and among Wells Real Estate Funds, Inc., a Georgia corporation (“
Wells REF
”), Wells Real Estate Advisory Services II, LLC, a Delaware limited liability company (“
WREAS II
”), Wells Real Estate Services, LLC, a Georgia limited liability company (“
WRES
”), Wells Management Company, Inc., a Georgia corporation (“
Wells Management
”) and Wells Real Estate Investment Trust II, Inc., a Maryland corporation (“
REIT II
”).
WHEREAS
, effective July 1, 2012, Wells REF, WREAS II and REIT II entered into that certain Transition Services Agreement (the “
TSA
”) pursuant to which, among other things, REIT II was granted an option to acquire WREAS II on the terms and conditions set forth therein;
WHEREAS
, REIT II and WREAS II entered into that certain Initial Term Advisory Agreement effective as of July 1, 2012 (the “
Initial Term Advisory Agreement
”);
WHEREAS
, pursuant to the TSA and as a condition precedent to the exercise by REIT II of the option to acquire WREAS II, the parties agreed to (1) the terms of the Renewal Advisory Agreement (the “
Renewal Advisory Agreement
”) which, if REIT II elects to enter into it, will be effective as of January 1, 2013 and (2) the terms of the Consulting Services Agreement (the “
Consulting Services Agreement
”);
WHEREAS
, REIT II, Wells Operating Partnership II, L.P. and Wells Management entered into that certain Master Property Management, Leasing and Construction Management Agreement, effective as of July 1, 2012 (the “
Property Management Agreement
”);
WHEREAS
, REIT II and Wells REF entered into that certain Investors Services Agreement, effective as of July 1, 2012, whereby Wells REF will perform certain stockholder services and communications previously performed by WREAS II (the “
Investor Services Agreement
”);
WHEREAS
, the parties desire to amend the terms of the TSA and modify certain of the provisions of the Initial Term Advisory Agreement, the Renewal Advisory Agreement and the Consulting Services Agreement as set forth herein:
NOW, THEREFORE
, in consideration of the mutual agreements and covenants herein contained, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree, intending to be legally bound, as follows:
1.
Definitions
. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the TSA. Capitalized terms used in Sections 2 and 3 of this Amendment and not otherwise defined herein or in the TSA shall have the meanings ascribed to them in the Renewal Advisory Agreement. Owner and Owner JV shall have the meanings ascribed to them in the Property Management Agreement.
2.
Acquisition Fees
. Notwithstanding any provisions of the Initial Term Advisory Agreement and the Renewal Advisory Agreement to the contrary, the aggregate amount of Acquisition Fees payable to WREAS II for properties purchased during calendar years 2012 and 2013 combined shall not exceed One
Million Five Hundred Thousand Dollars ($1,500,000). No Acquisition Consulting Fees shall be payable to Wells REF pursuant to the Consulting Services Agreement. The Renewal Advisory Agreement attached as Exhibit D to the TSA is hereby replaced with the form of Renewal Advisory Agreement attached hereto as
Exhibit 1
. The Consulting Services Agreement attached as Exhibit C to the TSA is hereby replaced with the form of Consulting Services Agreement attached hereto as
Exhibit 2
.
3.
Disposition Fees
. Notwithstanding any provisions of the Initial Term Advisory Agreement or Renewal Advisory Agreement to the contrary:
A.
The amount of the Disposition Fee payable to the Advisor with respect to the Portfolio Sale Properties shall be equal to the amount of the broker fee actually paid to Eastdil Secured, L.L.C. (the “
Broker
”) pursuant to the terms of the agreement between the Broker and Wells Management, as agent for the owners of the Properties dated April 19, 2012 (the “
Broker Agreement
”). The Disposition Fee payable to Advisor with respect to the sale of any of the Portfolio Sale Properties shall be paid within five (5) days after the closing of the sale of such Property;
provided
,
however
, if (i) the Broker is not entitled to a broker fee for the sale of any such Property pursuant to the Broker Agreement, the Disposition Fee, if any, shall be determined in accordance with Subsection 3.B hereof and (ii) if the sale of any such Property is pursuant to a purchase agreement entered into after the date of the Option Closing, no Disposition Fee shall be paid. The Portfolio Sale Properties shall mean the ten properties set forth on
Schedule A
to the Broker Agreement. The aggregate amount of Disposition Fees payable pursuant to the Initial Term Advisory Agreement and the Renewal Advisory Agreement (whether paid pursuant to this Subsection 3.A or pursuant to Subsection 3.B hereof) shall not exceed One Million Five Hundred Thousand Dollars ($1,500,000).
B.
The amount of any Disposition Fee payable to the Advisor pursuant to the terms of Section 8(c) of the Initial Term Advisory Agreement and the Renewal Advisory Agreement in connection with the sale of any Property (other than any of the Portfolio Sale Properties to the extent Subsection 3.A hereof applies to such sale) during the term of the Initial Term Advisory Agreement or Renewal Advisory Agreement shall be reduced from 1.0% to the lesser of (i) the fee actually paid by REIT II to a third party broker in connection with the sale and (ii) 0.30% of the sales price of such Property;
provided
,
however
, that the total real estate commissions (including such Disposition Fee) paid to all Persons by REIT II for each Property shall not exceed an amount equal to the lessor of: (i) 6.0% of the aggregate Contract Sales Price of each Property; or (ii) the Competitive Real Estate Commission for each Property. No Disposition Fee shall be payable for the sale of any Property that is sold pursuant to a purchase agreement entered into after the date of the Option Closing.
4.
Property Management Transition Services/Asset Transfer
.
A.
Property Management Transition Services
. Wells REF and Wells Management shall provide REIT II with (a) all services reasonably required to: (i) enable WRES to provide the services set forth in the Property Management Agreement with respect to all Properties owned by Owner or any Owner JV on a stand-alone basis and at a relative level of service consistent with the provisions of the services by Wells REF, Wells Management and their affiliates prior to the Effective Date; (ii) transfer, without any liability to or continuing obligations of WRES, all property management contracts with respect to property not owned by Owner or an Owner JV to another Wells REF affiliate or to a third party; (iii) prepare WRES to function as a wholly-owned subsidiary of REIT II in the event of the exercise of the WRES Assignment Option (as defined in Section 6.A of this Amendment), and to complete the transfer of ownership of WRES to REIT II if the WRES Assignment Option is exercised by REIT II; (iv) provide operational support to REIT II, WREAS II and WRES during the transition of property management functions; and (v) implement such personnel changes as are
required so that WRES has the employees set forth on
Schedule 8(F)
hereof on or before the date of the WRES Option Closing; and (b) such other services as are set forth on
Schedule 4
hereto. All of the foregoing services shall be added to the definition of Services set forth in Section 1.1(a) of the TSA.
B.
Transfer of Assets
. After the Effective Date, but no later than January 1, 2013, Wells REF, Wells Management and REIT II shall enter into the Property Management Asset Transfer Agreement in substantially the form attached hereto as
Exhibit 3
(the “PM Asset Transfer Agreement”). On the terms and subject to the conditions set forth in this Amendment and in the PM Asset Transfer Agreement, Wells REF and Wells Management agree to transfer, assign, convey and deliver to WRES, and WRES will acquire and accept from Wells REF and Wells Management, all of Wells REF's and Wells Management's right, title, and interest in and to all of the assets, properties, proprietary systems, processes, contracts and rights that are necessary for the provision of services under the Property Management Agreement (the “
Property Management Business
”) in substantially the same manner and at substantially the same level of service as such services are being provided as of the Effective Date (collectively, the “
PM Transferred Assets
”), on or before January 1, 2013 (the “
PM Asset Transfer Closing
”). The PM Transferred Assets will be included in the PM Acquired Assets as defined in the PM Asset Transfer Agreement. Notwithstanding the foregoing, if Wells REF and Wells Management are unable to transfer any of the PM Transferred Assets (the “
PM Delayed Assets
”) to WRES on or before January 1, 2013, Wells REF and Wells Management shall proceed with the transfer of all PM Transferred Assets other than the PM Delayed Assets and shall use their commercially reasonable best efforts to effect the transfer of any such PM Delayed Assets as promptly as possible, but in no event later than June 30, 2013. Each of Wells REF, Wells Management and REIT II expressly agree that the failure or inability by Wells REF or Wells Management to timely transfer such PM Delayed Assets by January 1, 2013 shall not be considered a material breach of the TSA entitling REIT II to termination pursuant to Section 1.3(b) of the TSA. With respect to any PM Transferred Asset that is not transferred at the time of the PM Asset Transfer Closing, Wells REF and Wells Management shall continue to support such asset and make it available for use by WRES as is legally practicable or shall continue to provide the services relating to such asset until such time as such PM Transferred Asset is transferred to WRES. The PM Transferred Assets shall be transferred, assigned, conveyed and delivered to WRES free and clear of any Encumbrances.
C.
Assumption of Liabilities
. On the terms and subject to the conditions set forth in this Amendment and the PM Asset Transfer Agreement, at the PM Asset Transfer Closing, WRES will assume and thereafter pay, perform, and discharge when due only those obligations and liabilities of Wells REF related to the operation of the Property Management Business that are incurred from and after the PM Asset Transfer Closing, which obligations are specifically set forth in the PM Asset Transfer Agreement (collectively, the “
PM Assumed Liabilities
”); provided, however, that the Assumed Liabilities Schedule in the PM Asset Transfer Agreement shall be subject to the approval of REIT II. WRES shall not assume or have any responsibility with respect to any other obligations or liabilities of Wells REF or Wells Management. REIT II shall not assume or have any responsibility with respect to any obligation or liability of Wells REF, Wells Management or WRES (except in the event of the exercise of the WRES Assignment Option pursuant to Section 6 hereof to the extent of REIT II's indemnification obligations expressly set forth in the PM Assignment Agreement (as defined in Section 6.A. of this Amendment)).
D.
Transferred Employees
. On or before January 1, 2013, Wells Management will take the actions necessary to cause any of the Property Management Employees (as defined in paragraph 8(F) hereof) who are not employees of WRES to become employees of WRES (
provided
,
however
,
that any long term compensation or incentive plan or any material increase in aggregate cost to WRES entered into subsequent to the Effective Date shall be subject to the prior approval of REIT II). Wells Management will also take the actions necessary to cause any employee of WRES who is not a Property Management Employee to no longer be employed by WRES prior to the WRES Option Closing (as defined in Section 6A hereof). Wells REF and Wells Management shall remain solely responsible for any liability in respect of the Property Management Employees and their beneficiaries and dependents relating to any employment or termination of employment of any Property Management Employees prior to the WRES Option Closing.
5.
Payments
. The Services Fee in Section 5.1(a) of the TSA shall be amended to include additional payments by REIT II to Wells REF of the following: (i) Five Hundred Thousand ($500,000) per month for five (5) months with payments commencing on July 31, 2013 and ending on November 30, 2013; and (ii) Two Hundred Fifty Thousand Dollars ($250,000) to be paid on December 31, 2013. Any attempted termination of the TSA by REIT II, except as provided for in Section 1.3(b) of the TSA, will result in an acceleration of the additional payments set forth in this Section 5.
6.
WRES Assignment Option
.
A.
WRES Assignment Option
. REIT II shall have the option (the “
WRES Assignment Option
”), in its sole discretion, upon delivery of written notice to Wells REF (the “
WRES Option Notice
”) at any time on or after the Option Notice Date (as defined in Section 5.2(a) of the TSA) and before the expiration of the Transition Period, to require Wells REF to transfer, convey and assign to REIT II all of the issued and outstanding equity interests in WRES (the “
WRES Assignment
”). As soon as reasonably practicable, but no later than twenty (20) days following the date of the WRES Option Notice, Wells REF, Wells Management and REIT II shall enter into an Assignment and Assumption Agreement in the form attached hereto as
Exhibit 4
, (the “
PM Assignment Agreement
”) pursuant to which Wells Management will transfer, convey and assign to REIT II all of the issued and outstanding equity interests in WRES (the “
WRES Option Closing
”). It shall be a condition precedent to exercising the WRES Assignment Option that REIT II has either previously, or contemporaneously therewith, (i) exercised the Assignment Option and (ii) executed the Consulting Services Agreement to be effective upon the Option Closing (as defined in the TSA). As of the WRES Option Closing, WRES shall, and Wells REF shall cause WRES to: (i) have no obligations to Wells REF, Wells Management or their affiliates; (ii) have current assets that are not less than current liabilities on an accrual basis; (iii) have no long-term liabilities; and (iv) have no contracts to manage properties not owned by Owner or an Owner JV. Notwithstanding the foregoing, prior to the exercise of the WRES Assignment Option, REIT II may elect, in lieu of exercising the WRES Assignment Option, to have the assets and employees of WRES transferred to a newly formed entity with any additional cost of such transfer being the responsibility of REIT II. The foregoing sentence shall not in any way limit any of REIT II's rights and obligations under this Amendment or the TSA, including, without limitation, any indemnification rights and its payment obligations under Section 5 hereof, respectively.
B.
Prohibition Against Transfers
. During the Transition Period, Wells REF and Wells Management shall not transfer, assign, sell, gift-over, pledge, encumber or otherwise dispose of, or consent to any of the foregoing with respect to, any or all of its interest in and to the outstanding equity interests in WRES, or any right or interest therein and shall not amend or otherwise modify the articles of organization or operating agreement of WRES.
C.
Operation of WRES's Business
. During the Transition Period, unless otherwise consented to in writing by REIT II or as contemplated by this Amendment, Wells REF and Wells Management shall operate the business of WRES in the ordinary course.
D.
Access to Records
. Wells REF and Wells Management shall afford REIT II and its representatives access, during normal business hours and upon reasonable advance notice, to all of WRES's business operations, properties, books, financial statements, files and records, cooperate in the examination thereof and furnish REIT II with all information with respect to the business and affairs of WRES as REIT II may reasonably request;
provided, however,
that any such investigation shall be conducted in a manner as not to interfere unreasonably with the business of Wells REF, Wells Management or WRES.
7.
Investor Services
. Wells REF and REIT II agree that, at the time of the Option Closing, Wells REF and REIT II shall enter into an investor services agreement substantially in the form of the Investor Services Agreement attached hereto as
Exhibit 5
.
8.
Representations and Warranties of Wells REF
. Wells REF and Wells Management each represents and warrants to REIT II as of each of (a) the date hereof, and (b) the date of the WRES Option Closing as follows:
A.
Organization of Wells REF and WREAS II
.
(i)
WRES is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Georgia and has all requisite limited liability company power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. WRES is not in default under any provision of its articles of organization or operating agreement. WRES is duly qualified to do business and is in good standing in each jurisdiction where WRES is required to be so qualified.
(ii)
Wells Management owns all of the equity interests in WRES, free and clear of any Encumbrances. No person or entity has (i) any option, warrant, agreement or other right with respect to any equity or other interest in WRES or (ii) any equity appreciation, phantom equity, profit participation or other similar right for which WRES has any liability. A true and correct copy of the WRES articles of organization and operating agreement as in effect as of the Effective Date has been provided to REIT II.
B.
Authority; Non-Contravention; Approvals
.
(i)
Wells REF, WREAS II, Wells Management and WRES each has all requisite corporate or company power and authority to execute and deliver this Amendment and to perform the transactions contemplated by this Amendment. The execution and delivery of this Amendment and the performance by Wells REF, WREAS II, Wells Management and WRES of the transactions contemplated by this Amendment have been approved by the board of directors and stockholder of Wells REF and Wells Management and the members and managers of WREAS II and WRES and no other corporate or other proceedings on the part of Wells REF, WREAS II, Wells Management or WRES is necessary to authorize the execution and delivery by Wells REF, WREAS II, Wells Management or WRES of this Amendment or the performance by Wells REF, WREAS II, Wells Management or WRES of the transactions contemplated by this Amendment. This Amendment has been duly executed and delivered by each of Wells REF, WREAS II, Wells Management and WRES and constitutes a valid and binding obligation of each of Wells REF, WREAS II, Wells Management
and WRES, enforceable against Wells REF, WREAS II, Wells Management and WRES in accordance with its terms, except as such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally.
(ii)
The execution and delivery by Wells REF, WREAS II, Wells Management and WRES of this Amendment and the performance of the transactions contemplated by this Amendment do not and will not (a) conflict with or result in a breach of any provision of the articles of incorporation, bylaws, articles of organization, operating agreement or comparable organizational documents of Wells REF, WREAS II, Wells Management or WRES; (b) result in a violation or breach of or constitute a default (or an event which, with or without notice or lapse of time or both, would constitute a default) under, or result in the termination, modification or cancellation of, or the loss of a benefit under or accelerate the performance required by, or result in a right of termination, modification, cancellation or acceleration under the terms, conditions or provisions of any contract or other instrument of any kind to which Wells REF, WREAS II, Wells Management or WRES is now a party or by which any of their respective assets or businesses may be bound or affected; or (c) violate any order, writ, judgment, injunction, decree, statute, treaty, rule or regulation applicable to Wells REF, WREAS II, Wells Management or WRES or any of their respective assets or businesses excluding from the foregoing clauses (b) and (c) such violations, breaches, defaults, terminations, modifications, cancellations, losses or accelerations that would not reasonably be expected to have a Material Adverse Effect on any of Wells REF, WREAS II, Wells Management or WRES.
(iii)
No material declaration, filing or registration with, or notice to, or authorization, consent, order or approval of, any governmental authority is required to be obtained or made in connection with or as a result of the execution and delivery of this Amendment by Wells REF, WREAS II, Wells Management or WRES or the performance by Wells REF, WREAS II, Wells Management or WRES of its obligations under this Amendment or the consummation of the transactions contemplated by this Amendment.
“
Material Adverse Effect
” means with respect to Wells REF, WREAS II, WRES or Wells Management, a material adverse effect on the business, contracts, assets, financial condition or results of operations of WRES or Wells Management, respectively, or on the ability of WRES or Wells Management to perform its obligations under this Amendment;
provided
,
however
, that with respect to any person or entity, such provision shall not include any state of facts, development, occurrence, effect, event or change arising out of or resulting from (A) changes in conditions in the United States or global economy or capital or financial markets generally, including changes in interest or exchange rates, (B) changes in general legal, regulatory, political, economic or business conditions or changes in generally accepted accounting principles that, in each case, generally affect industries in which such Persons conduct business or (C) any conditions generally affecting the office and industrial real estate industry, including economic, legal and regulatory changes.
C.
Ownership and Sufficiency of Transferred Assets
. WRES does not own any assets as of the Effective Date. Wells REF or Wells Management has, and as of the WRES Option Closing WRES will have, good title to, or a valid leasehold interest in, all of the PM Transferred Assets; except that with respect to the PM Delayed Assets, WRES will have good title to, or valid interest in, such PM Delayed Assets upon their transfer to WRES. The PM Transferred Assets constitute all of the assets that are material to the Property Management Business and necessary to conducting the Property Management Business in substantially the same manner as is being conducted and such services are being provided as of the date hereof. Except for the PM Delayed Assets, there are no assets other than the PM Transferred Assets that are used by Wells REF, Wells Management, WRES or their affiliates in connection with the Property Management Business. The PM Transferred Assets will
constitute all of the assets necessary for WRES to provide the services currently provided by WRES, Wells Management or Wells REF or their affiliates under the Property Management Agreement to REIT II on a stand alone basis in substantially the same manner and at the same level of service as such services are being provided as of the Effective Date.
D.
Litigation
. Except as set forth in
Disclosure Schedule 8(D)
, there are no lawsuits and no material claims, proceedings, actions, investigations, oppositions, challenges or cancellation proceedings pending or, to the knowledge of either of Wells REF, Wells Management or WRES, threatened against or affecting WRES or relating to or affecting the services currently being provided pursuant to the Property Management Agreement, the Property Management Employees, the Property Management Assets or the PM Transferred Assets. There are no outstanding orders, writs, judgments, decrees, injunctions or settlements that (i) prohibit or restrict the consummation of the transactions contemplated by this Amendment; (ii) would reasonably be expected to have a Material Adverse Effect on the Property Management Business; or (iii) would materially adversely affect the operations, assets or business of WRES.
E.
No Violation of Law
. Each of Wells REF, Wells Management and WRES is not, nor in the past five years has it been, in material default under or in material violation of, nor has it been charged with any material violation of, any Law, relating to or arising in any way out of the operation of the Property Management Business, the Property Management Employees, the Property Management Assets or the PM Transferred Assets. To the knowledge of each of Wells REF, Wells Management and WRES, none of the Property Management Employees is, or in the past five years has been, in default under or in violation of, or has been charged with any violation of, any law (i) where the violation constitutes or could constitute a felony; (ii) involving theft, fraud, dishonesty or other moral turpitude; or (iii) relating to regulation of the securities, commodities or the banking or financial services markets. The Property Management Business has at all times been operated in all material respects in accordance with applicable laws and permits.
F.
Employee Matters
.
(i)
Disclosure Schedule 8(F)
sets forth, as of the date hereof, the name, job title, hire date, annual salary or hourly wages, bonus or commission terms, any severance amounts and benefits and any other material terms of employment of all employees of WRES who are expected to be employees of WRES as of the WRES Option Closing, together with a statement of the form and amount of all remuneration paid or to be paid to each such person for services rendered to or on behalf of WRES during the twelve months prior to the Effective Date (each such employee, together with any new or replacement employees who will be employees of WRES as of the WRES Option Closing, being referred to herein as a “
Property Management Employee
”).
(ii)
Except as set forth on
Disclosure Schedule 8(F)
, neither the execution and delivery of this Amendment, nor the performance of the transactions contemplated thereby, will (either alone or in conjunction with any other event, such as termination of employment) (i) result in any payment (including severance payments, payments under any other agreements or unemployment compensation payments) becoming due from any of Wells REF, Wells Management or WRES to any Property Management Employee or any other person, under any plan or otherwise; (ii) increase any benefits otherwise payable under any plan operated or maintained by or on behalf of Wells REF, Wells Management or WRES; or (iii) result in any acceleration of the time of payment or vesting of any benefits payable by any of Wells REF, Wells Management or WRES to any Property Management Employee. Wells REF shall be responsible for and shall pay any and all severance payments and related obligations with respect to any Wells Management or WRES employee except for employees
included on
Disclosure Schedule 8(F)
as a Property Management Employee and employed by WRES as of the WRES Option Closing. The termination of any Property Management Employee by WRES after the Effective Date, but prior to the WRES Option Closing, will require the consent of REIT II and Wells REF.
G.
Labor Relations
. There is or are no (i) unfair labor practice, charge or complaint or other proceeding pending or, to the knowledge of any of Wells REF, Wells Management or WRES, (A) threatened against any of Wells REF, Wells Management or WRES or (B) threatened against any of Wells REF, Wells Management or WRES and relating in any way to any Property Management Employee or any other employee of WRES; (ii) charges pending against Wells REF, Wells Management or WRES before any federal, state or local agency responsible for the prevention or investigation of unlawful employment practices; or (iii) charges pending against any of Wells REF, Wells Management or WRES before any federal, state or local agency responsible for the prevention or investigation of unlawful employment practices and relating in any way to any Property Management Employee or any other employee of WRES. To the knowledge of each of Wells REF, Wells Management and WRES, each of Wells REF, Wells Management and WRES comply, and at all times in the past, have complied, with all laws respecting employment and employment practices, terms and conditions of employment, and wages and hours, and have not engaged in any unfair labor practice. Neither Wells REF, Wells Management nor WRES is a party to, nor do they have any liability with respect to, any collective bargaining agreement or other labor union contract applicable to the Property Management Employees or to any other Persons providing services to Wells REF, Wells Management or WRES relating to the Property Management Business, nor to the knowledge of Wells REF, Wells Management and WRES, are any activities or proceedings of any labor union or other person to organize any such employees ongoing. There is no labor strike, slowdown, work stoppage or lockout pending or, to the knowledge of any of Wells REF, Wells Management and WRES, threatened against or affecting Wells REF, Wells Management or WRES, nor has there been any such activity since their respective formations. To the extent that any of the foregoing representations and warranties are true as of the Effective Date and Wells REF notifies REIT II in writing of an intervening event that would cause such representation or warranty to not be true as of the WRES Option Closing, then such event shall not be deemed to be a breach of such representation or warranty; provided, however, that Wells REF and Wells Management shall be responsible for any liability arising out of or relating to such intervening event.
H.
Brokers
.
No agent, broker, investment banker, financial advisor or other firm or person is entitled to any brokerage, finder's, financial advisor's or other similar fee or commission for which WRES or REIT II could become liable in connection with the transactions contemplated by this Amendment as a result of any action taken by or on behalf of Wells REF, Wells Management or WRES.
I.
Capabilities
.
Wells REF and Wells Management each has, and will maintain throughout the term of this Amendment, sufficient employees and other resources to perform the Services and otherwise satisfy its obligations under this Amendment.
J.
Real Property
.
WRES has not and does not own any real property. WRES is not a party to any lease agreement pursuant to which WRES leases any real property from a third party.
K.
Contracts
.
Disclosure Schedule 8(K)
contains a list of each agreement, relationship, commitment or arrangement (collectively, “
Material Contracts
”), written or oral, to which WRES is a party or which will be assigned to WRES by Wells REF or Wells Management pursuant to this Amendment and which is:
(i)
an agreement (or group of related agreements) for the lease or installment sales purchase of tangible personal property to or from any person;
(ii)
an agreement concerning a partnership, limited liability company or joint venture;
(iii)
an agreement (or group of related agreements) under which WRES has created, incurred, assumed, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation;
(iv)
an agreement concerning confidentiality, exclusivity, exclusive dealing or noncompetition or otherwise restricting or limiting WRES or the conduct of the Property Management Business;
(v)
an agreement between WRES, on the one hand, and Wells REF or its affiliates, on the other hand;
(vi)
an agreement (including a binding offer letter or similar agreement) for the employment of any individual employed by WRES on a full-time, part-time, consulting, or other basis or providing severance benefits;
(vii)
an agreement with a sales representative or broker or any other agreement requiring the payment of commissions, fees or other compensation to third parties;
(viii)
an agreement under which the consequences of a default or termination could have a Material Adverse Effect on WRES;
(ix)
a license or sublicense of any rights under or with respect to any patents, copyrights, software or other intellectual property, including all Licensed Intellectual Property;
(x)
any other agreement (or group of related agreements) the performance of which involves consideration in excess of $10,000; and
(xi)
any other agreement, contract or commitment outside the ordinary course of business.
Disclosure Schedule 8(K)
also sets forth each Material Contract to which WRES is a party as of the Effective Date that will be terminated or transferred to another Wells REF related entity prior to the WRES Option Closing (each a “
Transferred Contract
”).
With respect to each such Material Contract, (i) the Material Contract is legal, valid, binding, enforceable, and in full force and effect; (ii) the Material Contract (other than the Transferred Contracts) will continue to be legal, valid, binding, enforceable and in full force and effect on the same terms following the consummation of the transactions contemplated hereby; and (iii) no party is in breach or default, and no event has occurred which with notice or passage of time or both would constitute a breach or default, or permit termination, modification, or acceleration, under such Material Contract.
L.
Taxes
. Since the date of its formation, WRES has been wholly-owned by Wells Management and has been disregarded as an entity separate from its owner for federal income tax purposes pursuant to Treasury Regulations section 301.7701-3(b)(1)(ii) and neither Wells REF, Wells
Management nor any governmental or regulatory authority has taken a position inconsistent with such treatment. WRES (or Wells Management with respect to WRES) has duly and timely filed all Tax Returns required to be filed by it, and all such Tax Returns were correct and complete in all material respects. All Taxes due and owing by WRES (whether or not shown on any Tax Returns) have been paid. All Taxes due and owing (whether or not shown on any Tax Returns), which, if unpaid, may result in a Lien (as defined in the Property Management Asset Transfer Agreement) on the Property Management Assets or the PM Transferred Assets have been paid. For purposes of this Amendment: (i) “
Tax
” or “
Taxes
” means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including Taxes under Section 59A of the Code), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other Tax of any kind whatsoever, whether computed on a separate or consolidated, unitary or combined basis or in any other manner, including any interest, penalty, or addition thereto, whether disputed or not, and including any obligation to indemnify or otherwise assume or succeed to the Tax liability of any other Person; and (ii) “
Tax Return
” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
M.
Intellectual Property
.
Wells REF, Wells Management and WRES own, or have the right to use pursuant to valid and effective agreements, all Intellectual Property. No claims or demands are pending against Wells REF, Wells Management or WRES by any person with respect to the use of any Intellectual Property or challenging or questioning the validity or effectiveness of any license or agreement relating to the same, and the current use by Wells REF, Wells Management or WRES of the Intellectual Property does not to any of Wells REF's, Wells Management's or WRES's knowledge infringe on the rights of any third party. Wells REF, Wells Management and WRES are not in default under any agreement or license with respect to any Licensed Intellectual Property. “
Proprietary Intellectual Property
” means all patents, trademarks, trade names, copyrights, software, technology and process (including all federal, state and foreign registrations pertaining thereto) and all copyright registrations owned by Wells REF, Wells Management or WRES as of the date hereof and used or held for use in conducting Property Management Business. “
Licensed Intellectual Property
” means all patents, trademarks, trade names, copyrights, software, technology and processes used or held for use by Wells REF, Wells Management or WRES as of the date hereof in conducting the Property Management Business that are used pursuant to a license or other right granted by a third party. “
Intellectual Property
” means both Proprietary Intellectual Property and Licensed Intellectual Property.
N.
Insurance
. Wells REF and Wells Management maintain insurance policies for the benefit of WRES and the Property Management Business (the “
Insurance Policies
”). The Insurance Policies are in full force and effect, provide coverage that is commercially reasonable to insure WRES and the Property Management Business in accordance with industry practices and all premiums due thereon have been paid in full in a timely manner. Wells REF, Wells Management and WRES have complied in all material respects with the terms and provisions of the Insurance Policies. Except as set forth on
Disclosure Schedule 8(N)
, there are no claims pending or, to the knowledge of Wells REF, Wells Management or WRES threatened, under any of the Insurance Policies in respect of the Property Management Business and no disputes with underwriters are pending or, to the knowledge of Wells REF, Wells Management or WRES, threatened. Wells REF, Wells Management and WRES have been covered at all times during their ownership and operation of the Property Management
Assets, PM Transferred Assets and the Property Management Business by insurance in scope and amount customary and reasonably consistent with industry practice.
O.
Employee Benefits
.
(i)
Disclosure Schedule 8(O)
lists each Employee Benefit Plan that Wells REF, Wells Management or WRES maintains and contributes to on behalf of Wells REF, Wells Management or WRES employees performing services with respect to the Property Management Business, or with respect to which Wells REF, Wells Management or WRES has any liability with respect to the Property Management Business.
(1)
Each such Employee Benefit Plan (and each related trust, insurance contract or fund) has been maintained, funded and administered in accordance with the terms of such Employee Benefit Plan and complies in form and in operation in all respects with the applicable requirements of ERISA, and the Internal Revenue Code, except where the failure to comply would not have a Material Adverse Effect.
(2)
All contributions (including all employer contributions and employee salary reduction contributions) that are due have been made to each such Employee Benefit Plan that is an Employee Pension Benefit Plan. All premiums or other payments that are due have been paid with respect to each such Employee Benefit Plan that is an Employee Welfare Benefit Plan.
(3)
Each such Employee Benefit Plan that is intended to meet the requirements of a “qualified plan” under Internal Revenue Code Section 401(a) has received a determination letter from the Internal Revenue Service to the effect that it meets the requirements of Internal Revenue Code Section 401(a).
(ii)
Wells REF, Wells Management and WRES do not sponsor or contribute to any Employee Pension Benefit Plan that is a “defined benefit plan” (as defined in ERISA § 3(35)).
9.
Representations and Warranties of REIT II
.
A.
Organization and Qualification
.
REIT II is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland. REIT II has all requisite corporate power and authority to own, license, use or lease and operate its assets and properties and to carry on its business as it is now conducted.
B.
Authority; Non-Contravention; Approvals
.
(i)
REIT II has all requisite corporate power and authority to execute and deliver this Amendment and to perform the transactions contemplated by this Amendment. The execution and delivery of this Amendment and the performance by REIT II of the transactions contemplated by this Amendment have been approved by the board of directors of REIT II. No other corporate proceeding on the part of REIT II is necessary to authorize the execution and delivery of this Amendment or the performance by REIT II of the transactions contemplated by this Amendment. This Amendment has been duly executed and delivered by REIT II and, assuming the due authorization, execution and delivery of this Amendment by Wells REF and each of the other parties hereto, this Amendment constitutes valid and binding obligations of REIT II enforceable against REIT II in accordance with its respective terms, except that such enforcement may be subject to
(i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement or creditors' rights generally; and (ii) general equitable principles.
(ii)
The execution and delivery by REIT II of this Amendment and the performance of the transactions contemplated by this Amendment will not (i) conflict with or result in a breach of any provisions of the articles of incorporation or bylaws of REIT II; or (ii) violate any order, writ, judgment, injunction, decree, statute, treaty, rule or regulation applicable to REIT II, excluding such violations that would not reasonably be expected to have a Material Adverse Effect on REIT II.
(iii)
No declaration, filing or registration with, or notice to, or authorization, consent, order or approval of, any governmental authority is required to be obtained or made in connection with or as a result of the execution and delivery of this Amendment by REIT II or the performance by REIT II of the transactions contemplated by this Amendment or the consummation of the transactions contemplated by this Amendment, other than the filing with the Securities Exchange Commission of any reports or filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
10.
Indemnification
.
A.
Subject to any limitations imposed by the laws of the State of Maryland or REIT II's Amended and Restated Corporate Governance Guidelines in effect as of the Effective Date, REIT II shall indemnify Wells REF, Wells Management and WRES, and each of them, and shall hold each of Wells REF, Wells Management and WRES harmless against, any loss, damage, cost or expense (including reasonable attorneys' fees) (collectively, “
Losses
”) which either of Wells REF, Wells Management or WRES may sustain or incur by reason of any claim, demand, suit or recovery by any third party allegedly (i) arising out of or relating to the breach of any representation, warranty or covenant of REIT II in this Amendment or (ii) arising out of either of Wells REF's, Wells Management's or WRES's performance of the services in this Amendment or either of Wells REF's, Wells Management's or WREAS II's acts or omissions in connection with its performance of the services in this Amendment, except in cases where the claim arises out of either of Wells REF's, Wells Management's or WRES's bad faith, gross negligence or willful misconduct in performing the services hereunder or the breach by Wells REF, Wells Management or WRES of their obligations under this Amendment;
provided
,
however
, that REIT II shall have no obligation to indemnify Wells REF, Wells Management or WRES for any claim by any current or former employee relating to Wells REF or Wells Management complying with their obligations under this Amendment.
B.
Wells REF and Wells Management shall indemnify and shall hold REIT II harmless against any Losses which REIT II or WRES may sustain or incur by reason of any claim, demand, suit or recovery by any third party allegedly (i) arising out of or relating to the breach by Wells REF or Wells Management of any representation, warranty or covenant in this Amendment or (ii) arising out of Wells REF's, Wells Management's or WRES's bad faith, gross negligence or willful misconduct in performing the services in this Amendment or the breach by Wells REF, Wells Management or WRES of their obligations under this Amendment.
11.
Miscellaneous
.
A.
Effect on TSA
. Except as otherwise specifically set forth herein, the terms of the TSA remain in full force and effect.
B.
Survival of Obligations
. The obligations of the parties pursuant to this Amendment shall survive the expiration of the TSA.
C.
Title and Headings
. Titles and headings to sections herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Amendment.
D.
Execution in Counterparts
. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
E.
Governing Law
. This Amendment shall be governed by and construed and enforced in accordance with the laws of the State of Georgia, without regard to the conflicts of law principles of such State. The parties hereto consent and submit to the exclusive jurisdiction of the courts (state and federal) located in the State of Georgia in connection with any controversy arising under this Agreement or its subject matter. The parties hereby waive any objection they may have in any such action based on lack of personal jurisdiction, improper venue or inconvenient forum.
[Signature Page Follows.]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Transition Services Agreement as of the
28th
day of
December, 2012
.
WELLS REAL ESTATE FUNDS, INC.
By:
/s/ Robert Kennedy
Name: Robert Kennedy
Title: Vice President
WELLS REAL ESTATE ADVISORY SERVICES II, LLC
By:
/s/ E. Nelson Mills
Name: E. Nelson Mills
Title: President
WELLS REAL ESTATE SERVICES, LLC
By:
/s/ Robert M. McCullough
Name: Robert M. McCullough
Title: Vice President
WELLS MANAGEMENT COMPANY, INC.
By:
/s/ Douglas P. Williams
Name: Douglas P. Williams
Title: Vice President
WELLS REAL ESTATE INVESTMENT TRUST II, INC.
By:
/s/ George W. Sands
Name: George W. Sands
Title: Authorized Signatory
Amendment to Transition Services Agreement Signature Page
Exhibit 1 to the Amendment to Transition Services Agreement
Exhibit D
RENEWAL ADVISORY AGREEMENT
THIS RENEWAL ADVISORY AGREEMENT, effective as of January 1, 2013 (the “Agreement”), is between WELLS REAL ESTATE INVESTMENT TRUST II, INC., a Maryland corporation (the “Company”), and WELLS REAL ESTATE ADVISORY SERVICES II, LLC, a Georgia limited liability corporation (the “Advisor”).
W I T N E S S E T H
WHEREAS, the Company desires to avail itself of the experience, sources of information, advice, assistance and certain facilities available to the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of, the Board of Directors of the Company all as provided herein;
WHEREAS, the Advisor is willing to undertake to render such services, subject to the supervision of the Board of Directors, on the terms and conditions hereinafter set forth;
WHEREAS, the Company and the Advisor were previously parties to an advisory agreement that became effective April 1, 2012, covering the period from April 1, 2012 through June 30, 2012 (the “April Advisory Agreement”);
WHEREAS, on June 29, 2012, the Company and the Advisor entered into an initial term advisory agreement effective as of July 1, 2012, covering the period from July 1, 2012 through December 31, 2012 (the “Initial Term Advisory Agreement”);
WHEREAS, the Company and Wells Real Estate Funds, Inc. (“Wells REF”) have entered into an Investor Services Agreement dated June 29, 2012 and effective as of July 1, 2012 (the “Investor Services Agreement”);
WHEREAS, the Company and Wells Management Company, Inc. have entered into a Master Property Management, Leasing and Construction Management Agreement effective as of July 1, 2012 (the “Master Property Management, Leasing and Construction Management Agreement”);
WHEREAS, the Board of Directors and the Advisor now desire to enter this new advisory agreement between the Company and the Advisor to be effective upon the expiration of the Initial Term Advisory Agreement, with this new advisory agreement covering the period from January 1, 2013, through December 31, 2013 (as specified in Paragraph 14);
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:
1.
Definitions
.
As used in this Agreement, the following terms have the definitions hereinafter indicated:
Acquisition Expenses
. Any and all expenses, excluding the fee payable to the Advisor pursuant to Paragraph 8(b), incurred by the Company, the Advisor, or any Affiliate of either in connection with the selection, acquisition or development of any Property, whether or not acquired, including, without limitation, legal fees and expenses, travel and communications expenses, costs of appraisals, nonrefundable option payments on property not acquired, accounting fees and expenses, and title insurance premiums.
Acquisition Fees
. Any and all fees and commissions, exclusive of Acquisition Expenses, paid by any Person to any other Person (including any fees or commissions paid by or to any Affiliate of the Company or the Advisor) in connection with purchase, development or construction of any Property. Included in the computation of such fees or commissions shall be any real estate commissions, acquisition fees, finder's fees, selection fees, Development Fees, Construction Fees, nonrecurring management fees, loan fees, points, or any other fees or commissions of a similar nature. Excluded shall be Development Fees and Construction Fees paid to Persons not Affiliated with the Advisor in connection with the actual development and construction of a Property.
Adjusted Cost
. (A) As of any date of determination and until such time as the Company completes an Asset-based Valuation, the sum of: (a) the actual amount invested on behalf of the Company in the Properties as of the date of determination;
plus
(b) (1) with respect to Joint Ventures, the actual amount invested on behalf of the Company in the Joint Ventures as of the date of determination,
plus
(2) the Company's allocable share of capital improvements relating to building improvements and/or initial leaseup of space in the building (such improvements to exclude any expenditures of capital for normal building improvement, maintenance and repair and tenant improvements relating to existing leases or lease renewals) made by the Joint Venture from cash flows generated by the Joint Venture;
less
(c) the amounts invested in Properties or Joint Ventures relating to Vacant Properties plus any additions to Adjusted Cost related to such Joint Ventures pursuant clause (b)(2) above;
less
(d) any amounts recognized on the Company's consolidated financial statements on or before such date of determination as impairments to the carrying value of the Properties or Joint Venture investments in accordance with Generally Accepted Accounting Principles, excluding any temporary impairments or impairment charges related to Vacant Properties for which the amount invested has been deducted from the foregoing calculation. In all cases, “Adjusted Cost” excludes the Lindbergh/Energy Center Adjusted Cost.
(B) On and after such time as the Company completes an Asset-based Valuation, “Adjusted Cost” means, as of any date of determination, the lesser of (1) the amount determined in accordance with Paragraph (A) above, or (2) the aggregate value of the Company's interest in the Properties and Joint Ventures as established in connection with the most recent Asset-based Valuation,
plus,
with respect to any Properties purchased or Joint Ventures entered into after the date of the most recent Asset-based Valuation, the adjusted cost for such Properties or Joint Ventures determined in accordance with Paragraph (A) above; until such time as the next Asset-based Valuation by the Company, at which time the Adjusted Cost of such properties will be determined in accordance with Paragraph (A) above .
In all cases, “Adjusted Cost” excludes the Lindbergh/Energy Center Adjusted Cost.
Advisor
. Wells Real Estate Advisory Services II, LLC, a Georgia limited liability corporation, any successor advisor to the Company, or any Person(s) to which Wells Real Estate Advisory Services II, LLC or any successor advisor subcontracts substantially all of its functions.
Affiliate or Affiliated
. An Affiliate of another Person includes only the following: (i) any Person directly or indirectly controlling, controlled by, or under common control with such other Person; (ii) any Person directly or indirectly owning, controlling, or holding with the power to vote 10% or more of the outstanding voting securities of such other Person; (iii) any legal entity for which such Person acts as an executive officer, director, trustee, or general partner; (iv) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person; and (v) any executive officer, director, trustee, or general partner of such other Person. An entity shall not be deemed to control or be under common control with an Advisor-sponsored program unless (i) the entity owns 10% or more of the voting equity interests of such program or (ii) a majority of the board (or equivalent governing body) of such program is comprised of Affiliates of the entity.
Appraised Value
. The “As Is” fair market value according to an appraisal made by an Independent Appraiser.
April Advisory Agreement.
The agreement between the Advisor and the Company that became effective April 1, 2012, covering the period from April 1, 2012 through June 30, 2012.
Articles of Incorporation
. The Articles of Incorporation of the Company under Title 2 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time.
Asset-based Valuation
. An estimate of the value of a share of the Company's common stock approved by the Board of Directors of the Company and based in part on an estimate of the value of the Company's assets (as opposed to an estimate based solely on the most recent price paid for a share of the Company's common stock in an offering of such shares).
Asset Management Fee
. The Asset Management Fee payable to the Advisor as defined in Paragraph 8(a).
Asset Management Fee Ceiling
. The ceiling on the Asset Management Fee as defined in Paragraph 8(a).
Asset Management Fee Percentage
. The Asset Management Fee Percentage equals (1) 0.625%, until the monthly payment of the Asset Management Fee under this Agreement equals $2,708,333.33; (2) thereafter, the Fixed Fee Percentage for so long as the sum of Adjusted Cost plus the Lindbergh/Energy Center Adjusted Cost, as of any date of determination, is less than $6,500,000,000; and (3) 0.50% commencing when the sum of Adjusted Cost plus the Lindbergh/Energy Center Adjusted Cost, as of any date of determination, is at least $6,500,000,000.
Average Invested Assets
. For a specified period, the average of the aggregate book value of the assets of the Company invested, directly or indirectly, in Properties and Loans secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such period.
Board of Directors or Board
. The persons holding such office, as of any particular time, under the Articles of Incorporation of the Company, whether they be the Directors named therein or additional or successor Directors.
Bulk Liquidation
. A liquidation of all or substantially all of the Company's assets effected in a transaction or series of transactions with three or fewer buyers or their Affiliates that are closed in a period of 12 months or less.
Bylaws
. The bylaws of the Company, as the same are in effect from time to time.
Capped O&O Expenses
. All Organizational and Offering Expenses other than selling commissions and the dealer manager fee as described under “Plan of Distribution” in any registration statement relating to a public offering and filed with the U.S. Securities and Exchange Commission.
Cash from Financings
. Net cash proceeds realized by the Company from the financing of Property or from the refinancing of any Company indebtedness.
Cash from Sales
. Net cash proceeds realized by the Company from the sale, exchange or other disposition of any of its assets after deduction of all expenses incurred in connection therewith. Cash from Sales shall not include Cash from Financings.
Cash from Sales and Financings
. The total sum of Cash from Sales and Cash from Financings.
Ceiling Excess
. The extent to which the sum of the three previous monthly Asset Management Fee payments exceeds the Asset Management Fee Ceiling, as defined in Paragraph 8(a).
Code
. Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean such provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable regulations as in effect from time to time.
Company
. Wells Real Estate Investment Trust II, Inc., a corporation organized under the laws of the State of Maryland.
Competitive Real Estate Commission
. A real estate or brokerage commission for the purchase or sale of property which is reasonable, customary, and competitive in light of the size, type, and location of the property.
Conflicts Committee
. “Conflicts Committee” shall have the meaning set forth in the Articles of Incorporation.
Construction Fee
. A fee or other remuneration for acting as general contractor and/or construction manager to construct improvements, supervise and coordinate projects or to provide major repairs or rehabilitation on a Property.
Contract Sales Price
. The total consideration received by the Company for the sale of a Property.
Cumulative Return
. For the period for which the calculation is being made, the percentage resulting from dividing (A) the total Distributions paid on each Distribution date during such period (excluding Distributions paid out of Cash from Sales and Financings), by (B) the product of (i) the weighted average Invested Capital for such period (calculated on a daily basis) and (ii) the number of years (including fractions thereof) which have elapsed during such period.
Development Fee
. A fee for the packaging of a Property, including negotiating and approving plans, and undertaking to assist in obtaining zoning and necessary variances and necessary financing for the Property, either initially or at a later date.
Director
. A member of the Board of Directors of the Company.
Disposition Fee
. The Disposition Fee as defined in Paragraph 8(c).
Distributions
. Any distributions of money or other property by the Company to owners of Shares, including distributions that may constitute a return of capital for federal income tax purposes.
Fixed Fee Percentage
. The Fixed Fee Percentage equals the quotient of (A) (x) $32,500,000, less (y) the product of (1) 0.50% times (2) the Lindbergh/Energy Center Adjusted Cost; divided by (B) the Adjusted Cost.
Gross Proceeds
. The aggregate purchase price of all Shares sold for the account of the Company through an Offering, without deduction for Organization and Offering Expenses.
Guaranteed Obligations
. The Guaranteed Obligations as defined in Paragraph 30.
Guarantor
. The Guarantor as defined in Paragraph 30.
Independent Appraiser
. A person or entity with no material current or prior business or personal relationship with the Advisor or the Directors, who is engaged to a substantial extent in the business of rendering opinions regarding the value of assets of the type held by the Company, and who is a qualified appraiser of real estate as determined by the Board. Membership in a nationally recognized appraisal society such as the American Institute of Real Estate Appraisers (“M.A.I.”) or the Society of Real Estate Appraisers (“S.R.E.A.”) shall be conclusive evidence of such qualification.
Invested Capital
. The amount calculated by multiplying the total number of Shares purchased by stockholders by the issue price, reduced by the portion of any Distribution that is attributable to Net Sales Proceeds and by any amounts paid by the Company to repurchase Shares pursuant to the Company's plan for redemption of Shares.
Investor Services Agreement.
The investor services agreement between Wells Real Estate Funds, Inc. and the Company dated as of June 29, 2012 and effective as of July 1, 2012, and any successor agreement.
Joint Venture
. Any joint venture, limited liability company or other Affiliate of the Company that owns, in whole or in part on behalf of the Company, any Properties.
Lindbergh/Energy Center Adjusted Cost
. (A) As of any date of determination and until such time as the Company completes an Asset-based Valuation, the actual amount, if any, invested in the two Properties commonly known as AT&T Lindbergh Center and in one Property commonly known as Energy Center I for so long as such Properties are owned on behalf of the Company less any amounts recognized on or before such date of determination as impairments to the carrying value of AT&T Lindbergh Center and Energy Center I in accordance with Generally Accepted Accounting Principles. In all cases, the Lindbergh/Energy Center Adjusted Cost shall be reduced as appropriate if either the AT&T Lindbergh Center (treated as one Property) or Energy Center I is considered a Vacant Property, as defined herein.
(B) On or after such time as the Company completes an Asset-based Valuation, “Lindbergh/Energy Center Adjusted Cost” means, as of any date of determination, the lesser of (1) the amount determined in accordance with Paragraph (A) above, or (2) the value of the Company's interest in the AT&T Lindbergh Center and in Energy Center I as established in connection with the Company's most recent Asset-based Valuation. In all cases, the Lindbergh/Energy Center Adjusted Cost shall be reduced as appropriate if either
the AT&T Lindbergh Center (treated as one Property) or Energy Center I is considered a Vacant Property, as defined herein.
Listing
. The listing of the Shares on a national securities exchange or over-the-counter market.
Master Property Management, Leasing and Construction Management Agreement.
The agreement by and between Wells Management Company, Inc., the Company and the Partnership effective as of July 1, 2012, and any successor agreement.
NASAA Guidelines
. The NASAA Statement of Policy Regarding Real Estate Investment Trusts as in effect on the date hereof.
Net Asset Value
. The excess of (i) the aggregate of the Adjusted Cost plus the Lindbergh/Energy Center Adjusted Cost over (ii) the aggregate outstanding amount of debt of the Company, the Partnership, and the Joint Ventures (as adjusted for the Company's interest in such Joint Ventures) and any accrued interest thereon.
Net Income
. For any period, the total revenues applicable to such period, less the total expenses applicable to such period excluding additions to reserves for depreciation, bad debts or other similar non-cash reserves; provided, however, Net Income for purposes of calculating total allowable Operating Expenses (as defined herein) shall exclude the gain from the sale of the Company's assets.
Net Sales Proceeds
. In the case of a transaction described in clause (i) (A) of the definition of Sale, the proceeds of any such transaction less the amount of all real estate commissions and closing costs paid by the Company. In the case of a transaction described in clause (i) (B) of such definition, Net Sales Proceeds means the proceeds of any such transaction less the amount of any legal and other selling expenses incurred in connection with such transaction. In the case of a transaction described in clause (i) (C) of such definition, Net Sales Proceeds means the proceeds of any such transaction actually distributed to the Company from the joint venture. In the case of a transaction described in clause (ii) of the definition of Sale, Net Sales Proceeds means the proceeds of such transaction or series of transactions less all amounts generated thereby and reinvested in one or more Properties within 180 days thereafter and less the amount of any real estate commissions, closing costs, and legal and other selling expenses incurred by or allocated to the Company in connection with such transaction or series of transactions. Net Sales Proceeds shall not include any reserves established by the Company in its sole discretion.
Offering
. Any offering of Shares that is registered with the SEC, excluding Shares offered under any employee benefit plan.
Operating Expenses
. All costs and expenses incurred by the Company, as determined under generally accepted accounting principles, which in any way are related to the operation of the Company or to Company business, including fees paid to the Advisor, but excluding (i) the expenses of raising capital such as Organization and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and tax incurred in connection with the issuance, distribution, transfer, registration and Listing of the Shares, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation, amortization and bad loan reserves, (v) incentive fees paid in compliance with Section IV.F. of the NASAA Guidelines and (vi) Acquisition Fees, Acquisition Expenses, real estate commissions on resale of property, and other expenses connected with the acquisition, disposition, and ownership of real estate interests, mortgage loans or other property (such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property).
Organization and Offering Expenses
. All expenses incurred by and to be paid from the assets of the Company in connection with and in preparing the Company for registration of and subsequently offering and distributing its Shares to the public, which may include but are not limited to, total underwriting and brokerage discounts and commissions (including fees of the underwriters' attorneys); expenses for printing, engraving and mailing; salaries of employees while engaged in sales activity; charges of transfer agents, registrars, trustees, escrow holders, depositaries and experts; and expenses of qualification of the sale of the securities under Federal and State laws, including taxes and fees, accountants' and attorneys' fees.
Partnership
. Wells Operating Partnership II, L.P., a Delaware limited partnership formed to own and operate properties on behalf of the Company.
Person
. An individual, corporation, partnership, estate, trust (including a trust qualified under Section 401(a) or 501(c) (17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity, or any government or any agency or political subdivision thereof, and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
Personnel Expenses
. All wages and salaries and other employee-related expenses of all employees of Advisor or its Affiliates to the extent engaged in the management, administration, operations, and marketing of the Company, including taxes, insurance and benefits relating to such employees, including those personnel expenses reimbursable under the Investor Services Agreement and Section 3.2 of the Master Property Management, Leasing and Construction Management Agreement that were previously reimbursed under the April Advisory Agreement, but excluding those personnel expenses reimbursable under Section 3.1 of the Master Property Management, Leasing and Construction Management Agreement and any other agreement between the Company and the Advisor or its Affiliates that is not mentioned herein.
Portfolio G&A Expenses
. Those categories of portfolio general and administrative costs described on Schedule A attached hereto, which include general and administrative costs reimbursable pursuant to this Agreement, the Investor Services Agreement and the Master Property Management, Leasing and Construction Management Agreement plus the personnel expenses related to portfolio-level property management services that are reimbursable pursuant to Section 3.2 of the Master Property Management, Leasing and Construction Management Agreement and were previously reimbursed under the April Advisory Agreement, but excluding costs reimbursable pursuant to any other agreement between the Company and the Advisor or its Affiliates that is not mentioned herein.
Property or Properties
. Any real property or properties transferred or conveyed to the Company or the Partnership, either directly or indirectly.
Property Manager
. Any entity that has been retained to perform and carry out property management services at one or more of the Properties, excluding persons, entities or independent contractors retained or hired to perform facility management or other services or tasks at a particular Property, the costs for which are passed through to and ultimately paid by the tenant at such Property.
REIT
. A “real estate investment trust” under Sections 856 through 860 of the Code.
Sale or Sales
. (i) Any transaction or series of transactions whereby: (A) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, including the transfer of any Property that is the subject of a ground lease, and including any event with respect to any Property which gives rise to a significant amount of insurance proceeds or condemnation
awards; (B) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Company or the Partnership in any joint venture in which it is a co-venturer or partner; or (C) any joint venture in which the Company or the Partnership as a co-venturer or partner sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, including any event with respect to any Property which gives rise to insurance claims or condemnation awards, but (ii) not including any transaction or series of transactions specified in clause (i) (A), (i) (B), or (i) (C) above in which the proceeds of such transaction or series of transactions are reinvested in one or more Properties within 180 days thereafter.
Shares
. The Company's shares of common stock, par value $0.01 per share.
Stockholders
. The registered holders of the Shares.
Stockholders' 8% Return
. As of each date, an aggregate amount equal to an 8% Cumulative Return.
Subordinated Incentive Fee
. The fee payable to the Advisor under certain circumstances if the Shares are listed on a national securities exchange or over-the-counter market as defined in Paragraph 8(e).
Subordinated Performance Fee Due Upon Termination
. Subordinated Performance Fee Due Upon Termination means a fee equal to (1) 10% of the amount, if any, as of the Termination Date by which (a) the sum of (i) the Appraised Value of the Company's Properties; plus, without duplication (ii) the fair market value of the Company's interests in Joint Ventures; plus (iii) the fair market value of any other tangible assets of the Company; less (iv) all liabilities of the Company and the Partnership ; plus (v) total Distributions through the Termination Date; exceeds (b) the sum of Invested Capital, plus Distributions attributable to Net Sales Proceeds, plus total Distributions required to be made to the stockholders in order to pay the Stockholders' 8% Return from inception through the termination date; less (2) any prior payment to the Advisor of a Subordinated Share of Net Sales Proceeds. For the purpose of the foregoing calculations, all asset values and liabilities shall be adjusted to exclude the portion of such amounts allocable to minority interest holders not otherwise considered in the calculation of the value of Joint Ventures.
Subordinated Share of Net Sales Proceeds
. The Subordinated Share of Net Sales Proceeds as defined in Paragraph 8(d).
Termination Date
. The date of termination of the Agreement.
Transition Services Agreement
. The Transition Services Agreement between Wells Real Estate Funds, Inc. and the Company dated as of June 29, 2012 and effective as of July 1, 2012, and any successor agreement.
Vacant Property
. A Property that (i) for over thirty percent (30%) of its leasable square feet does not have third-party tenant leases in place; or (ii) has not collected at least seventy percent (70%) of the Property's total potential rental revenue based upon full occupancy, except if not attaining seventy percent is a result of tenant improvements, concessions or similar leasing incentives contained in leases approved by the Board for (i) the period from acquisition until the applicable measurement date, if less than six months or (ii) for the six months immediately preceding the date of measurement.
2%/25% Guidelines
. The requirement pursuant to the NASAA Guidelines that, in any 12-month period, total Operating Expenses not exceed the greater of 2% of the Company's Average Invested Assets during such 12-month period or 25% of the Company's Net Income over the same 12-month period.
2.
Appointment
.
The Company hereby appoints the Advisor to serve as its advisor and asset manager on the terms and conditions set forth in this Agreement, and the Advisor hereby accepts such appointment.
3.
Duties and Authority of the Advisor
.
The Advisor undertakes to use its reasonable efforts to present to the Company potential investment opportunities to provide a continuing and suitable investment program consistent with (i) the investment objectives and policies of the Company as determined and adopted from time to time by the Board and (ii) the investment allocation method described at Paragraph 11(b) of this Agreement. The services of the Advisor are to be of scope and quality not less than those generally performed by professional asset managers of other similar property portfolios. The Advisor shall make available the full benefit of the judgment, experience and advice of the members of the Advisor's organization and staff with respect to the duties it will perform under this Agreement. To facilitate the Advisor's performance of these undertakings, but subject to the restrictions included in Paragraphs 4 and 7 and to the continuing and exclusive authority of the Board over the management of the Company and the Partnership, the Company hereby delegates to the Advisor the authority to, and the Advisor hereby agrees to, either directly or by engaging an Affiliate:
(a)
serve as the Company's investment and financial advisor and provide research and economic and statistical data in connection with the Company's assets and investment policies;
(b)
provide the daily management of the Company and perform and supervise the various administrative functions reasonably necessary for the management of the Company;
(c)
maintaining the accounting and other record-keeping functions at the Company level; and
(d)
investigate, select, and, on behalf of the Company, engage and conduct business with such Persons as the Advisor deems necessary to the proper performance of its obligations hereunder, including but not limited to consultants, accountants, correspondents, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, banks, builders, developers, property owners, mortgagors, and any and all agents for any of the foregoing, including Affiliates of the Advisor, and Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services, including but not limited to entering into contracts in the name of the Company with any of the foregoing;
(e)
consult with the officers and the Board of the Company and assist the Board in the formulation and implementation of the Company's financial policies, and, as necessary, furnish the Board with advice and recommendations with respect to the making of investments consistent with the investment objectives and policies of the Company and in connection with any borrowings proposed to be undertaken by the Company;
(f)
conduct periodic on-site property visits to some or all (as the Advisor deems reasonably necessary) of the Properties to inspect the physical condition of the Properties and to evaluate the performance of the related Property Manager of its duties;
(g)
review, analyze and comment upon the operating budgets, capital budgets and leasing plans prepared and submitted by each Property Manager and aggregate these property budgets into the Company's overall budget;
(h)
review and analyze on-going financial information pertaining to each Property and the overall portfolio of Properties;
(i)
formulate and oversee the implementation of strategies for the administration, promotion, management, operation, maintenance, improvement, financing and refinancing, marketing, leasing, and disposition of Properties on an overall portfolio basis;
(j)
subject to the provisions of Paragraphs 3(i) and 4 hereof, (i) locate, analyze and select potential investments in Properties, (ii) structure and negotiate the terms and conditions of transactions pursuant to which investment in Properties will be made; (iii) make investments in Properties on behalf of the Company or the Partnership in compliance with the investment objectives and policies of the Company; (iv) arrange for financing and refinancing and make other changes in the asset or capital structure of, and dispose of, reinvest the proceeds from the sale of, or otherwise deal with the investments in, Property; (v) enter into leases and service contracts for Property, including oversight of Affiliated companies that perform property management services for the Company;
(k)
obtain the prior approval of the Board for any and all investments in Properties (as well as any financing acquired by the Company or the Partnership in connection with such investment);
(l)
if a transaction requires approval by the Board of Directors, deliver to the Board of Directors all documents required by them to properly evaluate the proposed investment in the Property;
(m)
negotiate on behalf of the Company with banks or lenders for loans to be made to the Company, and negotiate on behalf of the Company with investment banking firms and broker-dealers or negotiate private sales of Shares and other securities or obtain loans for the Company, but in no event in such a way so that the Advisor shall be acting as broker-dealer or underwriter; and provided, further, that any fees and costs payable to third parties incurred by the Advisor in connection with the foregoing shall be the responsibility of the Company;
(n)
obtain reports (which may be prepared by the Advisor or its Affiliates), where appropriate, concerning the value of investments or contemplated investments of the Company in Properties;
(o)
from time to time, or at any time reasonably requested by the Board, provide information or make reports to the Board related to its performance of services to the Company under this Agreement;
(p)
from time to time, or at any time reasonably requested by the Board, make reports to the Board of the investment opportunities it has presented to other Advisor-sponsored programs or that it has pursued directly or through an Affiliate;
(q)
provide the Company with all necessary cash management services;
(r)
deliver to or maintain on behalf of the Company copies of all appraisals obtained in connection with the investments in Properties;
(s)
notify the Board of all proposed material transactions before they are completed;
(t)
at the direction of Company management, prepare the Company's periodic reports and other filings made under the Securities Exchange Act of 1934, as amended, and the Company's registration statements as well as all related prospectuses, prospectus supplements and supplemental sales literature and assist in connection with the filing of such documents with the appropriate regulatory authorities; and
(u)
do all things necessary to assure its ability to render the services described in this Agreement.
Notwithstanding the foregoing list of duties of the Advisor, the Advisor has no obligation
hereunder to provide the Stockholder and communication services that are the subject of the Investor Services Agreement nor the property management services that are the subject of the Master Property Management, Leasing and Construction Management Agreement, nor any other services provided for pursuant to any other agreements entered into between the Company and the Advisor and its Affiliates not mentioned herein.
4.
Modification or Revocation of Authority of Advisor
.
The Board may, at any time upon the giving of notice to the Advisor, modify or revoke the authority or approvals set forth in Paragraph 3, provided however, that such modification or revocation shall be effective upon receipt by the Advisor and shall not be applicable to investment transactions to which the Advisor has committed the Company prior to the date of receipt by the Advisor of such notification.
5.
Bank Accounts
. The Advisor may establish and maintain one or more bank accounts in its own name for the account of the Company or in the name of the Company and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of the Company, under such terms and conditions as the Board may approve, provided that no funds shall be commingled with the funds of the Advisor; and the Advisor shall from time to time render appropriate accountings of such collections and payments to the Board and to the auditors of the Company.
6.
Records; Access
. The Advisor shall maintain appropriate records of all its activities hereunder and make such records available for inspection by the Board and by counsel, auditors and authorized agents of the Company, at any time or from time to time during normal business hours. The Advisor shall at all reasonable times have access to the books and records of the Company.
7.
Limitations on Activities
. Anything else in this Agreement to the contrary notwithstanding, the Advisor shall refrain from taking any action which, in its sole judgment made in good faith, would (a) adversely affect the status of the Company as a REIT, (b) subject the Company to regulation under the Investment Company Act of 1940, as amended, or (c) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company, its Shares or its other securities, or the Articles of Incorporation or Bylaws, except if such action shall be ordered by the Board, in which case the Advisor shall notify promptly the Board of the Advisor's judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event the Advisor shall have no liability for acting in accordance with the specific instructions of the Board so given. Notwithstanding the foregoing, the Advisor, its directors, officers, employees and stockholders, and stockholders, directors and officers of the Advisor's Affiliates shall not be liable to the Company or to the Board or stockholders for any act or omission by the Advisor, its directors, officers or employees, or stockholders, directors or officers of the Advisor's Affiliates except as provided in Paragraphs 18 and 19 of this Agreement.
8.
Fees
.
(a)
Asset Management Fee
. Subject to the overall limitations contained below in this Paragraph 8(a), commencing
on the date hereof, the Advisor shall be paid for the asset management services included in the services described in Paragraph 3 a monthly fee (the “Asset Management Fee”) in an amount equal to one-twelfth of the sum of (i) the product of the Asset Management Fee Percentage multiplied by the Adjusted Cost calculated on the last day of each preceding month, plus (ii) 0.50% of the Lindbergh/Energy Center Adjusted Cost
as of the last day of
each preceding month.
For purposes of clarity, the Asset Management Fee payment due in January 2013 will be based on December 31, 2012 Adjusted Cost amounts, notwithstanding that December 31, 2012 precedes the effective date of this Agreement
.
Notwithstanding
the foregoing, if this Agreement is in effect for less than a full month, the amount of the Asset Management Fee shall be prorated to account for the percentage of the month in which this Agreement is in effect.
Notwithstanding the foregoing, the aggregate Asset Management Fee payable to the Advisor in any three-month period pursuant to this Paragraph 8(a) shall not exceed 0.25% of the average Net Asset Value during such three-month period, calculated based on Net Asset Value as of the last day of each preceding month during the three-month period (the “Asset Management Fee Ceiling”). To the extent the sum of the three previous monthly asset management fee payments exceeds the Asset Management Fee Ceiling (such amount the “Ceiling Excess”), each next succeeding monthly payment of the Asset Management Fee will be reduced, with the amount by which the Asset Management Fee is reduced to be applied against the Ceiling Excess until the Ceiling Excess is eliminated. In no event, however, will the Advisor be required to make a cash payment on account of any Ceiling Excess.
(b)
Acquisition Fees
. The Advisor shall receive, as compensation for services rendered in connection with the investigation, selection and acquisition (by purchase, investment or exchange) of Properties, Acquisition Fees in an amount equal to 1% of the amount actually paid for the purchase of such Property, inclusive of any debt incurred for the purchase of such Property, but exclusive of Acquisition Fees and Acquisition Expenses incurred in connection with such acquisition. With respect to the acquisition of a Property through any Joint Venture, the Acquisition Fee payable to the Advisor shall equal the product of (x) the Company's percentage equity interest in the Joint Venture and (y) 1% of the amount actually paid by the Joint Venture for the purchase of such Property, inclusive of any debt incurred for the purchase of such Property, but exclusive of Acquisition Fees and Acquisition Expenses incurred in connection with such acquisition. Notwithstanding the foregoing, the aggregate amount of Acquisition Fees payable to the Advisor for the term of this Agreement pursuant to this Paragraph 8(b) shall not exceed the Acquisition Fee Limit. Notwithstanding anything herein to the contrary, the payment of Acquisition Fees by the Company shall also be subject to the limitation provided for in Section 8.7 of the Articles of Incorporation. The Acquisition Fee Limit shall be an amount equal to $1,500,000 less all Acquisition Fees payable to Advisor for Properties acquired during 2012 pursuant to the provisions of the Initial Term Advisory Agreement, the April Advisory Agreement or any predecessor advisory agreement or otherwise. If the Company enters into a definitive agreement for the purchase of a Property for which an Acquisition Fee is otherwise payable hereunder and any due diligence period in such agreement has expired prior to the termination of this Agreement, but the closing of such purchase occurs after the termination of this Agreement and prior to December 31, 2013, then the Advisor shall be entitled to receive such Acquisition Fee subject to the Acquisition Fee Limit and the other conditions hereof.
(c)
Disposition Fee
. If the Advisor or an Affiliate provides a substantial amount of the services (as determined by the Conflicts Committee) in connection with the Sale of one or more Properties, the Advisor or such Affiliate shall receive at closing a Disposition Fee equal to the lesser of (i) the broker fee actually paid to a third party broker in connection with the sale of such Property or Properties or (ii) 0.30% of the sales price of such Property or Properties; provided, however, that no Disposition Fee shall be payable to the Advisor for Property Sales if such Sales involve the Company selling all or substantially all of its Properties in one or more transactions designed to effectuate a business combination transaction or Bulk Liquidation of the Company (as opposed to a Company liquidation not constituting a Bulk Liquidation, in which case the Disposition Fee would be payable if the Advisor or an Affiliate provides a substantial amount of services as provided above). Any Disposition Fee payable under this section may be paid in addition to real estate commissions paid to non-Affiliates, provided that the total real estate commissions (including such Disposition Fee) paid to all Persons by the Company for each Property shall not exceed an amount equal to the lesser of (i) 6.0% of the aggregate Contract Sales Price of each Property, or (ii) the Competitive Real Estate Commission for each Property.
(d)
Subordinated Share of Net Sales Proceeds
. The Subordinated Share of Net Sales Proceeds shall be payable to the Advisor in an amount equal to 10% of Net Sales Proceeds remaining after the Stockholders have received Distributions equal to the sum of (i) the Stockholders' 8% Return, and (ii) 100% of Invested Capital plus Distributions attributable to Net Sales Proceeds. Following Listing, no Subordinated Share of Net Sales Proceeds will be paid to the Advisor.
(e)
Subordinated Incentive Fee
. Upon Listing, the Advisor shall be entitled to the Subordinated Incentive Fee in an amount equal to 10.0% of the amount by which (i) the market value of the outstanding stock of the Company, measured by taking the average closing price or average of bid and asked price, as the case may be, over a period of 30 days during which the Shares are traded, with such period beginning 180 days after Listing (the “Market Value”), plus the total of all Distributions paid to Stockholders from the Company's inception until the date that Market Value is determined, exceeds (ii) the sum of (A) 100% of Invested Capital plus Distributions attributable to Net Sales Proceeds, and (B) the total Distributions required to be paid to the Stockholders in order to pay the Stockholders' 8% Return from inception through the date Market Value is determined. The Company shall have the option to pay such fee in the form of cash, Shares, a promissory note to be negotiated in light of then-existing market conditions or any combination of the foregoing. The Subordinated Incentive Fee will be reduced by the amount of any prior payment to the Advisor of a Subordinated Share of Net Sales Proceeds. In the event the Subordinated Incentive Fee is paid to the Advisor following Listing, no other performance fee or Subordinated Share of Net Sales Proceeds, including the Subordinated Performance Fee Due Upon Termination, will be paid to the Advisor.
(f)
Changes to Fee Structure
. In the event of Listing, the Company and the Advisor shall negotiate in good faith to establish a fee structure appropriate for a perpetual-life entity.
(g)
Fee Credit
. Within 15 days of the end of each month in which this Agreement is in effect, the Advisor shall credit an amount of $166,667 against all earned but unpaid fees owed to the Advisor under this Agreement, which amount represents a reduction in the monthly fees earned by the Advisor pursuant to this Paragraph 8 during the term of this Agreement. Notwithstanding the foregoing, if this Agreement is in effect for less than a full month, the amount credited to the Company shall be prorated to account for the percentage of the month in which this Agreement was in effect.
9.
Expenses
.
(a)
Reimbursable Expenses
. In addition to the compensation paid to the Advisor pursuant to Paragraph 8 hereof, the Company shall pay directly or reimburse the Advisor for all of the expenses paid or incurred by the Advisor (to the extent not reimbursable by another party, such as the dealer manager) in connection with the services it provides to the Company pursuant to this Agreement, including, but not limited to:
(i)
the Organization and Offering Expenses; provided, however, that within 60 days after the end of the month in which an Offering terminates, the Advisor shall reimburse the Company to the extent (i) Capped O&O Expenses borne by the Company exceed 2.0% of the Gross Proceeds raised in a completed offering and (ii) Organization and Offering Expenses borne by the Company exceed 15% of the Gross Proceeds raised in a completed Offering;
(ii)
Acquisition Fees and Acquisition Expenses payable to unaffiliated Persons incurred in connection with the selection and acquisition of Properties;
(iii)
the actual cost of goods and services used by the Company and obtained from entities not affiliated with the Advisor;
(iv)
interest and other costs for borrowed money, including discounts, points and other similar fees;
(v)
taxes and assessments on income or Property and taxes as an expense of doing business;
(vi)
costs associated with insurance required in connection with the business of the Company or by the Board;
(vii)
all expenses in connection with payments to the Board and meetings of the Board;
(viii)
expenses associated with Listing or with the issuance and distribution of securities other than the Shares, such as selling commissions and fees, advertising expenses, taxes, legal and accounting fees, listing and registration fees;
(ix)
expenses of organizing, redomesticating, merging, liquidating or dissolving the Company or of amending the Articles of Incorporation or the Bylaws;
(x)
expenses of preparing the annual report and proxy statements and other reports required by governmental entities;
(xi)
administrative service expenses, including all costs and expenses incurred by Advisor in fulfilling its duties hereunder, such as reasonable wages and salaries (but excluding bonuses) and other employee-related expenses of all employees of Advisor or its Affiliates to the extent engaged in the management, administration, operations, and marketing of the Company, including taxes, insurance and benefits relating to such employees, and legal, travel and other out-of-pocket expenses that are directly related to their services provided hereunder; and
(xii)
audit, accounting and legal fees.
No reimbursement shall be made for costs of personnel of the Advisor or its Affiliates to the extent that such personnel perform services in connection with services for which the Advisor receives the Acquisition Fee or the Disposition Fee.
(b)
Other Services
. Should the Board request that the Advisor or any director, officer or employee thereof render services for the Company other than set forth in Paragraph 3, such services shall be separately compensated at such rates and in such amounts as are agreed by the Advisor and the Conflicts Committee, subject to the limitations contained in the Articles of Incorporation, and shall not be deemed to be services pursuant to the terms of this Agreement.
(c)
Timing of and Limitations on Reimbursements
.
(i)
Expenses incurred by the Advisor on behalf of the Company and payable pursuant to this Paragraph 9 shall be reimbursed no less than monthly to the Advisor. The Advisor shall prepare a statement documenting the expenses of the Company during each quarter, and shall deliver such statement to the Company within 45 days after the end of each quarter.
(ii)
The Company shall not reimburse the Advisor at the end of any fiscal quarter Operating Expenses that, in the four consecutive fiscal quarters then ended (the “Expense Year”), exceed (the “Excess Amount”) the greater of 2% of Average Invested Assets or 25% of Net Income (the “2%/25% Guidelines”) for such year unless the Conflicts Committee determines that such excess was justified, based on unusual and nonrecurring factors which the Conflicts Committee deems sufficient. If the
Conflicts Committee does not approve such excess as being so justified, any Excess Amount paid to the Advisor during a fiscal quarter shall be repaid to the Company. If the Conflicts Committee determines such excess was justified, then within 60 days after the end of any fiscal quarter of the Company for which total reimbursed Operating Expenses for the Expense Year exceed the 2%/25% Guidelines, the Advisor, at the direction of the Conflicts Committee, shall send to the stockholders a written disclosure of such fact, together with an explanation of the factors the Conflicts Committee considered in determining that such excess expenses were justified. The Company will ensure that such determination will be reflected in the minutes of the meetings of the Board of Directors. All figures used in the foregoing computation shall be determined in accordance with generally accepted accounting principles applied on a consistent basis.
(iii)
The Company shall not reimburse the Advisor or its Affiliates for Portfolio G&A Expenses or Personnel Expenses incurred during the term of this Agreement if such reimbursement would cause total reimbursements during the term of this Agreement to exceed $18,167,000 for Portfolio G&A Expenses or $10,000,000 for Personnel Expenses; provided that these caps assume a term of 12 months and shall be prorated as necessary to the extent the term of this Agreement is less than 12 months; provided further that these caps shall not be applicable for unbudgeted expenses deemed by the Conflicts Committee to be justified.
(d)
Occupancy Costs.
The Company shall reimburse the Advisor for occupancy costs at a fixed amount of $21,000 per month. Notwithstanding Paragraph 9(c)(i) above, this amount shall be paid to the Advisor on the first business day of each month in which this agreement is in effect. No other amounts related to the Company's occupancy of space at 6200 The Corners Parkway in Norcross Georgia, such as tenant improvement costs, operating expenses, or common area maintenance, shall be due.
10.
Fidelity Bond
. The Advisor shall maintain a fidelity bond for the benefit of the Company which bond shall insure the Company from losses of up to $10,000,000 and shall be of the type customarily purchased by entities performing services similar to those provided to the Company by the Advisor.
11.
Other Activities of the Advisor
.
(a)
General
. Nothing herein contained shall prevent the Advisor from engaging in other activities, including, without limitation, the rendering of advice to other Persons (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates; nor shall this Agreement limit or restrict the right of any director, officer, employee, or stockholder of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other partnership, corporation, firm, individual, trust or association. The Advisor may, with respect to any investment in which the Company is a participant, also render advice and service to each and every other participant therein. The Advisor shall report to the Board the existence of any condition or circumstance, existing or anticipated, of which it has knowledge, which creates or could create a conflict of interest between the Advisor's obligations to the Company and its obligations to or its interest in any other partnership, corporation, firm, individual, trust or association.
(b)
Policy with Respect to Allocation of Investment Opportunities
. Before the Advisor presents an investment opportunity that would in its judgment be suitable for the Company to another Advisor-sponsored program, the Advisor shall determine in its sole discretion that the investment opportunity is more suitable for such other program than for the Company based on factors such as the following: the investment objectives and criteria of each program; the cash requirements and anticipated cash flow of each program; the size of the investment opportunity; the effect of the acquisition on diversification of each program's investments by type of commercial property,
geographic area and tenant base; the estimated income tax effects of the purchase on each entity; the policies of each program relating to leverage; the funds of each entity available for investment and the length of time such funds have been available for investment; the size of the investment; the credit quality of the tenants; and the existence of special factors, such as whether the property is adjacent to another property owned by a program. In the event that an investment opportunity becomes available that is, in the sole discretion of the Advisor, equally suitable for both the Company and another Advisor-sponsored program, then the Advisor may offer the other program the investment opportunity if it has had the longest period of time elapse since it was offered an investment opportunity. The Advisor will use its reasonable efforts to fairly allocate investment opportunities in accordance with such allocation method and will promptly disclose any material deviation from such policy or the establishment of a new policy, which shall be allowed provided (1) the Board is provided with notice of such policy at least 60 days prior to such policy becoming effective and (2) such policy provides for the reasonable allocation of investment opportunities among such programs. The Advisor shall provide the Conflicts Committee with any information reasonably requested so that the Conflicts Committee can ensure that the allocation of investment opportunities is applied fairly. Nothing herein shall be deemed to prevent the Advisor or an Affiliate from pursuing an investment opportunity directly rather than offering it to the Company or another Advisor-sponsored program so long as the Advisor is fulfilling its obligation to present a continuing and suitable investment program to the Company which is consistent with the investment policies and objectives of the Company.
12.
Relationship of Advisor and Company
. The Company and the Advisor are not partners or joint venturers with each other, and nothing in this Agreement shall be construed to make them such partners or joint venturers or impose any liability as such on either of them.
13.
Representations and Warranties
.
(a)
Of the Company
. To induce the Advisor to enter into this Agreement, the Company hereby represents and warrants that:
(i)
The Company is a corporation, duly organized, validly existing and in good standing under the laws of the State of Maryland with all requisite corporate power and authority and all material licenses, permits and authorizations necessary to carry out the transactions contemplated by this Agreement.
(ii)
The Company's execution, delivery and performance of this Agreement have been duly authorized. This Agreement constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The Company's execution and delivery of this Agreement and its fulfillment of and compliance with the respective terms hereof do not and will not (A) conflict with or result in a breach of the terms, conditions or provisions of, (B) constitute a default under, (C) result in the creation of any lien, security interest, charge or encumbrance upon the assets of the Company pursuant to, (D) give any third party the right to modify, terminate or accelerate any obligation under, (E) result in a violation of or (F) require any authorization, consent, approval, exception or other action by or notice to any court or administrative or governmental body pursuant to, the Articles of Incorporation or Bylaws or any law, statute, rule or regulation to which the Company is subject, or any agreement, instrument, order, judgment or decree by which the Company is bound, in any such case in a manner that would have a material adverse effect on the ability of the Company to perform any of its obligations under this Agreement.
(b)
Of the Advisor
. To induce Company to enter into this Agreement, the Advisor represents and warrants that:
(i)
The Advisor is a corporation, duly organized, validly existing and in good standing under the laws of the State of Georgia with all requisite corporate power and authority and all material licenses, permits and authorizations necessary to carry out the transactions contemplated by this Agreement.
(ii)
The Advisor's execution, delivery and performance of this Agreement have been duly authorized. This Agreement constitutes a valid and binding obligation of the Advisor, enforceable against the Advisor in accordance with its terms. The Advisor's execution and delivery of this Agreement and its fulfillment of and compliance with the respective terms hereof do not and will not (A) conflict with or result in a breach of the terms, conditions or provisions of, (B) constitute a default under, (C) result in the creation of any lien, security interest, charge or encumbrance upon the Advisor's assets pursuant to, (D) give any third party the right to modify, terminate or accelerate any obligation under, (E) result in a violation of or (F) require any authorization, consent, approval, exemption or other action by or notice to any court or administrative or governmental body pursuant to, the Advisor's articles of incorporation or bylaws, or any law, statute, rule or regulation to which the Advisor is subject, or any agreement, instrument, order, judgment or decree by which the Advisor is bound, in any such case in a manner that would have a material adverse effect on the ability of the Advisor to perform any of its obligations under this Agreement.
(iii)
The Advisor has received copies of the (A) Articles of Incorporation, (B) Bylaws, (C) registration statements relating to the Company's past and ongoing public offerings, and (D) the Partnership's limited partnership agreement and is familiar with the terms thereof, including without limitation the investment limitations included therein. Advisor warrants that it will use reasonable care to avoid any act or omission that would conflict with the terms of the foregoing in the absence of the express direction of the Conflicts Committee.
(iv)
The Advisor will maintain the resources necessary to ensure the proper performance of the services to be provided under this Agreement.
14.
Term; Termination of Agreement
. This Agreement shall commence on January 1, 2013, and continue in force through December 31, 2013. This Agreement may be continued for an unlimited number of successive one-year renewals (with caps and limits stated in this Agreement to be adjusted as appropriate) upon mutual consent of the parties. The Company, acting through the Board, will evaluate the performance of the Advisor annually before renewing the Agreement, and each such renewal shall be for a term of no more than one year. Notwithstanding the foregoing, this Agreement shall automatically terminate upon the exercise of the WREAS II Assignment Option (as defined in the Transition Services Agreement).
15.
Termination by Either Party
. This Agreement may be terminated upon 60 days written notice without cause or penalty, by either party (by majority of the Conflicts Committee or a majority of the Board of Directors of the Advisor, as the case may be). The provisions of Paragraphs 1, 6, 7, and 17 through 30 survive termination of this Agreement.
16.
Assignment to an Affiliate
. This Agreement may be assigned by the Advisor to an Affiliate with the approval of a majority of the Conflicts Committee. The Advisor may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board. This Agreement shall not be assigned by the Company without the consent of the Advisor, except in the case of an assignment by the Company to a corporation or other organization which is a successor to all of the assets, rights and
obligations of the Company, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company is bound by this Agreement.
17.
Payments to and Duties of Advisor upon Termination
. Payments to the Advisor pursuant to this Paragraph 17 shall be subject to the 2%/25% Guidelines to the extent applicable.
(a)
After the Termination Date, the Advisor shall not be entitled to compensation for further services hereunder except it shall be entitled to receive from the Company within 30 days after the effective date of such termination the following:
(i)
all unpaid reimbursements of expenses and all earned but unpaid fees payable to the Advisor prior to termination of this Agreement; and
(ii)
the Subordinated Performance Fee Due Upon Termination, provided that no Subordinated Performance Fee Due Upon Termination will be paid if the Company has paid or is obligated to pay the Subordinated Incentive Fee.
(b)
The Advisor shall promptly upon termination:
(i)
pay over to the Company all money collected and held for the account of the Company pursuant to this Agreement, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled;
(ii)
deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;
(iii)
deliver to the Board all assets, including Properties, and documents of the Company then in the custody of the Advisor; and
(iv)
cooperate with the Company to provide an orderly management transition.
18.
Indemnification by the Company
. The Company shall indemnify and hold harmless the Advisor and its Affiliates, including their respective officers, directors, partners and employees (collectively, “Indemnitees”), from all liability, claims, damages or losses arising in the performance of their duties hereunder, and related expenses, including reasonable attorneys' fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance, subject to any limitations imposed by the laws of the State of Maryland or the Articles of Incorporation as in effect on July 1, 2012. Notwithstanding the foregoing, the Indemnitees shall not be entitled to indemnification or be held harmless pursuant to this Paragraph 18 for any activity which the Advisor shall be required to indemnify or hold harmless the Company pursuant to Paragraph 19. Any indemnification of the Indemnitees may be made only out of the net assets of the Company and not from Stockholders.
19.
Indemnification by Advisor
. The Advisor shall indemnify and hold harmless the Company from contract or other liability, claims, damages, taxes or losses and related expenses including attorneys' fees, to the extent that such liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and are incurred by reason of the Advisor's bad faith, fraud, willful misfeasance, misconduct, or reckless disregard of its duties.
20.
Notices
. Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication
is required by the Articles of Incorporation, the Bylaws, or accepted by the party to whom it is given, and shall be given by being delivered by hand or by overnight mail or other overnight delivery service to the addresses set forth herein:
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To the Board and to the Company:
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Wells Real Estate Investment Trust II, Inc.
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6200 The Corners Parkway, Suite 250
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Norcross, Georgia 30092
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To the Advisor:
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Wells Real Estate Advisory Services II, LLC
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6200 The Corners Parkway, Suite 250
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Norcross, Georgia 30092
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Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Paragraph 20.
21.
Modification
. This Agreement shall not be changed, modified, terminated, or discharged, in whole or in part, except by an instrument in writing signed by both parties hereto, or their respective successors or assignees.
22.
Severability
. The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.
23.
Construction
. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Georgia.
24.
Entire Agreement
. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
25.
Indulgences, Not Waivers
. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
26.
Gender
. Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
27.
Titles Not to Affect Interpretation
. The titles of paragraphs and subparagraphs contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.
28.
Execution in Counterparts
. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when the counterparts hereof, taken together, bear the signatures of all of the parties reflected hereon as the signatories.
29.
Name
. Wells Real Estate Funds, Inc. has a proprietary interest in the name “Wells.” Accordingly, and in recognition of this right, if at any time the Company ceases to retain Wells Real Estate Advisory Services II, LLC or an Affiliate thereof to perform the services of Advisor, the Company will, promptly after receipt of written request from Wells Real Estate Funds, Inc., cease to conduct business under or use the name “Wells” or any derivative thereof and the Company shall use its best efforts to change the name of the Company to a name that does not contain the name “Wells” or any other word or words that might, in the sole discretion of the Advisor, be susceptible of indication of some form of relationship between the Company and the Advisor or any Affiliate thereof. Consistent with the foregoing, it is specifically recognized that the Advisor or one or more of its Affiliates has in the past and may in the future organize, sponsor or otherwise permit to exist other investment vehicles (including vehicles for investment in real estate) and financial and service organizations having “Wells” as a part of their name, all without the need for any consent (and without the right to object thereto) by the Company or its Board.
30.
Parent Guarantee
. Wells Real Estate Funds, Inc., a Georgia corporation and the parent company of the Advisor (the “
Guarantor
”), does hereby in all respects guarantee the due and proper performance of the services to be provided and the full and timely payment of the amounts payable under this Agreement by the Advisor, which guarantee shall extend to include any renewal or amendment to this Agreement, provided Guarantor's obligations are not materially increased by such renewal or amendment without the Guarantor's consent, such consent not to be unreasonably withheld. If the Advisor fails to perform all or any of its obligations, duties, undertakings, and covenants to provide services or make payments (collectively, the “
Guaranteed Obligations
”) under this Agreement (unless relieved from the performance of any part of this Agreement by statute, by the decision of a court or tribunal of competent jurisdiction or by written waiver of the Company), upon written notice from the Company, the Guarantor shall perform or cause to be performed such Guaranteed Obligations. The termination of the Advisor shall constitute a termination of this guarantee with respect to the future performance of the Guaranteed Obligations, but no termination of Advisor shall terminate or limit the obligations of the Guarantor under this guarantee arising or accruing prior to such termination of the Advisor. This guarantee will be applicable to and binding upon the successors and assigns of Guarantor. Guarantor joins in this Agreement as a signatory hereto for the purposes set forth in this Paragraph 30.
[Signatures appear on next page.]
IN WITNESS WHEREOF, the parties hereto have executed this Renewal Advisory Agreement as of the __ day of
December, 2012
.
WELLS REAL ESTATE INVESTMENT TRUST II, INC.
By:
Name:
Title:
WELLS REAL ESTATE ADVISORY SERVICES II, LLC
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By:
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WELLS REAL ESTATE FUNDS, INC., its sole member
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By:
Name:
Robert M. McCullough
Title:
Corporate Chief Financial Officer
The undersigned joins in this Advisory Agreement for the purposes set forth in Paragraph 30 hereof.
WELLS REAL ESTATE FUNDS, INC.
By:
Name:
Robert M. McCullough
Title:
Corporate Chief Financial Officer
Schedule A
Portfolio General and Administrative Costs
Portfolio & Asset Management
Call center
Capital Markets
Facilities
FPA, Tax, Treasury, & AP
Internal Audit
Investor Communications/Marketing
Legal/Compliance
Portfolio Accounting & Reporting
Transfer Agent
Exhibit 2 to the Amendment to Transition Services Agreement
Exhibit C
CONSULTING SERVICES AGREEMENT
THIS CONSULTING SERVICES AGREEMENT, dated as of [_____], 2013, is between WELLS REAL ESTATE INVESTMENT TRUST II, INC., a Maryland corporation (the “Company”) and WELLS REAL ESTATE FUNDS, INC., a Georgia corporation ( “Wells REF”).
W I T N E S S E T H
WHEREAS, Wells REF was the parent company of Wells Real Estate Advisory Services II, LLC (“WREAS II”), the former advisor of the Company and, together with its affiliates, provided advisory services to the Company;
WHEREAS, the Company is now self-managed as result of Wells REF assigning its interest in WREAS II to the Company;
WHEREAS, the Company desires to avail itself of the experience, sources of information and advice of Wells REF and to have Wells REF undertake the services hereinafter set forth, at the request and subject to the supervision of the Company all as provided herein;
WHEREAS, Wells REF is willing to undertake to render such services upon the request and subject to the supervision of the Company, on the terms and conditions hereinafter set forth; and
WHEREAS, the Company and WREAS II were parties to a Renewal Advisory Agreement (the “Advisory Agreement”) effective as of January 1, 2013, which agreement has now terminated;
WHEREAS, the parties are party to a Transition Services Agreement (the “Transition Agreement”), dated as of July 1, 2012;
WHEREAS, in connection with the assignment of the ownership interests in WREAS II to the Company, the parties hereto agreed to enter into a consulting services agreement on the terms set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:
1.
Definitions
.
As used in this Consulting Services Agreement (the “Agreement”), the following terms have the definitions hereinafter indicated:
Acquisition Expenses
. As such term is defined in the Articles of Incorporation.
Adjusted Cost
. (A) As of any date of determination and until such time as the Company completes an Asset-based Valuation, the sum of: (a) the actual amount invested on behalf of the Company in the Properties as of the date of determination;
plus
(b) (1) with respect to Joint Ventures, the actual amount invested on behalf of the Company in the Joint Ventures as of the date of determination,
plus
(2) the Company's allocable share of capital improvements relating to building improvements and/or initial leaseup of space in the building (such improvements to exclude any expenditures of capital for normal building improvement, maintenance and repair and tenant improvements relating to existing leases or lease renewals) made by the Joint Venture from cash flows generated by the Joint Venture;
less
(c) the amounts invested in Properties or Joint Ventures relating to Vacant Properties plus any additions to Adjusted Cost related to such Joint Ventures pursuant clause (b)(2) above;
less
(d) any amounts recognized on the Company's consolidated financial statements on or before such date of determination as impairments to the carrying value of the Properties or Joint Venture investments in accordance with Generally Accepted Accounting Principles, excluding any temporary impairments or impairment charges related to Vacant Properties for which the amount invested has been deducted from the foregoing calculation. In all cases, “Adjusted Cost” excludes the Lindbergh/Energy Center Adjusted Cost.
(B) On and after such time as the Company completes an Asset-based Valuation, “Adjusted Cost” means, as of any date of determination, the lesser of (1) the amount determined in accordance with Paragraph (A) above, or (2) the aggregate value of the Company's interest in the Properties and Joint Ventures as established in connection with the most recent Asset-based Valuation,
plus,
with respect to any Properties purchased or Joint Ventures entered into after the date of the most recent Asset-based Valuation, the adjusted cost for such Properties or Joint Ventures determined in accordance with Paragraph (A) above; until such time as the next Asset-based Valuation by the Company, at which time the Adjusted Cost of such properties will be determined in accordance with Paragraph (A) above .
In all cases, “Adjusted Cost” excludes the Lindbergh/Energy Center Adjusted Cost.
Affiliate or Affiliated
. An Affiliate of another Person includes only the following: (i) any Person directly or indirectly controlling, controlled by, or under common control with such other Person; (ii) any Person directly or indirectly owning, controlling, or holding with the power to vote 10% or more of the outstanding voting securities of such other Person; (iii) any legal entity for which such Person acts as an executive officer, director, trustee, or general partner; (iv) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person; and (v) any executive officer, director, trustee, or general partner of such other Person.
AM Consulting Fee
. The AM Consulting Fee payable to WREAS II as defined in Paragraph 4(a).
AM Consulting Fee Ceiling
. The ceiling on the AM Consulting Fee as defined in Paragraph 4(a).
AM Consulting Fee Percentage
. The AM Consulting Fee Percentage equals (1) 0.625%, until the monthly payment of the AM Consulting Fee under this Agreement equals $2,708,333.33; (2) thereafter, the Fixed Fee Percentage for so long as the sum of Adjusted Cost plus the Lindbergh/Energy Center Adjusted Cost, as of any date of determination, is less than $6,500,000,000; and (3) 0.50% commencing when the sum of Adjusted Cost plus the Lindbergh/Energy Center Adjusted Cost, as of any date of determination, is at least $6,500,000,000.
Articles of Incorporation
. The Articles of Incorporation of the Company under Title 2 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time.
Asset-based Valuation
. An estimate of the value of a share of the Company's common stock approved by the Board of Directors of the Company and based in part on an estimate of the value of the Company's assets (as opposed to an estimate based solely on the most recent price paid for a share of the Company's common stock in an offering of such shares).
Average Invested Assets
. For a specified period, the average of the aggregate book value of the assets of the Company invested, directly or indirectly, in Properties and Loans secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such period.
Board of Directors or Board
. The persons holding such office, as of any particular time, under the Articles of Incorporation of the Company, whether they be the Directors named therein or additional or successor Directors.
Bulk Liquidation
. A liquidation of all or substantially all of the Company's assets effected in a transaction or series of transactions with three or fewer buyers or their Affiliates that are closed in a period of 12 months or less.
Bylaws
. The bylaws of the Company, as the same are in effect from time to time.
Cause.
With respect to the termination of this Agreement, (i) fraud, criminal conduct, willful misconduct or (ii) a material breach of this Agreement by Wells REF which remains uncured after 30 days' written notice
Ceiling Excess
. The extent to which the sum of the three previous monthly AM Consulting Fee payments exceeds the AM Consulting Fee Ceiling, as defined in Paragraph 4(a).
Code
. Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean such provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable regulations as in effect from time to time.
Company
. Wells Real Estate Investment Trust II, Inc., a corporation organized under the laws of the State of Maryland.
Competitive Real Estate Commission
. A real estate or brokerage commission for the purchase or sale of property which is reasonable, customary, and competitive in light of the size, type, and location of the property.
Contract Sales Price
. The total consideration received by the Company for the sale of a Property.
Director
. A member of the Board of Directors of the Company.
Fee Acceleration Payment.
The aggregate amount of fees earned by Wells REF in the last full month immediately preceding the Termination Date multiplied by the months in the period between the Termination Date and December 31, 2013.
Fee Acceleration Payment Adjustment.
The difference between (i) the total fees that would be due and payable to Wells REF under this Agreement if the Agreement was in effect for the period from the Termination Date through December 31, 2013 and (ii) the Fee Acceleration Payment.
Fixed Fee Percentage
. The Fixed Fee Percentage equals the quotient of (A) (x) $32,500,000, less (y) the product of (1) 0.50% times (2) the Lindbergh/Energy Center Adjusted Cost; divided by (B) the Adjusted Cost.
Gross Proceeds
. The aggregate purchase price of all Shares sold for the account of the Company through an Offering, without deduction for Organization and Offering Expenses.
Investor Services Agreement.
The investor services agreement between Wells REF and the Company effective as of July 1, 2012, and any successor agreement.
Joint Venture
. Any joint venture, limited liability company or other Affiliate of the Company that owns, in whole or in part on behalf of the Company, any Properties.
Lindbergh/Energy Center Adjusted Cost
. (A) As of any date of determination and until such time as the Company completes an Asset-based Valuation, the actual amount, if any, invested in the two Properties commonly known as AT&T Lindbergh Center and in one Property commonly known as Energy Center I for so long as such Properties are owned on behalf of the Company less any amounts recognized on or before such date of determination as impairments to the carrying value of AT&T Lindbergh Center and Energy Center I in accordance with Generally Accepted Accounting Principles. In all cases, the Lindbergh/Energy Center Adjusted Cost shall be reduced as appropriate if either the AT&T Lindbergh Center (treated as one Property) or Energy Center I is considered a Vacant Property, as defined herein.
(B) On or after such time as the Company completes an Asset-based Valuation, “Lindbergh/Energy Center Adjusted Cost” means, as of any date of determination, the lesser of (1) the amount determined in accordance with Paragraph (A) above, or (2) the value of the Company's interest in the AT&T Lindbergh Center and in Energy Center I as established in connection with the Company's most recent Asset-based Valuation. In all cases, the Lindbergh/Energy Center Adjusted Cost shall be reduced as appropriate if either the AT&T Lindbergh Center (treated as one Property) or Energy Center I is considered a Vacant Property, as defined herein.
Master Property Management, Leasing and Construction Management Agreement.
The agreement by and between Wells Management Company, Inc., the Company and the Partnership dated as of June [__], 2012 and effective as of July 1, 2012, and any successor agreement.
Net Asset Value
. The excess of (i) the aggregate of the Adjusted Cost plus the Lindbergh/Energy Center Adjusted Cost over (ii) the aggregate outstanding amount of debt of the Company, the Partnership, and the Joint Ventures (as adjusted for the Company's interest in such Joint Ventures) and any accrued interest thereon.
Offering
. Any offering of Shares that is registered with the SEC, excluding Shares offered under any employee benefit plan.
Organization and Offering Expenses
. All expenses incurred by and to be paid from the assets of the Company in connection with and in preparing the Company for registration of and subsequently offering and distributing its Shares to the public, which may include but are not limited to, total underwriting and brokerage discounts and commissions (including fees of the underwriters' attorneys); expenses for printing, engraving and mailing; salaries of employees while engaged in sales activity; charges of transfer agents, registrars, trustees, escrow holders, depositaries and experts; and expenses of qualification of the sale of the securities under Federal and State laws, including taxes and fees, accountants' and attorneys' fees.
Partnership
. Wells Operating Partnership II, L.P., a Delaware limited partnership formed to own and operate properties on behalf of the Company.
Person
. An individual, corporation, partnership, estate, trust (including a trust qualified under Section 401(a) or 501(c) (17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity, or any government or any agency or political subdivision thereof, and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
Property or Properties
. Any real property or properties transferred or conveyed to the Company or the Partnership, either directly or indirectly.
Property Manager.
Any entity that has been retained to perform and carry out property management services at one or more of the Properties, excluding persons, entities or independent contractors retained or hired to perform facility management or other services or tasks at a particular Property, the costs for which are passed through to and ultimately paid by the tenant at such Property.
Sale or Sales
. (i) Any transaction or series of transactions whereby: (A) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, including the transfer of any Property that is the subject of a ground lease, and including any event with respect to any Property which gives rise to a significant amount of insurance proceeds or condemnation awards; (B) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Company or the Partnership in any joint venture in which it is a co-venturer or partner; or (C) any joint venture in which the Company or the Partnership as a co-venturer or partner sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, including any event with respect to any Property which gives rise to insurance claims or condemnation awards, but (ii) not including any transaction or series of transactions specified in clause (i) (A), (i) (B), or (i) (C) above in which the proceeds of such transaction or series of transactions are reinvested in one or more Properties within 180 days thereafter.
Shares
. The Company's shares of common stock, par value $0.01 per share.
Termination Date
. The date of termination of the Agreement.
Vacant Property
. A Property that (i) for over thirty percent (30%) of its leasable square feet does not have third-party tenant leases in place; or (ii) has not collected at least seventy percent (70%) of the Property's total potential rental revenue based upon full occupancy, except if not attaining seventy percent is a result of tenant improvements, concessions or similar leasing incentives contained in leases approved by the Board for (i) the period from acquisition until the applicable measurement date, if less than six months or (ii) for the six months immediately preceding the date of measurement.
2.
Appointment
.
The Company hereby retains Wells REF to provide consulting services to it on the terms and conditions set forth in this Agreement, and Wells REF hereby accepts such appointment. The Company agrees that this appointment does not render Wells REF to be the Advisor (as that term is defined in the Articles of Incorporation) to the Company because, among other reasons, the Company's employees are the persons responsible for directing and performing the day-to-day business affairs of the Company.
3.
Duties of Wells REF
.
As requested by the Company and under the supervision of the employees of the Company, Wells REF, either directly or by engaging an Affiliate, shall provide consulting and support services to the Company including:
(a)
consulting in connection with the Company's efforts to identify potential investment opportunities consistent with the investment objectives and policies of the Company;
(b)
consulting with respect to various administrative functions of the Company;
(c)
assisting with the maintenance of the accounting and other record-keeping functions at the Company level, including assisting with the Company's compliance with its obligations under applicable securities laws;
(d)
consulting with respect to financings, leases and other contracts;
(e)
providing reports concerning the value of investments or contemplated investments of the Company in Properties;
(f)
consulting with respect to the strategies for the administration, promotion, management, operation, maintenance, improvement, financing and refinancing, marketing, leasing, and disposition of Properties on an overall portfolio basis.
Notwithstanding the foregoing list of duties of Wells REF, Wells REF has no obligation hereunder to provide the Stockholder and communication services that are the subject of the Investor Services Agreement nor the property management services that are the subject of the Master Property Management, Leasing and Construction Management Agreement, nor any other services provided for pursuant to any other agreements entered into between the Company and Wells REF and its Affiliates not mentioned herein.
4.
Fees
.
(a)
AM Consulting Fee
. Subject to the overall limitations contained below in this Paragraph 4(a), commencing on the date hereof, Wells REF shall be paid as compensation for the consultation services rendered to the Company hereunder a monthly fee (the “AM Consulting Fee”) in an amount equal to one-twelfth of
the sum of (i) the product of the AM Consulting Fee Percentage multiplied by
the Adjusted Cost calculated on the last day of each preceding month
,
plus (ii) 0.50% of the Lindbergh/Energy Center Adjusted Cost
as of the last day of each
preceding month.
For purposes of clarity, the AM Consulting Fee payment due in the first month of this Agreement will be based on Adjusted Cost amounts from the last date of the month prior to this Agreement, notwithstanding that this date precedes the effective date of this Agreement. Notwithstanding the foregoing, if this Agreement is in effect for less than a full month, the amount of the AM Consulting Fee shall be prorated to account for the percentage of the month in which this Agreement is in effect.
Notwithstanding the foregoing, the aggregate AM Consulting Fee payable to Wells REF in any three-month period pursuant to this Paragraph 4(a) shall not exceed 0.25% of the average Net Asset Value during such three-month period, calculated based on Net Asset Value as of the last day of each preceding month during the three-month period (the “AM Consulting Fee Ceiling”). To the extent the sum of the three previous monthly AM Consulting Fee payments exceeds the AM Consulting Fee Ceiling (such amount the “Ceiling Excess”), each next succeeding monthly payment of the AM Consulting Fee will be reduced, with the amount by which the AM Consulting Fee is reduced to be applied against the Ceiling Excess until the Ceiling Excess is eliminated. In no event, however, will Wells REF be required to make a cash payment on account of any Ceiling Excess.
(b)
Fee Credit
. Within 15 days of the end of each month in which this Agreement is in effect, Wells REF shall credit an amount of $166,667 against all earned but unpaid fees owed to Wells REF under this Agreement, which amount represents a reduction in the monthly fees earned by Wells REF pursuant to this Paragraph 4 during the term of this Agreement. Notwithstanding the foregoing, if this Agreement is in effect for less than a full month, the amount credited to the Company shall be prorated to account for the percentage of the month in which this Agreement was in effect.
5.
Expenses for Other Services
. Should the Board request that Wells REF or any director, officer or employee thereof render services for the Company other than set forth in Paragraph 2, such services shall be separately compensated at such rates and in such amounts as are agreed by Wells REF and the Company, subject to the limitations contained in the Articles of Incorporation, and shall not be deemed to be services pursuant to the terms of this Agreement.
Notwithstanding the foregoing, Wells REF shall obtain the Company's written approval prior to incurring any third-party expenses for the account of, or reimbursable by, the Company.
6.
Occupancy
.
(a)
Occupancy Rights.
During the term of this Agreement, the Company shall have the right to occupy the 6th floor at 6200 The Corners Parkway in Norcross, Georgia.
(b)
Occupancy Costs.
For so long as the Company occupies space at 6200 The Corners Parkway pursuant to Paragraph 6(a) above, the
Company shall reimburse Wells REF for occupancy costs at a fixed amount of $21,000 per month. This amount shall be paid to Wells REF on the first business day of each month in which this agreement is in effect, provided, however, that if the term of this Agreement begins during a month for which Wells REF has been paid an occupancy cost fee pursuant to the Advisory Agreement, then the fee pursuant to this Section 6(b) shall commence on the first business day of the following month. No other amounts related to the Company's occupancy of space at 6200 The Corners Parkway, such as tenant improvement costs, operating expenses, or common area maintenance, shall be due.
7.
Representations and Warranties
.
(a)
Of the Company
. To induce Wells REF to enter into this Agreement, the Company hereby represents and warrants that:
(i)
The Company is a corporation, duly organized, validly existing and in good standing under the laws of the State of Maryland with all requisite corporate power and authority and all material licenses, permits and authorizations necessary to carry out the transactions contemplated by this Agreement.
(ii)
The Company's execution, delivery and performance of this Agreement have been duly authorized. This Agreement constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The Company's execution and delivery of this Agreement and its fulfillment of and compliance with the respective terms hereof do not and will not (A) conflict with or result in a breach of the terms, conditions or provisions of, (B) constitute a default under, (C) result in the creation of any lien, security interest, charge or encumbrance upon the assets of the Company pursuant to, (D) give any third party the right to modify, terminate or accelerate any obligation under, (E) result in a violation of or (F) require any authorization, consent, approval, exception or other action by or notice to any court or administrative or governmental body pursuant to, the Articles of Incorporation or Bylaws or any law, statute, rule or regulation to which
the Company is subject, or any agreement, instrument, order, judgment or decree by which the Company is bound, in any such case in a manner that would have a material adverse effect on the ability of the Company to perform any of its obligations under this Agreement.
(b)
Of Wells REF
. To induce Company to enter into this Agreement, Wells REF represents and warrants that:
(i)
Wells REF is a corporation, duly organized, validly existing and in good standing under the laws of the State of Georgia with all requisite corporate power and authority and all material licenses, permits and authorizations necessary to carry out the transactions contemplated by this Agreement.
(ii)
Wells REF's execution, delivery and performance of this Agreement have been duly authorized. This Agreement constitutes a valid and binding obligation of Wells REF, enforceable against Wells REF in accordance with its terms. Wells REF's execution and delivery of this Agreement and its fulfillment of and compliance with the respective terms hereof do not and will not (A) conflict with or result in a breach of the terms, conditions or provisions of, (B) constitute a default under, (C) result in the creation of any lien, security interest, charge or encumbrance upon Wells REF's assets pursuant to, (D) give any third party the right to modify, terminate or accelerate any obligation under, (E) result in a violation of or (F) require any authorization, consent, approval, exemption or other action by or notice to any court or administrative or governmental body pursuant to, Wells REF's articles of incorporation or bylaws, or any law, statute, rule or regulation to which Wells REF is subject, or any agreement, instrument, order, judgment or decree by which Wells REF is bound, in any such case in a manner that would have a material adverse effect on the ability of Wells REF to perform any of its obligations under this Agreement.
(iii)
Wells REF has received copies of the (A) Articles of Incorporation, (B) Bylaws, (C) registration statements relating to the Company's past and ongoing public offerings, and (D) the Partnership's limited partnership agreement and is familiar with the terms thereof, including without limitation the investment limitations included therein. Wells REF warrants that it will use reasonable care to avoid any act or omission that would conflict with the terms of the foregoing in the absence of the express direction of the Company.
8.
Term; Termination of Agreement
. This Agreement shall continue in force through December 31, 2013. Notwithstanding the foregoing, this Agreement may be terminated (i) by the Company for Cause, (ii) by the Company other than for Cause provided that the Company pays Wells REF the Fee Acceleration Payment and the Fee Acceleration Payment Adjustment as described in Paragraph 10 below, or (iii) by Wells REF for a material breach of this Agreement by the Company which remains uncured after 10 days' written notice or the bankruptcy of the Company. The provisions of Paragraphs 1 and 10 through 20 survive termination of this Agreement.
9.
Assignment to an Affiliate
. This Agreement may be assigned by Wells REF to an Affiliate with the approval of the Company. Wells REF may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Company. This Agreement shall not be assigned by the Company without the consent of Wells REF, except in the case of an assignment by the Company to a corporation or other organization which is a successor to all of the assets, rights and obligations of the Company, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company is bound by this Agreement.
10.
Payments to Wells REF upon Termination
. After the Termination Date, Wells REF shall not be entitled to compensation for further services hereunder except it shall be entitled to receive from the Company within 30 days after the effective date of such termination all unpaid reimbursements of expenses and all earned but unpaid fees payable to Wells REF prior to termination of this Agreement. Notwithstanding the foregoing, if the Company terminates this Agreement other than for Cause, Wells REF shall be entitled to receive from the Company the Fee Acceleration Payment on or prior to the effective date of such termination and the Fee Acceleration Payment Adjustment within 45 days of December 31, 2013; provided however, that if the Fee Acceleration Payment Adjustment is negative, such amount shall be refunded to the Company within 45 days of December 31, 2013.
11.
Notices
. Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication is required by the Articles of Incorporation, the Bylaws, or accepted by the party to whom it is given, and shall be given by being delivered by hand or by overnight mail or other overnight delivery service to the addresses set forth herein:
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To the Board and to the Company:
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Wells Real Estate Investment Trust II, Inc.
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6200 The Corners Parkway, Suite 250
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Norcross, Georgia 30092
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To Wells REF:
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Wells Real Estate Funds
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6200 The Corners Parkway, Suite 250
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Norcross, Georgia 30092
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Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Paragraph 10.
12.
Modification
. This Agreement shall not be changed, modified, terminated, or discharged, in whole or in part, except by an instrument in writing signed by both parties hereto, or their respective successors or assignees.
13.
Severability
. The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.
14.
Construction
. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Georgia.
15.
Entire Agreement
. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
16.
Indulgences, Not Waivers
. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power
or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
17.
Gender
. Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
18.
Titles Not to Affect Interpretation
. The titles of paragraphs and subparagraphs contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.
19.
Execution in Counterparts
. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when the counterparts hereof, taken together, bear the signatures of all of the parties reflected hereon as the signatories.
20.
Name
. Wells REF has a proprietary interest in the name “Wells.” Accordingly, and in recognition of this right, if at any time the Company ceases to retain Wells REF or an Affiliate thereof to provide consulting services to the Company, the Company will, promptly after receipt of written request from Wells REF, cease to conduct business under or use the name “Wells” or any derivative thereof and the Company shall use its best efforts to change the name of the Company to a name that does not contain the name “Wells” or any other word or words that might, in the sole discretion of Wells REF, be susceptible of indication of some form of relationship between the Company and Wells REF or any Affiliate thereof. Consistent with the foregoing, it is specifically recognized that Wells REF or one or more of its Affiliates has in the past and may in the future organize, sponsor or otherwise permit to exist other investment vehicles (including vehicles for investment in real estate) and financial and service organizations having “Wells” as a part of their name, all without the need for any consent (and without the right to object thereto) by the Company or its Board.
[Signatures appear on next page.]
IN WITNESS WHEREOF, the parties hereto have executed this Consulting Services Agreement as of the [__] day of [_____] , 2013.
WELLS REAL ESTATE INVESTMENT TRUST II, INC.
By:
Name: E. Nelson Mills
Title: President
WELLS REAL ESTATE FUNDS, INC.
By:
Name: Robert M. McCullough
Title: Vice President
Exhibit 3 to Amendment to Transition Services Agreement
PROPERTY MANAGEMENT ASSET TRANSFER AGREEMENT
This Property Management Asset Transfer Agreement (this ''
Agreement
'') is entered into as of [__], 2013 (the “
PM Asset Transfer Closing Date
”), by and between Wells Real Estate Services, LLC, a Georgia limited liability company (“
WRES
”), Wells Real Estate Funds, Inc., a Georgia corporation (“
Wells REF
”) and Wells Management Company, Inc., a Georgia corporation (“
Wells Management
”). WRES, Wells REF and Wells Management are referred to collectively herein as the “
Parties
.
”
WHEREAS
, in connection with the execution and delivery of the Amendment to Transition Services Agreement (the “
Amendment to Transition Services Agreement
”) by and among Wells REF, Wells Real Estate Advisory Services, II, LLC (“
WREAS II
”), Wells Management, WRES and Wells Real Estate Investment Trust II, Inc., a Maryland corporation (“
REIT II
”), Wells REF and Wells Management each has agreed to transfer, assign, convey, and deliver to WRES, and WRES will acquire and accept from Wells REF and Wells Management, the assets, properties, proprietary systems, processes, rights, and contracts necessary for WRES to provide services under the Master Property Management Leasing and Construction Management Agreement by and between REIT II, Wells Operating Partnership II, L.P. and Wells Management, in substantially the same manner as is presently being conducted; and
WHEREAS
, pursuant to the terms of the Amendment to Transition Services Agreement, each of Wells REF, Wells Management and WRES will execute this Agreement effecting the transfer of such assets, properties, rights, and contracts.
NOW, THEREFORE
, in consideration of the premises and the mutual promises herein made and as set forth in the Amendment to Transition Services Agreement, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows:
ARTICLE I-DEFINITIONS
“
Lien
” means any mortgage, pledge, lien, encumbrance, charge, or other security interest other than (a) mechanics', materialmen's, and similar liens, (b) liens for Taxes not yet due and payable, and (c) liens securing rental payments under capital lease arrangements.
“
Party
” has the meaning set forth in the preface above.
“
Person
” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, any other business entity, or a governmental entity (or any department, agency, or political subdivision thereof).
“
PM Acquired Assets
” means all of the assets, properties, proprietary systems, processes, rights and contracts used in connection with the Property Management Business set forth on
Acquired Assets Schedule 2.1
; provided, however, that the Acquired Assets shall not include those assets owned by Wells REF and Wells Management not so listed on
Acquired Assets Schedule 2.1
.
“
PM Delayed Assets
” has the meaning set forth in the Amendment to Transition Services Agreement.
“
Property Management Business
”
means the provision of services by Wells REF, Wells Management and WRES to REIT II pursuant to the terms of the Property Management Agreement in substantially the same manner as is presently being conducted.
ARTICLE II-TRANSFER OF ASSETS
Section 2.1-
Transfer of Assets
On and subject to the terms and conditions of this Agreement, Wells REF and Wells Management each hereby transfers, assigns, conveys, and delivers to WRES, all of the PM Acquired Assets set forth on
Acquired Assets Schedule 2.1
as of the date of this Agreement free and clear of any Liens and WRES hereby acquires and accepts the PM Acquired Assets;
provided
,
however
, that the Parties acknowledge that the Acquired Assets that are PM Delayed Assets are not conveyed to WRES as of the PM Asset Transfer Closing Date but shall be conveyed no later than June 30, 2013.
Section 2.2-
Assumption of Liabilities
On and subject to the terms and conditions of this Agreement, WRES agrees to assume and thereafter pay, perform, become responsible for, and discharge all of the Assumed Liabilities set forth on
Assumed Liabilities Schedule 2.2
as of the date of this Agreement. WRES will not assume or have any responsibility with respect to any other obligation or liability of Wells REF or Wells Management not included within the definition of Assumed Liabilities.
ARTICLE III-COVENANTS
The Parties agree as follows with respect to the period following the date hereof:
Section 3.1-
General
In case at any time after the date hereof any further actions are necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further actions (including the execution and delivery of such further instruments and documents) as the other Parties reasonably may request, all at the sole cost and expense of the requesting Party. Without limiting the generality of the foregoing, Wells REF and Wells Management each agrees to execute and deliver to WRES a bill of sale or assignment agreement transferring, assigning and conveying to WRES the PM Acquired Assets that are PM Delayed Assets, free and clear of any Liens.
Section 3.2-
Litigation Support
In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (a) any transaction contemplated under this Agreement or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the date hereof involving the Property Management Business, the other Parties will cooperate with the contesting or defending Party and its counsel in the contest or defense, make available its personnel, and provide such testimony and access to its books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party.
Section 3.3-
Transition
Wells REF and Wells Management will not take any action that is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier, or other business associate of Wells REF or Wells Management from maintaining the same business relationships with WRES with respect to the Property Management Business after the date hereof as it maintained with Wells REF or Wells Management prior to the date hereof.
ARTICLE V-MISCELLANEOUS
Section 5.1-
Press Releases and Public Announcements
No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior written approval of the other Party; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Parties prior to making the disclosure).
Section 5.2-
No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.
Section 5.3-
Entire Agreement
This Agreement (including the Transition Services Agreement and the Amendment to Transition Services Agreement and the exhibits thereto and the other documents referred to herein and therein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, to the extent they relate in any way to the subject matter hereof.
Section 5.4-
Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Parties.
Section 5.5-
Counterparts
This Agreement may be executed in one or more counterparts (including by means of facsimile), each of which shall be deemed an original but all of which together will constitute one and the same instrument.
Section 5.6-
Headings
The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.
Section 5.7-
Notices
All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given (a) when delivered personally to the recipient, (b) 1 business day after being sent to the recipient by reputable overnight
courier service (charges prepaid), (c) 1 business day after being sent to the recipient by facsimile transmission or electronic mail, or (d) 4 business days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid, and addressed to the intended recipient as set forth below:
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If to Wells REF or Wells Management:
Wells Real Estate Funds, Inc.
6200 The Corners Parkway
Norcross, Georgia 30039
Attention: Robert M. McCullough
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Copy to:
Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: Mark C. Kanaly
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If to WRES:
c/o Wells Real Estate Funds, Inc.
6200 The Corners Parkway
Norcross, Georgia 30039
Attention: Nelson Mills
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Copy to:
DLA Piper LLP (US)
4141 Parklake Avenue Suite 300
Raleigh, NC 27612-2350
Attention: Robert Bergdolt
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Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.
Section 5.8-
Governing Law
This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Georgia without giving effect to any choice or conflict of law provision or rule (whether of the State of Georgia or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Georgia.
Section 5.9-
Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by WRES, Wells REF and Wells Management. The Parties acknowledge that they will not amend or waive any provision of this Agreement without the prior written consent of REIT II. No waiver by any Party of any provision of this Agreement or any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be valid unless the same shall be in writing and signed by the Party making such waiver, nor shall such waiver be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.
Section 5.10-
Severability
Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.
Section 5.11-
Expenses
Each of WRES, Wells Management and Wells REF will bear its own costs and expenses (including
legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby.
Section 5.12-
Construction
The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or non-U.S. statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word ''including'' shall mean including without limitation.
Section 5.13-
Employee Benefit Matters
At and as of the date hereof, WRES will adopt, assume, and make available to the Property Management Employees Employee Benefit Plans substantially similar to the existing Employee Benefit Plans that are currently being maintained or to which contributions are made solely for the benefit of current and former Wells REF employees and each trust, insurance contract, annuity contract, or other funding arrangement thereunder. Wells REF will transfer (or cause the plan administrators to transfer) at and as of the date hereof all of the corresponding assets associated with the Employee Benefit Plans that WRES is adopting and assuming. With respect to each Multiemployer Plan, the Parties shall take all actions necessary to comply with the requirements of ERISA §4204. Nothing herein shall limit WRES's ability to modify its Employee Benefits Plans from and after the date hereof (provided, however, the ability to make changes to such Employee Benefit Plans will be limited based on enrollment periods and any applicable legal requirements).
Section 5.13-
Bulk Transfer Laws
WRES acknowledges that Wells REF and Wells Management will not comply with the provisions of any bulk transfer laws of any jurisdiction in connection with the transactions contemplated by this Agreement.
[Signature Page Follows]
IN WITNESS WHEREOF
, the Parties hereto have executed this Property Management Asset Transfer Agreement as of the date first above written.
WELLS REF
:
Wells Real Estate Funds, Inc.
By:
Name:
Title:
WELLS MANAGEMENT
Wells Management Company, Inc.
By:
Name:
Title:
WRES
:
Wells Real Estate Services, LLC
By:
Name:
Title:
Exhibit 4 to the Amendment to Transition Services Agreement
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT (this “
Agreement
”), dated as of [__], 2013 (the “
Assignment Effective Date
”) is made by and between Wells Real Estate Funds, Inc., a Georgia corporation (“
Wells REF
”) and Wells Management Company, Inc., a Georgia corporation (“
Wells Management
”) to [Wells Real Estate Investment Trust II, Inc., a Maryland corporation or Wells Operating Partnership II, L.P. (“
REIT II
”)].
WHEREAS
, Wells REF owns all of the issued and outstanding shares of Wells Management and Wells Management owns all of the issued and outstanding limited liability company membership interests in Wells Real Estate Services, LLC, a Georgia limited liability company (“
WRES
”);
WHEREAS
, each of Wells REF, Wells Management, WRES, and REIT II are parties to the Transition Services Agreement, as amended by the Amendment to Transition Services Agreement (as amended, the “
Transition Services Agreement
”), whereby REIT II is granted the option to acquire all issued and outstanding limited liability company membership interests in WRES held by Wells Management, and all rights, title, benefits, privileges and interests therein (the “
Units
”), upon delivery of written notice (the “
WRES Option Notice
”) to Wells REF of the exercise of such; and
WHEREAS
, REIT II has duly delivered the WRES Option Notice to Wells REF, evidencing its desire to acquire and assume the Units.
NOW, THEREFORE
, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows:
1.
Recitals
. The foregoing recitals are made a part of this Agreement.
2.
Definitions
. All capitalized terms used in this Agreement but not otherwise defined herein are given the meanings set forth in the Transition Services Agreement.
3.
Transfer and Assignment of the Units
. Wells Management hereby grants, conveys, assigns, transfers and delivers the Units to REIT II, and its successors and assigns, and REIT II hereby accepts such Units (including without limitation, all of Wells Management's right, title, benefits, privileges and interest in and to the profits, losses, distributions, and capital of WRES represented by the Units) as of the date hereof.
4.
Acceptance of Assignment
. REIT II hereby accepts the assignment and transfer of Wells Management's right, title, benefits, privileges and interest in and to the Units. Notwithstanding any provision in WRES's limited liability company operating agreement to the contrary, REIT II is hereby admitted as the sole member of WRES. Effective as of the execution and delivery of this Agreement by all parties hereto, Wells Management shall no longer be a member of WRES.
5.
Representations and Warranties of Wells REF
. Wells REF and Wells Management represent and warrant to REIT II that, (a) each of the representations and warranties made by Wells REF and Wells Management in the Transition Services Agreement and the Property Management Asset Transfer Agreement are true and correct in all respects as of the date hereof; (b) WRES has no obligations or liabilities to Wells REF, Wells Management or any of their affiliates; (c) WRES's current assets are not less than its current liabilities and WRES has no indebtedness or other long-term liabilities; (d) WRES is not in default under any contract to which WRES is a party and has made all payments when due under such contracts; and (e) WRES has operated in the ordinary course of business since the Effective Date of the Amendment to the Transition Services Agreement. Wells REF and REIT II agree that the actual current assets and current liabilities as of the Assignment Effective Date shall be finally determined no later than thirty (30) days following the Assignment Effective Date. If current liabilities exceed current assets as finally determined, then Wells REF shall be responsible for the deficiency, after taking into account any reimbursement obligations of REIT II under the Property Management Agreement for periods prior to the Assignment Effective Date.
6.
Indemnification
. REIT II hereby agrees to cause WRES to indemnify, defend and hold harmless Wells REF and Wells Management and their successors and assigns, of and from any and all costs, liabilities and expense, including court costs and attorneys fees, arising from or connected with the operation of the Property Management Business by WRES or REIT II after the Assignment Effective Date. Wells REF and Wells Management hereby agree to indemnify, defend and hold harmless REIT II and WRES, and their successors and assigns, of and from any and all costs, liabilities and expenses, including court costs and attorney fees, arising from or connected with the operation of the Property Management Business by WRES, Wells REF or Wells Management before the Assignment Effective Date.
7.
Further Assurances
. Wells REF and Wells Management hereby each covenant and agree that, at any time and from time to time after the delivery of this Agreement, at REIT II's request and expense, Wells REF and Wells Management, and their successors and assigns, will do, execute, acknowledge and deliver, or will cause to be done, executed, acknowledged and delivered, any and all such further acts, conveyances, transfers, assignments, powers of attorney and assurances as REIT II reasonably may require to more effectively grant, convey, assign, transfer, set over to or vest in REIT II the Units, or to otherwise carry into effect the intent and purposes of this Agreement.
8.
Governing Law
. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia without reference to the choice of law principles thereof.
9.
Binding Effect
. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.
10.
Counterparts
. This Agreement may be executed in two counterparts, each of which shall be deemed an original, but all of which shall be considered one and the same agreement.
[Signature page follows]
IN WITNESS WHEREOF, this Assignment and Assumption Agreement has been signed by or on behalf of each of the parties as of the date first written above.
WELLS REF
:
Wells Real Estate Funds, Inc.
By:
Name:
Title:
WELLS MANAGEMENT
:
Wells Management Company, Inc.
By:
Name:
Title:
REIT II
:
[Wells Real Estate Investment Trust II, Inc.]
By:
Name:
Title:
Exhibit 5 to the Amendment to Transition Services Agreement
INVESTOR SERVICES AGREEMENT
THIS INVESTOR SERVICES AGREEMENT, effective as of _________, 2013, is between WELLS REAL ESTATE INVESTMENT TRUST II, INC., a Maryland corporation (the “Company”), and WELLS REAL ESTATE FUNDS, INC., a Georgia corporation (“Wells REF”).
W I T N E S S E T H
WHEREAS, the Company desires to avail itself of the experience, sources of information, assistance and certain facilities available to Wells REF with respect to stockholder services and communications and to have Wells REF undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of the Company all as provided herein;
WHEREAS, Wells REF is willing to undertake to render such services, subject to the supervision of the Company, on the terms and conditions hereinafter set forth;
WHEREAS, the Company and Wells REF are currently parties to an investor services agreement that became effective on January 1, 2013, covering the period from January 1, 2013 through December 31, 2013 (the “Renewal Investor Services Agreement”);
WHEREAS, the sole consideration to Wells REF for the stockholder services and communications provided by Wells REF pursuant to the Renewal Investor Services Agreement is the reimbursement of expenses related to the services subject to an overall cap on such expenses;
WHEREAS, the Company and Wells REF now desire to enter a new investor services agreement to provide for the payment of certain fees for the stockholder services and communications provided by Wells REF and to remove the cap on the reimbursement of certain expenses, with the new investor services agreement to be effective upon the expiration of the Renewal Investor Services Agreement, and covering the period from termination of the Renewal Investor Services Agreement through December 31, 2013 (this “Agreement”);
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:
1.
Definitions
.
As used in this Agreement, the following terms have the definitions hereinafter indicated:
Advisor.
Wells Real Estate Advisory Services II, LLC, a Georgia limited liability corporation, any successor advisor to the Company, or any Person(s) to which Wells Real Estate Advisory Services II, LLC or any successor advisor subcontracts substantially all of its functions.
Affiliate or Affiliated
. An Affiliate of another Person includes only the following: (i) any Person directly or indirectly controlling, controlled by, or under common control with such other Person; (ii) any Person directly or indirectly owning, controlling, or holding with the power to vote 10% or more of the
outstanding voting securities of such other Person; (iii) any legal entity for which such Person acts as an executive officer, director, trustee, or general partner; (iv) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person; and (v) any executive officer, director, trustee, or general partner of such other Person. An entity shall not be deemed to control or be under common control with a Wells REF-sponsored program unless (i) the entity owns 10% or more of the voting equity interests of such program or (ii) a majority of the board (or equivalent governing body) of such program is comprised of Affiliates of the entity.
Articles of Incorporation
. The Articles of Incorporation of the Company under Title 2 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time.
Bylaws
. The bylaws of the Company, as the same are in effect from time to time.
Code
. Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean such provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable regulations as in effect from time to time.
Company
. Wells Real Estate Investment Trust II, Inc., a corporation organized under the laws of the State of Maryland.
Distributions
. Any distributions of money or other property by the Company to owners of Shares, including distributions that may constitute a return of capital for federal income tax purposes.
Partnership
. Wells Operating Partnership II, L.P., a Delaware limited partnership formed to own and operate properties on behalf of the Company.
Person
. An individual, corporation, partnership, estate, trust (including a trust qualified under Section 401(a) or 501(c) (17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity, or any government or any agency or political subdivision thereof, and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
REIT
. A “real estate investment trust” under Sections 856 through 860 of the Code.
Shares
. The Company's shares of common stock, par value $0.01 per share.
Wells REF.
Wells Real Estate Funds, Inc., a Georgia corporation.
2.
Appointment
.
The Company hereby appoints Wells REF to provide stockholder services and communications on the terms and conditions set forth in this Agreement, and Wells REF hereby accepts such appointment.
3.
Duties and Authority of Wells REF
.
Wells REF undertakes to provide the Company's stockholder services and communications, which include, but are not limited to, the following activities:
(a)
ensuring that all activities regarding the services of a registered transfer agent are performed, including but not limited to escheatment services, proxy services, quarterly stockholder statements, stockholder confirmations, re-registrations, transfers, distributions, dividend reinvestments and any other stockholder record-keeping and reporting;
(b)
the logistics and, in certain cases where required, the production of written materials for all required communications with stockholders, including the annual report, quarterly statements, proxy services, and other required notices to stockholders;
(c)
the logistics and production of written materials for all other communications deemed necessary, but not required, to stockholders and financial advisors;
(d)
maintaining the services of the client services call center in the manner and at a relative level of service consistent in all material respects with that provided to the Company prior to the date of this Agreement;
(e)
facilitation of all annual tax reporting requirements to stockholders, including responding to client service calls relating to tax reporting;
(f)
all necessary compliance and risk management functions relating to the above activities;
(g)
all necessary information technology support and services as related to the above activities; and
(h)
any other client services and stockholder communications services that were previously being performed for the Company by the Advisor prior to the date of this Agreement.
To facilitate Wells REF's performance of these services, but subject to the restrictions included in Paragraphs 4 and 6, the Company hereby delegates to Wells REF the authority to, and Wells REF hereby agrees to, either directly or by engaging an Affiliate:
(a)
maintain and preserve the books and records of the Company, including a stock ledger reflecting a record of the stockholders and their ownership of the Shares and overseeing and interfacing with the transfer agent for the Shares; and
(b)
with respect to the provision of stockholder and communications activities contemplated by this Agreement, investigate, select, and, on behalf of the Company, engage and conduct business with such Persons as Wells REF deems necessary to the proper performance of its obligations hereunder, including but not limited to transfer agents, correspondents, technical advisors, attorneys, escrow agents, depositaries, custodians, and any and all agents for any of the foregoing, including Affiliates of Wells REF, and Persons acting in any other capacity deemed by Wells REF necessary or desirable for the performance of any of the foregoing services, including but not limited to entering into contracts in the name of the Company for which it has the express written consent of the Company with any of the foregoing.
4.
Modification or Revocation of Authority of Wells REF
.
The Company may, at any time upon the giving of notice to Wells REF, modify or revoke the authority or approvals set forth in Paragraph 3, provided however, that such modification or revocation shall be effective upon receipt by Wells REF and shall not be applicable to transactions to which Wells REF has committed the Company prior to the date of receipt by Wells REF of such notification.
5.
Records; Access
. Wells REF shall maintain appropriate records of all its activities hereunder and make such records available for inspection by the Company and by counsel, auditors and authorized agents of the Company, at any time or from time to time during normal business hours.
6.
Limitations on Activities
. Notwithstanding anything to the contrary in this Agreement, Wells REF shall refrain from taking any action which, in its sole judgment made in good faith, would violate any
law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company or the Articles of Incorporation or Bylaws, except if such action shall be ordered by the Company, in which case Wells REF shall notify promptly the Company of Wells REF's judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Company. In such event Wells REF shall have no liability for acting in accordance with the specific instructions of the Company so given.
7.
Fees.
(a)
Transfer Agent Support Fees
. Wells REF shall be paid, as compensation for the transfer agent support services rendered to the Company hereunder, a monthly fee for each investor account (the “Transfer Agent Support Fee”) in an amount equal to one-twelfth of $5.41. The Transfer Agent Support Fee is intended to compensate Wells REF for the services listed on Exhibit A attached hereto.
(b)
Client Services Fees.
Wells REF shall be paid, as compensation for the client services rendered to the Company hereunder, a monthly fee for each investor account (the “Client Services Fee”) in an amount equal to one-twelfth of $2.52. The Client Services Fee is intended to compensate Wells REF for the services listed on Exhibit A attached hereto.
(c)
Investor Communication Fees
. Wells REF shall be paid, as compensation for services rendered to the Company in connection with investor communications a per project fee of $100 per hour (the “Investor Communication Fee”). The Investor Communication Fee is intended to compensate Wells REF for the time spent by Wells REF preparing communication materials requested by the Company and will be billed at an hourly rate per each project requested by the Company.
8.
Expenses
.
(a)
Reimbursable Expenses
. The Company shall reimburse Wells REF for all of the third party expenses paid or incurred by Wells REF in connection with the services it provides to the Company pursuant to this Agreement, including, but not limited to:
(i)
the actual cost of goods and services used by the Company and obtained from entities not affiliated with Wells REF;
(ii)
all expenses in connection with meetings of stockholders;
(iii)
expenses in connection with payments of Distributions in cash or otherwise made or caused to be made by the Company to the stockholders; and
(iv)
expenses related to maintaining communications with stockholders, including the cost of printing, and mailing annual reports and other stockholder reports, proxy statements and other reports required by governmental entities.
Administrative service expenses, including all costs and expenses incurred by Wells REF in fulfilling its duties hereunder, such as reasonable wages and salaries and other employee-related expenses of all employees of Wells REF or its Affiliates, including taxes, insurance and benefits relating to such employees, and legal, travel and other out-of-pocket expenses are not reimbursable expenses under this Agreement.
(b)
Other Services
. Should the Company request that Wells REF or any director, officer or employee thereof render services for the Company other than set forth in Paragraph 3, such services shall
be separately compensated at such rates and in such amounts as are mutually agreed by Wells REF and the Company and shall not be deemed to be services pursuant to the terms of this Agreement.
(c)
Timing of Reimbursements
. Expenses incurred by Wells REF on behalf of the Company and payable pursuant to this Paragraph 8 shall be reimbursed to Wells REF on a at least a monthly basis. Wells REF shall prepare a statement documenting the expenses of the Company during each quarter, and shall deliver such statement to the Company within 45 days after the end of each quarter.
9.
Other Activities of Wells REF
.
General
. Nothing contained herein shall preclude Wells REF from engaging in other activities, including, without limitation, the rendering of advice to other Persons (including other REITs) and the management of other programs advised, sponsored or organized by Wells REF or its Affiliates; nor shall this Agreement limit or restrict the right of any director, officer, employee, or stockholder of Wells REF or its Affiliates to engage in any other business or to render services of any kind to any other partnership, corporation, firm, individual, trust or association. Wells REF shall report to the Company the existence of any condition or circumstance, existing or anticipated, of which it has knowledge, which creates or could create a conflict of interest between Wells REF's obligations to the Company pursuant to this Agreement and its obligations to or its interest in any other partnership, corporation, firm, individual, trust or association.
10.
Representations and Warranties
.
(a)
Of the Company
. To induce Wells REF to enter into this Agreement, the Company hereby represents and warrants that:
(i)
The Company is a corporation, duly organized, validly existing and in good standing under the laws of the State of Maryland with all requisite corporate power and authority and all material licenses, permits and authorizations necessary to carry out the transactions contemplated by this Agreement.
(ii)
The Company's execution, delivery and performance of this Agreement have been duly authorized. This Agreement constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The Company's execution and delivery of this Agreement and its fulfillment of and compliance with the respective terms hereof do not and will not (A) conflict with or result in a breach of the terms, conditions or provisions of, (B) constitute a default under, (C) result in the creation of any lien, security interest, charge or encumbrance upon the assets of the Company pursuant to, (D) give any third party the right to modify, terminate or accelerate any obligation under, (E) result in a violation of or (F) require any authorization, consent, approval, exception or other action by or notice to any court or administrative or governmental body pursuant to, the Articles of Incorporation or Bylaws or any law, statute, rule or regulation to which the Company is subject, or any agreement, instrument, order, judgment or decree by which the Company is bound, in any such case in a manner that would have a material adverse effect on the ability of the Company to perform any of its obligations under this Agreement.
(b)
Of Wells REF
. To induce Company to enter into this Agreement, Wells REF represents and warrants that:
(i)
Wells REF is a corporation, duly organized, validly existing and in good standing under the laws of the State of Georgia with all requisite corporate power and authority and all material licenses, permits and authorizations necessary to carry out the transactions contemplated by this Agreement.
(ii)
Wells REF's execution, delivery and performance of this Agreement have been duly authorized. This Agreement constitutes a valid and binding obligation of Wells REF, enforceable against Wells REF in accordance with its terms. Wells REF's execution and delivery of this Agreement and its fulfillment of and compliance with the respective terms hereof do not and will not (A) conflict with or result in a breach of the terms, conditions or provisions of, (B) constitute a default under, (C) result in the creation of any lien, security interest, charge or encumbrance upon Wells REF's assets pursuant to, (D) give any third party the right to modify, terminate or accelerate any obligation under, (E) result in a violation of or (F) require any authorization, consent, approval, exemption or other action by or notice to any court or administrative or governmental body pursuant to, Wells REF's articles of incorporation or bylaws, or any law, statute, rule or regulation to which Wells REF is subject, or any agreement, instrument, order, judgment or decree by which Wells REF is bound, in any such case in a manner that would have a material adverse effect on the ability of Wells REF to perform any of its obligations under this Agreement.
(iii)
Wells REF has received copies of the (A) Articles of Incorporation, (B) Bylaws, and (C) the Partnership's limited partnership agreement and is familiar with the terms thereof. Wells REF warrants that it will use reasonable care to avoid any act or omission that would conflict with the terms of the foregoing in the absence of the express direction of the Company.
11.
Term; Termination of Agreement
. This Agreement shall commence on __________, 2013 and continue in force through December 31, 2013. This Agreement may be continued for an unlimited number of successive one-year renewals upon mutual consent of the parties.
12.
Termination by Either Party
. This Agreement may be terminated upon 60 days written notice without cause or penalty, by either party. The provisions of Paragraphs 1, 5, 6, and 14 through 23 shall survive the termination of this Agreement.
13.
Assignment to an Affiliate
. This Agreement may be assigned by Wells REF to an Affiliate with the approval of the Company. Wells REF may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Company. This Agreement shall not be assigned by the Company without the consent of Wells REF, except in the case of an assignment by the Company to a corporation or other organization which is a successor to all of the assets, rights and obligations of the Company, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company is bound by this Agreement.
14.
Payments to and Duties of Wells REF upon Termination
.
(a)
Upon termination of this Agreement by either party, Wells REF shall not be entitled to reimbursement for further services hereunder except it shall be entitled to receive from the Company within 30 days after the effective date of such termination all unpaid reimbursements of expenses and all accrued but unpaid fees payable to Wells REF prior to termination of this Agreement
(b)
Wells REF shall promptly upon termination:
(i)
deliver to the Company the book and records of the Company; and
(ii)
cooperate with the Company to provide an orderly transition of services provided pursuant to this Agreement.
15.
Notices
. Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication
is required by the Articles of Incorporation, the Bylaws, or accepted by the party to whom it is given, and shall be given by being delivered by hand or by overnight mail or other overnight delivery service to the addresses set forth herein:
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To the Company:
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Wells Real Estate Investment Trust II, Inc.
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6200 The Corners Parkway, Suite 250
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Norcross, Georgia 30092
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To Wells REF:
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Wells Real Estate Funds, Inc.
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6200 The Corners Parkway, Suite 250
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Norcross, Georgia 30092
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Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Paragraph 15.
16.
Modification
. This Agreement shall not be changed, modified, terminated, or discharged, in whole or in part, except by an instrument in writing signed by both parties hereto, or their respective successors or assignees.
17.
Severability
. The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.
18.
Construction
. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Georgia.
19.
Entire Agreement
. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
20.
Indulgences, Not Waivers
. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
21.
Gender
. Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
22.
Titles Not to Affect Interpretation
. The titles of paragraphs and subparagraphs contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.
23.
Execution in Counterparts
. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when the counterparts hereof, taken together, bear the signatures of all of the parties reflected hereon as the signatories.
[Signatures appear on next page.]
IN WITNESS WHEREOF, the parties hereto have executed this Investor Services Agreement on __________ , 2013.
WELLS REAL ESTATE INVESTMENT TRUST II, INC.
By:
Name: E. Nelson Mills
Title: President
WELLS REAL ESTATE FUNDS, INC.
By:
Name:
Title:
Exhibit A
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Transfer Agent Support Services
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Task Description
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Summary
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Inbound Investor Escalated Calls - REIT
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Work with DST to establish escalation procedures for Inbound Investor Calls. Provide on-going resolution for escalated inquiries and coordinate with the Fund when needed.
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Inbound Rep Escalated Calls - REIT
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Work with DST to establish escalation procedures for Inbound Rep Calls. Provide on-going resolution for escalated inquiries and coordinate with the Fund when needed.
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DST Vision - Support and approvals
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Review and process the daily volume of inbound DSS requests related to DST Vision. Follow-up with Financial Representative, BD Employee or third party Financial Institution when necessary.
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DST FANMail - Support and approvals
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Review and process the daily volume of inbound DSS requests related to DST FANMail. Follow-up with Financial Representative, BD Employee or third party Financial Institution when necessary.
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Escalated Service / Historical Research Issues - Call Center
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Coordinate and execute historical research for Call Center items that come up for the period before DST began taking front line Investor and Rep calls.
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Quality Review / Reporting and Delivering Feedback
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Review and provide feedback on a handful of recorded calls from the DST Call Center team on a bi-weekly basis.
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Interest Adjustments
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Draft, review and approve interest adjustment requests that come in related to share impacting transactions.
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Client Services E-mail Inbox
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Review and respond to the daily volume of inbound email inquiries from Investors, Reps and Third Party Financial Institutions.
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NIGO Resolution - REIT
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Coordinate resolution on Not in Good Order items related to Financial transactions through outbound contacts to Investors, Reps and Third Party Financial Institutions.
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Written Inquiry Processing
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Coordinate the processing of Written Inquiry requests from Investors, Reps and Third Party Financial Institutions. This includes reviewing each request and drafting or communicating the appropriate response within the specified timeframe as well as logging the requests for historical reporting purposes.
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Employee Training & Development and Corporate/Department Vision
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Coordinate ongoing training for the Wells Client Services team on industry initiatives as well as product announcements.
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DST Call Center Training
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Coordinate ongoing training for the DST Client Services team on industry initiatives as well as product announcements.
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Sales Support - Operational Communications and Initiatives
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Coordinate educating the Sales team on Operational initiatives that will impact current and new investors as well as their Reps and BD's.
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Broker Dealer Back Office Relationship Management
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Maintain and grow existing and new relationships with Key Broker Dealer contacts to facilitate existing business and help resolve day to day issues that come up. Relationships become critical when major product events occur that impact the Rep and BD community.
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Custodian Back Office Relationship Management
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Maintain and grow existing and new relationships with Key Custodian contacts to facilitate existing business and help resolve day to day issues that come up. Relationships become critical when major product events occur that impact the Financial Institution community.
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Issuer Communications
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Provide Business and Compliance review and approval on Operational and Issuer communication that are being sent to Investors and Reps. This also includes communications related to Sponsored IRA programs through State Street and Reliance
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Forms and Applications - Updates, Annual Review and Record Keeping
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Coordinate the annual review and update process to ensure the forms used by Investors and Reps in the REIT products we support are accurate and as simple as possible. This includes working with Wells Marketing to make the updates and providing Business and Compliance sign-off.
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Forms and Applications - Updating Third Party Vendors
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Ensure the most current product forms are provided and available on LaserApps, Quikforms, WellsAccess and DST Vision
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Statements - Inserts and Marketing Information
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Responsible for Business review on all statement inserts. In some cases, also responsible for Compliance sign-off.
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WellsAccess - Look and Feel, Content - Updates
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Responsible for the content, layout and information that is available to Reps and BD's via WellsAccess. Also, responsible for reviewing and approving all new Registration requests that are submitted for new users.
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Proxy - Vendor Relationship Management
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Responsible for overseeing the Third Party Vendor that is contracted to help carryout and pass any Annual or Special proxies for the REIT products we support
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Proxy - Communication Coordination and Review
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Includes coordinating the business and in some cases, Compliance sign-off for the following items:
- Householding Mailing
- Proxy Search Card Mailing
- Proxy Mailing ( Typically includes Annual Report)
- Catch-up Mailing
- Reminder Mailings
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Proxy - Call Center Scripting and Training
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Working with the Vendor to put together and get Business and Compliance sign-off on the script for the IVR, script to be used by the Vendor Call Center for solicitation purposes. This also includes providing Training to Vendor Call Center for more complicated proposals
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Proxy - Record Keeping
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Keeping historical records of the Annual and Special Proxy mailing lists, various communications and voting files
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Proxy - Call Center Support
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Wells Client Services team has helped solicit votes from the largest stockholders in various proxies to help achieve the required number of votes
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NIGO Letters - Look and Feel, Content - Updates
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Responsible for ensuring the day to day Investor, Rep and Third Party communication for Not In Good Order processing is as clear and concise as possible. Also, responsible for the Compliance sign-off.
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DST FANWeb - Look and Feel - Updates
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Responsible for confirming the content, disclosures and messaging is current and as accurate as possible
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Mail Room / Scanning
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Responsible for opening, sorting and directing any Investor Account related mail is forwarded to the appropriate Transfer Agent for processing.
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Monitoring and Enforcing Work Queue and SLAs
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Monitor DST to ensure timely and accurate processing of the daily work for the Fund including but not limited to using business intelligence tools and a battery of custom data quality reports
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Monthly Written Inquiry Reporting
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Provide monthly reports to Wells Compliance to document that Written Inquiry responses are being turned around within the SEC guidelines
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Fund / Product Board Reporting - CS Information
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Compile and validate data to put together performance indicators that are presented to the Board on a quarterly basis
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Tax Basis Requests - Current
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Work with Wells IT to develop account level reports that provide the historical information an Investor would need to calculate their tax basis.
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Misc - Projects
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Hours allocated for one-off projects and tasks that always come up through out the year
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Investor Communication Services
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Task Description
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Summary
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Custodian Distribution File Support - REITs
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Using relationships at various custodian partners, create and maintain quarterly distribution files used to post dividends to investor accounts.
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Custodian Position File Support - REITs
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Using relationships at various custodian partners, create and maintain monthly position files used to post account balances to investor accounts.
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Issuer Communications Mailing List Validations
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Support the investor communication process by providing mailing list validation and approvals ensuring that accurate data is provided to the mail vendors
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Proxy Support
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Provide validation support for proxy process including but not limited to: share counts and investor counts verification, mailing file validation
Review all data pulled by Wells IT and Third Party Vendor to ensure the appropriate investor information is being populated
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CDLY - Look and Feel - Updates
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Ensure daily confirmation statements (for ongoing account maintenance and re-registrations) contain current and accurate Fund information.
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Checks - Look and Feel - Updates
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Ensure dividend and redemption checks contain current and accurate Fund information
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Tax Reporting - Look and Feel - Updates
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Ensure year end tax forms contain current and accurate Fund information
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Monitoring and Enforcing Work Queue and SLAs
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Monitor DST to ensure timely and accurate processing of the daily work for the Fund including but not limited to using business intelligence tools and a battery of custom data quality reports
Daily activity includes account updates (Such as address changes, rep changes, etc.) transfers and re-registrations, redemptions, dividend check reissues, etc.
Monthly activity averages around 3,000 - 4,000 transactions
Several people play a role in this process that entails recurring conference calls to set priorities, manage projects, discuss system updates / implementations, etc.
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Quarterly Distribution - REITs - Oversight - Includes Ownership of the Statement
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Oversee the quarterly statement and distribution process, including but not limited to:
coordinating the successful transfer and quality control of statement data files from DST to SCICOM, validate the custom rep file that Wells sends as a supplement (this is needed for a number of reasons, most famous is to get the rep photo on the statement)
updating disclosures, validating control totals, validating distribution calculations, reviewing statement samples, on-site vendor visits, etc. During the month leading up to the statement and for a few days after the statements are mailed, this process requires more than one FTE.
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Redemptions - Daily Oversight
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Review pending redemptions entered by DST to ensure accuracy, research and resolve any errors
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Rep Maintenance - Daily Oversight
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Research and resolve issues related to FA relationships to investor accounts
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Escalated Issue Resolution
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Assist DST operations, Wells call center and DST call center in researching and resolving various service related issues for investor accounts
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National Change of Address (NCOA)
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Oversee the quarterly NCOA process, provide certification to Wells compliance
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Requests for Information
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Provide recurring custom monthly and quarterly assets under management reports to broker dealers, provide various ad-hoc reports to broker dealers for due diligence purposes.
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SEC / FINRA Audit Support
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Provide ad-hoc reports to satisfy regulatory requests for specific investor information. These requests come both directly to Wells and through our broker dealers.
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Redemption Summary Reporting - Accounting / Boards / Doug
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Including but not limited to - redemption accrual, redemptions by month and category, life to date redemptions by type
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Internal and Independent Audit Support
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Produce documents used by internal audit to validate proper controls are in place. Example - quarterly distribution packets provided to internal audit
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Daily Fund Balancing and Reconciliation
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Run daily reports used to create a schedule used to provide a sign-off to the Fund each month, research and resolve reconciling items for the Fund
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Redemptions - Monthly Balancing and Funding
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Review pending redemptions entered by DST to ensure accuracy, research and resolve any errors, coordinate monthly balancing and funding with DST and the Fund
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DST Invoicing
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Oversee vendor invoices, allocate expenses and provide to Fund, produce estimated budgets and projections
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SCICOM Invoicing
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Oversee vendor invoices, allocate expenses and provide to Fund, produce estimated budgets and projections, postage request and funding
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Year End DST Tax Support
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Oversee year-end tax processing - includes completing annual technical requirements, developing account test samples, providing reallocation numbers, providing training to staff on any tax form updates, coordinating year-end RMD and fair market value mailing
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Convert to Universal Dealer / SalesConnect
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Conversion project in process to alter the source system of FA and BD information and to take advantage of DST's Universal Dealer Database and support team.
This project also requires the redesign of many internal Wells systems such as integration with the datawarehouse (needed to continue to support many reporting requirements, etc.), WellsAccess and SalesForce, SCICOM statements, etc.
The scope of this project is on par with the integration of Salesforce.com. I would estimate that close to 1,000 hours will have been used once the project is completed in Q1 2013.
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Misc - Projects
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Hours allocated for one-off projects and tasks that always come up through out the year
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Transfer Agent Support Services and Investor Communication Services
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Task Description
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Summary
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Subpoena responses
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Determine requirements, gather documents and prepare responses
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Tax Basis Requests - Future
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Work with DST to implement a more automated solution that can be used distributed to Investors on demand or as part of an exit event
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Convert State Street IRAs to First Trust
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Work with DST, marketing, compliance, etc. to coordinate the conversion of over 50,000 accounts to DST's new custodian vendor.
Draft communication to interested parties
Update all references to State Street in all print and electronic media
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Convert statement vendor from SCICOM to DSTO
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Work with DST to design new statements for the Fund.
The conversion project requires dedicated resources over at least a six month period. The resources design, test and implement all aspects of a statement conversion.
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Pre-listing activities for REIT II
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The anticipated scope of a listing project will require over 1,000 hours from OPS / CS
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Transition workload from exiting staff
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Several hundred hours have been used to work on transitioning tasks from exiting staff. The transitions have in many cases required the remaining staff to redesign processes in order to support the new organization structure.
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Implementation of A.I. Industry Initiatives
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Work with Transfer Agent and Third Party Financial Institutions to participate in AIP initiative that is being rolled out via the DTCC. Timeframe and workload TBD. We expect that system changes, new procedures as well as internal and external communication and eduction will need to be developed tested and rolled out.
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