CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
(unaudited)
1.Organization
Columbia Property Trust, Inc. ("Columbia Property Trust" or "Columbia") (NYSE: CXP) is a Maryland corporation that operates as a real estate investment trust ("REIT") for federal income tax purposes, and owns and operates commercial real estate properties. Columbia Property Trust conducts business primarily through Columbia Property Trust Operating Partnership, L.P. ("Columbia OP"), a Delaware limited partnership in which Columbia Property Trust is the general partner and majority owner (97.3%). Columbia Property Trust acquires, develops, redevelops, owns, leases, and operates real properties directly, through wholly owned subsidiaries, or through joint ventures. Unless otherwise noted herein, references to Columbia Property Trust, the "Company," "we," "us," or "our" herein shall include Columbia Property Trust and all subsidiaries of Columbia Property Trust, direct and indirect.
As of March 31, 2021, Columbia Property Trust owned 15 operating properties and four properties under development or redevelopment, of which 10 were wholly owned and nine were owned through joint ventures, located in New York, San Francisco, Washington, D.C., and Boston. As of March 31, 2021, these operating properties contained 6.2 million rentable square feet and were approximately 94.0% leased. Columbia Property Trust also provides asset and property management services for 8.0 million square feet of office space located primarily in New York, Washington, D.C., and Boston.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements of Columbia Property Trust have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"), including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by U.S. generally accepted accounting principles ("GAAP") for complete financial statements. In the opinion of management, the statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Results for these interim periods are not necessarily indicative of a full year's results. For additional information on Columbia Property Trust's unconsolidated joint ventures, which are accounted for using the equity method of accounting, see Note 4, Unconsolidated Joint Ventures. Columbia Property Trust's consolidated financial statements include the accounts of Columbia Property Trust, Columbia OP, and any variable-interest entity in which Columbia Property Trust or Columbia OP is deemed the primary beneficiary. With respect to entities that are not variable interest entities, Columbia Property Trust's consolidated financial statements also include the accounts of any entity in which Columbia Property Trust, Columbia OP, or their subsidiaries own a controlling financial interest and any limited partnership in which Columbia Property Trust, Columbia OP, or their subsidiaries own a controlling general partnership interest. All intercompany balances and transactions have been eliminated in consolidation. For further information, refer to the financial statements and footnotes included in Columbia Property Trust's Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K").
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 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, under current market conditions. 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 or 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
Columbia Property Trust is required to make subjective assessments as to the useful lives of its depreciable assets. To determine the appropriate useful life of an asset, Columbia Property Trust considers the period of future benefit of the asset. These assessments have a direct impact on net income. The estimated useful lives of its assets by class are as follows:
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Buildings
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40 years
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Building and site improvements
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5-25 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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With respect to development and redevelopment projects, Columbia Property Trust capitalizes construction costs, including hard and soft costs, operating costs and interest expense, as applicable. Interest expense is capitalized on development, redevelopment, and improvement projects funded directly and through its interest in unconsolidated joint ventures. During the three months ended March 31, 2021 and 2020, $2.8 million and $2.6 million, respectively, of interest was capitalized to construction in progress; and during the three months ended March 31, 2021 and 2020, $0.8 million and $0.4 million, respectively, of interest was capitalized to investments in unconsolidated joint ventures. See Note 5., Line of Credit and Notes Payable, for additional information.
Assets Held for Sale
Columbia Property Trust classifies properties as held for sale according to Accounting Standard Codification 360, Accounting for the Impairment or Disposal of Long-Lived Assets ("ASC 360"). According to ASC 360, properties having separately identifiable operations and cash flows are considered held for sale when all of 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 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.
•The sale of the property is probable (i.e., typically subject to a binding sale contract with a non-refundable deposit), and transfer of the property is expected to qualify for recognition as a completed sale within one year.
As of March 31, 2021 and December 31, 2020, none of Columbia's properties met the criteria to be classified as held for sale in the accompanying consolidated balance sheets.
Evaluating the Recoverability of Real Estate Assets
Columbia Property Trust continually monitors events and changes in circumstances that could indicate that the net carrying amounts of its real estate and related intangible assets and liabilities, of both operating properties and properties under development or redevelopment, may not be recoverable. When indicators of potential impairment are present that suggest that the net carrying amounts of real estate assets and related intangible assets and liabilities may not be recoverable, Columbia Property Trust assesses the recoverability of these net assets by determining whether the respective carrying values will be recovered through the estimated undiscounted future cash flows expected from the use of the net 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 values of the real estate assets and related intangible assets and liabilities 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. At such time that a
property is required to be classified as held for sale, its net carrying amount is adjusted to the lower of its depreciated book value or its estimated fair value, less costs to sell, and depreciation is no longer recognized.
Estimated fair values are calculated based on the following hierarchy of information: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of future cash flows, including estimated residual value. Projections of expected future operating cash flows require that Columbia Property Trust 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. Due to the inherent subjectivity of the assumptions used to project future cash flows, estimated fair values may differ from the values that would be realized in market transactions. Certain of Columbia Property Trust's assets may be carried at an amount that exceeds that which could be realized in a current disposition transaction. Columbia Property Trust has determined that the carrying values of its real estate assets and related intangible assets are recoverable as of March 31, 2021.
Intangible Assets and Liabilities Arising From In-Place Leases Where Columbia Property Trust Is the Lessor
Upon the acquisition of real properties, Columbia Property Trust allocates the purchase price of the 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 detail). As of March 31, 2021 and December 31, 2020, Columbia Property Trust had the following intangible assets and liabilities, arising from in-place leases, excluding amounts held for sale, if applicable (in thousands):
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Intangible Lease Assets
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Intangible
Lease
Origination
Costs
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Intangible
Below-Market
In-Place Lease
Liabilities
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Above-Market
In-Place
Lease Assets
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Absorption
Period Costs
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March 31, 2021
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Gross
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$
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2,480
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$
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99,153
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$
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55,814
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$
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21,281
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Accumulated Amortization
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(1,416)
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(56,554)
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(35,662)
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(7,582)
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Net
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$
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1,064
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$
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42,599
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$
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20,152
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$
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13,699
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December 31, 2020
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Gross
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$
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2,480
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$
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101,542
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$
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56,612
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$
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23,287
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Accumulated Amortization
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(1,374)
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(56,573)
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(35,161)
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(8,867)
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Net
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$
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1,106
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$
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44,969
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$
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21,451
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$
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14,420
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Amortization of Intangible Assets and Liabilities Arising From In-Place Leases
For the three months ended March 31, 2021 and 2020, Columbia Property Trust recognized the following amortization of intangible lease assets and liabilities (in thousands):
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Intangible Lease Assets
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Intangible
Lease
Origination
Costs
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Intangible
Below-Market
In-Place Lease
Liabilities
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Above-Market
In-Place
Lease Assets
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Absorption
Period Costs
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For the Three Months Ended March 31, 2021
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$
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42
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$
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2,369
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$
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1,299
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$
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722
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For the Three Months Ended March 31, 2020
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$
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43
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$
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3,700
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$
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1,586
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$
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1,596
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The net intangible assets and liabilities remaining as of March 31, 2021 will be amortized as follows, excluding amounts held for sale, if applicable (in thousands):
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Intangible Lease Assets
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Intangible
Lease
Origination
Costs
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Intangible
Below-Market
In-Place Lease
Liabilities
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Above-Market
In-Place
Lease Assets
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Absorption
Period Costs
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For the remainder of 2021
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$
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129
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$
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6,594
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$
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3,111
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$
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2,080
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For the years ending December 31:
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2022
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172
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7,620
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3,335
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2,571
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2023
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172
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6,138
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2,810
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1,995
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2024
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172
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5,333
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2,500
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1,748
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2025
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172
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3,943
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1,849
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1,182
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2026
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109
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2,832
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1,321
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964
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Thereafter
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138
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10,139
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5,226
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3,159
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$
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1,064
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$
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42,599
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$
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20,152
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$
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13,699
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Investments in Unconsolidated Joint Ventures
Columbia Property Trust uses the equity method to account for investments that are not wholly owned and: (i) are considered variable interest entities where the Company is not the primary beneficiary, or (ii) in which the Company, along with its co-owners, possesses substantive participation rights, including management selection and termination, and the approval of significant capital and operating decisions. Under the equity method, investments in unconsolidated joint ventures are recorded at cost and adjusted for cash contributions and distributions, and allocations of income or loss.
Investments in Real Estate Funds
Columbia Property Trust holds general partnership interests and limited partnership interests in three real estate funds: Normandy Real Estate Fund III, LP; Normandy Real Estate Fund IV, LP; and Normandy Opportunity Zone Fund, LP (collectively, the "Real Estate Funds"). The Company owns minimal economic interests in the Real Estate Funds (ranging from 2.0% to 2.5%). Significant decision rights are shared between the general partners and limited partners and a general partner can be removed with a majority vote from the limited partners. As a result, Columbia Property Trust accounts for its investments in the Real Estate Funds using the equity method. The Real Estate Funds are subject to the rules of the AICPA Investment Company Guide; as a result, GAAP requires the Company to record its investments in the Real Estate Funds at their respective estimated fair market values. The Company determines the Real Estate Funds' estimated net asset values per share using a discounted cash flow model, which is considered a Level 3 valuation technique (see "Fair Value Measurements" section above). As of March 31, 2021 and December 31, 2020, investments in the Real Estate Funds of approximately $4.2 million and $4.3 million, respectively, are included in prepaid expenses and other assets on the accompanying consolidated balance sheet. For the three months ended March 31, 2021 and 2020, Columbia Property Trust recognized unrealized losses on its investments in Real Estate Funds of approximately $0.2 million, which are recorded as other income (loss) in the accompanying consolidated statements of operations.
Columbia Property Trust has entered into agreements to provide acquisition, disposition, investment management, property management, leasing, and other services to the properties in which the Real Estate Funds own interests. See Note 12, Non-Lease Revenues, for more details. From time to time, Columbia Property Trust may be required to make additional capital contributions to the Real Estate Funds. See Note 7, Commitments and Contingencies, for more details.
Tenant Receivables
Tenant receivables consist of rental and reimbursement billings due from tenants. Tenant receivables are recorded at the original amount earned, which approximates fair value. Management assesses the realizability of tenant receivables on an ongoing basis. When the collectability of tenant receivables is not considered probable, the receivable is written down against lease revenues. During the three months ended March 31, 2021 and 2020, $1,340,000 and $8,000, respectively, of tenant receivables were written down against lease revenues.
Straight-Line Rent Receivable
Straight-line rent receivable reflects the amount of cumulative adjustments necessary to present rental income on a straight-line basis. Columbia Property Trust recognizes rental revenues on a straight-line basis, ratably over the term of each lease; however, leases often provide for payment terms that differ from the revenue recognized. When the amount of cash billed is less than the amount of revenue recognized, typically early in the lease, straight-line rent receivable is recorded for the difference. The receivable is depleted during periods later in the lease when the amount of cash paid by the tenant is greater than the amount of revenue recognized. When the collection of future rental billings is not considered probable, tenants are moved to "cash basis billings," at which point the corresponding straight-line rent receivable is written-down against lease revenues, and future revenues are recognized upon receipt of payment. During the three months ended March 31, 2021, approximately $0.2 million of straight-line rent receivables were written down against lease revenues.
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 swap transactions for speculative purposes and currently does not have any derivatives that are not designated as hedges; however, certain of its derivatives may, at times, not qualify for hedge accounting treatment. Columbia Property Trust records the fair value of its interest rate swaps on its consolidated balance sheet either as prepaid expenses and other assets or as accounts payable, accrued expenses, and accrued capital expenditures. Changes in the fair value of interest rate swaps that are designated as cash flow hedges are recorded as other comprehensive income (loss). Changes in the fair value of interest rate swaps that do not qualify for hedge accounting treatment are recorded as gain or 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 gain or loss on interest rate swaps for contracts that do not qualify for hedge accounting treatment. As of March 31, 2021, Columbia Property Trust has two interest rate swaps with an aggregate notional value of $450.0 million. The following tables provide additional information related to Columbia Property Trust's interest rate swaps (in thousands):
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Estimated Fair Value as of
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Instrument Type
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Balance Sheet Classification
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March 31,
2021
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December 31,
2020
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Derivatives Designated as Hedging Instruments:
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Interest rate contracts
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Accounts payable
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$
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14,096
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$
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18,720
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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.
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Three Months Ended
March 31,
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2021
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2020
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Market value adjustment to interest rate swaps designated as hedging instruments and included in other comprehensive income (loss)
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$
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4,624
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$
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(19,993)
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During the periods presented, no hedge ineffectiveness was required to be recognized into earnings on the interest rate swaps that qualified for hedge accounting treatment.
Noncontrolling Interests
Noncontrolling interests represent the portion of equity in consolidated entities that is owned by third parties. Noncontrolling interests are adjusted for cash contributions and distributions, and for earnings. Such earnings are allocated between the Company and noncontrolling interests using the hypothetical liquidation at book value method
pursuant to the terms of the respective ownership agreements, and are reflected as net income (loss) attributable to noncontrolling interests in the accompanying consolidated statements of operations.
Strategic Review Costs
In the first quarter of 2021, the Company incurred approximately $2.4 million of strategic review and proxy contest costs related to a proxy contest, which was subsequently withdrawn in late April, and the ongoing strategic alternative review process. These costs are expensed as incurred.
Income Taxes
Columbia Property Trust has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code") and has operated as such beginning with its taxable year ended December 31, 2003. To qualify as a REIT, the Company 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. To the extent that Columbia Property Trust satisfies the distribution requirement but distributes less than 100% of its REIT taxable income, the Company would be subject to federal and state corporate income tax on the undistributed income. Generally, the Company does not incur federal income taxes, other than as described in the following paragraph, because its stockholder distributions typically exceed its taxable income due to noncash expenses such as depreciation. 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.
Columbia Property Trust TRS, LLC; Columbia KCP TRS, LLC; Columbia Development TRS 13, LLC; and Columbia Development TRS 87, LLC (collectively, the "TRS Entities") are subsidiaries of the Company and are organized as Delaware limited liability companies. The TRS Entities, among other things, provide services related to asset and property management, construction and development, and other tenant services that Columbia Property Trust, as a REIT, cannot otherwise provide. The Company 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, earnings of a TRS entity are subject to federal and state income taxes. In addition, for the Company to continue to qualify as a REIT, Columbia Property Trust must limit its investments in taxable REIT subsidiaries to 20% 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, the Company records interest and penalties related to uncertain tax positions as general and administrative expense in the accompanying consolidated statements of operations.
Reclassification
Certain prior-period amounts on the consolidated statement of cash flows have been reclassified to conform with the current-period presentation. With respect to adjustments to reconcile net income to cash provided by operating activities, lease revenues reserved for doubtful accounts – tenant receivables includes amounts previously reported in decrease (increase) in tenant receivables, net.
Recent Accounting Pronouncements
Accounting Standard Update 2021-01, Reference Rate Reform ("ASC 2021-01"), which was issued on and effective as of January 7, 2021, refines the scope of ASC 848, Reference Rate Reform ("ASC 848"), which was codified last year to address the accounting and disclosure impacts of reference rate reform and the anticipated discontinuance of LIBOR. Columbia Property Trust has matched LIBOR-based debt with LIBOR-based interest rate swaps, and has elected to apply the practical expedients provided for in ASC 848 related to (i) probability and (ii) the assessment of the effectiveness for future LIBOR-indexed cash flows, which assume that the debt instrument will use the same index rate as its corresponding interest rate swap, once a new reference rate is established to replace LIBOR. Application of these expedients preserves the effectiveness of the Company's interest rate swaps as cash flow hedges in the event that its debt and interest rate swaps are not amended concurrently to reflect a new reference rate. ASC 2021-01 allows for entities to either apply the practical expedient as Columbia has elected to do, or change its effectiveness approach to a quantitative model as provided for in existing guidance. Columbia Property Trust continues to evaluate the impact of the guidance and may apply other elections as additional reference rate changes occur. ASC 848 and ASU 2021-01 may be
applied to swaps entered into through December 31, 2022. Neither has had a material impact on Columbia Property Trust's consolidated financial statements or disclosures.
3. Transactions
Terminal Warehouse Joint Venture Investment
On March 13, 2020, Columbia Property Trust acquired a one-third general partnership interest and limited partnership interests, totaling an 8.65% economic interest, in Terminal Warehouse for $40.0 million. Terminal Warehouse is a 1.2-million-square-foot property located in West Chelsea, New York, that will be fully redeveloped into mixed-use retail and office space (the "Terminal Warehouse Joint Venture"). The Terminal Warehouse Joint Venture has a two-year, interest-only acquisition loan with a total capacity of $650.0 million, and an outstanding balance of $645.5 million as of March 31, 2021. After executing an extension in April 2021, the loan matures on May 24, 2021, with two extension options for a total possible extension period of eight months to January 24, 2022. The Company earns fees from providing management services to the Terminal Warehouse Joint Venture. See Note 4, Unconsolidated Joint Ventures, and Note 12, Non-Lease Revenues, for more detail.
Real Estate Dispositions
During 2020, Columbia Property Trust sold the following properties. Additional information for certain of the disposition transactions is provided below the table. There have been no real estate dispositions in 2021 to date.
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Property
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Location
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Date
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% Sold
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Sales Price(1)
(in thousands)
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Gain (loss) on Sale
(in thousands)
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2020
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221 Main Street
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San Francisco, CA
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October 8, 2020
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45
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%
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$
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180,000
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$
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175,271
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Pasadena Corporate Park
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Los Angeles, CA
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March 31, 2020
|
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100
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%
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$
|
78,000
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$
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(67)
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Cranberry Woods Drive
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Pittsburgh, PA
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January 16, 2020
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100
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%
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$
|
180,000
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$
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13,428
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(1)Exclusive of transaction costs and price adjustments.
221 Main Street – Partial Sale
On October 8, 2020, Columbia Property Trust contributed 221 Main Street to a joint venture and simultaneously sold a 45.0% interest in this joint venture (the "221 Main Street Joint Venture") for a gross sales price of $180.0 million, exclusive of transaction costs, resulting in a gain on sale of $175.3 million in the fourth quarter of 2020. Following this transaction, Columbia Property Trust owns a 55.0% interest in the 221 Main Street Joint Venture. The proceeds from this transaction were used to pay down the Revolving Credit Facility, as described in Note 5, Line of Credit and Notes Payable, during the fourth quarter of 2020.
Pasadena Corporate Park
On March 31, 2020, Columbia Property Trust closed on the sale of Pasadena Corporate Park for a gross sales price of $78.0 million, exclusive of transaction costs, resulting in a loss on sale of $67,000. Columbia Property Trust recognized an impairment loss of $20.6 million related to this property in the fourth quarter of 2019. At the time of sale, the proceeds from this transaction were held in cash and cash equivalents.
Cranberry Woods Drive
On January 16, 2020, Columbia Property Trust closed on the sale of Cranberry Woods Drive for a gross sales price of $180.0 million, exclusive of transaction costs, resulting in a gain on sale of $13.4 million. The proceeds from this transaction were used to pay down the Revolving Credit Facility, as described in Note 5, Line of Credit and Notes Payable.
Normandy Acquisition
On January 24, 2020, Columbia Property Trust acquired Normandy Real Estate Management, LLC ("Normandy"), a developer, operator, and investment manager of office and mixed-use assets with a focus on assets in New York, Boston, and Washington, D.C. (the "Normandy Acquisition"). As a result of the Normandy Acquisition, the Company acquired an operating platform, interests in the Real Estate Funds, and contracts to earn fees for providing management services to properties affiliated with the Real Estate Funds (see Note 12, Non-Lease Revenues, for details).
The purchase price, exclusive of adjustments and transaction costs, is comprised of two components: (i) an approximately $14.0 million cash payment, and (ii) the issuance of 3,264,151 Series A Convertible, Perpetual Preferred Units of Columbia OP with a liquidation preference of $26.50 per unit (the "Preferred OP Units"). The Preferred OP Units are convertible for common units of Columbia OP, which are exchangeable into shares of Columbia Property Trust's common stock, subject to certain terms and conditions. As of the closing date of the acquisition, the Preferred OP Units had an estimated fair value of $24.43 per unit. The fair value of the Preferred OP Units was determined using a lattice valuation model, utilizing significant unobservable inputs (Level 3 under the fair value hierarchy described in Note 2, Summary of Significant Accounting Policies). The initial purchase consideration was allocated as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
January 24, 2020
|
|
Goodwill(1)
|
|
$
|
63,806
|
|
|
Prepaid expenses and other assets(2)
|
|
7,670
|
|
|
Cash
|
|
1,260
|
|
|
Operating lease assets
|
|
934
|
|
|
Investments in unconsolidated joint ventures(3)
|
|
419
|
|
|
Accounts payable, accrued expenses, and accrued capital expenditures
|
|
(2,881)
|
|
|
Operating lease liabilities
|
|
(934)
|
|
|
Deferred income
|
|
(77)
|
|
|
Total initial purchase consideration
|
|
$
|
70,197
|
|
(1)In the fourth quarter of 2020, in connection with Columbia's annual assessment of the recoverability of goodwill, the Company wrote off this balance by recording an impairment loss of $63.8 million.
(2)Prepaid expenses and other assets includes $3.7 million of investments in Real Estate Funds, as described in Note 2, Summary of Significant Accounting Policies.
(3)Reflects interests in five unconsolidated joint ventures that earn fees for providing management services to properties affiliated with the Real Estate Funds.
For the period from January 24, 2020 through March 31, 2020, Columbia Property Trust recognized additional revenues of $5.2 million and net income, excluding the impact of acquisition costs, of $0.7 million as a result of the Normandy Acquisition. During the three months ended March 31, 2020, Columbia Property Trust incurred $12.1 million of acquisition and restructuring costs related to the Normandy Acquisition.
4. Unconsolidated Joint Ventures
As of March 31, 2021 and December 31, 2020, Columbia Property Trust owned interests in the following properties through joint ventures, which are accounted for using the equity method of accounting (in thousands):
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
Carrying Value of Investment(1)
|
|
Joint Venture
|
|
Property Name
|
|
Geographic Market
|
|
Ownership Interest
|
|
March 31, 2021
|
|
December 31, 2020
|
|
University Circle Joint Venture
|
|
University Circle
|
|
San Francisco
|
|
55.00
|
%
|
|
$
|
275,867
|
|
|
$
|
276,574
|
|
|
333 Market Street Joint Venture
|
|
333 Market Street
|
|
San Francisco
|
|
55.00
|
%
|
|
264,483
|
|
|
265,673
|
|
|
1800 M Street Joint Venture
|
|
1800 M Street
|
|
Washington, D.C.
|
|
55.00
|
%
|
|
225,888
|
|
|
227,847
|
|
|
221 Main Street Joint Venture
|
|
221 Main Street
|
|
San Francisco, CA
|
|
55.00
|
%
|
|
217,057
|
|
|
219,078
|
|
|
114 Fifth Avenue Joint Venture
|
|
114 Fifth Avenue
|
|
New York
|
|
49.50
|
%
|
|
75,367
|
|
|
74,273
|
|
|
Market Square Joint Venture
|
|
Market Square
|
|
Washington, D.C.
|
|
51.00
|
%
|
|
133,726
|
|
|
134,747
|
|
|
799 Broadway Joint Venture(2)
|
|
799 Broadway
|
|
New York, NY
|
|
49.70
|
%
|
|
55,888
|
|
|
53,248
|
|
|
Terminal Warehouse Joint Venture(2)
|
|
Terminal Warehouse
|
|
New York, NY
|
|
8.65
|
%
|
|
46,571
|
|
|
43,771
|
|
|
Real Estate Services Joint Ventures(3)
|
|
n/a(3)
|
|
n/a(3)
|
|
Various(3)
|
|
572
|
|
|
589
|
|
|
|
|
|
|
|
|
|
|
$
|
1,295,419
|
|
|
$
|
1,295,800
|
|
(1)Includes basis differences. There are aggregate net differences between the historical costs recorded at the joint venture level, and Columbia Property Trust's investments in unconsolidated joint ventures of $382.1 million and $383.5 million as of March 31, 2021 and December 31, 2020, respectively. Such basis differences result from the timing of each partner's joint venture interest acquisition; and formation costs incurred by Columbia Property Trust. Basis differences are amortized to income (loss) from unconsolidated joint ventures over the lives of the underlying assets or liabilities.
(2)Columbia Property Trust capitalized interest on its investment in the 799 Broadway Joint Venture and the Terminal Warehouse Joint Venture: $0.8 million and $0.3 million during the three months ended March 31, 2021 and 2020, respectively.
(3)Columbia Property Trust owns the following interests in five unconsolidated joint ventures that earn fees for providing real estate management services to properties affiliated with the Real Estate Funds (the "Real Estate Services Joint Ventures"): L&L Normandy Terminal Asset Manager, LLC (67%); L&L Normandy Terminal Development Manager, LLC (50%); L&L Normandy Terminal Property Manager (50%) (collectively, the "Terminal Services Joint Ventures"); WNK Maiden Management (50%); and Maple AB Services, LLC (55%). The Terminal Services Joint Ventures earn fees from providing services to the Terminal Warehouse Joint Venture.
Columbia Property Trust has determined that two of its unconsolidated joint ventures are variable interest entities and the Company is not the primary beneficiary. Therefore, the Company uses the equity method of accounting to record its investment in these joint ventures. For the remaining joint ventures, Columbia Property Trust and its partners have substantive participation rights in the unconsolidated joint ventures, including management selection and termination, and the approval of operating and capital decisions. As such, Columbia Property Trust also uses the equity method of accounting to record its investment in these joint ventures. Under the equity method, investments in unconsolidated joint ventures are recorded at cost and adjusted for cash contributions and distributions, and allocations of income or loss.
Columbia Property Trust evaluates the recoverability of its investments in unconsolidated joint ventures in accordance with accounting standards for equity investments by first reviewing the investment for any indicators of impairment. If indicators are present, Columbia Property Trust estimates the fair value of the investment. If the carrying value of the investment exceeds the estimated fair value, management makes an assessment of whether the deficit is "temporary" or "other-than-temporary," and if "other-than-temporary," reduces the carrying value to reflect the estimated fair value by recording an impairment loss. In making this assessment, management considers the following: (1) the length of time and the extent to which fair value has been less than cost and (2) Columbia Property Trust's intent and ability to retain its interest long enough for a recovery in market value. Based on the analysis described above, Columbia Property Trust has determined that none of its investments in joint ventures are impaired as of March 31, 2021.
Condensed Combined Financial Information
Summarized balance sheet information for each of the unconsolidated joint ventures is as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
Total Debt
|
|
Total Equity(1)
|
|
|
|
March 31,
2021
|
|
December 31, 2020
|
|
March 31,
2021
|
|
December 31, 2020
|
|
March 31,
2021
|
|
December 31, 2020
|
|
University Circle Joint Venture
|
|
$
|
214,280
|
|
|
$
|
213,045
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
208,653
|
|
|
$
|
208,541
|
|
|
333 Market Street Joint Venture
|
|
354,835
|
|
|
357,370
|
|
|
—
|
|
|
|
—
|
|
|
341,676
|
|
|
344,103
|
|
|
1800 M Street Joint Venture
|
|
421,219
|
|
|
427,602
|
|
|
—
|
|
|
|
—
|
|
|
408,417
|
|
|
411,957
|
|
|
221 Main Street Joint Venture
|
|
230,231
|
|
|
229,745
|
|
|
—
|
|
|
|
—
|
|
|
224,523
|
|
|
224,732
|
|
|
114 Fifth Avenue Joint Venture
|
|
464,030
|
|
|
462,319
|
|
|
—
|
|
|
|
—
|
|
|
104,567
|
|
|
101,952
|
|
|
Market Square Joint Venture
|
|
568,545
|
|
|
577,095
|
|
|
324,881
|
|
(2)
|
|
324,868
|
|
|
235,187
|
|
|
237,778
|
|
|
799 Broadway Joint Venture
|
|
255,670
|
|
|
246,456
|
|
|
144,116
|
|
(3)
|
|
138,930
|
|
|
103,249
|
|
|
99,000
|
|
|
Terminal Warehouse Joint Venture
|
|
1,079,057
|
|
|
1,045,852
|
|
|
645,081
|
|
(4)
|
|
643,819
|
|
|
406,725
|
|
|
380,277
|
|
|
Real Estate Services Joint Ventures
|
|
1,581
|
|
|
1,754
|
|
|
—
|
|
|
|
—
|
|
|
977
|
|
|
1,104
|
|
|
|
|
$
|
3,589,448
|
|
|
$
|
3,561,238
|
|
|
$
|
1,114,078
|
|
|
|
$
|
1,107,617
|
|
|
$
|
2,033,974
|
|
|
$
|
2,009,444
|
|
(1)Excludes basis differences (see footnote (1) to the Carrying Value of Investment table above), which are amortized to income (loss) from unconsolidated joint ventures over the lives of the underlying assets or liabilities.
(2)The Market Square Joint Venture has a $325.0 million mortgage note. The Market Square mortgage note bears interest at 5.07% and matures on July 1, 2023.
(3)Reflects $145.1 million outstanding, net of $1.0 million of net unamortized deferred financing costs, on the 799 Broadway construction loan. The 799 Broadway construction loan is being used to finance a portion of the 799 Broadway development project, has total capacity of $187.0 million, and bears interest at LIBOR plus a spread of 425 basis points, with a LIBOR floor of 1.00% and capped of 4.00% (the "Construction Loan"). A portion of the monthly interest payments accrue into the balance of the loan. The Construction Loan matures on October 9, 2021, with two one-year extension options. For a discussion of Columbia Property Trust's equity guaranty related to the Construction Loan, see Note 7, Commitments and Contingencies.
(4)Reflects $645.5 million outstanding, net of $0.4 million of net unamortized deferred financing costs, on the Terminal Warehouse acquisition loan. The Terminal Warehouse Joint Venture has an interest-only acquisition loan with a total capacity of $650.0 million. The Terminal Warehouse acquisition loan bears interest at LIBOR plus a spread of 340 basis points, with a LIBOR floor of 2.28% and cap of 3.50%, and matures on May 24, 2021, with two extension options for a total possible extension period of eight months to January 24, 2022.
Summarized income statement information for the unconsolidated joint ventures for the three months ended March 31, 2021 and 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
Net Income (Loss)
|
|
Columbia Property Trust's Share of Net Income (Loss)(1)
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
University Circle Joint Venture
|
|
$
|
10,305
|
|
|
$
|
10,924
|
|
|
$
|
5,112
|
|
|
$
|
5,715
|
|
|
$
|
2,811
|
|
|
$
|
3,144
|
|
|
333 Market Street Joint Venture
|
|
7,135
|
|
|
7,067
|
|
|
3,672
|
|
|
3,705
|
|
|
2,020
|
|
|
2,037
|
|
|
1800 M Street Joint Venture
|
|
9,631
|
|
|
9,937
|
|
|
1,463
|
|
|
1,752
|
|
|
805
|
|
|
964
|
|
|
221 Main Street Joint Venture
|
|
7,982
|
|
|
—
|
|
|
2,583
|
|
|
—
|
|
|
1,420
|
|
|
—
|
|
|
114 Fifth Avenue Joint Venture
|
|
10,735
|
|
|
10,428
|
|
|
6,865
|
|
|
(2,653)
|
|
|
3,398
|
|
|
(1,314)
|
|
|
Market Square Joint Venture
|
|
12,597
|
|
|
12,690
|
|
|
(2,586)
|
|
|
(1,994)
|
|
|
(1,319)
|
|
|
(1,017)
|
|
|
799 Broadway Joint Venture
|
|
—
|
|
|
—
|
|
|
(40)
|
|
|
(32)
|
|
|
(20)
|
|
|
(16)
|
|
|
Terminal Warehouse Joint Venture
|
|
2,173
|
|
|
2,307
|
|
|
(2,152)
|
|
|
(3,741)
|
|
|
(186)
|
|
|
(324)
|
|
|
Real Estate Services Joint Ventures
|
|
1,889
|
|
|
1,875
|
|
|
962
|
|
|
938
|
|
|
565
|
|
|
341
|
|
|
|
|
$
|
62,447
|
|
|
$
|
55,228
|
|
|
$
|
15,879
|
|
|
$
|
3,690
|
|
|
$
|
9,494
|
|
|
$
|
3,815
|
|
(1)Excludes amortization of basis differences (see footnote to (1) the Carrying Value of Investment table above), which are recorded as income (loss) from unconsolidated joint ventures in the accompanying consolidated statements of operations.
Management Fees
Columbia Property Trust provides property and asset management services to certain of its joint ventures. Under these agreements, Columbia Property Trust oversees the day-to-day operations of these joint ventures and their properties, including property management, property accounting, leasing, construction management and other administrative services. During the three months ended March 31, 2021 and 2020, Columbia Property Trust earned the following fees from its unconsolidated joint ventures (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
University Circle Joint Venture
|
|
$
|
587
|
|
|
$
|
587
|
|
|
|
|
|
|
333 Market Street Joint Venture
|
|
209
|
|
|
214
|
|
|
|
|
|
|
1800 M Street Joint Venture
|
|
562
|
|
|
555
|
|
|
|
|
|
|
221 Main Street Joint Venture
|
|
471
|
|
|
—
|
|
|
|
|
|
|
Market Square Joint Venture
|
|
605
|
|
|
574
|
|
|
|
|
|
|
799 Broadway Joint Venture
|
|
—
|
|
|
223
|
|
|
|
|
|
|
|
|
$
|
2,434
|
|
|
$
|
2,153
|
|
|
|
|
|
For the three months ended March 31, 2021 and 2020, Columbia Property Trust earned reimbursement income for management fee administration costs of $1.4 million and $1.3 million, respectively, which is included in management fee revenues.
Asset and property management fees of $0.5 million and $0.4 million were due to Columbia Property Trust from the joint ventures and are included in prepaid expenses and other assets on the accompanying consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively.
Columbia Property Trust also earns management fees through its interest in the Real Estate Services Joint Ventures, which are recorded as income in unconsolidated joint ventures in the accompanying consolidated statements of operations above.
5. Line of Credit and Notes Payable
As of March 31, 2021 and December 31, 2020, Columbia Property Trust had the following line of credit and notes payable indebtedness (excluding bonds payable; see Note 6, Bonds Payable) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
|
|
March 31,
2021
|
|
December 31,
2020
|
|
$300 Million Term Loan
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
|
$150 Million Term Loan
|
|
150,000
|
|
|
150,000
|
|
|
Revolving Credit Facility
|
|
124,000
|
|
|
110,000
|
|
|
Less: Deferred financing costs related to term loans and notes payable, net of accumulated amortization
|
|
(1,316)
|
|
|
(1,470)
|
|
|
|
|
$
|
572,684
|
|
|
$
|
558,530
|
|
Columbia Property Trust's amended and restated credit and term loan agreement (the "Credit Agreement") provides for (i) a $650.0 million unsecured revolving credit facility (the "Revolving Credit Facility"), with an initial term ending January 31, 2023 and two six-month extension options (for a total possible extension option of one year to January 31, 2024), subject to the payment of certain fees and the satisfaction of certain other conditions, and (ii) a $300.0 million unsecured term loan, with a term ending January 31, 2024 (the "$300 Million Term Loan").
At Columbia Property Trust's option, borrowings under the Credit Agreement bear interest at either (i) the alternate base rate plus an applicable margin based on five stated pricing levels ranging from 0.00% to 0.45% for the Revolving Credit Facility and 0.00% to 0.65% for the $300 Million Term Loan, or (ii) the LIBOR rate, as defined in the credit agreement, plus an applicable margin based on five stated pricing levels ranging from 0.775% to 1.45% for the Revolving Credit Facility and 0.85% to 1.65% for the $300 Million Term Loan, in each case based on Columbia Property Trust's credit rating. The interest rate on the $300 Million Term Loan has been effectively fixed at 2.55% with an interest rate swap agreement, which is designated as a cash flow hedge.
Columbia Property Trust's $150.0 million unsecured term loan matures in July 2022 (the "$150 Million Term Loan") and bears interest, at the Company's option, at either (i) LIBOR, plus an applicable margin ranging from 0.90% to 1.75% for LIBOR loans, or (ii) alternative base rate, plus an applicable margin ranging from 0.00% to 0.75% for base rate loans. The interest rate on the $150 Million Term Loan is effectively fixed with an interest rate swap agreement, which is designated as a cash flow hedge. Based on the terms of the interest rate swap and the Company's current credit rating, the interest rate on the $150 Million Term Loan is effectively fixed at 3.07%, which is designated as a cash flow hedge.
Fair Value of Debt
The estimated fair value of Columbia Property Trust's line of credit and notes payable as of March 31, 2021 and December 31, 2020, was approximately $578.0 million and $564.6 million, respectively. The related carrying value of the line of credit and notes payable as of March 31, 2021 and December 31, 2020, was $574.0 million and $560.0 million, respectively. Columbia Property Trust estimated the fair value of its term loans and the Revolving Credit Facility 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).
Interest Paid and Capitalized
During the three months ended March 31, 2021 and 2020, Columbia Property Trust made interest payments of approximately $3.7 million and $5.0 million, respectively.
Columbia Property Trust capitalizes interest on development, redevelopment, and improvement projects funded directly and through its interest in unconsolidated joint ventures, using the weighted-average interest rate of its consolidated
borrowings for the period. During the three months ended March 31, 2021, Columbia Property Trust capitalized interest of $3.6 million, $2.8 million of which was capitalized to construction in progress, and $0.8 million of which was capitalized to investments in unconsolidated joint ventures. During the three months ended March 31, 2020, Columbia Property Trust capitalized interest of $3.0 million, $2.6 million of which was capitalized to construction in progress, and $0.4 million of which was capitalized to investments in unconsolidated joint ventures. For the three months ended March 31, 2021, the weighted average interest rate on Columbia Property Trust's consolidated outstanding borrowings was 3.23%.
Debt Covenants
As of March 31, 2021, Columbia Property Trust was in compliance with all of its debt covenants on its term loans and the Revolving Credit Facility.
6. Bonds Payable
Columbia Property Trust has two series of bonds outstanding as of March 31, 2021 and December 31, 2020: $350.0 million of 10-year, unsecured 3.650% senior notes issued at 99.626% of their face value (the "2026 Bonds Payable"); and $350.0 million of 10-year, unsecured 4.150% senior notes issued at 99.859% of their face value (the "2025 Bonds Payable"), (collectively, the "Bonds Payable"). Both series of bonds require semi-annual interest payments. The principal amount of the 2026 Bonds Payable is due and payable on August 15, 2026, and the principal amount of the 2025 Bonds Payable is due and payable on April 1, 2025. The Bonds Payable were issued by Columbia OP and are fully and unconditionally guaranteed by Columbia Property Trust, Inc.
Interest payments of $6.4 million were made on the Bonds Payable during both the three months ended March 31, 2021 and 2020. Columbia Property Trust is subject to substantially similar covenants under the 2026 Bonds Payable and the 2025 Bonds Payable. As of March 31, 2021, Columbia Property Trust was in compliance with the restrictive financial covenants on the 2026 Bonds Payable and the 2025 Bonds Payable.
As of March 31, 2021 and December 31, 2020, the estimated fair value of the Bonds Payable was approximately $755.1 million and $738.2 million, respectively, and the related carrying value, net of discounts, as of March 31, 2021 and December 31, 2020 was $699.1 million. The fair value of the Bonds Payable was estimated based on a discounted cash flow analysis, using observable market data for its bonds payable and similar instruments (Level 2). The discounted cash flow method of assessing fair value results in a general approximation of value, which may differ from the price that could be achieved in a market transaction.
7. Commitments and Contingencies
Commitments Under Existing Lease Agreements
Certain lease agreements include tenant allowances that, at the option of the tenant, may obligate Columbia Property Trust to expend capital to improve an existing property, or to provide other expenditures for the benefit of the tenant. As of March 31, 2021, the Company is required to fund an additional $42.5 million for construction and tenant improvement allowances related to a vertical expansion project at 80 M Street in Washington, D.C., and $25.2 million related to lobby and tenant improvement allowances for the Pershing lease at 95 Columbus in Jersey City, New Jersey. As of March 31, 2021, accruals have not been recorded for these amounts, as such obligations are recorded as incurred.
Commitments Under Joint Venture Agreements
Columbia Property Trust's joint venture agreements, including those that are in place with joint ventures that are developing or redeveloping properties, provide for capital contributions to be made to the joint ventures by the joint venture partners. As of March 31, 2021, Columbia Property Trust holds nine properties through consolidated and unconsolidated joint ventures, including three that are under development or redevelopment. Capital contributions are payable when a capital call is made by the joint venture, and there are no unfunded capital calls as of March 31, 2021.
As of March 31, 2021, the 799 Broadway Joint Venture has $145.1 million in outstanding borrowings on the Construction Loan, which matures on October 9, 2021. Pursuant to a joint and several guaranty agreement with the Construction Loan lender, Columbia Property Trust and its joint venture partner are required to make aggregate additional equity contributions to the joint venture based on the initial expected project costs, less the amount of equity contributions
made to date. As of March 31, 2021, the remaining equity contribution requirement is $13.7 million, of which $6.8 million reflects Columbia Property Trust's allocated share. Equity contributions become payable by Columbia Property Trust to the joint venture when a capital call is received. As of March 31, 2021, no capital calls remain unpaid; therefore, no liability has been recorded related to this guaranty.
Commitments Under Real Estate Fund Agreements
Columbia Property Trust's Real Estate Fund investments require capital contributions from time to time. As of March 31, 2021, the Company had $3.8 million of unfunded capital contributions, which are callable for the life of the Real Estate Funds, through 2026. Such capital contributions are payable when a capital call is made by the Real Estate Funds, and there are no unfunded capital calls as of March 31, 2021.
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, liquidity, or financial condition of Columbia Property Trust.
8. Stockholders' Equity
Common Stock Repurchase Program
Columbia Property Trust's board of directors authorized a stock repurchase program to purchase up to an aggregate of $200.0 million of its common stock, from September 4, 2019 through September 4, 2021 (the "2019 Stock Repurchase Program"). No share repurchases were made during the three months ended March 31, 2021. As of March 31, 2021, $143.3 million remains available for repurchases under the 2019 Stock Repurchase Program. Common stock repurchases are charged against equity as incurred, and the repurchased shares are retired.
Long-Term Incentive Compensation
Columbia Property Trust maintains a stockholder-approved, long-term incentive plan (the "LTI Plan") that provides for grants of up to 4.8 million shares of stock to be made to certain employees and independent directors of Columbia Property Trust.
Employee Awards
Under the LTI Plan, Columbia Property Trust grants time-based stock awards and performance-based restricted stock unit awards to its employees.
During the three months ended March 31, 2021, Columbia Property Trust granted 421,962 shares of stock awards (the "Time-Based Restricted Shares") to employees, which will vest ratably on each anniversary of the grant over the next four years. Also, during the three months ended March 31, 2021, Columbia Property Trust granted 429,977 of performance-based restricted stock units (the "Performance-Based RSUs"), of which 75% will vest at the conclusion of a three-year performance period, and the remaining 25% will vest one year later. The payout of the Performance-Based RSUs will be determined based on Columbia Property Trust's total stockholder return relative to the FTSE NAREIT Equity Office Index and is contingent upon meeting predetermined minimum performance levels. Below is a summary of the employee awards issued under the LTI Plan during the three months ended March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based Awards
|
|
Performance-Based Awards
|
|
|
|
Restricted Shares
(in thousands)
|
|
Weighted-Average
Grant-Date
Fair Value(1)
|
|
RSUs
(in thousands)
|
|
Weighted-Average
Grant-Date
Fair Value(2)
|
|
Unvested awards – beginning of period
|
|
497
|
|
|
$
|
20.82
|
|
|
715
|
|
|
$
|
18.51
|
|
|
Granted
|
|
422
|
|
|
$
|
14.33
|
|
|
430
|
|
|
$
|
12.39
|
|
|
Converted(3)
|
|
24
|
|
|
|
|
(24)
|
|
|
|
|
Vested(4)
|
|
(195)
|
|
|
$
|
21.32
|
|
|
(73)
|
|
|
$
|
20.66
|
|
|
Forfeited
|
|
(2)
|
|
|
$
|
14.34
|
|
|
(1)
|
|
|
$
|
12.39
|
|
|
Unvested awards – end of period(5)
|
|
746
|
|
|
$
|
15.75
|
|
|
1,047
|
|
|
$
|
15.16
|
|
(1)Reflects the weighted-average, grant-date fair value using the market closing price on the date of the respective grants.
(2)Reflects the weighted-average, grant-date fair value using a Monte Carlo valuation.
(3)Reflects 25% of the 2018 3-year Performance-Based RSUs granted on January 1, 2018, which converted to Time-Based Restricted shares in January 2021 and will vest in January 2022.
(4)With respect to the RSUs vesting this period, includes true-ups from the amount granted (based on target-level performance) to the respective amount paid (based on actual performance, as defined by the plan).
(5)As of March 31, 2021, Columbia Property Trust expects approximately 712,000 of the 746,000 unvested restricted stock units to ultimately vest and approximately 1,000,000 of the 1,047,000 unvested Performance-Based RSUs to ultimately vest, assuming a weighted-average forfeiture rate of 4.5%, which was determined based on historical forfeiture rates.
Director Stock Grants
Columbia Property Trust grants equity retainers to its directors under the LTI Plan. Such grants are made annually for the following year and vest immediately. During the three months ended March 31, 2021 and 2020, Columbia Property Trust made the following equity retainer grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of Grant
|
|
Shares
|
|
Grant-Date Fair Value
|
|
2021
|
|
|
|
|
|
January 4, 2021(1)
|
|
582
|
|
|
$
|
14.24
|
|
|
2020
|
|
|
|
|
|
March 2, 2020(2)
|
|
591
|
|
|
$
|
19.80
|
|
|
|
|
|
|
|
(1)On December 31, 2020, an existing board member was appointed as chair of the board. Reflects the incremental, pro-rated common stock retainer issued for service as chairperson.
(2)In March 2020, a new director was appointed to the board of directors of Columbia Property Trust. The new director received a pro-rated annual equity retainer grant at appointment.
Stock-Based Compensation Expense
For the three months ended March 31, 2021 and 2020, Columbia Property Trust incurred stock-based compensation expense related to the following events (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Amortization of time-based awards
|
$
|
1,024
|
|
|
$
|
947
|
|
|
|
|
|
|
Amortization of performance-based awards(1)
|
1,143
|
|
|
1,031
|
|
|
|
|
|
|
Amortization of Preferred OP unit awards issued in connection with the Normandy Acquisition
|
1,832
|
|
|
2,358
|
|
|
|
|
|
|
Issuance of shares to independent directors
|
146
|
|
|
12
|
|
|
|
|
|
|
Total stock-based compensation expense
|
$
|
4,145
|
|
|
$
|
4,348
|
|
|
|
|
|
(1)Reflects amortization of awards made under the LTI Plan that will vest in future periods for service during the current period.
The majority of these expenses are included in general and administrative expenses and management fee expense in the accompanying consolidated statements of operations. As of March 31, 2021 and December 31, 2020, there were $20.4 million and $12.4 million, respectively, of unrecognized compensation costs related to unvested awards under the LTI Plan, which will be amortized over the respective vesting period, ranging from one to four years at the time of grant. As of March 31, 2021 and December 31, 2020, there were $8.5 million and $10.3 million of unvested Preferred OP unit awards, respectively, which vest over three or four years from the time of grant.
9. Noncontrolling Interests
Noncontrolling Interest – Columbia OP
In connection with the Normandy Acquisition, Columbia Property Trust issued 3,264,151 Series A Convertible, Preferred Units of Columbia OP with a liquidation preference of $26.50 per unit (the "Preferred OP Units"), of which 19,700 were repurchased in the first quarter of 2021. The Preferred OP Units vest over three or four years, subject to certain conditions. The Preferred OP Units are convertible into common units of Columbia OP, which are exchangeable for shares of Columbia Property Trust's common stock on a one-for-one basis, subject to certain terms and conditions. As of March 31, 2021, Columbia Property Trust holds a 97.3% controlling financial interest in Columbia OP. Columbia OP is a variable interest entity in which Columbia Property Trust is the primary beneficiary. Thus, the Company consolidates the accounts of Columbia OP, and reflects the third-party ownership in this entity as noncontrolling interest in the accompanying consolidated balance sheet. As of March 31, 2021, Columbia OP has total assets and liabilities of $3.9 billion and $1.5 billion, respectively.
Noncontrolling Interest – Consolidated Joint Venture
Columbia Property Trust holds a 92.5% controlling financial interest in 101 Franklin Street, a 16-story, 235,000-square-foot office building in Manhattan that will be fully redeveloped through a consolidated joint venture with an affiliate of Normandy. The Company owns an additional 0.15% interest in 101 Franklin Street through its interest in Normandy Real Estate Fund IV, L.P. 101 Franklin Street is a variable interest entity, or VIE, in which Columbia Property Trust is the primary beneficiary. Thus, the Company consolidates the accounts of 101 Franklin Street, and reflects the third-party ownership in this entity as noncontrolling interest in the accompanying consolidated balance sheet. As of March 31, 2021, 101 Franklin Street had total assets and liabilities of $4.9 million and $10.0 million, respectively.
10. Supplemental Disclosures of Noncash Investing and Financing Activities
Outlined below are significant noncash investing and financing activities for the three months ended March 31, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
Other assets assumed at acquisition
|
$
|
—
|
|
|
$
|
245
|
|
|
Operating lease asset and liability assumed at acquisition
|
$
|
—
|
|
|
$
|
961
|
|
|
Other liabilities assumed at acquisition
|
$
|
—
|
|
|
$
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net discounts on debt
|
$
|
45
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued capital expenditures and deferred lease costs
|
$
|
14,057
|
|
|
$
|
15,447
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value adjustments to interest rate swaps that qualify for hedge accounting treatment
|
$
|
4,624
|
|
|
$
|
(19,993)
|
|
|
Issuance of Preferred OP Units for the Normandy Acquisition (Note 3)
|
$
|
—
|
|
|
$
|
55,306
|
|
|
Stock-based compensation expense
|
$
|
4,144
|
|
|
$
|
4,348
|
|
11. Leases
Columbia Property Trust as Lessee
Columbia Property Trust is a lessee on ground leases at certain of its investment properties and office space leases. As of March 31, 2021, Columbia Property Trust has one ground lease at 116 Huntington Avenue in Boston and two office leases. As of March 31, 2021, Columbia Property Trust's ground lease has a remaining lease term of 98.4 years, inclusive of renewal options, and is included, along with our office space leases, in operating lease assets of $38.7 million. Payments for all future periods under this ground lease have already been made. Thus, as of March 31, 2021, operating lease liabilities of $1.8 million include only the present value of future payments due under our office leases, with a weighted-average remaining lease term of 1.6 years, inclusive of renewal options.
Columbia Property Trust as Lessor
Columbia Property Trust owns and leases commercial real estate, primarily office space, to tenants under operating leases for specified periods of time. Rental income related to such leases is recognized on a straight-line basis over the remaining lease period, and is included in lease revenues on the consolidated statements of operations. As of March 31, 2021, the weighted-average remaining term for such leases is approximately 5.9 years.
Lease revenues include fixed and variable payments. Fixed payments primarily relate to base rent and include payments related to lease terminations; and variable payments primarily relate to tenant reimbursements for certain property operating costs. Fixed and variable payments for the three months ended March 31, 2021 and 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Fixed payments
|
$
|
47,690
|
|
|
$
|
61,243
|
|
|
|
|
|
|
Variable payments
|
6,619
|
|
|
6,764
|
|
|
|
|
|
|
Total lease revenues
|
$
|
54,309
|
|
|
$
|
68,007
|
|
|
|
|
|
12. Non-Lease Revenues
Columbia Property Trust derives most of its revenues from leases, as described in Note 11, Leases. Columbia Property Trust also has the following non-lease revenue streams.
Management Fee Revenue
Under asset and property management agreements in place with third parties and certain of its unconsolidated joint ventures, Columbia Property Trust earns revenue for performing asset and property management functions for properties owned by the Real Estate Funds and its joint ventures, as further described in Note 4, Unconsolidated Joint Ventures, as well as third-party-owned properties. Asset and property management services are ongoing and routine, and are provided on a recurring basis. Therefore such fees are recognized ratably over the service period, usually a period of three months. For the three months ended March 31, 2021 and 2020, Columbia Property Trust earned management fee revenues of $4.5 million and $4.3 million, respectively.
Leasing Fees
Under asset and property management agreements in place with third parties and for certain properties owned by joint ventures and the Real Estate Funds, Columbia Property Trust is eligible to earn leasing fees equal to a percentage of the total rental payments to be made by the tenant over the term of the lease. Such fees are required to be recognized when Columbia Property Trust's obligation to perform is complete, typically upon execution of the lease. For the three months ended March 31, 2021 and 2020, Columbia Property Trust earned leasing override fees of $48,400 and $14,600, respectively. Such fees are included in management fee revenue on the accompanying consolidated statements of operations.
Construction and Development Fee Income
Under construction and development contracts in place with third-party properties and for certain properties owned by joint ventures and the Real Estate Funds, Columbia Property Trust earns fees related to construction and development project management and supervision, using a percentage of completion method, measured by the percentage of costs incurred to date as compared with the estimated total costs for each contract. For the three months ended March 31, 2021 and 2020, Columbia Property Trust earned construction and development fees of $0.3 million and $0.8 million, respectively. Such fees are included in management fee revenue on the accompanying consolidated statements of operations.
Salary and Other Reimbursement Revenue
Under the property management agreements for third-party-owned properties and certain properties owned through joint ventures and the Real Estate Funds, Columbia Property Trust receives reimbursements for salaries and property operating costs for services that are provided by Columbia Property Trust employees on an ongoing basis. Such reimbursement revenues are recognized ratably over the service period, usually a period of one month, three months, or one year. For the three months ended March 31, 2021 and 2020, Columbia Property Trust earned salary and other reimbursement revenue of $4.0 million and $3.1 million, respectively. These amounts are included in management fee revenues on the accompanying consolidated statements of operations.
Miscellaneous Revenue
Columbia Property Trust also receives revenues for services provided to its tenants through the TRS Entities, including fitness centers, shuttles, and cafeterias. These revenues are recognized ratably over the service period, usually a period of one month or one quarter. For the three months ended March 31, 2021 and 2020, Columbia Property Trust earned miscellaneous revenue of $0 and $7,100, respectively This amount is included in other property income on the accompanying consolidated statements of operations.
13. Earnings Per Share
For the three months ended March 31, 2021 and 2020, in computing the basic and diluted earnings per share, net income (loss) attributable to common stockholders has been reduced for the dividends paid on unvested shares granted under the LTI Plan. The following table reconciles the numerator for the basic and diluted earnings-per-share computations shown on the consolidated statements of operations for the three months ended March 31, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Net income
|
|
$
|
445
|
|
|
$
|
6,228
|
|
|
|
|
|
|
Net income attributable to noncontrolling interest in Columbia OP
|
|
(97)
|
|
|
(71)
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest in consolidated joint venture
|
|
129
|
|
|
133
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
477
|
|
|
6,290
|
|
|
|
|
|
|
Distributions paid on unvested shares
|
|
(157)
|
|
|
(113)
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders used to calculate basic earnings per share
|
|
320
|
|
|
6,177
|
|
|
|
|
|
|
Net income attributable to noncontrolling interest in Columbia OP
|
|
97
|
|
|
71
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholder and Columbia OP Unit-holders used to calculate diluted earnings per share
|
|
$
|
417
|
|
|
$
|
6,248
|
|
|
|
|
|
The following table reconciles the denominator for the basic and diluted earnings-per-share computations shown on the consolidated statements of operations for the three months ended March 31, 2021 and 2020, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Weighted-average common shares – basic
|
|
114,115
|
|
|
114,471
|
|
|
|
|
|
|
Plus incremental weighted-average shares from time-vested conversions, less assumed stock repurchases:
|
|
|
|
|
|
|
|
|
|
Previously granted awards, unvested
|
|
—
|
|
|
15
|
|
|
|
|
|
|
Future period LTI Plan awards
|
|
492
|
|
|
—
|
|
|
|
|
|
|
Weighted-average common shares – diluted, before adjustment for OP Units
|
|
114,607
|
|
|
114,486
|
|
|
|
|
|
|
Convertible Preferred OP Units
|
|
3,244
|
|
|
2,367
|
|
|
|
|
|
|
Weighted-average common shares – diluted
|
|
117,851
|
|
|
116,853
|
|
|
|
|
|
Certain anti-dilutive stock awards are not included in the current calculation of dilutive weighted average shares, but could be dilutive in the future. As of March 31, 2021, there were 37,400 anti-dilutive shares outstanding, and there were no anti-dilutive shares outstanding as of March 31, 2020.
14. Segment Information
Columbia Property Trust considers geographic location when evaluating its portfolio composition, and in assessing the ongoing operations and performance of its properties. As of March 31, 2021, our reportable segments consist of the four key markets in which we own assets: New York, San Francisco, Washington, D.C., and Boston, and the all other markets reportable segment. The all other office markets reportable segment includes properties that are situated similarly within their geographic markets, typically in sub-markets not located within central business districts, and in which Columbia Property Trust does not have a substantial presence and/or does not plan to make further investments. During the periods presented, there have been no material intersegment transactions.
Net operating income ("NOI") is a non-GAAP financial measure. NOI is the primary performance measure reviewed by management to assess operating performance of properties and is calculated by deducting operating expenses from operating revenues. Operating revenues include lease revenues and other property income; and operating expenses include property operating costs. The NOI performance metric consists only of revenues and expenses directly related to real estate rental operations. NOI reflects property acquisitions and dispositions, occupancy levels, rental rate increases or decreases, and the recoverability of operating expenses. NOI, as Columbia Property Trust calculates it, may not be directly comparable to similarly titled, but differently calculated, measures for other REITs.
Asset information and capital expenditures by segment are not reported because Columbia Property Trust does not use these measures to assess performance. Depreciation and amortization expense, along with other expense and income items, are not allocated among segments.
The following table presents operating revenues included in NOI by geographic reportable segment for Columbia Property Trust's respective ownership interests (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
New York(1)
|
$
|
40,129
|
|
|
$
|
41,105
|
|
|
|
|
|
|
San Francisco(2)
|
29,125
|
|
|
34,801
|
|
|
|
|
|
|
Washington, D.C.(3)
|
14,432
|
|
|
15,018
|
|
|
|
|
|
|
Boston
|
3,969
|
|
|
4,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other office markets
|
—
|
|
|
2,587
|
|
|
|
|
|
|
Total office segments
|
87,655
|
|
|
97,660
|
|
|
|
|
|
|
Corporate
|
(583)
|
|
|
(373)
|
|
|
|
|
|
|
Total operating revenues
|
$
|
87,072
|
|
|
$
|
97,287
|
|
|
|
|
|
(1)Includes operating revenues for two unconsolidated properties, based on Columbia Property Trust's ownership interests: 49.5% for 114 Fifth Avenue for all periods presented; and 8.65% for Terminal Warehouse from March 13, 2020 through March 31, 2021.
(2)Includes operating revenues for three unconsolidated properties, 333 Market Street and University Circle, based on Columbia Property Trust's ownership interests: 55.0% for all periods presented; and 221 Main Street, based on Columbia Property Trust's ownership interests: 100% from January 1, 2020 to October 7, 2020, and 55% from October 8, 2020 to March 31, 2021.
(3)Includes operating revenues for two unconsolidated properties, Market Square and 1800 M Street, based on Columbia Property Trust's ownership interests: 51.0% for Market Square and 55.0% for 1800 M Street for all periods presented.
A reconciliation of GAAP revenues to operating revenues is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Total revenues
|
$
|
64,388
|
|
|
$
|
76,254
|
|
|
|
|
|
|
Operating revenues included in income from unconsolidated joint ventures(1)
|
32,763
|
|
|
29,273
|
|
|
|
|
|
|
Less: management fee revenue(2)
|
(10,079)
|
|
|
(8,240)
|
|
|
|
|
|
|
Total operating revenues
|
$
|
87,072
|
|
|
$
|
97,287
|
|
|
|
|
|
(1)Columbia Property Trust records its interest in properties held through unconsolidated joint ventures using the equity method of accounting, and reflects its interest in the operating revenues of these properties in income from unconsolidated joint ventures in the accompanying consolidated statements of operations.
(2)See Note 12, Non-Lease Revenues, of the accompanying consolidated financial statements.
The following table presents NOI by geographic reportable segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
New York(1)
|
$
|
27,417
|
|
|
$
|
25,075
|
|
|
|
|
|
|
San Francisco(2)
|
19,939
|
|
|
25,072
|
|
|
|
|
|
|
Washington, D.C.(3)
|
8,169
|
|
|
9,151
|
|
|
|
|
|
|
Boston
|
2,186
|
|
|
2,458
|
|
|
|
|
|
|
All other office markets
|
—
|
|
|
1,525
|
|
|
|
|
|
|
Total office segments
|
57,711
|
|
|
63,281
|
|
|
|
|
|
|
Corporate
|
(497)
|
|
|
(272)
|
|
|
|
|
|
|
Total NOI
|
$
|
57,214
|
|
|
$
|
63,009
|
|
|
|
|
|
(1)Includes NOI for three unconsolidated properties, based on Columbia Property Trust's ownership interest: 49.5% for 114 Fifth Avenue for all periods presented; 49.7% for 799 Broadway for all periods presented; and 8.65% for Terminal Warehouse from March 13, 2020 through March 31, 2021.
(2)Includes NOI for three unconsolidated properties, 333 Market Street and University Circle, based on Columbia Property Trust's ownership interests: 55.0% for all periods presented; and 221 Main Street, based on Columbia Property Trust's ownership interests: 100% from January 1, 2020 to October 7, 2020, and 55% from October 8, 2020 to March 31, 2021.
(3)Includes NOI for two unconsolidated properties, Market Square and 1800 M Street, based on Columbia Property Trust's ownership interests: 51.0% for the Market Square and 55.0% for 1800 M Street for all periods presented.
A reconciliation of GAAP net income to NOI is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Net income attributable to common stockholders
|
$
|
477
|
|
|
$
|
6,290
|
|
|
|
|
|
|
Management fee revenues
|
(10,079)
|
|
|
(8,240)
|
|
|
|
|
|
|
Depreciation
|
16,531
|
|
|
18,330
|
|
|
|
|
|
|
Amortization
|
4,844
|
|
|
6,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
9,776
|
|
|
11,782
|
|
|
|
|
|
|
Strategic review costs
|
2,356
|
|
|
—
|
|
|
|
|
|
|
Management fee expenses
|
9,269
|
|
|
6,945
|
|
|
|
|
|
|
Acquisition costs
|
—
|
|
|
12,081
|
|
|
|
|
|
|
Net interest expense
|
7,535
|
|
|
9,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value adjustments to investment in Real Estate Funds
|
239
|
|
|
160
|
|
|
|
|
|
|
Income tax expense (benefit)
|
(329)
|
|
|
(2,243)
|
|
|
|
|
|
|
Adjustments included in income from unconsolidated joint ventures
|
16,627
|
|
|
14,903
|
|
|
|
|
|
|
Gain on sale of real estate assets
|
—
|
|
|
(13,344)
|
|
|
|
|
|
|
Adjustments attributable to noncontrolling interests
|
(32)
|
|
|
71
|
|
|
|
|
|
|
NOI
|
$
|
57,214
|
|
|
$
|
63,009
|
|
|
|
|
|
15. Subsequent Event
Columbia Property Trust has evaluated subsequent events in connection with the preparation of its consolidated financial statements and notes thereto included in this report and noted the Terminal Warehouse loan extension, as described in Note 3, Transactions.