Nationwide. Building Value.
2012 Annual Report
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At a Glance
Gross Real Estate Investments1
$5.76 billion
Total Quarterly Distributions Paid to Shareholders2
$1.85 billion
Investment-Grade Credit Rating from Standard & Poor’s / Moody’s3
BBB- / Baa3
Total Portfolio Square Feet
21 million
Square Feet of Leases Negotiated in 2012
2.8 million
Portfolio Debt Ratio4
28.6%
Data as of December 31, 2012.
1 Calculated as of December 31, 2012, based on gross real estate assets plus
gross intangible lease origination costs, less gross intangible lease liabilities,
as provided in the enclosed balance sheet.
2 December 31, 2003 to March 31, 2013. Distributions are not guaranteed, are
subject to change, and may consist of capital gains, return of capital, and
ordinary income. Approximately $256 million in total distributions were paid
to shareholders in 2012 and were funded with current-period or prior-period
accumulated net cash flows from operating activities, adjusted to exclude
acquisition-related costs.
3 Ratings conferred by Standard & Poor’s Rating Services
and Moody’s Investor Services.
4 This ratio is defined as the sum of the contractual amounts due on all
third-party borrowings, divided by Gross Real Estate Investments.
Cover
333 Market Street / San Francisco, California
Introduction / 1
At a Glance
Introduction
Chairman’s Letter
President’s Letter
Portfolio
Operating & Financial Highlights
Board of Directors
10-K
/ inside front cover
/ 1
/ 2
/ 3
/ 10
/ 14
/ 16
/ 17
Corporate Directory
/ inside back cover
Nationwide. Building Value.
Our name is new, but Columbia Property Trust
is a proven and well-established industry leader.
With a $5.8 billion portfolio comprising more than
60 Class-A investment properties in key markets
nationwide, we rank among America’s largest office
REITs. As an investment management company
specializing in commercial real estate, we strive
to deliver results for our investors in the form
of capital preservation, cash distributions, and
long-term appreciation.
Chairman’s Letter / 2
“The changes we have made over the
past year have all been carefully planned
and carried out under the Board’s
guidance, with our shareholders’ best
interest in mind.”
Dear Shareholder,
T he past year has seen many positive changes
for our company. Most recently, we transitioned
to self-management and moved into our own office
facilities; revealed a new company name, Columbia
Property Trust; and reorganized our Board of Directors
and its committee structure.
I want to assure you that these changes have all been
carefully planned and carried out under the Board’s
guidance, with our shareholders’ best interest in mind.
The measures we have completed over the past few
months were long anticipated and are a normal part of
a nontraded REIT’s life cycle.
Columbia Property Trust was launched in 2004 and
ultimately accumulated $6.1 billion in investments from
over 140,000 shareholders. We invested your capital in
a portfolio that now comprises 82 buildings nationwide
as of March 31, 2013. This portfolio is well-diversified
across 20 states, including the District of Columbia,
and boasts one of the finest tenant rosters in the
country. We have accomplished our key objectives
of investing in quality real estate, maintaining modest
debt leverage, and generating attractive dividends.
We are now preparing to fulfill another key objective —
providing a liquidity opportunity for our shareholders.
While we continue to explore various alternatives for
a liquidity event — such as a sale or merger — we
believe that with a portfolio of this size and quality, the
most likely way to optimize our shareholders’ returns
may be through a listing of our shares on a national
securities exchange.
We have continued to make changes with the potential
for such a listing in mind. The externally advised
structure we had under Wells Real Estate Funds
(Wells) provided us with the resources and operational
efficiency needed to build the portfolio to the scale and
quality it encompasses today. However, in the traded
marketplace, investors tend to assign a premium to
companies that have a dedicated internal management
structure over those that are externally advised.
Now that Columbia Property Trust has become a
self-managed company, separated from our former
advisor, we believe the company is better positioned
to take full advantage of future liquidity opportunities
most beneficial to our shareholders.
Unlike some other nontraded REITs that have made
the move to an internal management structure, we
did not pay our sponsor an “internalization fee” for
the employees, assets, proprietary systems, and
processes necessary to make a smooth transition to
becoming a self-managed company. We have entered
into short-term contracts with Wells to ensure systems
and services are fully transitioned successfully and that
you, our shareholders, continue to receive exceptional
service during and after our transition. Your Board
worked hard to achieve this efficient transition, and we
believe it will help to maximize the potential value that
shareholders may realize as a result.
While you will likely see a few new names added to
the team and strategic adjustments to the portfolio in
the coming months, we anticipate that the next major
milestone ahead in our company’s life cycle will be to
undertake a liquidity event. Our management team
is working with highly experienced market experts to
evaluate the appropriate timing and method for such
an event, with the intent of achieving it with the most
beneficial outcome for our shareholders. We look
forward to the year ahead as we move closer to that
next chapter in the story of Columbia Property Trust.
Thank you for your continued confidence in
our progress.
John L. Dixon
Chairman of the Board
Columbia Property Trust
President’s Letter / 3
E. Nelson Mills
President, Chief Executive Officer, and Director
Columbia Property Trust
Dear Shareholder,
Columbia Property Trust has made great strides
over the past year in preparing to fulfill our
investment objectives on your behalf.
We’ve transitioned management of all our operations
to a new headquarters location that houses a
dedicated and highly experienced management team
and staff. We’ve begun executing a refined strategy to
enhance our portfolio and its potential for appreciation
in today’s market. And with these steps, we are now
positioning to provide a liquidity opportunity for our
shareholders — which may be a sale, merger, or,
most likely, a listing of our shares on a national
securities exchange.
With a quality portfolio and strong balance sheet,
Columbia Property Trust is well-positioned to
accomplish this goal. Between 2004 and 2010, we
accumulated $6.1 billion in shareholder investments.
Paired with modest levels of debt, we’ve invested
that capital in a substantial portfolio of high-quality
commercial office properties in major markets across
the U.S., nearly all of which are leased to creditworthy
tenants on a long-term basis.
As a result, we now hold one of the nation’s largest
and most diversified portfolios of office properties,
which at the end of March included 82 buildings
spread across 20 U.S. states, including the District of
Columbia. In addition to geography, these properties
are diversified by tenant, tenant industry, and lease
expiration date — all of which helps to reduce the
potential impact that any one market factor may have
on our portfolio.
Our portfolio debt level, which was at 28.6% at
year-end 2012, is significantly lower than the industry
average and, when coupled with our ample sources
of debt capital, gives us the ability to respond quickly
to market opportunities. It also has helped to make
Columbia Property Trust one of the only nontraded
REITs to earn “investment-grade” credit ratings from
both Moody’s Investors Service and Standard & Poor’s
Ratings Services.
While we are entering our tenth year of operations in a
strong position, the market has changed significantly
since we began fundraising and acquiring properties
in 2004. Every investor is familiar with the effects
that long-term high unemployment, low consumer
confidence, and uncertain fiscal policy have had on
our nation’s economy. And while there are some
positive signs of continued improvement in the real
“We intend to optimize the portfolio’s balance between
the type of properties we’ve traditionally sought for the
portfolio – high-quality properties leased long-term
to creditworthy tenants – and those we believe offer
greater potential to increase in income production
and/or overall value over the next two to five years.”
Atlanta
$75,353
Washington, D.C.
$57,524
Northern New Jersey
$54,249
San Francisco
$43,942
Baltimore
$37,613
greater potential to increase in income production
and/or overall value over the next two to five years.
While we will continue to focus the majority of the
portfolio on properties that meet our traditional criteria,
we believe that allocating a portion of the portfolio to
properties with more growth potential will help to
increase total returns for our shareholders.
Our second strategic objective is to continue improving
the portfolio’s market concentration. While the portfolio
is already well-represented in many of the nation’s
largest metropolitan areas, we intend to increase
President’s Letter / 4
Highest Geographic Concentrations
(by annualized lease revenue, in thousands)
estate market, these market factors continue to impact
the commercial real estate market and our portfolio.
This was evidenced by the updated estimated value-
per-share of $7.33 that we announced in November
2012. While relatively stable from the previous year,
this estimate reflected the lack of capital appreciation
in some of the properties and markets represented in
our portfolio.
Because of this change in market landscape, we
took several steps in 2012 to ensure that our strategy
and operations were better aligned with the market
and would be more
sustainable long term.
Our Board of Directors
decided to reduce the
quarterly distribution rate
paid to shareholders
from $0.125 per share to
$0.095 per share in the
fourth quarter of 2012.
This decision was both
reactive and proactive,
since the operating cash
flows we’re reserving
are now available to fund capital expenditures for
maintaining our existing portfolio and to provide
additional financial flexibility as we further improve our
portfolio and prepare for a liquidity opportunity.
“We took several steps in 2012
to ensure that our strategy and
operations were better aligned
with the market and would be
more sustainable long term.”
our presence in key
markets — such as
New York City, San
Francisco, Houston,
and Washington, D.C.
— that we believe offer
the best prospects for
sustained desirability
and growth.
We intend to do this in
two ways. One is simply
to increase the number
of properties we own
in these key markets through acquisitions. The other
is to sell a number of properties we own in secondary
markets so that we can focus our efforts in our desired
markets and enhance our operational efficiency.
We also took steps to further enhance our balance
sheet by restructuring a significant portion of our debt,
reduced operating expenses to improve financial
results, and began the process of refining our portfolio
and investment strategy to better support value growth
in today’s market. All of these actions were taken with
a goal of enhancing our potential share value as we
approach a listing or other liquidity event.
The portfolio-refining process is twofold. First, we
intend to optimize the portfolio’s balance between
the type of properties we’ve traditionally sought for the
portfolio — high-quality properties leased long-term
to creditworthy tenants — and those we believe offer
We have already made progress toward these portfolio
goals. In December 2012, we closed on the disposition
of nine properties located in several secondary
markets, and we also invested nearly $400 million
in a significant new asset in one of our key markets,
San Francisco. This new asset, 333 Market Street,
is a 33-story, Class-A+ office tower located in the heart
of San Francisco’s Financial District, leased to a widely
recognized, investment-grade company, Wells Fargo
Bank, N.A. Like the iconic Market Square property
in Washington, D.C., which we acquired in 2011,
333 Market Street is an asset that we believe will
help to improve the portfolio’s potential value over
“While the portfolio is already well-represented in many
of the nation’s largest metropolitan areas, we intend
to increase our presence in key markets – such as New
York City, San Francisco, Houston, and Washington, D.C.
– that we believe offer the best prospects for sustained
desirability and growth.”
time and its desirability to institutional investors as we
prepare for a liquidity event.
We believe that all these portfolio actions — both
those already accomplished and those planned —
will help to improve the portfolio’s attractiveness to
institutions and other future investors. This in turn
should serve to enhance the overall potential returns
our existing shareholders may realize at the time of
our liquidity event and beyond.
We will continue to monitor the market and our own
position to determine the optimal timing and method
for providing a liquidity opportunity that we believe will
offer the greatest benefit for our shareholders. With
a newly internalized management team in place, an
enhanced portfolio strategy, and the same foundation
of financial strength that has been the hallmark of
our company from the beginning, I believe Columbia
Property Trust is ideally positioned for the future.
E. Nelson Mills
President, Chief Executive
Officer, and Director
Columbia Property Trust
Energy Center I / Houston, Texas
Fueling Value Growth
Size, diversification, and quality all contribute to the portfolio’s ability to produce more
consistent operational income. We believe that balancing this existing strength with enhanced
upside potential – whether from the opportunity to increase rental revenues, enhance occupancy,
or physically improve a property – will increase the overall potential returns the portfolio can deliver
for our shareholders. With investment-grade rated credit and access to multiple sources
of capital, we have the capacity to effectively reposition the portfolio toward this goal.
333 Market Street / San Francisco, California
Institutional Quality
“As part of our effort to optimize the portfolio’s balance of allocations
to income and growth, we have continued to improve the institutional
quality of the portfolio overall through strategic acquisitions in the
nation’s premier office markets, as evidenced by our most recent
acquisitions, Market Square in Washington, D.C., and 333 Market Street
in San Francisco. Our objective is to optimize performance within the
comparatively low-to-moderate risk profile our investors expect from us.”
Kevin Hoover
Senior Vice President – Real Estate Transactions
Market Square / Washington, D.C.
Best-in-Class Operations
“Our real estate team successfully negotiated nearly 3 million square
feet of leases last year to keep our portfolio occupancy rate at nearly
93% at the close of 2012 – significantly higher than the national office
occupancy rate of 87.5%. This continued high occupancy rate reflects
our commitment to provide comprehensive property management
operations that deliver quality tenant service and operating efficiencies
across our portfolio.”
Drew Cunningham
Senior Vice President – Real Estate Operations
Portfolio / 10
Northeast
PROPER TIES
Market Square
80 M Street
MSA*
L ARGES T TENANT
ACQ DATE
SQ F T
Washington, D.C. Fulbright & Jaworski
Washington, D.C. BAE Systems Applied Technology
222 East 41st Street
New York
Jones Day
80 Park Plaza
N. New Jersey
PSEG Services Corporation
International Financial Tower
N. New Jersey
Pershing LLC
180 Park Avenue #103 & #104
N. New Jersey
AT&T Corporation
180 Park Avenue #105
N. New Jersey
Novartis Pharmaceuticals
Eagle Rock Executive Office Ctr. IV
N. New Jersey
GfK Holding, Inc.
03/07/11
06/29/04
08/17/07
09/21/06
10/31/06
06/23/04
03/14/05
03/27/07
05/12/05
09/05/08
07/12/07
04/01/10
08/18/05
05/27/04
06/01/10
10/22/04
09/14/07
680,066
281,394
372,723
960,689
629,792
385,274
221,706
177,820
653,194
315,350
247,624
490,119
458,237
250,813
823,979
393,000
114,071
Baltimore
Baltimore
Baltimore
Boston
Boston
Boston
T. Rowe Price Associates Inc.
Northrop Grumman
Micros Systems, Inc.
IBM
Alcatel-Lucent
Bose Corporation
Pittsburgh
Westinghouse Electric Company
Sub. Maryland
IBM
Philadelphia
Shire Pharmaceuticals, Inc.
100 East Pratt Street
West Quest Technology Park
7031 Columbia Gateway Drive
550 King Street
One and Four Robbins Road
9 Technology Drive
Cranberry Woods
800 North Frederick
1200 Morris Drive
Central
PROPER TIES
263 Shuman Blvd.
MSA*
Chicago
3333 Finley Road & 1501 Opus Place
Chicago
Highland Landmark III
Corridors III
215 Diehl Road
544 Lakeview Parkway
Bannockburn Lake III
Key Center Tower
Chase Center Building
IBM — Columbus I-IV
4241 Irwin Simpson Road
8990 Duke Road
Chicago
Chicago
Chicago
Chicago
Chicago
Cleveland
Columbus
Columbus
Cincinnati
Cincinnati
L ARGES T TENANT
ACQ DATE
SQ F T
OfficeMax
Acxiom
SAP America, Inc.
PNC Bank, NA
Conagra Foods, Inc.
Mercer (US) Inc.
Vacant
07/20/06
08/04/04
12/27/04
11/01/04
04/19/05
04/01/11
09/10/07
354,098
321,853
275,197
221,940
161,865
145,000
106,495
Keybank National Association
12/22/05
1,632,881
JPMorgan Chase
IBM
Community Insurance Company
NextRX, LLC
10/21/10
03/08/10
03/17/05
03/17/05
03/03/08
02/01/08
06/21/05
03/31/04
388,669
322,679
223,533
78,240
229,627
188,500
179,460
169,200
11200 W. Parkland Avenue
Milwaukee
Wells Fargo Bank
13655 Riverport Drive
College Park Plaza
St. Louis
UnitedHealthcare Services
Indianapolis
Cardinal Health 100, Inc.
333 & 777 Republic Drive
Detroit
Roush Industries
*Metropolitan Statistical Area
Data as of March 31, 2013.
Property Concentrations
(by square feet)
Over 2 million sq. ft.
1 million to 2 million sq. ft.
500,000 to 1 million sq. ft.
100,000 to 500,000 sq. ft.
No properties
West
PROPER TIES
333 Market Street
University Circle
Washington, D.C.
MSA*
L ARGES T TENANT
ACQ DATE
SQ F T
San Francisco
Wells Fargo Bank
San Francisco
DLA Piper US, LLP
CH2M HILL World Headquarters
Denver
CH2M HILL, Inc.
One and Two SanTan Corporate Center Phoenix
Toyota Motor Credit
Pasadena Corporate Park
Los Angeles
Green Dot
15815 25th Avenue West
16201 25th Avenue West
Seattle
Seattle
Comcast
Vacant
12/21/12
09/20/05
09/26/07
04/18/06
07/11/07
11/05/07
11/05/07
657,114
451,154
478,123
267,478
262,910
87,385
68,962
Southeast
PROPER TIES
Lenox Park
Lindbergh Center
Three Glenlake
One Glenlake
2500 Windy Ridge Parkway
4200 Wildwood Parkway
4100 & 4300 Wildwood Parkway
5 Houston Center
Energy Center I
515 Post Oak
Sterling Commerce Building
One MacArthur Ridge
4300 Centreway Place
One Century Place
200 South Orange
MSA*
Atlanta
Atlanta
Atlanta
Atlanta
Atlanta
Atlanta
Atlanta
Houston
Houston
Houston
Dallas
Dallas
Dallas
Nashville
Orlando
L ARGES T TENANT
ACQ DATE
SQ F T
AT&T Corporation/AT&T Services
05/08/08
1,040,327
AT&T Corporation/AT&T Services
Newell Rubbermaid, Inc.
Oracle USA Inc.
Coca-Cola Enterprises
General Electric Company
BlueLinx Co.
Ernst & Young U.S. LLP
Foster Wheeler
07/01/08
07/31/08
06/25/04
09/20/04
09/20/04
09/20/04
12/20/05
06/28/10
Stream Realty Partners - Houston, L.P.
02/10/04
Caremark PCS
Christus Health
Aetna Life Insurance Company
Willis North America
SunTrust
12/21/06
11/15/05
09/15/06
01/04/07
08/25/10
955,386
354,963
352,754
315,918
265,078
250,000
580,875
332,000
272,763
309,086
247,721
139,445
538,790
128,296
International Financial Tower / Northern New Jersey
Balance Sheet Strength
“Columbia Property Trust enjoys considerable financial flexibility as
a result of our low portfolio debt level and ample borrowing capacity.
Through our diversification and financing structure, we also have worked
to insulate the portfolio from risks posed by volatile interest rates or other
market conditions. While no company is immune to these risks, the
strength of our balance sheet and portfolio has positioned us well
in comparison with many other real estate owners to weather the
market’s changes.”
Wendy Gill
Senior Vice President – Corporate Operations and Chief Accounting Officer
222 East 41st Street / New York City
National Coverage in Key Markets
Columbia Property Trust has not only already established a nationwide footprint, we also
already have significant coverage in many of the nation’s key markets. Going forward, we
intend to continue to enhance the portfolio’s market composition through a focused and
disciplined market-driven strategy, targeting markets that are large in scale, with significant
economic basis, and which have proven to be premier performers over lengthy periods of
time and multiple real estate cycles.
Operating & Financial Highlights*
Revenue
(in millions)
Total Square Feet
(in millions)
Total Equity Raised Since
Inception (in millions)
.
7
7
2
3
$
2
.
3
3
4
$
4
.
5
3
5
$
8
.
9
6
5
$
0
.
8
6
5
$
3
.
9
1
6
$
9
.
8
0
6
$
5
.
4
1
.
0
7
1
.
1
0
2
6
.
0
2
.
1
2
2
6
.
2
2
.
0
1
2
3
.
6
5
8
,
2
$
5
.
8
2
8
,
3
$
.
8
7
5
6
4
$
,
2
.
4
2
3
5
$
,
.
1
6
1
8
,
5
$
9
.
2
0
9
5
$
,
.
3
7
5
0
,
6
$
06
07
08
09
10
11
12
06
07
08
09
10
11
12
06
07
08
09
10
11
12
Portfolio Snapshot
Investor Accounts
Properties/Buildings
Square Footage
Percentage Leased
Major Industries Represented
U.S. States Represented1
1 Includes the District of Columbia.
* Data as of December 31, 2012.
2011
139,338
72/93
2012
135,268
62/83
22.6 million
21.0 million
93.9%
44
24
92.9%
44
20
Leading the Way in Energy Efficiency
Columbia Property Trust has a portfolio-wide commitment to employing sustainable practices
that drive value and create exceptional environments for our stakeholders. Because of that
commitment, the U.S. Environmental Protection Agency has recognized Columbia Property
Trust and our former advisor, Wells Real Estate Funds, together, as a 2013 ENERGY STAR®
Partner of the Year. Prior to our internalization in early 2013, our portfolio made up over 70% of
the properties under Wells’ management, and we’re proud to have been recognized together
for strategically managing and improving the energy efficiency of our combined portfolios.
Three Glenlake / Atlanta, Georgia
Cash Flows from Operations
(in millions)
Distributions
per Share
.
1
1
5
1
$
.
2
7
9
1
$
9
.
8
5
2
$
5
.
8
4
2
$
.
1
0
7
2
$
2
.
9
7
2
$
8
.
2
5
2
$
0
6
.
0
$
0
6
.
0
$
0
6
.
0
$
0
6
.
0
$
7
5
.
0
$
0
5
.
0
$
7
4
.
0
$
06
07
08
09
10
11
12
06
07
08
09
10
11
12
Corporate Governance / 16
Board of Directors
John L. Dixon
Chairman of the Board,
Independent Director
Director since 2008
Career Emphasis:
Financial Services
Richard W. Carpenter
Independent Director
Director since 2003
Career Emphasis:
Commercial Finance
Neil H. Strickland
Independent Director
Director since 2003
Career Emphasis:
Insurance and
Risk Management
E. Nelson Mills
President, Chief Executive Officer,
and Director
Director since 2007
Career Emphasis:
Real Estate Investment
Management
Bud Carter
Independent Director
Director since 2003
Career Emphasis:
Marketing and Communications
Charles R. Brown
Independent Director
Director since 2003
Career Emphasis:
Real Estate Development
and Management
George W. Sands
Independent Director
Director since 2010
Career Emphasis:
Financial Audit
and Advisory Services
Leo F. Wells III
Director (former Chairman)
Director since 2003
Career Emphasis:
Real Estate Investment
Management
Experience and Discipline
“As part of our operational transition, we have installed a capable and disciplined management
team with a track record of outperformance to complement our goal of best-in-class Board
representation and corporate governance policies.”
Wendy Gill, Senior Vice President – Corporate Operations and Chief Accounting Officer
Opposite
2500 Windy Ridge Parkway / Atlanta, Georgia
Toggle SGML Header (+)
Section 1: 10-K (10-K)
Table of Contents
Index to Financial Statements
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
FORM 10-K
_______________________________________________
(mark one)
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2012
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from ______ to ______
Commission file number 000-51262
COLUMBIA PROPERTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
20-0068852
(I.R.S. Employer Identification Number)
One Glenlake Parkway, Suite 1200
Atlanta, Georgia 30328
(Address of principal executive offices) (Zip Code)
(404) 465-2200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock
Title of each class
NONE
Name of exchange on which registered
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
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 No
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 No
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 No
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.
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 Accelerated filer Non-accelerated filer Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes No
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.
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.
Number of shares outstanding of the registrant's
only class of common stock, as of January 31, 2013: 545,627,061 shares
FORM 10-K
COLUMBIA PROPERTY TRUST, INC.
TABLE OF CONTENTS
Table of Contents
Index to Financial Statements
PART I.
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II.
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III.
Item 10.
Directors, Executive Officers, and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV.
Item 15.
Exhibits and Financial Statement Schedules
Signatures
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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.
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ITEM 1.
BUSINESS
General
PART I
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.
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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.
ITEM 1A. RISK FACTORS
Below are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and
uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to our business, operating results, prospects, and
financial condition. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.
Risks Related to 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
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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:
•
•
•
•
•
changes in general or local economic conditions;
changes in supply of or demand for similar or competing properties in an area;
changes in interest rates and availability of permanent mortgage funds, which may render the sale of a property difficult or unattractive;
changes in tax, real estate, environmental, and zoning laws; and
periods of high interest rates and tight money supply.
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
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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.
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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.
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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;
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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:
• 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.
• 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.
• 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.
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
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(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:
•
In order to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income to our stockholders (which is determined without regard to the dividends-
paid deduction or net capital gain). To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to
federal and state corporate income tax on the undistributed income.
• We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary
income, 95% of our capital gains net income, and 100% of our undistributed income from prior years.
•
•
If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other nonqualifying income
from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.
If we sell a property, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100%
"prohibited transaction" tax.
• We may perform additional, noncustomary services for tenants of our buildings through our taxable REIT subsidiary, including real estate or non-real-estate-related services;
however, any earnings related to such services are subject to federal and state income taxes.
To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions to make distributions to our stockholders, which could increase our operating
costs and decrease the value of an investment in us.
To qualify as a REIT, we must distribute to our stockholders each year 90% of our REIT taxable income (which is determined without regard to the dividends-paid deduction or net
capital gains). At times, we may not have sufficient funds to satisfy these distribution requirements and may need to borrow funds to maintain our REIT status and avoid the payment
of income and excise taxes. These borrowing needs could result from (i) differences in timing between the actual receipt of cash and inclusion of income for federal income tax
purposes; (ii) the effect of nondeductible capital expenditures; (iii) the creation of reserves; or (iv) required
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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.
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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:
•
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
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;
•
•
•
•
•
•
•
•
•
•
•
the potential for expropriation;
possible currency transfer restrictions;
imposition of adverse or confiscatory taxes;
changes in real estate and other tax rates, and changes in other operating expenses in particular countries;
possible challenges to the anticipated tax treatment of the structures that allow us to acquire and hold investments;
adverse market conditions caused by terrorism, civil unrest, and changes in national or local governmental or economic conditions;
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;
general political and economic instability in certain regions;
the potential difficulty of enforcing obligations in other countries;
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
our advisor's limited experience and expertise in foreign countries relative to its experience and expertise in the United States.
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:
•
•
•
your investment is consistent with your fiduciary and other obligations under ERISA and the Code;
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;
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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Index to Financial Statements
•
•
•
•
your investment in our shares, for which no trading market may exist, is consistent with the liquidity needs of the plan or IRA;
your investment will not produce an unacceptable amount of "unrelated business taxable income" for the plan or IRA;
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
your investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
PROPERTIES
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.
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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.
Year of Lease Expiration
Vacant
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Thereafter
2012 Annualized
Lease Revenue
(in thousands)
Rentable
Square Feet
(in thousands)
Percentage of
2012 Annualized
Lease Revenue
$
$
—
27,187
16,831
35,284
67,420
103,822
47,379
22,826
57,552
29,804
36,386
89,897
534,388
1,458
885
560
1,007
1,704
3,815
1,490
1,081
2,559
913
807
4,369
20,648
—%
5%
3%
7%
13%
19%
9%
4%
11%
6%
7%
16%
100%
The following table shows the geographic diversification of our office properties as of December 31, 2012.
Location
Atlanta
Washington, D.C.
Northern New Jersey
San Francisco
Baltimore
Cleveland
Houston
Chicago
New York
Boston
Pittsburgh
Other(1)
(1) No more than 2% is attributable to any individual geographic location.
2012 Annualized
Lease Revenue
(in thousands)
Rentable
Square Feet
(in thousands)
Percentage of
2012 Annualized
Lease Revenue
75,353
57,524
54,249
44,700
37,613
34,143
32,992
29,419
28,083
23,073
14,809
92,430
524,388
3,462
857
2,177
959
1,194
1,235
902
1,336
360
1,199
824
4,685
19,190
15%
11%
10%
9%
7%
7%
6%
6%
5%
4%
3%
17%
100%
$
$
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The following table shows the tenant industry diversification of our office properties as of December 31, 2012.
Industry
Legal Services
Depository Institutions
Communications
Industrial Machinery & Equipment
Electric, Gas & Sanitary Services
Business Services
Security & Commodity Brokers
Engineering & Management
Insurance Carriers
Electronic & Other Electric Equipment
Transportation Equipment
Other(1)
2012 Annualized
Lease Revenue
(in thousands)
Rentable
Square Feet
(in thousands)
Percentage of
2012 Annualized
Lease Revenue
$
$
77,310
72,883
50,357
38,844
36,980
30,753
26,779
26,527
17,280
17,271
13,752
115,652
524,388
1,436
2,393
2,566
1,681
1,880
947
636
1,043
815
781
448
4,564
19,190
15%
14%
10%
7%
7%
6%
5%
5%
3%
3%
3%
22%
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
AT&T
Wells Fargo
Jones Day
IBM
Key Bank
PSEG Services
T Rowe Price
Pershing
Westinghouse
Other(1)
2012 Annualized
Lease Revenue
(in thousands)
Percentage of
2012 Annualized
Lease Revenue
$
$
47,629
29,297
27,135
24,954
19,110
18,515
16,651
16,323
14,809
309,965
524,388
9%
6%
5%
5%
4%
4%
3%
3%
3%
58%
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%
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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.
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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.
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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
Debt
Other
Estimated net asset value per share
Estimated enterprise value premium
Total estimated per-share value
$
$
$
(
10.00
(2.68) (2
(3
0.01
7.33
None assumed
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
Discount rate/internal rate of return ("IRR")
Annual market rent growth rate
Annual holding period
7.11%
8.02%
3.21%
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.
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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):
Total Cash Distributed
Per-Share Investment Income
Per-Share Return of Capital
Total Per-Share Distribution
Total Cash Distributed
Per-Share Investment Income
Per-Share Return of Capital
Total Per-Share Distribution
$
$
$
$
$
$
$
$
2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
67,954 $
0.020 $
0.105 $
0.125 $
68,030 $
0.020 $
0.105 $
0.125 $
68,157 $
0.020 $
0.105 $
0.125 $
51,879 $
0.015 $
0.080 $
0.095 $
256,020
0.075
0.395
0.470
(1)
(2)
2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
67,485 $
0.049 $
0.076 $
0.125 $
67,615 $
0.049 $
0.076 $
0.125 $
67,771 $
0.049 $
0.076 $
0.125 $
67,849 $
0.049 $
0.076 $
0.125 $
270,720
0.196
0.304
0.500
(1)
(2)
(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 focus. 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 continuing 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.
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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
October 2012
November 2012
December 2012
Total
Number
of Shares
Purchased(1)
Average Price
Paid per Share
1,405 $
1,524 $
1,569 $
6.64
6.56
6.49
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs(2)
1,405
1,524
1,569
Approximate Dollar
Value of Shares
Available That
May Yet Be
Redeemed Under
the Program
(3)
(3)
(3)
All purchases of our equity securities by us in 2012 were made pursuant to our SRP.
(1)
(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.
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)
29,500 $
—
29,500 $
12.00
—
12.00
820,500
—
820,500
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
(1)
Includes 70,500 shares reserved for issuance under the Independent Director Stock Option Plan.
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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).
Total assets
Total stockholders' equity
Outstanding debt
Outstanding long-term debt
Obligations under capital leases
Total revenues(1)
Net income (loss) attributable to the
common stockholders of Columbia Property Trust, Inc.
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash (used in) provided by financing
activities
Distributions paid
Net proceeds raised through issuance of our
common stock(2)
Net debt (repayments) proceeds(2)
Investments in real estate(2)
Per weighted-average common share data:
Net income (loss) – basic and diluted
Distributions declared
Weighted-average common shares outstanding
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2012
5,730,949
3,163,980
1,650,296
1,621,541
586,000
2012
576,691
48,039
252,839
31,047
(269,729)
256,020
118,388
(28,191)
233,798
0.09
0.47
546,688
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
As of December 31,
2011
2010
2009
5,776,567
3,346,655
1,469,486
1,433,295
646,000
$
$
$
$
$
5,371,685
3,455,697
886,939
838,556
646,000
Year Ended December 31,
2011
2010
576,389
56,642
279,158
(666,090)
387,610
270,720
130,289
375,222
638,783
0.10
0.50
542,721
$
$
$
$
$
$
$
$
$
$
$
510,514
23,266
270,106
(312,708)
(20,429)
313,815
483,559
(74,742)
318,948
0.04
0.57 (3)
524,848
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,374,064
2,718,087
946,936
812,030
664,000
2009
506,890
40,594
248,527
(129,678)
(102,745)
279,325
657,563
(335,483)
124,149
0.09
0.60
467,922
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2008
5,474,774
2,576,783
1,268,522
865,938
664,000
2008
470,665
(22,678)
258,854
(915,315)
694,933
242,367
821,609
310,633
900,269
(0.06)
0.60
407,051
(1)
(2)
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).
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.
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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
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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
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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 strategic 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 distributions 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.
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Index to Financial Statements
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:
JP Morgan Chase Credit Facility and $450 Million Term Loan
Total debt to total asset value ratio
Secured debt to total asset value ratio
Fixed charge coverage ratio
Unencumbered interest coverage ratio
Unencumbered asset coverage ratio
Unsecured Senior Notes due 2018:
Aggregate debt test
Debt service test
Secured debt test
Maintenance of total unencumbered assets
Covenant Level
Less than 50%
Less than 40%
Greater than 1.75x
Greater than 2.0x
Greater than 2.0x
Less than 60%
Greater than 1.5x
Less than 40%
Greater than 150%
Actual Performance
December 31, 2012
34%
19%
3.76x
5.01x
2.73x
28%
4.19x
15%
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
Debt obligations
Interest obligations on debt(1)
Capital lease obligations(2)
Operating lease obligations
Total
Total
2013
2014-2015
2016-2017
Thereafter
$
$
1,650,068 $
387,193
586,000
224,775
2,848,036 $
28,755 $
74,127
466,000
2,633
571,515 $
353,036 $
134,069
—
5,266
492,371 $
670,102 $
82,721
—
5,412
758,235 $
598,175
96,276
120,000
211,464
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.
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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
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Index to Financial Statements
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 41st 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.
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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 41st 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:
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• 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.
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Index to Financial Statements
Reconciliations of net income to FFO and to AFFO (in thousands):
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.
Adjustments:
Depreciation of real estate assets
Amortization of lease-related costs
Impairment loss on real estate assets
(Gain) loss on disposition of discontinued operations
Total Funds From Operations adjustments
Funds From Operations
Other income (expenses) included in net income, which do not correlate with
our operations:
Additional amortization of lease assets (liabilities)
Straight-line rental income
(Gain) loss on interest rate swaps
Remeasurement loss on foreign currency
Noncash interest expense
Gain on early extinguishment of debt
Subtotal
Real estate acquisition-related costs
Adjusted Funds From Operations
Portfolio Information
Years ended December 31,
2011
2010
2012
$
48,039 $
56,642 $
120,307
102,234
18,467
(20,117)
220,891
268,930
(1,752)
(11,033)
(173)
—
3,881
—
(9,077)
1,876
261,729 $
119,772
120,384
5,817
—
245,973
302,615
2,423
(22,165)
28,635
—
23,967
(66,540)
(33,680)
11,250
280,185 $
$
23,266
102,558
117,569
—
161
220,288
243,554
6,791
(6,544)
9,485
686
18,703
—
29,121
10,779
283,454
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
Atlanta
Washington, D.C.
Northern New Jersey
San Francisco
Baltimore
2012 Annualized
Lease Revenue
(in thousands)
Rentable
Square Feet
(in thousands)
Percentage of
2012 Annualized
Lease Revenue
75,353
57,524
54,249
44,700
37,613
269,439
3,462
857
2,177
959
1,194
8,649
15%
11%
10%
9%
7%
52%
$
$
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As of December 31, 2012, our five highest tenant industry concentrations were as follows:
Industry
Legal Services
Depository Institutions
Communications
Industrial Machinery & Equipment
Electric, Gas & Sanitary Services
As of December 31, 2012, our five highest tenant concentrations were as follows:
2012 Annualized
Lease Revenue
(in thousands)
Rentable
Square Feet
(in thousands)
Percentage of
2012 Annualized
Lease Revenue
$
$
77,310
72,883
50,357
38,844
36,980
276,374
1,436
2,393
2,566
1,681
1,880
9,956
15%
14%
10%
7%
7%
53%
Tenant
AT&T
Wells Fargo
Jones Day
IBM
Key Bank
2012 Annualized
Lease Revenue
(in thousands)
Percentage of
2012 Annualized
Lease Revenue
$
$
47,629
29,297
27,135
24,954
19,110
148,125
9%
6%
5%
5%
4%
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
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certain per-square-foot allowance. However, due to the long-term nature of the leases, the leases may not reset frequently enough to fully cover inflation.
Application of Critical Accounting Policies
Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the
application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the
facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different
presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of
companies in similar businesses.
Investment in Real Estate Assets
We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful
lives. These assessments have a direct impact on net income. The estimated useful lives of our assets by class are as follows:
Buildings
Building improvements
Site improvements
Tenant improvements
Intangible lease assets
Evaluating the Recoverability of Real Estate Assets
40 years
5-25 years
15 years
Shorter of economic life or lease term
Lease term
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
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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.
For the year ended December 31, 2012
For the year ended December 31, 2011
Allocation of Purchase Price of Acquired Assets
Property
Net Book Value
180 E 100 South
Manhattan Towers
$
$
30,847 $
65,317 $
Impairment Loss
Recognized
(18,467) $
(5,817) $
Fair Value
12,380
59,500
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:
• Direct costs associated with obtaining a new tenant, including commissions, tenant improvements, and other direct costs, are estimated based on management's consideration
of current market costs to execute a similar lease. Such direct costs are included in intangible lease origination costs in the accompanying consolidated balance sheets and are
amortized to expense over the remaining terms of the respective leases.
• The value of opportunity costs associated with lost rentals avoided by acquiring an in-place lease is calculated based on the contractual amounts to be paid pursuant to the in-
place leases over a market absorption period for a similar lease. Such opportunity costs are included in intangible lease assets in the accompanying consolidated balance
sheets and are amortized to expense over the remaining terms of the respective leases.
• The value of tenant relationships is calculated based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. Values associated
with tenant relationships are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the
respective leases.
• The value of effective rental rates of in-place leases that are above or below the market rates of comparable leases is calculated based on the present value (using a discount
rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be received pursuant to the in-place leases and
(ii) management's estimate of fair market lease rates for the corresponding in-place leases, 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:
•
•
•
•
obligations under operating leases;
obligations under capital leases;
commitments under existing lease agreements; and
litigation.
Subsequent Events
We have evaluated subsequent events in connection with the preparation of our consolidated financial statements and notes thereto included in this report on Form 10-K and noted the
following items in addition to those disclosed elsewhere in this report:
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.
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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, 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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of our debt facilities, we are exposed to interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and
cash flow, primarily through a 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:
Maturing debt:
Effectively variable-rate debt
Effectively fixed-rate debt
$
$
— $
$
28,755
— $
$
101,481
42,000
211,104
$
$
— $
$
491,963
— $
$
178,139
— $
$
596,854
42,000
1,608,296
2013
2014
2015
2016
2017
Thereafter
Total
Average interest rate:
Effectively variable-rate debt
Effectively fixed-rate debt
—%
5.94%
—%
5.07%
2.62%
4.76%
—%
2.91%
—%
5.28%
—%
5.43%
2.62%
4.54%
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.
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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.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data filed as part of this report are set forth beginning on page F-1 of this report.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements with our independent registered public accountants during 2012, 2011, or 2010.
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:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets;
provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and
expenditures are being made only in accordance with authorizations of management and/or members of the board of directors; and
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
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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.
ITEM 9B. OTHER INFORMATION
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
• 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, 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.
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
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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.
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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.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
We have adopted a Code of Ethics that applies to all of our executive officers and directors, including but not limited to, our principal executive officer and principal financial officer.
Our Code of Ethics may be found at http://www.columbiapropertytrust.com.
The other information required by this Item is incorporated by reference from our 2013 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from our 2013 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required by this Item is incorporated by reference from our 2013 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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:
•
•
•
•
•
real estate acquisition services;
asset management services;
real estate disposition services;
property management oversight services; and
administrative services.
Page 42
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Index to Financial Statements
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:
• 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.
• 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.
• 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.
• 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.
• 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.
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
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Index to Financial Statements
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:
• 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.
• 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.
• Adjustments to acquisition and disposition fees as discussed above.
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
Page 44
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Index to Financial Statements
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:
•
•
•
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.
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.
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.
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.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference from our 2013 Proxy Statement.
Page 45
Table of Contents
Index to Financial Statements
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. A list of the financial statements contained herein is set forth on page F-1 hereof.
(a) 2. Schedule III – Real Estate Assets and Accumulated Depreciation
PART IV
Information with respect to this item begins on page S-1 hereof. Other schedules are omitted because of the absence of conditions under which they are required or because
the required information is given in the financial statements or notes thereto.
(a) 3.
The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.
(b) See (a) 3 above.
(c) See (a) 2 above.
Page 46
Table of Contents
Index to Financial Statements
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.
SIGNATURES
COLUMBIA PROPERTY TRUST, INC.
(Registrant)
Dated:
February 28, 2013
By:
/s/ WENDY W. GILL
WENDY W. GILL
Principal Financial Officer, Principal Accounting Officer, and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity as and
on the date indicated.
Signature
Title
/s/ Charles R. Brown
Charles R. Brown
/s/ Richard W. Carpenter
Richard W. Carpenter
/s/ Bud Carter
Bud Carter
/s/ John L. Dixon
John L. Dixon
/s/ E. Nelson Mills
E. Nelson Mills
/s/ George W. Sands
George W. Sands
/s/ Neil H. Strickland
Neil H. Strickland
/s/ Leo F. Wells, III
Leo F. Wells, III
/s/ Douglas P. Williams
Douglas P. Williams
Independent Director
Independent Director
Independent Director
Independent Director
President, Chief Executive Officer and Director
(Principal Executive Officer)
Independent Director
Independent Director
Director
Director
Page 47
Date
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
Table of Contents
Index to Financial Statements
The following documents are filed as exhibits to this report. Exhibits that are not required for this report are omitted.
EXHIBIT INDEX
TO
2012 FORM 10-K OF
COLUMBIA PROPERTY TRUST, INC.
Ex.
3.1*
3.2*
4.1*
4.2*
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9*
10.10*
10.11*
10.12*
21.1*
23.1*
23.2*
31.1*
31.2*
32.1*
99.1*
99.2*
99.3*
101.INS**
101.SCH**
101.CAL**
101.DEF**
101.LAB**
101.PRE**
Description
Second Amended and Restated Articles of Incorporation as Amended by the First Articles of Amendment.
Second Amended and Restated Bylaws.
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).
Third Amended and Restated Distribution Reinvestment Plan.
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.
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).
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).
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).
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).
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).
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).
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).
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.
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.
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.
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.
Subsidiaries of Columbia Property Trust, Inc.
Consent of Deloitte & Touche LLP.
Consent of Frazier & Deeter, LLC.
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.
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.
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.
Sixth Amended and Restated Share Redemption Program.
Columbia Property Trust, Inc. Unaudited Pro Forma Financial Statements.
Wells Real Estate Advisory Services II, LLC and Wells Real Estate Services, LLC Carve-Out Combined Financial Statements.
XBRL Instance Document.
XBRL Taxonomy Extension Schema.
XBRL Taxonomy Extension Calculation Linkbase.
XBRL Taxonomy Extension Definition Linkbase.
XBRL Taxonomy Extension Label Linkbase.
XBRL Taxonomy Extension Presentation Linkbase.
* Filed herewith.
** Furnished with this Form 10-K.
Page 48
Table of Contents
Index to Financial Statements
Financial Statements
Page
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Operations for the Years Ended December 31, 2012, 2011, and 2010
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011, and 2010
Consolidated Statements of Equity for the Years Ended December 31, 2012, 2011, and 2010
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011, and 2010
Notes to Consolidated Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
F-9
F-10
Table of Contents
Index to 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
F-2
Table of Contents
Index to Financial Statements
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
Buildings and improvements, less accumulated depreciation of $580,334 and $514,961, as of
December 31, 2012 and 2011, respectively
Intangible lease assets, less accumulated amortization of $315,840 and $343,463, as of December 31,
2012 and 2011, respectively
Construction in progress
Real estate assets held for sale, less accumulated depreciation and amortization of $9,551, as of
December 31, 2011
Total real estate assets
Cash and cash equivalents
Tenant receivables, net of allowance for doubtful accounts of $117 and $3,728, as of December 31, 2012
and 2011, respectively
Prepaid expenses and other assets
Deferred financing costs, less accumulated amortization of $8,527 and $5,590, as of
December 31, 2012 and 2011, respectively
Intangible lease origination costs, less accumulated amortization of $230,930 and $236,679, as of
December 31, 2012 and 2011, respectively
Deferred lease costs, less accumulated amortization of $24,222 and $22,390, as of
December 31, 2012 and 2011, respectively
Investment in development authority bonds
Other assets held for sale, less accumulated amortization of $2,260, as of December 31, 2011
Total assets
Liabilities:
Line of credit and notes payable
Bonds payable, net of discount of $1,322 and $1,574, as of December 31, 2012 and 2011, respectively
Accounts payable, accrued expenses, and accrued capital expenditures
Due to affiliates
Deferred income
Intangible lease liabilities, less accumulated amortization of $84,326 and $74,326, as of December 31,
2012 and 2011, respectively
Obligations under capital leases
Liabilities held for sale
Total liabilities
Commitments and Contingencies (Note 6)
Redeemable Common Stock
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
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
Total liabilities, redeemable common stock, and equity
See accompanying notes.
F-3
$
789,237
$
3,468,218
341,460
12,680
—
4,611,595
53,657
134,099
29,373
10,490
206,927
98,808
586,000
—
5,730,949
$
1,401,618
$
248,678
102,858
1,920
28,071
98,298
586,000
—
2,467,443
—
99,526
5,476
4,897,782
(1,634,531)
(99,526)
(5,221)
3,163,980
—
3,163,980
5,730,949
$
$
$
$
704,336
3,472,971
391,989
8,414
37,508
4,615,218
39,468
130,549
32,831
9,442
231,338
68,289
646,000
3,432
5,776,567
1,221,060
248,426
72,349
3,329
35,079
89,581
646,000
624
2,316,448
—
113,147
5,462
4,880,806
(1,426,550)
(113,147)
84
3,346,655
317
3,346,972
5,776,567
Table of Contents
Index to Financial Statements
Revenues:
Rental income
Tenant reimbursements
Hotel income
Other property income
Expenses:
Property operating costs
Hotel operating costs
Asset and property management fees:
Related-party
Other
Depreciation
Amortization
General and administrative
Acquisition fees and expenses
Real estate operating income
Other income (expense):
Interest expense
Interest and other income
Loss on interest rate swaps
Gain on the early extinguishment of debt
Income before income tax (expense) benefit
Income tax (expense) benefit
Income from continuing operations
Discontinued operations:
COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
Years ended December 31,
2012
2011
2010
$
442,284
$
104,863
23,049
6,495
576,691
173,466
18,362
34,394
2,826
114,107
97,649
25,163
1,876
467,843
108,848
(106,391)
39,871
(1,225)
—
(67,745)
41,103
(586)
40,517
(12,591)
20,117
7,526
48,043
(4)
441,907 $
102,944
20,600
10,938
576,389
167,427
17,394
34,568
2,787
110,699
111,465
23,735
11,250
479,325
97,064
(106,305)
42,395
(38,383)
53,018
(49,275)
47,789
276
48,065
(4,931)
13,522
8,591
56,656
(14)
$
$
$
$
48,039 $
56,642 $
0.07 $
0.01 $
0.09 $
546,688
0.09 $
0.02 $
0.10 $
542,721
396,122
93,412
19,819
1,161
510,514
151,509
17,035
30,970
3,245
92,613
103,537
23,216
10,779
432,904
77,610
(82,038)
43,083
(19,061)
—
(58,016)
19,594
226
19,820
3,681
(161)
3,520
23,340
(74)
23,266
0.04
0.01
0.04
524,848
Operating (loss) income from discontinued operations
Gain (loss) on disposition of discontinued operations
Income from discontinued operations
Net income
Less: net income attributable to nonredeemable noncontrolling interests
Net income attributable to the common stockholders of
Columbia Property Trust, Inc.
Per-share information – basic and diluted:
Income from continuing operations
Income from discontinued operations
Net income attributable to the common stockholders of
Columbia Property Trust, Inc.
Weighted-average common shares outstanding – basic and diluted
See accompanying notes.
F-4
Table of Contents
Index to Financial Statements
COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income attributable to the common stockholders of Columbia Property
Trust, Inc.
Market value adjustment to interest rate swap
Comprehensive income attributable to the common stockholders of
Columbia Property Trust, Inc.
Comprehensive income attributable to noncontrolling interests
Comprehensive income
Years ended December 31,
2012
2011
2010
$
$
48,039 $
(5,305)
42,734
4
42,738 $
56,642 $
11,223
67,865
14
67,879 $
23,266
(3,110)
20,156
74
20,230
See accompanying notes.
F-5
Table of Contents
Index to Financial Statements
COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except per-share amounts)
Common Stock
Shares
Amount
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
Stockholders' Equity
(8,029) $
—
—
—
—
—
—
—
—
—
—
2,718,087
$
5,274
$
488,101
(72,771)
644,655
(300,719)
—
—
—
—
—
(176)
Total
Equity
2,723,361
488,101
(72,771)
644,655
(300,719)
(176)
(3,341)
(4,825)
(8,166)
(34,294)
(4,177)
23,266
—
—
—
—
74
(34,294)
(4,177)
23,266
74
(3,110)
(11,139) $
(3,110)
3,455,697
$
—
347
$
(3,110)
3,456,044
Balance, December 31, 2009
499,895
$
4,999
$
4,461,980
$
(935,019) $
(805,844) $
Issuance of common stock
Redemptions of common stock
Decrease in redeemable common stock
Distributions to common stockholders
($0.57 per share)
Distributions to noncontrolling interests
Acquisition of noncontrolling interest in
consolidated joint venture
Commissions and discounts on stock sales
and
related dealer-manager fees
Offering costs
Net income attributable to
common
stockholders of Columbia
Property Trust, Inc.
Net income attributable to
noncontrolling interests
Market value adjustment to
interest rate swap
49,199
(8,187)
—
—
—
—
—
—
—
—
—
492
(82)
—
—
—
—
—
—
—
—
—
487,609
(72,689)
—
—
—
(3,341)
(34,294)
(4,177)
—
—
—
—
—
—
(300,719)
—
—
—
—
23,266
—
—
—
—
644,655
—
—
—
—
—
—
—
Balance, December 31, 2010
540,907
$
5,409
$
4,835,088
$
(1,212,472) $
(161,189) $
F-6
Table of Contents
Index to Financial Statements
COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except per-share amounts)
Common Stock
Shares
Amount
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
Stockholders' Equity
Balance, December 31, 2010
540,907
$
5,409
$
4,835,088
$
(1,212,472) $
(161,189) $
Issuance of common stock
Redemptions of common stock
Decrease in redeemable common stock
Distributions to common stockholders
($0.50 per share)
Distributions to noncontrolling interests
Net income attributable to common
stockholders of Columbia Property Trust,
Inc.
Net income attributable to noncontrolling
interests
Market value adjustment to interest rate
swap
14,808
(9,517)
—
—
—
—
—
—
148
130,141
(95)
—
—
—
—
—
—
(84,423)
—
—
—
—
—
—
—
—
—
(270,720)
—
56,642
—
—
—
—
48,042
—
—
—
—
—
(11,139) $
—
—
—
—
—
—
—
130,289
(84,518)
48,042
(270,720)
—
56,642
—
11,223
11,223
3,455,697
$
347
$
Total
Equity
3,456,044
130,289
(84,518)
48,042
(270,720)
(44)
56,642
14
11,223
—
—
—
—
(44)
—
14
—
Balance, December 31, 2011
546,198
$
5,462
$
4,880,806
$
(1,426,550) $
(113,147) $
84
$
3,346,655
$
317
$
3,346,972
F-7
Table of Contents
Index to Financial Statements
Balance, December 31, 2011
Issuance of common stock
Redemptions of common stock
Decrease in redeemable common stock
Distributions to common stockholders
($0.47 per share)
Distributions to noncontrolling
interests
Offering costs
Acquisition of noncontrolling interest
in
consolidated joint ventures
Net income attributable to the
common stockholders of Columbia
Property Trust, Inc.
Net income attributable to
noncontrolling interests
Market value adjustment to
interest rate swap
Balance, December 31, 2012
COLUMBIA PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except per-share amounts)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Stockholders' Equity
Cumulative
Distributions
in Excess of
Earnings
Redeemable
Common
Stock
Other
Comprehensive
Income (Loss)
Total Columbia
Property Trust, Inc.
Stockholders'
Equity
Nonredeemable
Noncontrolling
Interests
5,462
$
4,880,806
$
(1,426,550) $
(113,147) $
$
84
—
—
—
—
—
—
—
—
3,346,655
$
118,388
(101,396)
13,621
(256,020)
—
(7)
5
48,039
—
Total
Equity
3,346,972
118,388
(101,396)
13,621
(256,020)
(15)
(7)
(301)
48,039
4
(5,305)
3,163,980
$
317
—
—
—
—
(15)
(306)
—
4
—
— $
—
(99,526) $
(5,305)
(5,221) $
(5,305)
3,163,980
$
$
546,198
16,666
(15,260)
—
—
—
—
—
—
—
547,604
167
(153)
—
—
—
—
—
—
—
118,221
(101,243)
—
—
—
(7)
5
—
—
—
—
—
—
(256,020)
—
—
48,039
—
—
—
—
13,621
—
—
—
—
—
$
5,476
$
4,897,782
$
(1,634,531) $
See accompanying notes.
F-8
Table of Contents
Index to Financial Statements
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
Adjustments to reconcile net income to net cash provided by operating activities:
$
48,043 $
56,656 $
Straight-line rental income
Depreciation
Amortization
(Gain) loss on interest rate swaps
(Gain) loss on sale of real estate assets
Impairment losses on real estate assets
Gains on early extinguishment of debt
Remeasurement gain on foreign currency
Noncash interest expense
Changes in assets and liabilities, net of acquisitions:
Increase in tenant receivables, net
Decrease (increase) in prepaid expenses and other assets
Increase in accounts payable and accrued expenses
Decrease in due to affiliates
(Decrease) increase in deferred income
Net cash provided by operating activities
Cash Flows from Investing Activities:
Net proceeds from the sale of real estate
Investment in real estate and earnest money paid
Deferred lease costs paid
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Financing costs paid
Proceeds from lines of credit and notes payable
Repayments of lines of credit and notes payable
Proceeds from issuance of bonds payable
Issuance of common stock
Redemptions of common stock
Distributions paid to stockholders
Distributions paid to stockholders and reinvested in shares of our common stock
Redemption of noncontrolling interests
Commissions on stock sales and related dealer-manager fees paid
Offering costs paid
Distributions paid to nonredeemable noncontrolling interests
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Effect of foreign exchange rate on cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
See accompanying notes.
F-9
(11,033)
120,307
100,482
(173)
(20,117)
18,467
—
—
3,881
(4,767)
2,344
4,270
(1,411)
(7,454)
252,839
304,264
(233,798)
(39,419)
31,047
(4,198)
599,000
(627,191)
—
118,388
(99,381)
(137,632)
(118,388)
(301)
—
(11)
(15)
(269,729)
14,157
32
39,468
53,657 $
(22,165)
119,772
122,807
28,635
—
5,817
(66,540)
—
23,967
(1,438)
(4,443)
8,114
(1,146)
9,122
279,158
—
(638,783)
(27,307)
(666,090)
(12,395)
1,543,500
(1,168,278)
248,237
130,289
(82,892)
(140,431)
(130,289)
(87)
—
—
(44)
387,610
678
(92)
38,882
39,468 $
23,340
(6,544)
102,558
124,360
9,485
161
—
—
686
18,703
(2,895)
(4,219)
2,418
(360)
2,413
270,106
15,219
(318,948)
(8,979)
(312,708)
(7,338)
88,000
(162,742)
—
483,559
(72,757)
(150,246)
(163,569)
—
(29,801)
(5,285)
(250)
(20,429)
(63,031)
(812)
102,725
38,882
Table of Contents
Index to Financial Statements
1.
Organization
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.
F-10
Table of Contents
Index to Financial Statements
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
Building improvements
Site improvements
Tenant improvements
Intangible lease assets
40 years
5-25 years
15 years
Shorter of economic life or lease term
Lease term
F-11
Table of Contents
Index to Financial Statements
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.
For the year ended December 31, 2012
For the year ended December 31, 2011
Assets Held for Sale
Property
180 E 100 South
Manhattan Towers
Net Book Value
$
$
30,847 $
65,317 $
Impairment Loss Recognized
Fair Value
(18,467) $
(5,817) $
12,380
59,500
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.
F-12
Table of Contents
Index to Financial Statements
• 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.
F-13
Table of Contents
Index to Financial Statements
As of December 31, 2012 and 2011, Columbia Property Trust had the following gross intangible in-place lease assets and liabilities (in thousands):
December 31, 2012
December 31, 2011
Gross
Accumulated Amortization
Net
Gross
Accumulated Amortization
Net
$
$
$
$
Intangible Lease Assets
Above-Market
In-Place
Lease Assets
86,696
(56,259)
30,437
109,457
(68,706)
40,751
$
$
$
$
Absorption
Period Costs
459,931 $
(248,600)
211,331 $
515,322 $
(265,844)
249,478 $
Intangible
Lease
Origination
Costs
Intangible
Below-Market
In-Place Lease
Liabilities
437,857 $
(230,930)
206,927 $
468,017 $
(236,679)
231,338 $
182,624
(84,326)
98,298
163,907
(74,326)
89,581
During 2012, 2011, and 2010, Columbia Property Trust recognized the following amortization of intangible lease assets and liabilities (in thousands):
For the years ended December 31,
2012
2011
2010
Intangible Lease Assets
Above-Market
In-Place
Lease Assets
Absorption
Period Costs
Intangible
Lease
Origination
Costs
Intangible
Below-Market
In-Place Lease
Liabilities
$
$
$
8,900
14,244
17,445
$
$
$
48,997 $
62,902 $
60,666 $
42,866 $
50,006 $
50,433 $
15,324
17,203
14,472
The remaining net intangible assets and liabilities as of December 31, 2012 will be amortized as follows (in thousands):
For the years ending December 31,
2013
2014
2015
2016
2017
Thereafter
Weighted-Average Amortization Period
Intangible Lease Assets
Above-Market
In-Place
Lease Assets
Absorption
Period Costs
Intangible
Lease
Origination
Costs
Intangible
Below-Market
In-Place Lease
Liabilities
$
$
$
$
6,629
6,224
5,810
5,665
2,514
3,595
30,437
4 years
39,767 $
35,771
32,018
25,676
18,635
59,464
211,331 $
6 years
39,383 $
36,425
32,980
26,382
19,495
52,262
206,927 $
6 years
14,795
14,362
12,828
10,398
8,306
37,609
98,298
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.
F-14
Table of Contents
Index to Financial Statements
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
2014
2015
2016
2017
Thereafter
Weighted-Average Amortization Period
Cash and Cash Equivalents
$
$
2,069
2,069
2,069
2,069
2,069
89,347
99,692
49 years
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
F-15
Table of Contents
Index to Financial Statements
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
F-16
Table of Contents
Index to Financial Statements
(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):
Instrument Type
Derivatives designated as hedging instruments:
Interest rate contracts
Derivatives not designated as hedging instruments:
Interest rate contracts
Balance Sheet Classification
Accounts payable
Accounts payable
Estimated Fair Value as of
December 31,
2012
2011
$
$
(5,305) $
—
(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.
F-17
Table of Contents
Index to Financial Statements
Market value adjustment to interest rate swaps designated as hedging instruments and
included in other comprehensive income
Loss on interest rate swap recognized through earnings
Years ended December 31,
2012
2011
$
$
(5,305) $
(1,225) $
11,223
(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
F-18
Table of Contents
Index to Financial Statements
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):
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
San Francisco
CA
12/21/2012 $
$
114,483
114,483
$
$
273,203
273,203
$
$
— $
— $
19,637
19,637
$
$
26,824
26,824
$
$
(25,507)
(25,507)
$
$
(1,830)
(1,830)
$
$
(11,560)
(11,560)
$
$
395,250
395,250
Market
Square
Buildings Washington, DC
544
Lakeview
(3)
Vernon Hills
N/A
IL
3/7/2011 $
152,629
$
412,548
$
— $
4/1/2011
$
3,006
155,635
$
3,100
415,648
$
—
— $
45,858
$
—
45,858
$
12,031
$
(19,680)
$
— $
— $
603,386
—
—
12,031
$
(19,680)
$
—
— $
—
— $
6,106
609,492
(1)
(2)
(4)
(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.
F-19
Property
Name
2012
333
Market
Street
2011
Table of Contents
Index to Financial Statements
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):
Revenues (1)
Net income attributable to common stockholders
Years ended December 31,
2010
2011
$
$
585,129 $
53,567 $
555,161
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.
F-20
Table of Contents
Index to Financial Statements
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:
Facility
$450 Million Term Loan
Market Square Buildings mortgage note
333 Market Street Building mortgage note
100 East Pratt Street Building mortgage note
Wildwood Buildings mortgage note
263 Shuman Boulevard Building mortgage note
JPMorgan Chase Credit Facility
SanTan Corporate Center mortgage notes
One Glenlake Building mortgage note (4)
Three Glenlake Building mortgage note
215 Diehl Road Building mortgage note
544 Lakeview Building mortgage note
One West Fourth Street Building mortgage note (4)
Highland Landmark Building mortgage note
Total indebtedness
Outstanding Balance as of
December 31,
Rate as of December 31, 2012
Term Debt or Interest Only
Maturity
2012
2011
LIBOR + 185 bp
5.07%
LIBOR + 202 bp
(1)
(2)
5.08%
5.00%
5.55%
2.62% (3)
5.83%
5.80%
LIBOR + 90 bp
(5)
5.55%
5.54%
5.80%
4.81%
Interest only
Interest only
Interest only
Interest only
Interest only
Interest only
Interest only
Interest only
Term debt
Interest only
Interest only
Interest only
Term debt
Interest only
(6)
2/3/2016 $
7/1/2023
7/1/2015
6/11/2017
12/1/2014
7/1/2017
5/7/2015
10/11/2016
12/10/2018
7/31/2013
7/1/2017
12/1/2014
12/10/2018
1/10/2012
450,000
$
325,000
208,308
105,000
90,000
49,000
42,000
39,000
37,204
26,264
21,000
8,842
—
—
$
1,401,618
$
—
325,000
—
105,000
90,000
49,000
484,000
39,000
—
25,958
21,000
8,707
39,555
33,840
1,221,060
(1)
(2)
(3)
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.
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.
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
F-21
Table of Contents
Index to Financial Statements
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.
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Index to Financial Statements
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
2014
2015
2016
2017
Thereafter
Total
5.
Bonds Payable
$
$
28,755
101,481
253,104
491,963
178,139
348,176
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.
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Index to Financial Statements
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
2014
2015
2016
2017
Thereafter
Total
Obligations Under Capital Leases
$
$
2,633
2,633
2,633
2,633
2,779
211,464
224,775
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
2014
2015
2016
2017
Thereafter
Amounts representing interest
Total
Commitments Under Existing Lease Agreements
$
$
499,993
7,200
7,200
7,200
7,200
148,800
677,593
(91,593)
586,000
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
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Index to Financial Statements
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.
7.
Stockholders' Equity
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.
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Index to Financial Statements
A summary of stock option activity under Columbia Property Trust's Director Plan during 2012, 2011, and 2010, follows:
Outstanding as of December 31, 2009
Granted
Terminated
Outstanding as of December 31, 2010
Granted
Terminated
Outstanding as of December 31, 2011
Granted
Terminated
Outstanding as of December 31, 2012
Number
29,500
—
—
29,500
—
—
29,500
—
—
29,500
Exercise
Price
$12
$12
$12
$12
Exercisable
28,500
29,000
29,500
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.
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Index to Financial Statements
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
2014
2015
2016
2017
Thereafter
Total
$
$
418,995
422,738
408,386
381,546
308,358
1,214,588
3,154,611
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Index to Financial Statements
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):
Other assets assumed upon acquisition of properties
Other liabilities assumed upon acquisition of property
Interest rate swap assumed upon acquisition of property
Notes payable assumed at acquisition
Noncash interest accruing to notes payable
Market value adjustment to interest rate swaps that qualify for hedge accounting treatment
Accrued capital expenditures and deferred lease costs
Commissions on stock sales and related dealer-manager fees due to affiliate
Accrued deferred financing costs
Accrued redemptions of common stock
Settlement of redeemable controlling interest through issuance of common stock
Discounts applied to issuance of common stock
Settlement of Manhattan Towers mortgage note by transferring property to lender
Transfer of development authority bonds
Nonrefundable earnest money for property sales
Decrease in redeemable common stock
10.
Related-Party Transactions and Agreements
Advisory Agreement
Years ended December 31,
2011
2010
2012
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
130 $
— $
11,560 $
208,330 $
306 $
(5,305) $
16,325 $
— $
35 $
3,655 $
— $
— $
— $
60,000 $
— $
13,621 $
3,202 $
1,174 $
— $
8,607 $
15,891 $
— $
7,751 $
— $
48 $
1,640 $
14 $
— $
75,000 $
— $
880 $
48,042 $
—
—
—
—
14,922
9,485
2,210
4
—
14
—
4,542
—
18,000
—
644,655
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
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Index to Financial Statements
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
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Index to Financial Statements
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.
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Index to Financial Statements
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):
Asset management fees
Administrative reimbursements, net(1)
Property management fees
Transition services
Acquisition fees
Disposition fees
Occupancy costs
Construction fees(2)
Commissions, net of discounts(3)(4)
Dealer-manager fees, net of discounts(3)
Other offering costs(3)
Total
2012
Years ended December 31,
2011
2010
$
$
32,000 $
11,099
4,462
3,008
1,500
1,311
126
220
—
—
—
53,726 $
32,094 $
11,609
4,546
—
1,307
—
—
211
—
—
—
49,767 $
30,552
13,099
3,564
—
9,671
—
—
185
21,909
7,843
4,177
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.
F-31
Table of Contents
Index to Financial Statements
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):
Administrative reimbursements
Asset and property management fees
Total
11.
Income Taxes
December 31,
2012
2011
$
$
1,360 $
560
1,920 $
217
3,112
3,329
Columbia Property Trust's income tax basis net income during 2012, 2011, and 2010 (in thousands) follows:
GAAP basis financial statement net income attributable to the common
stockholders of Columbia Property Trust, Inc.
Increase (decrease) in net income resulting from:
Depreciation and amortization expense for financial reporting purposes in
excess of amounts for income tax purposes
Rental income accrued for financial reporting purposes in excess of amounts for income tax purposes
Net amortization of above-/below-market lease intangibles for financial
reporting purposes (less than) in excess of amounts for income tax purposes
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
Bad debt expense for financial reporting purposes (less than) in excess of
amounts for income tax purposes
Gains or losses on disposition of real property for financial reporting purposes that are (more) less favorable than
amounts for income tax purposes
Other expenses for financial reporting purposes (less than) in excess of
amounts for income tax purposes
Income tax basis net income, prior to dividends-paid deduction
2012
2011
2010
$
48,039 $
56,642 $
23,266
81,681
(24,798)
101,498
(11,203)
(3,423)
(2,960)
(173)
(35,487)
(5,034)
(229)
(61,198)
(16,282)
96,695
(1,739)
3,328
9,485
2,024
(433)
$
7,349
42,443 $
15,603
107,582 $
13,155
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:
Ordinary income
Capital gains
Return of capital
Total
2012
2011
2010
16%
—
84%
100%
39%
—
61%
100%
45%
—
55%
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.
F-32
Table of Contents
Index to Financial Statements
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:
Federal statutory income tax rate
State income taxes, net of federal benefit
Interest expense related to notes payable step up
Other
Effective tax rate
2012
Years ended December 31,
2011
2010
34.00%
2.12%
6.98%
—%
43.10%
34.00 %
0.93 %
(2.27)%
0.22 %
32.88 %
34.00%
1.34%
—%
0.28%
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.
F-33
Table of Contents
Index to Financial Statements
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):
Real estate assets held for sale:
Real estate assets, at cost:
Land
Buildings and improvements, less accumulated depreciation of $6,509
Intangible lease assets, less accumulated amortization of $3,042
Total real estate assets held for sale, net
Other assets held for sale:
Tenant receivables
Prepaid expenses and other assets
Intangible lease origination costs, less accumulated amortization of $2,018
Deferred lease costs, less accumulated amortization of $242
Total other assets held for sale, net
Liabilities held for sale:
Accounts payable, accrued expenses, and accrued capital expenditures
Due to affiliates
Deferred income
Total liabilities held for sale
F-34
December 31,
2011
11,536
25,972
—
37,508
1,747
39
—
1,646
3,432
176
2
446
624
$
$
$
$
$
$
Table of Contents
Index to Financial Statements
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):
Revenues:
Rental income
Tenant reimbursements
Other property income
Expenses:
Property operating costs
Asset and property management fees
Depreciation
Amortization
Impairment loss on real estate assets
General and administrative
Total expenses
Real estate operating (loss) income
Other income (expense):
Interest expense
Interest and other income
Operating (loss) income from discontinued operations
Gain (loss) on sale of real assets
Gain on early extinguishment of debt
Gain (loss) on disposition of discontinued operations
Income from discontinued operations
2012
Years ended December 31,
2011
2010
$
$
30,644 $
1,598
—
32,242
10,732
2,547
6,200
4,585
18,467
198
42,729
(10,487)
(2,105)
1
(12,591)
20,117
—
20,117
7,526 $
39,640 $
2,712
515
42,867
15,672
2,644
9,073
8,919
5,817
428
42,553
314
(5,249)
4
(4,931)
—
13,522
13,522
8,591 $
50,932
6,241
280
57,453
18,495
4,048
9,945
14,032
—
382
46,902
10,551
(7,686)
816
3,681
(161)
—
(161)
3,520
F-35
Table of Contents
Index to Financial Statements
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
Revenues(1)
Net income (loss) attributable to common stockholders of Columbia
Property Trust, Inc.
Basic and diluted net income (loss) attributable to common stockholders
of Columbia Property Trust, Inc. per share
Distributions declared per share
$
$
$
$
First Quarter
142,928 $
Second Quarter Third Quarter Fourth Quarter
144,943
146,486 $
142,334 $
31,131 $
10,914 $
(5,859) $
0.06 $
0.125 $
0.02 $
0.125 $
(0.01) $
0.125 $
11,853
0.02
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
Revenues(1)
Net income (loss) attributable to common stockholders of Columbia
Property Trust, Inc.
Basic and diluted net income (loss) attributable to common stockholders
of Columbia Property Trust, Inc. per share
Distributions declared per share
$
$
$
$
First Quarter
133,913 $
Second Quarter Third Quarter Fourth Quarter
150,426
148,909 $
143,141 $
2,411 $
(4,482) $
5,102 $
— $
0.125 $
(0.01) $
0.125 $
0.01 $
0.125 $
53,611
0.10
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).
F-36
Table of Contents
Index to Financial Statements
Condensed Consolidating Balance Sheets (in thousands)
Assets:
Real estate assets, at cost:
Land
Buildings and improvements, net
Intangible lease assets, net
Construction in progress
Total real estate assets
Cash and cash equivalents
Investment in subsidiaries
Tenant receivables, net of allowance
Prepaid expenses and other assets
Deferred financing costs, net
Intangible lease origination costs, net
Deferred lease costs, net
Investment in development authority
bonds
Total assets
Liabilities:
Line of credit and notes payable
Bonds payable, net
Accounts payable, accrued expenses, and
accrued capital expenditures
Due to affiliates
Deferred income
Intangible lease liabilities, net
Obligations under capital leases
Total liabilities
Redeemable Common Stock
Equity:
Total Columbia Property Trust,
Inc. stockholders' equity
Total equity
Total liabilities, redeemable
common stock, and equity
Columbia
Property Trust
(Parent)
Columbia
Property Trust
OP
(the Issuer)
Guarantors
Non-
Guarantors
Consolidating
Adjustments
Columbia Property
Trust
(Consolidated)
As of December 31, 2012
$
$
$
— $
—
—
—
—
20,914
3,068,106
—
178,131
—
—
—
6,241 $
16,513
—
5,252
28,006
4,822
2,679,950
22
203,589
8,498
—
68
214,425 $
568,571 $
1,550,988
120,311
2,268
1,887,992
13,673
—
62,412
1,408
—
105,748
38,619
1,900,717
221,149
5,160
2,695,597
14,248
—
75,888
26,929
1,992
101,179
60,121
—
—
3,267,151 $
2,924,955 $
466,000
2,575,852 $
120,000
3,095,954 $
— $
—
—
—
—
—
(5,748,056)
(4,223)
(380,684)
—
—
—
—
(6,132,963) $
— $
—
492,000 $
248,678
145,974 $
1,142,644 $
(379,000) $
—
—
—
3,645
—
—
—
—
3,645
99,526
12,417
960
81
—
—
754,136
—
26,594
1,485
14,619
32,589
466,000
687,261
—
64,425
1,159
13,371
65,709
120,000
1,407,308
—
(4,223)
(1,684)
—
—
—
(384,907)
—
3,163,980
3,163,980
2,170,819
2,170,819
1,888,591
1,888,591
1,688,646
1,688,646
(5,748,056)
(5,748,056)
$
3,267,151 $
2,924,955 $
2,575,852 $
3,095,954 $
(6,132,963) $
789,237
3,468,218
341,460
12,680
4,611,595
53,657
—
134,099
29,373
10,490
206,927
98,808
586,000
5,730,949
1,401,618
248,678
102,858
1,920
28,071
98,298
586,000
2,467,443
99,526
3,163,980
3,163,980
5,730,949
F-37
Table of Contents
Index to Financial Statements
Condensed Consolidating Balance Sheets (in thousands)
Columbia Property
Trust
(Parent)
Columbia
Property Trust
OP
(the Issuer)
Guarantors
Non-
Guarantors
Consolidating
Adjustments
Columbia Property
Trust
(Consolidated)
As of December 31, 2011
Assets:
Real estate assets, at cost:
Land
Building and improvements, net
Intangible lease assets, net
Construction in progress
Real estate assets held for sale,
net
Total real estate assets
Cash and cash equivalents
Investment in subsidiaries
Tenant receivables, net of allowance
Prepaid expenses and other assets
Deferred financing costs, net
Intangible lease origination costs, net
Deferred lease costs, net
Investment in development authority
bonds
Other assets held for sale, net
Total assets
Liabilities:
Lines of credit and notes payable
Bonds payable, net
Accounts payable, accrued expenses,
and accrued capital expenditures
Due to affiliates
Deferred income
Intangible lease liabilities, net
Obligations under capital leases
Liabilities held for sale
Total liabilities
Redeemable Common Stock
Equity:
Total Columbia Property
Trust, Inc. stockholders'
equity
Nonredeemable noncontrolling
interests
Total equity
Total liabilities, redeemable
common stock, and equity
$
$
$
223,522 $
480,814 $
— $
—
—
—
— $
—
—
—
—
—
11,291
3,275,979
—
177,444
—
—
—
—
—
—
—
10,597
2,786,248
—
202,126
8,287
—
—
—
—
1,635,910
153,070
4,224
—
2,016,726
9,133
—
58,435
2,056
—
133,052
28,650
466,000
—
3,464,714 $
3,007,258 $
2,714,052 $
1,837,061
238,919
4,190
37,508
2,598,492
8,447
—
77,471
29,009
1,155
98,286
39,639
— $
—
—
—
—
—
—
(6,062,227)
(5,357)
(377,804)
—
—
—
180,000
3,432
3,035,931 $
—
—
(6,445,388) $
— $
—
484,000 $
248,426
147,730 $
966,123 $
(376,793) $
—
—
—
1,652
—
—
—
—
—
1,652
113,147
5,696
2,779
—
—
—
—
740,901
—
24,871
1,178
22,280
39,224
466,000
—
701,283
—
45,487
383
12,799
50,357
180,000
624
1,255,773
—
(5,357)
(1,011)
—
—
—
—
(383,161)
—
3,349,915
2,266,357
2,012,769
1,779,841
(6,062,227)
—
3,349,915
—
2,266,357
—
2,012,769
317
1,780,158
—
(6,062,227)
$
3,464,714 $
3,007,258 $
2,714,052 $
3,035,931 $
(6,445,388) $
F-38
704,336
3,472,971
391,989
8,414
37,508
4,615,218
39,468
—
130,549
32,831
9,442
231,338
68,289
646,000
3,432
5,776,567
1,221,060
248,426
72,349
3,329
35,079
89,581
646,000
624
2,316,448
113,147
3,346,655
317
3,346,972
5,776,567
Table of Contents
Index to Financial Statements
Consolidating Statements of Operations (in thousands)
Columbia
Property Trust
(Parent)
Columbia
Property Trust
OP
(the Issuer)
Guarantors
Non-
Guarantors
Consolidating
Adjustments
Columbia Property Trust
(Consolidated)
For the year ended December 31, 2012
Revenues:
Rental income
Tenant reimbursements
Hotel income
Other property income
Expenses:
Property operating costs
Hotel operating costs
Asset and property management fees:
Related-party
Other
Depreciation
Amortization
Impairment loss on real estate assets
General and administrative
Acquisition fees and expenses
Real estate operating (loss) income
Other income (expense):
Interest expense
Interest and other income
Loss on interest rate swaps
Income (loss) from equity investment
Income (loss) before income tax
benefit (expense)
Income tax benefit (expense)
Income (loss) from continuing
operations
Discontinued operations:
Operating income (loss) from
discontinued operations
(Loss) gain on disposition of
discontinued operations
Income from discontinued operations
Net income (loss)
Net income (loss) attributable to
noncontrolling interests
Net income (loss) attributable to the
common stockholders of Columbia
Property Trust, Inc.
$
— $
—
—
—
—
—
—
29,933
—
—
—
—
49
—
29,982
(29,982)
—
7,988
—
70,033
78,021
48,039
—
1,649 $
103
—
86
1,838
1,634
—
58
—
710
357
—
21,436
—
24,195
(22,357)
(32,469)
16,960
—
95,902
80,393
58,036
(14)
220,603
40,444
—
4,230
265,277
67,104
—
2,234
1,412
52,733
47,718
—
2,369
—
173,570
91,707
(40,239)
29,229
—
—
(11,010)
80,697
(200)
48,039
58,022
80,497
—
—
—
—
48,039
—
—
58,022
—
—
2,632
(383)
2,249
82,746
—
$
223,674 $
66,773
23,049
2,775
316,271
107,695
22,004
3,310
1,414
60,664
49,574
—
1,309
1,876
247,846
68,425
(58,622)
10,633
(1,225)
—
(49,214)
19,211
(372)
18,839
(15,223)
20,500
5,277
24,116
(4)
(3,642) $
(2,457)
—
(596)
(6,695)
(2,967)
(3,642)
(1,141)
—
—
—
—
—
—
(7,750)
1,055
24,939
(24,939)
—
(165,935)
(165,935)
(164,880)
—
(164,880)
—
—
—
(164,880)
—
442,284
104,863
23,049
6,495
576,691
173,466
18,362
34,394
2,826
114,107
97,649
—
25,163
1,876
467,843
108,848
(106,391)
39,871
(1,225)
—
(67,745)
41,103
(586)
40,517
(12,591)
20,117
7,526
48,043
(4)
$
48,039 $
58,022 $
82,746
$
24,112 $
(164,880) $
48,039
F-39
Table of Contents
Index to Financial Statements
Consolidating Statements of Operations (in thousands)
Revenues:
Rental income
Tenant reimbursements
Hotel income
Other property income
Expenses:
Property operating costs
Hotel operating costs
Asset and property management fees:
Related-party
Other
Depreciation
Amortization
General and administrative
Acquisition fees and expenses
Real estate operating (loss) income
Other income (expense):
Interest expense
Interest and other income (expense)
Loss on interest rate swaps
Income (loss) from equity investment
Gain on the early extinguishment of
debt
Income (loss) before income tax
(expense) benefit
Income tax (expense) benefit
Income (loss) from continuing
operations
Discontinued operations:
Operating income (loss) from
discontinued operations
Gain on disposition of discontinued
operations
Income from discontinued operations
Net income (loss)
Less: net income attributable to
noncontrolling interests
Net income (loss) attributable to the
common stockholders of Columbia
Property Trust, Inc.
Columbia
Property Trust
(Parent)
Columbia
Property Trust
OP
(the Issuer)
Guarantors
Non-
Guarantors
Consolidating
Adjustments
Columbia Property Trust
(Consolidated)
For the year ended December 31, 2011
$
— $
—
—
—
—
—
—
29,511
—
—
—
43
1,307
30,861
(30,861)
—
2,129
—
85,374
—
87,503
56,642
—
— $
—
—
145
145
—
—
—
—
—
—
18,124
—
18,124
(17,979)
(28,329)
17,830
—
118,245
—
107,746
89,767
—
227,439 $
41,195
—
433
269,067
219,366 $
61,749
20,600
11,041
312,756
67,598
—
1,654
1,838
52,714
51,320
2,106
—
177,230
91,837
(43,015)
29,231
—
—
—
(13,784)
78,053
(303)
100,365
22,292
3,548
949
57,985
60,145
3,462
9,943
258,689
54,067
(52,572)
10,816
(38,383)
—
53,018
(27,121)
26,946
579
(4,898) $
—
—
(681)
(5,579)
(536)
(4,898)
(145)
—
—
—
—
—
(5,579)
—
17,611
(17,611)
—
(203,619)
—
(203,619)
(203,619)
—
56,642
89,767
77,750
27,525
(203,619)
—
—
2,714
(7,645)
—
—
—
56,642
—
—
89,767
—
2,714
80,464
13,522
5,877
33,402
—
—
(203,619)
—
—
—
(14)
—
$
56,642 $
89,767 $
80,464 $
33,388 $
(203,619) $
F-40
441,907
102,944
20,600
10,938
576,389
167,427
17,394
34,568
2,787
110,699
111,465
23,735
11,250
479,325
97,064
(106,305)
42,395
(38,383)
—
53,018
(49,275)
47,789
276
48,065
(4,931)
13,522
8,591
56,656
(14)
56,642
Table of Contents
Index to Financial Statements
Consolidating Statements of Operations (in thousands)
Revenues:
Rental income
Tenant reimbursements
Hotel income
Other property income
Expenses:
Property operating costs
Hotel operating costs
Asset and property management
fees:
Related-party
Other
Depreciation
Amortization
General and administrative
Acquisition fees and expenses
Real estate operating (loss) income
Other income (expense):
Interest expense
Interest and other income
Loss on interest rate swaps
Income (loss) from equity
investment
Income (loss) before income tax
(expense) benefit
Income tax (expense) benefit
Income (loss) from continuing
operations
Discontinued operations:
Operating income from
discontinued operations
Loss on disposition of discontinued
operations
Income from discontinued operations
Net income (loss)
Less: net income attributable to
noncontrolling interests
Net income (loss) attributable to the
common stockholders of Columbia
Property Trust, Inc.
Columbia
Property Trust
(Parent)
Columbia
Property Trust
OP
(the Issuer)
Guarantors
Non-
Guarantors
Consolidating
Adjustments
Columbia Property Trust
(Consolidated)
For the year ended December 31, 2010
$
— $
—
—
—
—
—
—
26,831
—
—
—
75
9,670
36,576
(36,576)
—
1,116
—
58,726
59,842
23,266
—
— $
—
—
184
184
—
—
—
—
—
—
20,834
—
20,834
(20,650)
(5,456)
15,721
—
58,906
69,171
48,521
—
$
222,667
39,766
—
324
262,757
66,426
—
1,407
2,027
50,199
53,305
925
206
174,495
88,262
(47,649)
29,236
—
—
(18,413)
69,849
(230)
23,266
48,521
69,619
—
—
—
—
23,266
—
—
48,521
—
(1)
2,769
—
2,769
72,388
—
178,330 $
53,646
19,819
1,471
253,266
85,717
21,910
2,916
1,218
42,414
50,232
1,382
903
206,692
46,574
(44,606)
12,683
(19,061)
—
(50,984)
(4,410)
456
(3,954)
912
(161)
751
(3,203)
(73)
(4,875) $
—
—
(818)
(5,693)
(634)
(4,875)
(184)
—
—
—
—
—
(5,693)
—
15,673
(15,673)
—
(117,632)
(117,632)
(117,632)
—
(117,632)
—
—
—
(117,632)
—
$
23,266 $
48,520 $
72,388
$
(3,276) $
(117,632) $
396,122
93,412
19,819
1,161
510,514
151,509
17,035
30,970
3,245
92,613
103,537
23,216
10,779
432,904
77,610
(82,038)
43,083
(19,061)
—
(58,016)
19,594
226
19,820
3,681
(161)
3,520
23,340
(74)
23,266
F-41
Table of Contents
Index to Financial Statements
Consolidating Statements of Comprehensive Income (in thousands)
Net income (loss) attributable to the
common stockholders of Columbia
Property Trust, Inc.
Market value adjustment to interest
rate swap
Comprehensive income (loss)
attributable to the common
stockholders of Columbia Property
Trust, Inc.
Comprehensive income attributable to
noncontrolling interests
Comprehensive income (loss)
Net income (loss) attributable to the
common stockholders of Columbia
Property Trust, Inc.
Market value adjustment to interest
rate swap
Comprehensive income (loss)
attributable to the common
stockholders of Columbia Property
Trust, Inc.
Comprehensive income attributable to
noncontrolling interests
Comprehensive income (loss)
Net income (loss) attributable to the
common stockholders of Columbia
Property Trust, Inc.
Market value adjustment to interest
rate swap
Comprehensive income (loss)
attributable to the common
stockholders of Columbia Property
Trust, Inc.
Comprehensive income attributable to
noncontrolling interests
Comprehensive income (loss)
Columbia
Property Trust
(Parent)
Columbia
Property Trust
OP
(the Issuer)
Guarantors
Non-
Guarantors
Consolidating
Adjustments
Columbia Property
Trust
(Consolidated)
For the year ended December 31, 2012
$
48,039 $
58,022 $
82,746 $
24,112 $
(164,880) $
(5,305)
(5,305)
—
—
5,305
42,734
52,717
82,746
24,112
(159,575)
—
42,734 $
$
—
52,717 $
—
82,746 $
4
24,116 $
—
(159,575) $
48,039
(5,305)
42,734
4
42,738
Columbia
Property Trust
(Parent)
Columbia
Property Trust
OP
(the Issuer)
Guarantors
Non-
Guarantors
Consolidating
Adjustments
Columbia Property
Trust
(Consolidated)
For the year ended December 31, 2011
$
56,642 $
89,767 $
80,464 $
33,388 $
(203,619) $
11,223
—
—
11,223
(11,223)
67,865
89,767
80,464
44,611
(214,842)
—
67,865 $
$
—
89,767 $
—
80,464 $
14
44,625 $
—
(214,842) $
56,642
11,223
67,865
14
67,879
Columbia
Property Trust
(Parent)
Columbia
Property Trust
OP
(the Issuer)
Guarantors
Non-
Guarantors
Consolidating
Adjustments
Columbia Property
Trust
(Consolidated)
For the year ended December 31, 2010
$
23,266 $
48,520 $
72,388 $
(3,276) $
(117,632) $
(3,110)
—
—
(3,110)
3,110
20,156
48,520
72,388
(6,386)
(114,522)
—
20,156 $
$
1
48,521 $
—
72,388 $
73
(6,313) $
—
(114,522) $
23,266
(3,110)
20,156
74
20,230
F-42
Table of Contents
Index to Financial Statements
Consolidating Statements of Cash Flows (in thousands)
Columbia
Property Trust
(Parent)
Columbia Property
Trust OP
(the Issuer)
Guarantors
Non-
Guarantors
Columbia Property Trust
(Consolidated)
For the year ended December 31, 2012
Cash flows from operating activities:
$
(49) $
(83,489) $
191,117 $
145,260 $
Cash flows from investing activities:
Net proceeds from sale of real estate
Investment in real estate and related assets
Net cash provided by (used in) investing
activities
Cash flows from financing activities:
Borrowings, net of fees
Repayments
Issuance of common stock, net of redemptions
and fees
Distributions
Intercompany transfers, net
Redemption of noncontrolling interest
Net cash used in financing activities
Net increase (decrease) in cash and cash
equivalents
Effect of foreign exchange rate on cash and cash
equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
30,441
—
30,441
—
—
18,996
(256,020)
216,255
—
(20,769)
273,823
(193,410)
80,413
595,731
(591,000)
—
—
(7,430)
—
(2,699)
—
(33,488)
—
(46,319)
(33,488)
(46,319)
—
—
—
—
(153,089)
—
(153,089)
(929)
(36,191)
—
(15)
(55,736)
(301)
(93,172)
9,623
(5,775)
4,540
5,769
—
11,291
20,914 $
$
—
10,597
4,822
$
—
9,133
13,673 $
32
8,447
14,248 $
F-43
252,839
304,264
(273,217)
31,047
594,802
(627,191)
18,996
(256,035)
—
(301)
(269,729)
14,157
32
39,468
53,657
Table of Contents
Index to Financial Statements
Consolidating Statements of Cash Flows (in thousands)
Cash flows from operating activities:
$
508 $
(78,219) $
207,710 $
149,159 $
279,158
Columbia
Property Trust
(Parent)
Columbia Property
Trust OP
(the Issuer)
Guarantors
Non-
Guarantors
Columbia Property Trust
(Consolidated)
For the year ended December 31, 2011
Cash flows from investing activities:
Investment in real estate and related assets
Net cash used in investing activities
Cash flows from financing activities:
Borrowings, net of fees
Repayments
Issuance of common stock, net of redemptions and
fees
Distributions
Intercompany transfers
Redemptions of noncontrolling interest
Net cash provided by (used in) financing
activities
—
—
(19,588)
(19,588)
(40,386)
(40,386)
(666,090)
(666,090)
(606,116)
(606,116)
—
—
47,397
(270,720)
831,941
—
1,454,978
(806,500)
—
—
(570,649)
(87)
—
(63,396)
—
—
(125,681)
—
324,364
(298,382)
—
(44)
(135,611)
—
608,618
77,742
(189,077)
(109,673)
1,779,342
(1,168,278)
47,397
(270,764)
—
(87)
387,610
678
(92)
38,882
39,468
Net increase (decrease) in cash and cash equivalents
3,010
(477)
(955)
(900)
Effect of foreign exchange rate on cash and cash
equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
—
8,281
11,291 $
$
—
11,074
10,597 $
—
10,088
9,133 $
(92)
9,439
8,447 $
F-44
Table of Contents
Index to Financial Statements
Consolidating Statements of Cash Flows (in thousands)
Cash flows from operating activities:
$
(9,745) $
(47,814) $
191,570 $
136,095 $
Columbia
Property Trust
(Parent)
Columbia Property
Trust OP
(the Issuer)
Guarantors
Non-
Guarantors
For the year ended December 31, 2010
Columbia Property
Trust
(Consolidated)
270,106
Cash flows from investing activities:
Net proceeds from the sale of real estate
Investment in real estate and related assets
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Borrowings, net of fees
Repayments
Issuance of common stock, net of redemptions and
fees
Distributions
Intercompany transfers
Redemptions of noncontrolling interest
Net cash provided by (used in) financing
activities
Net increase (decrease) in cash and cash equivalents
Effect of foreign exchange rate on cash and cash
equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
15.
Subsequent Event
15,219
(11,632)
3,587
—
—
375,716
(313,815)
(108,381)
—
—
(286,727)
(286,727)
80,662
(16,000)
—
—
256,712
—
—
(11,852)
(11,852)
—
(90,000)
—
—
(89,187)
—
—
(17,716)
(17,716)
—
(56,742)
—
(250)
(59,144)
—
(46,480)
321,374
(179,187)
(116,136)
(52,638)
(13,167)
531
2,243
—
60,919
8,281 $
$
—
24,241
11,074 $
—
9,557
10,088 $
(812)
8,008
9,439 $
15,219
(327,927)
(312,708)
80,662
(162,742)
375,716
(314,065)
—
—
(20,429)
(63,031)
(812)
102,725
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
F-45
Table of Contents
Index to Financial Statements
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.
F-46
Table of Contents
Index to Financial Statements
Columbia Property Trust, Inc.
Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization
December 31, 2012
(in thousands)
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
Initial Costs
Gross Amount at Which Carried at
December 31, 2012
Life on Which
Depreciation
and
Amortization
is Computed
(f)
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
100%
100%
100%
100%
100%
None
None
None
37,204
None
4,400
5,570
10,802
5,846
26,248
12,716
17,116
(781)
4,502
11,833
16,335
38,218
43,788
(5,229)
5,627
32,932
38,559
62,595
73,397
2,267
11,050
64,614
75,664
66,681
76,269
72,527
102,517
(120)
5,934
(5,992) 26,806
66,473
69,719
72,407
96,525
2,876
8,504
33,886
20,304
19,596
2000
3/31/2004
0 to 40 years
1987
5/27/2004
0 to 40 years
1982
6/23/2004
0 to 40 years
2003
2001
6/25/2004
6/29/2004
0 to 40 years
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
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
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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
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
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
None
22,758
43,174
65,932
582
20,195
46,319
66,514
16,309
1986 10/22/2004
0 to 40 years
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
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
None
None
None
21,000
4,501
1,270
520
3,452
47,957
52,458
(8,200)
4,501
39,757
44,258
28,688
29,958
8,681
17,456
9,201
20,908
719
193
1,299
522
2,941
30,344
3,472
31,777
29,378
30,677
8,872
20,377
9,394
23,849
9,044
6,887
2,394
6,702
2001
3/14/2005
0 to 40 years
1997
3/17/2005
0 to 40 years
2001
1988
1975/1991
3/17/2005
4/19/2005
5/12/2005
0 to 40 years
0 to 40 years
0 to 40 years
105,000
31,234
140,217
171,451
170,018
201,795
47,429
None
None
None
2,822
5,391
2,950
22,910
25,732
(1,401)
2,822
21,509
24,331
33,788
39,179
19
5,391
33,807
39,198
7,106
8,648
1998
6/21/2005
0 to 40 years
1981
8/18/2005
0 to 40 years
32,544
35,494
—
2,950
32,544
35,494
12,992
2001
8/18/2005
0 to 40 years
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
S-1
WEATHERFORD
CENTER
HOUSTON
333 & 777
REPUBLIC
DRIVE
9 TECHNOLOGY
DRIVE
Allen Park, MI
Westborough,
MA
180 PARK
AVENUE
Florham Park,
NJ
ONE GLENLAKE
PARKWAY
80 M STREET
Atlanta, GA
Washington, DC
1501 OPUS
PLACE
2500 WINDY
RIDGE
PARKWAY
4100 - 4300
WILDWOOD
PARKWAY
4200
WILDWOOD
PARKWAY
Atlanta, GA
Atlanta, GA
Atlanta, GA
800 NORTH
FREDERICK
Gaithersburg,
MD
THE CORRIDORS
III
Downers Grove,
IL
HIGHLAND
LANDMARK III
Downers Grove,
IL
180 PARK
AVENUE 105
4241 IRWIN
SIMPSON
Florham Park,
NJ
Mason, OH
Mason, OH
8990 DUKE
ROAD
215 DIEHL ROAD Naperville, IL
100 EAST PRATT Baltimore, MD
COLLEGE PARK
PLAZA
Indianapolis, IN
ONE ROBBINS
ROAD
FOUR ROBBINS
ROAD
Westford, MA
Westford, MA
1900
UNIVERSITY
CIRCLE
East Palo Alto,
CA
Table of Contents
Index to Financial Statements
Columbia Property Trust, Inc.
Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization
December 31, 2012
(in thousands)
Initial Costs
Gross Amount at Which Carried at
December 31, 2012
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
Life on Which
Depreciation
and
Amortization
is Computed
(f)
1950
UNIVERSITY
CIRCLE
2000
UNIVERSITY
CIRCLE
MACARTHUR
RIDGE
5 HOUSTON
CENTER
KEY CENTER
TOWER
KEY CENTER
MARRIOTT
ONE SANTAN
CORPORATE
CENTER
TWO SANTAN
CORPORATE
CENTER
263 SHUMAN
BOULEVARD
4300
CENTREWAY
PLACE
80 PARK PLAZA
INTERNATIONAL
FINANCIAL
TOWER
STERLING
COMMERCE
ONE CENTURY
PLACE
120 EAGLE ROCK
PASADENA
CORPORATE
PARK
7031 COLUMBIA
GATEWAY
DRIVE
222 EAST 41ST
STREET
BANNOCKBURN
LAKE III
1200 MORRIS
DRIVE
SOUTH JAMAICA
STREET
15815 25TH
AVENUE WEST
16201 25TH
AVENUE WEST
13655
RIVERPORT
DRIVE
11200 WEST
PARKLAND
AVENUE
East Palo Alto,
CA
East Palo Alto,
CA
Irving, TX
Houston, TX
Cleveland, OH
Cleveland, OH
100%
100%
100%
100%
100%
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
76,842
85,573
600
8,819
77,354
86,173
16,112
2003
9/20/2005
0 to 40 years
None
None
None
8,731
2,680
8,186
42,269
44,949
1,078
2,680
43,347
46,027
147,653
155,839
(19,711) 8,186
127,942
136,128
None
(b)
7,269
244,424
251,693
None
3,473
34,458
37,931
12,790
7,454
10,797
3,629
257,029
264,483
45,099
48,728
6,381
34,698
69,038
13,022
1998 11/15/2005
0 to 40 years
2002 12/20/2005
0 to 40 years
1991 12/22/2005
0 to 40 years
1991 12/22/2005
0 to 40 years
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
21,613
24,787
(1,752) 3,245
19,790
23,035
3,611
2003
4/18/2006
0 to 40 years
41,535
48,677
6,890
7,233
48,334
55,567
14,717
1986
7/20/2006
0 to 40 years
Chandler, AZ
Naperville, IL
Arlington, TX
Newark, NJ
Jersey City, NJ
Irving, TX
Nashville, TN
East Hanover,
NJ
Pasadena, CA
Columbia, MD
New York City,
NY
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
3,174
7,142
2,539
31,766
21,000
49,000
None
None
None
None
None
None
13,919
16,458
109,952
141,718
(2,754) 2,557
32,221
6,333
11,147
13,704
115,830
148,051
29,061
141,544
170,605
13,674
29,712
154,567
184,279
8,639
8,955
2,726
43,980
52,619
403
8,752
44,270
53,022
58,339
67,294
(7,582) 9,106
50,606
59,712
30,078
32,804
(5,399) 2,762
24,643
27,405
None
53,099
59,630
112,729
756
53,099
60,386
113,485
9,615
None
10,232
54,070
64,302
35
10,232
54,105
64,337
None
(b)
—
324,520
324,520
(1,034)
—
323,486
323,486
2,338
39,607
39,035
17,989
9,510
3,662
11,542
54,355
1,115
6,330
1998
1979
9/15/2006
9/21/2006
0 to 40 years
0 to 40 years
1989 10/31/2006
0 to 40 years
1999 12/21/2006
0 to 40 years
1991
1/4/2007
0 to 40 years
1990
3/27/2007
0 to 40 years
1965/2000/
2002/2003
7/11/2007
0 to 40 years
2000
7/12/2007
0 to 40 years
2001
8/17/2007
0 to 40 years
1987
9/10/2007
0 to 40 years
1985
9/14/2007
0 to 40 years
2002/2003/
2007
9/26/2007
0 to 40 years
Bannockburn, IL
100%
Wayne, PA
100%
Englewood, CO
100%
Lynnwood, WA
100%
Lynnwood, WA
100%
None
None
None
None
None
7,635
3,723
11,002
18,637
(1,879) 7,663
9,095
16,758
20,597
24,320
25,911
29,697
13,429
109,781
123,210
3,896
2,035
17,144
21,040
9,262
11,297
5,377
3,786
3,252
13,735
462
3,965
216
2,071
112,727
126,462
23,693
17,537
21,502
9,442
11,513
3,051
1,218
2007
11/5/2007
0 to 40 years
2007
11/5/2007
0 to 40 years
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
Milwaukee, WI
LENOX PARK
BUILDINGS
Atlanta, GA
100%
100%
None
3,219
15,394
18,613
216,000
(a)
28,478
225,067
253,545
2,556
3,219
4,224
28,858
17,950
21,169
4,293
228,911
257,769
34,031
1990
3/3/2008
0 to 40 years
1992/1999/
2001/2002
5/8/2008
0 to 40 years
S-2
Table of Contents
Index to Financial Statements
Columbia Property Trust, Inc.
Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization
December 31, 2012
(in thousands)
Initial Costs
Gross Amount at Which Carried at
December 31, 2012
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
Life on
Which
Depreciation
and
Amortization
is Computed
(f)
Atlanta, GA
100% (b)
250,000
—
262,468
262,468
3,252
—
265,720
265,720
36,665
2002
7/1/2008 0 to 40 years
7,517
88,784
96,301
891
8,055
89,137
97,192
13,062
None
11,410
78,988
90,398
1,212
11,745
79,865
91,610
13,874
2008 7/31/2008 0 to 40 years
1992
9/5/2008 0 to 40 years
(b),
(c)
(d)
26,264/
120,000
None
None
None
None
None
LINDBERGH
CENTER
THREE
GLENLAKE
BUILDING
Sandy Springs,
GA
1580 WEST
NURSERY ROAD Linthicum, MD
DVINTSEV
BUSINESS
CENTER --
TOWER B
Moscow, Russia
STERLING
COMMERCE
CENTER
550 KING
STREET
BUILDINGS
CRANBERRY
WOODS DRIVE
HOUSTON
ENERGY
CENTER I
SUNTRUST
BUILDING
Boston, MA
Cranberry
Township, PA
Houston, TX
Orlando, FL
CHASE CENTER
BUILDING
Columbus, OH
MARKET
SQUARE
BUILDINGS
544 LAKEVIEW
333 MARKET
STREET
Washington, DC
Vernon Hills, IL
San Francisco,
CA
TOTAL REAL ESTATE ASSETS
100%
100%
100%
100%
100%
100%
100%
100%
50% (e)
100%
100% (a)
None
(b)
—
66,387
66,387
(6,174)
—
60,213
60,213
5,764
2009 5/29/2009 0 to 40 years
Columbus, OH
100%
None
1,793
31,501
33,294
2,893
1,793
34,394
36,187
3,979
8,632
74,625
83,257
7,975
8,632
82,600
91,232
11,036
15,512
173,062
188,574
1,210
15,512
174,272
189,784
17,591
4,734
1,222
5,148
79,344
84,078
5,037
20,402
21,624
938
24,743
29,891
2,804
4,734
1,222
5,148
84,381
89,115
21,340
22,562
27,547
32,695
325,000
152,629
450,757
603,386
11,873
152,629
462,630
615,259
9,100
3,006
3,100
6,106
14
3,006
3,114
6,120
206,500
114,483
$ 785,507
292,840
$ 4,676,965
407,323
$ 5,462,472
— 114,483
$ 789,237
$ 45,297
292,840
$ 4,718,532
407,323
$ 5,507,769
246
$ 896,174
1990/1995/
1996/1998
3/8/2010 0 to 40 years
1984
4/1/2010 0 to 40 years
2009/2010
6/1/2010 0 to 40 years
2008 6/28/2010 0 to 40 years
1959 8/25/2010 0 to 40 years
1972/1982 10/21/2010 0 to 40 years
1990
1994
3/7/2011 0 to 40 years
4/1/2011 0 to 40 years
1979 12/21/2012 0 to 40 years
8,352
2,250
2,861
41,253
141
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.
Property is owned subject to a long-term ground lease.
(a)
(b)
(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)
(f)
Columbia Property Trust owns a 50% controlling interest in a consolidated joint venture that owns 100% of 544 Lakeview.
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.
S-3
Table of Contents
Index to Financial Statements
Columbia Property Trust, Inc.
Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization
(in thousands)
Real Estate:
Balance at beginning of year
Additions to/improvements of real estate
Sale/transfer of real estate
Impairment of real estate
Write-offs of building and tenant improvements
Write-offs of intangible assets (1)
Write-offs of fully depreciated assets
Balance at end of the year
Accumulated Depreciation and Amortization:
Balance at beginning of year
Depreciation and amortization expense
Sale/transfer of real estate
Write-offs of tenant improvements
Write-offs of intangible assets (1)
Write-offs of fully depreciated assets
Balance at end of the year
For the years ended December 31,
2011
2010
2012
$
$
$
$
5,483,193 $
453,541
(328,804)
(18,467)
(301)
(1,311)
(80,082)
5,507,769 $
867,975 $
181,155
(71,654)
(196)
(1,024)
(80,082)
896,174 $
4,999,902 $
676,230
(70,082)
(5,817)
(228)
(6,978)
(109,834)
5,483,193 $
769,863 $
225,139
(12,258)
(16)
(4,915)
(109,838)
867,975 $
4,767,664
297,023
(18,143)
—
—
(52)
(46,590)
4,999,902
635,080
184,155
(2,763)
25
(44)
(46,590)
769,863
(1)
Consists of write-offs of intangible lease assets related to lease restructurings, amendments, and terminations.
(Back To Top)
S-4
Section 2: EX-3.1 (SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION)
SECOND ARTICLES OF AMENDMENT AND RESTATEMENT
OF
WELLS REAL ESTATE INVESTMENT TRUST II, INC.
EXHIBIT 3.1
FIRST: Wells Real Estate Investment Trust II, Inc., a Maryland corporation, desires to amend and restate its charter as currently in effect and as hereinafter amended.
SECOND: The following provisions are all the provisions of the charter currently in effect and as hereinafter amended:
The name of the corporation is Wells Real Estate Investment Trust II, Inc. (the “Corporation”).
ARTICLE I
NAME
ARTICLE II
PURPOSE
The purposes for which the Corporation is formed are to engage in any lawful act or activity (including, without limitation or obligation, qualifying as a real estate investment
trust under Sections 856 through 860, or any successor sections, of the Internal Revenue Code of 1986, as amended (the “Code”)), for which corporations may be organized under the
MGCL and the general laws of the State of Maryland as now or hereafter in force.
ARTICLE III
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The name and address of the resident agent for service of process of the Corporation in the State of Maryland is The Corporation Trust Incorporated, 351 West Camden
Street, Baltimore, Maryland 21201. The resident agent is a Maryland corporation and a resident of the State of Maryland. The address of the Corporation's principal office in the State
of Maryland is 351 West Camden Street, Baltimore, Maryland 21201. The Corporation may have such other offices and places of business within or outside the State of Maryland as
the board may from time to time determine.
As used herein, the following terms shall have the following meanings unless the context otherwise requires:
ARTICLE IV
DEFINITIONS
AMEX. American Stock Exchange.
Capital Stock. All classes or series of stock of the Corporation, including, without limitation, Common Stock and Preferred Stock.
Code. The term shall have the meaning as provided in Article II herein.
Common Stock. The term shall have the meaning as provided in Section 5.1 herein.
Common Stockholders. The registered holders of Common Stock.
Corporation. The term shall have the meaning as provided in Article I herein.
Independent Director. A Director who satisfies the independence requirements under the rules and regulations of the NYSE as in effect from time to time.
1
Listed. Approved for trading on the NYSE, AMEX, Nasdaq/NMS, any successor to such entities or on any national securities exchange that has listing standards that the
Securities and Exchange Commission determines by rule are substantially similar to the listing standards of the NYSE, AMEX or Nasdaq/NMS. The term “Listing” shall have the
correlative meaning.
MGCL. The Maryland General Corporation Law, as amended from time to time.
Nasdaq/NMS. National Market System of the Nasdaq Stock Market.
NYSE. New York Stock Exchange.
Person. An individual, corporation, association, business trust, estate, trust, partnership, limited liability company or other legal entity.
Preferred Stock. The term shall have the meaning as provided in Section 5.1 herein.
SDAT. The State Department of Assessments and Taxation of Maryland.
ARTICLE V
STOCK
Section 5.1. Authorized Shares. The Corporation has authority to issue 1,000,000,000 shares of Capital Stock, consisting of 900,000,000 shares of common stock, $0.01 par
value per share (“Common Stock”), and 100,000,000 shares of preferred stock, $0.01 par value per share (“Preferred Stock”). The aggregate par value of all authorized shares of
Capital Stock having par value is $10,000,000. If shares of one class of stock are classified or reclassified into shares of another class of stock pursuant to Section 5.2, 5.3 or 5.4 of this
Article V, the number of authorized shares of the former class shall be automatically decreased and the number of shares of the latter class shall be automatically increased, in each
case by the number of shares so classified or reclassified, so that the aggregate number of shares of stock of all classes that the Corporation has authority to issue shall not be more
than the total number of shares of stock set forth in the first sentence of this paragraph. The board of directors, with the approval of a majority of the directors and without any action
by the stockholders of the Corporation, may amend the charter from time to time to increase or decrease the aggregate number of shares of Capital Stock or the number of shares of
Capital Stock of any class or series that the Corporation has the authority to issue.
Section 5.2. Common Stock. Subject to the provisions of Article VI, each share of Common Stock shall entitle the holder thereof to one vote. The board of directors may
reclassify any unissued shares of Common Stock from time to time in one or more classes or series of Capital Stock.
Section 5.3. Preferred Stock. The board of directors may classify any unissued shares of Preferred Stock and reclassify any previously classified but unissued shares of
Preferred Stock of any series from time to time in one or more series of Capital Stock.
Section 5.4. Classified or Reclassified Shares. Prior to the issuance of classified or reclassified shares of any class or series, the board of directors by resolution shall: (a)
designate that class or series to distinguish it from all other classes and series of Capital Stock of the Corporation; (b) specify the number of shares to be included in the class or series;
(c) set or change, subject to the provisions of Article VI and subject to the express terms of any class or series of Capital Stock of the Corporation outstanding at the time, the
preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each
class or series; and (d) cause the Corporation to file articles supplementary with the SDAT. Any of the terms of any class or series of Capital Stock set or changed pursuant to clause
(c) of this Section 5.4 may be made dependent upon facts or events ascertainable outside the charter (including determinations by the board of directors or other facts or events within
the control of the Corporation) and may vary among holders thereof, provided that the manner in which such facts, events or variations shall operate upon the terms of such class or
series of Capital Stock is clearly and expressly set forth in the articles supplementary filed with the SDAT.
Section 5.5. Charter and Bylaws. All Persons who shall acquire Capital Stock in the Corporation shall acquire the same subject to the provisions of the charter and the
bylaws. Except as expressly set forth in the bylaws, the Board of Directors shall have the exclusive power to adopt, alter or repeal any provision of the bylaws and to make new
bylaws.
Section 5.6. No Preemptive Rights. No holder of shares of Capital Stock of any class shall have any preemptive right to subscribe to or purchase any additional shares of any
class, or any bonds or convertible securities of any nature; provided, however,
2
that the board of directors may, in authorizing the issuance of shares of Capital Stock of any class, confer any preemptive right that the board or directors may deem advisable in
connection with such issuance.
Section 5.7. Issuance of Shares Without Certificates. The board of directors may authorize the issuance of shares of Capital Stock without certificates. The Corporation shall
continue to treat the holder of uncertificated Capital Stock registered on its stock ledger as the owner of the shares noted therein until the new owner delivers a properly executed form
provided by the Corporation for that purpose.
Section 5.8. Actions Required if Common Stock Not Listed. If by October 2015 the shares of Common Stock are not Listed, then the board of directors must either (a) adopt
a resolution that sets forth a proposed amendment extending or eliminating this deadline, declare that the amendment is advisable and direct that the proposed amendment be
submitted for consideration at either an annual or special meeting of the stockholders or (b) adopt a resolution that declares a proposed liquidation is advisable on substantially the
terms and conditions set forth or referred to in the resolution and direct that the proposed transaction be submitted for consideration at either an annual or special meeting of the
stockholders. If the board of directors seeks the amendment described in clause (a) above and the stockholders do not approve the amendment, then the board shall take the actions
described in clause (b) above.
ARTICLE VI
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 6.1. Definitions. As used in this Article VI, the following terms shall have the following meanings:
Aggregate Stock Ownership Limit. 9.8% in value of the aggregate of the outstanding shares of Capital Stock. The value of the outstanding shares of Capital Stock shall
be determined by the board of directors in good faith, which determination shall be conclusive for all purposes hereof.
Beneficial Ownership. Ownership of Capital Stock by a Person, whether the interest in the shares of Capital Stock is held directly or indirectly (including by a nominee),
and shall include interests that would be treated as owned through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms “Beneficial
Owner,” “Beneficially Owns,” “Beneficially Owning” and “Beneficially Owned” shall have the correlative meanings.
Business Day. Any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York City are authorized or
required by law, regulation or executive order to close.
Charitable Beneficiary. One or more beneficiaries of the Trust as determined pursuant to Section 6.3.6, provided that each such organization must be described in Section
501(c)(3) of the Code and contributions to each such organization must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
Common Stock Ownership Limit. 9.8% (in value or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of Common Stock of
the Corporation. The number and value of outstanding shares of Common Stock of the Corporation shall be determined by the board of directors in good faith, which determination
shall be conclusive for all purposes hereof.
Constructive Ownership. Ownership of Capital Stock by a Person, whether the interest in the shares of Capital Stock is held directly or indirectly (including by a
nominee), and shall include interests that would be treated as owned through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The terms
“Constructive Owner,” “Constructively Owns,” “Constructively Owning” and “Constructively Owned” shall have the correlative meanings.
Excepted Holder. A stockholder of the Corporation for whom an Excepted Holder Limit is created by this charter or by the board of directors pursuant to Section 6.2.7.
Excepted Holder Limit. The percentage limit established by the board of directors pursuant to Section 6.2.7 provided that the affected Excepted Holder agrees to comply
with the requirements established by the board of directors pursuant to Section 6.2.7, and subject to adjustment pursuant to Section 6.2.8.
Initial Date. The date upon which the charter containing this Article VI is filed with the SDAT.
3
Market Price. With respect to any class or series of outstanding shares of Capital Stock, the Closing Price for such Capital Stock on such date. The “Closing Price” on
any date shall mean the last sale price for such Capital Stock, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular
way, for such Capital Stock, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the principal
national securities exchange on which such Capital Stock is listed or admitted to trading or, if such Capital Stock is not listed or admitted to trading on any national securities
exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotation system that may then be in use or, if such Capital
Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such Capital Stock
selected by the board of directors or, in the event that no trading price is available for such Capital Stock, the fair market value of the Capital Stock, as determined in good faith by the
board of directors.
Prohibited Owner. With respect to any purported Transfer, any Person who but for the provisions of Section 6.2.1 would Beneficially Own or Constructively Own shares
of Capital Stock and, if appropriate in the context, shall also mean any Person who would have been the record owner of the shares that the Prohibited Owner would have so owned.
Restriction Termination Date. The first day on which the Corporation determines pursuant to Section 7.7 of the charter that it is no longer in the best interests of the
Corporation to attempt to, or continue to, qualify as a REIT or that compliance with the restrictions and limitations on Beneficial Ownership, Constructive Ownership and Transfers of
shares of Capital Stock set forth herein is no longer required in order for the Corporation to qualify as a REIT.
Transfer. Any issuance, sale, transfer, gift, assignment, devise or other disposition as well as any other event that causes any Person to acquire Beneficial Ownership or
Constructive Ownership, or any agreement to take any such actions or cause any such events, of Capital Stock or the right to vote or receive distributions on Capital Stock, including
(a) the granting or exercise of any option (or any disposition of any option), (b) any disposition of any securities or rights convertible into or exchangeable for Capital Stock or any
interest in Capital Stock or any exercise of any such conversion or exchange right and (c) Transfers of interests in other entities that result in changes in Beneficial Ownership or
Constructive Ownership of Capital Stock; in each case, whether voluntary or involuntary, whether owned of record, Constructively Owned or Beneficially Owned and whether by
operation of law or otherwise. The terms “Transferring” and “Transferred” shall have the correlative meanings.
Trust. Any trust provided for in Section 6.3.1.
Trustee. The Person unaffiliated with the Corporation and a Prohibited Owner that is appointed by the Corporation to serve as trustee of the Trust.
Section 6.2. Capital Stock.
Section 6.2.1. Ownership Limitations. Prior to the Restriction Termination Date:
(a) Basic Restrictions.
(i) (1) No Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own shares of Capital Stock in excess of the Aggregate Stock
Ownership Limit, (2) no Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own shares of Common Stock in excess of the Common Stock Ownership
Limit and (3) no Excepted Holder shall Beneficially Own or Constructively Own shares of Capital Stock in excess of the Excepted Holder Limit for such Excepted Holder.
(ii) No Person shall Beneficially Own or Constructively Own shares of Capital Stock to the extent that such Beneficial Ownership or Constructive Ownership of
Capital Stock would result in the Corporation (1) being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held
during the last half of a taxable year), or (2) otherwise failing to qualify as a REIT (including, but not limited to, Beneficial Ownership or Constructive Ownership that would result in
the Corporation owning (actually or Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Corporation from such
tenant would cause the Corporation to fail to satisfy any of the gross income requirements of Section 856(c) of the Code); provided, however, that this Section 6.2.1(a)(ii)(1) shall not
apply to the Corporation's first taxable year for which a REIT election is made.
(iii) Notwithstanding any other provisions contained herein, any Transfer of shares of Capital Stock (whether or not such Transfer is the result of a transaction
entered into through the facilities of any national securities exchange or automated
4
inter-dealer quotation system) that, if effective, would result in the Capital Stock being Beneficially Owned by less than 100 Persons (determined under the principles of Section 856
(a)(5) of the Code) shall be void ab initio, and the intended transferee shall acquire no rights in such shares of Capital Stock; provided, however, that (1) this Section 6.2.1(a)(iii) shall
not apply to a Transfer of shares of Capital Stock occurring in the Corporation's first taxable year for which a REIT election is made and (2) the board of directors may waive this
Section 6.2.1(a)(iii) if, in the opinion of the board of directors, such Transfer would not adversely affect the Corporation's ability to qualify as a REIT.
(b) Transfer in Trust. If any Transfer of shares of Capital Stock (whether or not such Transfer is the result of a transaction entered into through the facilities of any national
securities exchange or automated inter-dealer quotation system) occurs that, if effective, would result in any Person Beneficially Owning or Constructively Owning shares of Capital
Stock in violation of Section 6.2.1(a)(i) or Section 6.2.1(a)(ii),
(i) then that number of shares of Capital Stock the Beneficial Ownership or Constructive Ownership of which otherwise would cause such Person to violate
Section 6.2.1(a)(i) or Section 6.2.1(a)(ii) (rounded to the nearest whole share) shall be automatically transferred to a Trust for the benefit of a Charitable Beneficiary, as described in
Section 6.3, effective as of the close of business on the Business Day prior to the date of such Transfer and such Person shall acquire no rights in such shares; provided, however,
(ii) if the transfer to the Trust described in clause (i) of this sentence would not be effective for any reason to prevent the violation of Section 6.2.1(a)(i) or Section
6.2.1(a)(ii), then the Transfer of that number of shares of Capital Stock that otherwise would cause any Person to violate Section 6.2.1(a)(i) or Section 6.2.1(a)(ii) shall be void ab
initio and the intended transferee shall acquire no rights in such shares of Capital Stock.
Section 6.2.2. Remedies for Breach. If the board of directors shall at any time determine in good faith that a Transfer or other event has taken place that results in a violation
of Section 6.2.1(a) or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any shares of Capital Stock in violation of
Section 6.2.1(a) (whether or not such violation is intended), the board of directors or a committee thereof shall take such action as it deems advisable to refuse to give effect to or to
prevent such Transfer or other event, including, without limitation, causing the Corporation to redeem shares, refusing to give effect to such Transfer on the books of the Corporation
or instituting proceedings to enjoin such Transfer or other event; provided, however, that any Transfers or attempted Transfers or other events in violation of Section 6.2.1(a) shall
automatically result in the transfer to the Trust described above and, where applicable, such Transfer (or other event) shall be void ab initio as provided above irrespective of any
action (or non-action) by the board of directors.
Section 6.2.3. Notice of Restricted Transfer. Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of shares of Capital
Stock that will or may violate Section 6.2.1(a) or any Person who would have owned shares of Capital Stock that resulted in a transfer to the Trust pursuant to the provisions of
Section 6.2.1(b) shall immediately give written notice to the Corporation of such event or, in the case of such a proposed or attempted transaction, give at least 15 days prior written
notice and shall provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer on the Corporation's status
as a REIT.
Section 6.2.4. Owners Required to Provide Information. Prior to the Restriction Termination Date:
(a) every owner of 5% or more (or such higher percentage as required by the Code or the Treasury Regulations promulgated thereunder) of the outstanding shares of Capital
Stock, within 30 days after the end of each taxable year, shall give written notice to the Corporation stating the name and address of such owner, the number of shares of Capital Stock
and other shares of the Capital Stock Beneficially Owned and a description of the manner in which such shares are held. Each such owner shall provide to the Corporation such
additional information as the Corporation may request in order to determine the effect, if any, of such Beneficial Ownership on the Corporation's status as a REIT and to ensure
compliance with the Aggregate Stock Ownership Limit.
(b) each Person who is a Beneficial Owner or Constructive Owner of Capital Stock and each Person (including the stockholder of record) who is holding Capital Stock for a
Beneficial Owner or Constructive Owner shall provide to the Corporation such information as the Corporation may request, in good faith, in order to determine the Corporation's
status as a REIT and to comply with requirements of any taxing authority or governmental authority or to determine such compliance.
Section 6.2.5. Remedies Not Limited. Subject to Section 7.7, nothing contained in this Section 6.2 shall limit the authority of the board of directors to take such other action
as it deems necessary or advisable to protect the Corporation and the interests of its stockholders in preserving the Corporation's status as a REIT.
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Section 6.2.6. Ambiguity. In the case of an ambiguity in the application of any of the provisions of this Section 6.2, Section 6.3 or any definition contained in Section 6.1, the
board of directors shall have the power to determine the application of the provisions of this Section 6.2 or Section 6.3 with respect to any situation based on the facts known to it. In
the event Section 6.2 or Section 6.3 requires an action by the board of directors and the charter fails to provide specific guidance with respect to such action, the board of directors
shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of Sections 6.1, 6.2 or 6.3.
Section 6.2.7. Exceptions.
(a) Subject to Section 6.2.1(a)(ii), the board of directors, in its sole discretion, may exempt a Person from the Aggregate Stock Ownership Limit and the Common Stock
Ownership Limit, as the case may be, and may establish or increase an Excepted Holder Limit for such Person if:
(i) the board of directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that no Person's Beneficial
Ownership or Constructive Ownership of such shares of Capital Stock will violate Section 6.2.1(a)(ii);
(ii) such Person does not and represents that it will not own, actually or Constructively, an interest in a tenant of the Corporation (or a tenant of any entity owned
or controlled by the Corporation) that would cause the Corporation to own, actually or Constructively, more than a 9.9% interest (as set forth in Section 856(d)(2)(B) of the Code) in
such tenant and the board of directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain this fact (for this purpose, a tenant from
whom the Corporation (or an entity owned or controlled by the Corporation) derives (and is expected to continue to derive) a sufficiently small amount of revenue such that, in the
opinion of the board of directors, rent from such tenant would not adversely affect the Corporation's ability to qualify as a REIT shall not be treated as a tenant of the Corporation);
and
(iii) such Person agrees that any violation or attempted violation of such representations or undertakings (or other action which is contrary to the restrictions
contained in Sections 6.2.1 through 6.2.6) will result in such shares of Capital Stock being automatically transferred to a Trust in accordance with Section 6.2.1(b) and Section 6.3.
(b) Prior to granting any exception pursuant to Section 6.2.7(a), the board of directors may require a ruling from the Internal Revenue Service or an opinion of counsel, in
either case, in form and substance satisfactory to the board of directors in its sole discretion, as it may deem necessary or advisable in order to determine or ensure the Corporation's
status as a REIT. Notwithstanding the receipt of any ruling or opinion, the board of directors may impose such conditions or restrictions as it deems appropriate in connection with
granting such exception.
(c) Subject to Section 6.2.1(a)(ii), an underwriter which participates in a public offering or a private placement of Capital Stock (or securities convertible into or
exchangeable for Capital Stock) may Beneficially Own or Constructively Own shares of Capital Stock (or securities convertible into or exchangeable for Capital Stock) in excess of
the Aggregate Stock Ownership Limit, the Common Stock Ownership Limit or both such limits, but only to the extent necessary to facilitate such public offering or private placement.
(d) The board of directors may only reduce the Excepted Holder Limit for an Excepted Holder: (i) with the written consent of such Excepted Holder at any time or (ii)
pursuant to the terms and conditions of the agreements and undertakings entered into with such Excepted Holder in connection with the establishment of the Excepted Holder Limit
for that Excepted Holder. No Excepted Holder Limit shall be reduced to a percentage that is less than the Common Stock Ownership Limit.
Section 6.2.8. Increase in Aggregate Stock Ownership Limit and Common Stock Ownership Limit. The board of directors may from time to time increase the Common Stock
Ownership Limit and the Aggregate Stock Ownership Limit.
Section 6.2.9. Legend. Each certificate for shares of Capital Stock shall bear substantially the following legend:
The shares represented by this certificate are subject to restrictions on Beneficial Ownership, Constructive Ownership and Transfer for the purpose of the Corporation's
maintenance of its status as a Real Estate Investment Trust under the Internal Revenue Code of 1986, as amended (the “Code”). Subject to certain further restrictions and
except as expressly provided in the Corporation's charter: (a) no Person may Beneficially Own or Constructively Own shares of the Corporation's Common Stock in
excess of 9.8% (in value or number of shares) of the outstanding shares of Common Stock of the Corporation unless such Person is an Excepted Holder (in which case
the Excepted Holder
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Limit for such Excepted Holder shall be applicable); (b) no Person may Beneficially Own or Constructively Own shares of Capital Stock of the Corporation in excess of
9.8% of the value of the total outstanding shares of Capital Stock of the Corporation, unless such Person is an Excepted Holder (in which case the Excepted Holder Limit
for such Excepted Holder shall be applicable); (c) no Person may Beneficially Own or Constructively Own Capital Stock that would result in the Corporation being
“closely held” under Section 856(h) of the Code or otherwise cause the Corporation to fail to qualify as a REIT; and (d) other than as provided in the Corporation's
charter, no Person may Transfer shares of Capital Stock if such Transfer would result in the Capital Stock of the Corporation being owned by fewer than 100 Persons.
Any Person who Beneficially Owns or Constructively Owns or attempts to Beneficially Own or Constructively Own shares of Capital Stock which causes or will cause a
Person to Beneficially Own or Constructively Own shares of Capital Stock in excess or in violation of the above limitations must immediately notify the Corporation. If
any of the restrictions on Transfer or ownership are violated, the shares of Capital Stock represented hereby will be automatically transferred to a Trustee of a Trust for
the benefit of one or more Charitable Beneficiaries. In addition, upon the occurrence of certain events, attempted Transfers in violation of the restrictions described above
may be void ab initio.
All capitalized terms in this legend have the meanings defined in the charter of the Corporation, as the same may be amended from time to time, a copy of which,
including the restrictions on Transfer and ownership, will be furnished to each holder of Capital Stock of the Corporation on request and without charge.
Instead of the foregoing legend, the certificate may state that the Corporation will furnish a full statement about certain restrictions on transferability to a stockholder on
request and without charge. Such statement shall also be sent on request and without charge to stockholders who are issued shares without a certificate.
Section 6.3. Transfer of Capital Stock in Trust.
Section 6.3.1. Ownership in Trust. Upon any purported Transfer or other event described in Section 6.2.1(b) that would result in a transfer of shares of Capital Stock to a
Trust, such shares of Capital Stock shall be deemed to have been transferred to the Trustee as trustee of a Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such
transfer to the Trustee shall be deemed to be effective as of the close of business on the Business Day prior to the purported Transfer or other event that results in the transfer to the
Trust pursuant to Section 6.2.1(b). The Trustee shall be appointed by the Corporation and shall be a Person unaffiliated with the Corporation and any Prohibited Owner. Each
Charitable Beneficiary shall be designated by the Corporation as provided in Section 6.3.6.
Section 6.3.2. Status of Shares Held by the Trustee. Shares of Capital Stock held by the Trustee shall be issued and outstanding shares of Capital Stock of the Corporation.
The Prohibited Owner shall have no rights in the shares held by the Trustee. The Prohibited Owner shall not benefit economically from ownership of any shares held in trust by the
Trustee and shall have no rights to dividends or other distributions attributable to the shares held in the Trust.
Section 6.3.3. Distributions and Voting Rights. The Trustee shall have all voting rights and rights to distributions with respect to shares of Capital Stock held in the Trust,
which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any distribution paid prior to the discovery by the Corporation that the shares of Capital Stock
have been transferred to the Trustee shall be paid by the recipient of such distribution to the Trustee upon demand, and any distribution authorized but unpaid shall be paid when due
to the Trustee. Any distribution so paid to the Trustee shall be held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no voting rights with respect to shares held
in the Trust, and, subject to Maryland law, effective as of the date that the shares of Capital Stock have been transferred to the Trustee, the Trustee shall have the authority with respect
to the shares held in the Trust (at the Trustee's sole discretion) (a) to rescind as void any vote cast by a Prohibited Owner prior to the discovery by the Corporation that the shares of
Capital Stock have been transferred to the Trustee and (b) to recast such vote in accordance with the desires of the Trustee acting for the benefit of the Charitable Beneficiary;
provided, however, that if the Corporation has already taken irreversible corporate action, then the Trustee shall not have the authority to rescind and recast such vote. Notwithstanding
the provisions of this Article VI, until the Corporation has received notification that shares of Capital Stock have been transferred into a Trust, the Corporation shall be entitled to rely
on its share transfer and other stockholder records for purposes of preparing lists of stockholders entitled to vote at meetings, determining the validity and authority of proxies and
otherwise conducting votes of stockholders.
Section 6.3.4. Sale of Shares by Trustee. Within 20 days of receiving notice from the Corporation that shares of Capital Stock have been transferred to the Trust, the Trustee
of the Trust shall sell the shares held in the Trust to a Person, designated by
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the Trustee, whose ownership of the shares will not violate the ownership limitations set forth in Section 6.2.1(a). Upon such sale, the interest of the Charitable Beneficiary in the
shares sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 6.3.4. The
Prohibited Owner shall receive the lesser of (a) the price paid by the Prohibited Owner for the shares or, if the Prohibited Owner did not give value for the shares in connection with
the event causing the shares to be held in the Trust ( e.g., in the case of a gift, devise or other such transaction), the Market Price of the shares on the day of the event causing the
shares to be held in the Trust or (b) the price per share received by the Trustee from the sale or other disposition of the shares held in the Trust. Any net sale proceeds in excess of the
amount payable to the Prohibited Owner shall be immediately paid to the Charitable Beneficiary. If, prior to the discovery by the Corporation that shares of Capital Stock have been
transferred to the Trustee, such shares are sold by a Prohibited Owner, then (i) such shares shall be deemed to have been sold on behalf of the Trust and (ii) to the extent that the
Prohibited Owner received an amount for such shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 6.3.4, such excess shall be
paid to the Trustee upon demand.
Section 6.3.5. Purchase Right in Stock Transferred to the Trustee. Shares of Capital Stock transferred to the Trustee shall be deemed to have been offered for sale to the
Corporation, or its designee, at a price per share equal to the lesser of (a) the price per share in the transaction that resulted in such transfer to the Trust (or, in the case of a devise or
gift, the Market Price at the time of such devise or gift) or (b) the Market Price on the date the Corporation, or its designee, accepts such offer. The Corporation shall have the right to
accept such offer until the Trustee has sold the shares held in the Trust pursuant to Section 6.3.4. Upon such a sale to the Corporation, the interest of the Charitable Beneficiary in the
shares sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Prohibited Owner.
Section 6.3.6. Designation of Charitable Beneficiaries. By written notice to the Trustee, the Corporation shall designate one or more nonprofit organizations to be the
Charitable Beneficiary of the interest in the Trust such that (a) the shares of Capital Stock held in the Trust would not violate the restrictions set forth in Section 6.2.1(a) in the hands
of such Charitable Beneficiary and (b) each such organization must be described in Section 501(c)(3) of the Code and contributions to each such organization must be eligible for
deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
Section 6.4. Settlement. Nothing in this Article VI shall preclude the settlement of any transaction entered into through the facilities of any national securities exchange or
automated inter-dealer quotation system. The fact that the settlement of any transaction is so permitted shall not negate the effect of any other provision of this Article VI and any
transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Article VI.
Section 6.5. Enforcement. The Corporation is authorized specifically to seek equitable relief, including injunctive relief, to enforce the provisions of this Article VI.
Section 6.6. Non-Waiver. No delay or failure on the part of the Corporation or the board of directors in exercising any right hereunder shall operate as a waiver of any right of
the Corporation or the board of directors, as the case may be, except to the extent specifically waived in writing.
ARTICLE VII
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 7.1. Number of Directors. The number of directors of the Corporation shall be nine, which number may be increased or decreased from time to time pursuant to the
bylaws but shall never be less than the minimum number required by the MGCL. Until a Listing occurs, a majority of the seats on the board of directors will be for Independent
Directors. No reduction in the number of directors shall cause the removal of any director from office prior to the expiration of his term, except as may otherwise be provided in the
terms of any Preferred Stock issued by the Corporation. The names of the directors who shall serve on the board until the next annual meeting of the stockholders and until their
successors are duly elected and qualified are:
Charles R. Brown
Richard W. Carpenter
Bud Carter
John L. Dixon
E. Nelson Mills
George W. Sands
Neil H. Strickland
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Leo F. Wells, III
Douglas P. Williams
The Corporation elects to make the election provided for under Section 3-804(c) of the MGCL, that, except as may be provided by the Board of Directors in setting the terms
of any class or series of stock, any and all vacancies on the Board of Directors may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the
remaining directors do not constitute a quorum, and any director elected to fill a vacancy shall serve for the remainder of the full term of the directorship in which such vacancy
occurred.
Section 7.2. REIT Qualification. If the Corporation elects to qualify for federal income tax treatment as a REIT, the board of directors shall use its reasonable best efforts to
take such actions as are necessary or appropriate to preserve the status of the Corporation as a REIT; however, if the board of directors determines that it is no longer in the best
interests of the Corporation to continue to be qualified as a REIT, the board of directors may revoke or otherwise terminate the Corporation's REIT election pursuant to Section 856(g)
of the Code. The board of directors also may determine that compliance with any restriction or limitation on ownership and transfers of Capital Stock set forth in Article VI is no
longer required for REIT qualification.
Section 7.3. Determinations by the Board. The determination as to any of the following matters, made in good faith by or pursuant to the direction of the board of directors
consistent with the charter and in the absence of actual receipt of an improper benefit in money, property or services or active and deliberate dishonesty established by a court, shall be
final and conclusive and shall be binding upon the Corporation and every holder of shares of its Capital Stock: the amount of the net income of the Corporation for any period and the
amount of assets at any time legally available for the payment of dividends, redemption of its Capital Stock or the payment of other distributions on its Capital Stock; the amount of
paid-in surplus, net assets, other surplus, annual or other net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; the amount,
purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged); the fair value, or any sale, bid or asked price to be applied in determining the fair value, of any asset
owned or held by the Corporation; and any matters relating to the acquisition, holding and disposition of any assets by the Corporation.
Section 7.4. Indemnification. The Corporation shall indemnify, to the fullest extent permitted by Maryland law, as applicable from time to time, its present and former
directors and officers, whether serving or having served, the Corporation or at its request any other entity, for any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) relating to any action alleged to have been taken or omitted in such capacity as a director or officer. The Corporation shall pay or
reimburse all reasonable expenses incurred by a present or former director or officer, whether serving or having served, the Corporation or at its request any other entity, in connection
with any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) in which the present or former director or officer is a
party, in advance of the final disposition of the proceeding, to the fullest extent permitted by, and in accordance with the applicable requirements of, Maryland law, as applicable from
time to time. The Corporation may indemnify any other persons, including a person who served a predecessor of the Corporation as an officer or director, permitted but not required to
be indemnified by Maryland law as applicable from time to time, if and to extent indemnification is authorized and determined to be appropriate, in each case in accordance with
applicable law. No amendment of the Charter of the Corporation or repeal of any of its provisions shall limit or eliminate any of the benefits provided to directors and officers under
this Section 7.4 in respect of any act or omission that occurred prior to such amendment or repeal.
Section 7.5. Extraordinary Actions. Notwithstanding any provision of law permitting or requiring any action to be taken or approved by the affirmative vote of the holders of
shares entitled to cast a greater number of votes, any such action shall be effective and valid if declared advisable by the Board of Directors and taken or approved by the affirmative
vote of holders of shares entitled to cast a majority of all the votes entitled to be cast on the matter.
Section 7.6. Rights of Objecting Stockholders. Holders of shares of Capital Stock shall not be entitled to exercise any rights of an objecting stockholder provided for under
Title 3, Subtitle 2 of the MGCL unless the board, upon the affirmative vote of a majority of the entire board, shall determine that such rights shall apply, with respect to all or any
classes or series of Capital Stock, to a particular transaction or all transactions occurring after the date of such approval in connection with which holders of such shares of Capital
Stock would otherwise be entitled to exercise such rights.
Section 7.7. Limitation of Director and Officer Liability. To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of directors
and officers of a corporation, no director or officer of the Corporation shall be liable to the Corporation or its stockholders for money damages. Neither the amendment nor repeal of
this Section 7.7, nor the adoption or amendment of any other provision of the charter or bylaws inconsistent with this Section 7.7, shall apply to or affect
9
in any respect the applicability of the preceding sentence with respect to any act or failure to act that occurred prior to such amendment, repeal or adoption.
Section 7.8. Authority to Declare Stock Dividends of Different Classes. Subject to any preferential rights in favor of any class of Preferred Stock, the board of directors, in
accordance with Section 2-309(c)(5)(i) of the MGCL, is hereby specifically authorized to, at any time, cause the Corporation to declare and pay a dividend payable in shares of any
one class or multiple classes of Capital Stock to the holders of shares of any other class or classes of Capital Stock without obtaining stockholder approval.
ARTICLE IX
AMENDMENT
The Corporation reserves the right from time to time to make any amendment to the charter, now or hereafter authorized by law, including any amendment altering the terms
or contract rights, as expressly set forth in the charter, of any shares of outstanding Capital Stock.
THIRD: The amendment and restatement of the charter of the Corporation as hereinabove set forth were duly advised by the board of directors and approved by the
stockholders of the Corporation as required by law.
FOURTH: The current address of the principal office of the Corporation is as set forth in Article III of the foregoing amendment and restatement of the charter.
FIFTH: The name and address of the Corporation's current resident agent are as set forth in Article III of the foregoing amendment and restatement of the charter.
SIXTH: The number of directors of the Corporation and the names of those currently in office are as set forth in Section 7.1 of the foregoing amendment and restatement of
the charter.
SEVENTH: The undersigned President acknowledges the foregoing amendment and restatement of the charter to be the corporate act of the Corporation and as to all matters
and facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all
material respects and that this statement is made under the penalties of perjury.
IN WITNESS WHEREOF, Wells Real Estate Investment Trust II, Inc., has caused the foregoing amendment and restatement of the charter to be signed in its name and on its
behalf by its President and attested to by its Executive Vice President, Treasurer and Secretary on this 19th day of July, 2012.
WELLS REAL ESTATE INVESTMENT
TRUST II, INC.
By:/s/ E. Nelson Mills (SEAL)
E. Nelson Mills
President
ATTEST
By:/s/ Douglas P. Williams
Douglas P. Williams
Executive Vice President, Treasurer and
Secretary
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ARTICLES OF AMENDMENT
OF
WELLS REAL ESTATE INVESTMENT TRUST II, INC.
THIS IS TO CERTIFY THAT:
FIRST: Pursuant to Section 2-605 of the Maryland General Corporation Law (the “MGCL”), Wells Real Estate Investment Trust II, Inc. (the
“Corporation”) desires to amend its charter as currently in effect and is hereinafter amended as follows:
SECOND: First Article of the Corporation's charter shall be amended as follows:
The name of the corporation is Columbia Property Trust, Inc. (the “Corporation”).
THIRD: This amendment to the Corporation's charter was approved by a majority of the entire Board of Directors of the Corporation. This
amendment is limited to a change expressly authorized by Section 2-605(a)(1) of the MGCL to be made without action by the Corporation's
stockholders.
IN WITNESS WHEREOF, the Corporation has caused the foregoing amendment of its charter to be signed in its name and on its behalf by its
President and attested to by its Executive Vice President, Treasurer and Secretary on this 24th day of February, 2013.
COLUMBIA PROPERTY TRUST, INC.
(f/k/a Wells Real Estate Investment Trust II, Inc.)
By: /c/ E. Nelson Mills
E. Nelson Mills
President
ATTEST:
By: /c/ Douglas P. Williams
Douglas P. Williams
Executive Vice President, Treasurer and Secretary
(Back To Top)
Section 3: EX-3.2 (SECOND AMENDED AND RESTATED BYLAWS)
Exhibit 3.2
SECOND AMENDED AND RESTATED BYLAWS
OF
COLUMBIA PROPERTY TRUST, INC.
ARTICLE I
OFFICES
Section 1.01. PRINCIPAL OFFICES. The principal office of Columbia Property Trust, Inc. (the “Corporation”) shall be located at such place or
places as the board of directors may designate from time to time.
Section 1.02. ADDITIONAL OFFICES. The Corporation may have additional offices at such places as the board of directors may from time to
time determine or otherwise as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01. PLACE. All meetings of stockholders shall be held at a principal office of the Corporation or at such other place as shall be stated
in the notice of the meeting.
Section 2.02. ANNUAL MEETING. An annual meeting of the stockholders for the election of directors and the transaction of any business
within the powers of the Corporation shall be held on such day as the board of directors may determine.
Section 2.03. SPECIAL MEETINGS. Special meetings of the stockholders may be called by: (i) the president; (ii) the board of directors, (iii) a
majority of the Independent Directors, as defined in the Corporation's charter (the “charter”); or (iv) upon the written request to the secretary of the
Corporation, the holders of shares entitled to cast a majority of all the votes entitled to be cast at such meeting whereby such written request states the
purpose of the meeting and the matters proposed to be acted upon at such meeting. Unless requested by the stockholders entitled to cast a majority of all
the votes entitled to be cast at such meeting, a special meeting need not be called to consider any matter which is substantially the same as a matter
voted on at any special meeting of the stockholders held during the preceding twelve months.
Section 2.04. NOTICE FOR MEETINGS. Except as provided otherwise in Section 2.03 of this Article II, the secretary shall, not less than ten
nor more than 90 days before each meeting of stockholders, give to each stockholder entitled to vote at the meeting and each other stockholder entitled
to notice of the meeting, written or printed notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise required
by the Maryland General Corporation Law (the “MGCL”), the purpose of the meeting. Notice shall be deemed delivered to a stockholder upon being: (i)
personally delivered to the stockholder; (ii) left at the stockholder's residence or usual place of business; (iii) mailed to the stockholder at the
stockholder's address as it appears on the records of the Corporation, in which case such notice shall be deemed to be given when deposited in the
United States mail with postage prepaid thereon; or (iv) transmitted
to the stockholder by electronic mail to any electronic mail address of the stockholder or by any other electronic means.
Section 2.05. SCOPE OF NOTICE. Any business of the Corporation may be transacted at an annual meeting of stockholders without being
specifically designated in the notice, except as otherwise set forth in Section 2.12(a) of this Article II and except for such business as is required by the
MGCL or any other relevant statute to be stated in such notice. No business shall be transacted at a special meeting of stockholders except as
specifically designated in the notice.
Section 2.06. ORGANIZATION AND CONDUCT. Every meeting of stockholders shall be conducted by an individual appointed by the board
of directors to be chairman of the meeting or, in the absence of such appointment, by the chairman of the board or, in the case of a vacancy in the office
or absence of the chairman of the board, by one of the following officers present at the meeting: the vice chairman of the board, if there be one, the
president, the vice presidents in their order of rank and seniority, or, in the absence of such officers, a chairman chosen by the stockholders by the vote
of a majority of the votes cast by stockholders present in person or by proxy. The secretary, or, in the secretary's absence, an assistant secretary, or in the
absence of both the secretary and assistant secretaries, a person appointed by the board of directors or, in the absence of such appointment, a person
appointed by the chairman of the meeting shall act as secretary. In the event that the secretary presides at a meeting of the stockholders, an assistant
secretary shall record the minutes of the meeting. The order of business and all other matters of procedure at any meeting of stockholders shall be
determined by the chairman of the meeting. The chairman of the meeting may prescribe such rules, regulations and procedures and take such action as,
in the discretion of such chairman, are appropriate for the proper conduct of the meeting, including, without limitation, (a) restricting admission to the
time set for the commencement of the meeting; (b) limiting attendance at the meeting to stockholders of record of the Corporation, their duly authorized
proxies or other such persons as the chairman of the meeting may determine; (c) limiting participation at the meeting on any matter to stockholders of
record of the Corporation entitled to vote on such matter, their duly authorized proxies or other such persons as the chairman of the meeting may
determine; (d) limiting the time allotted to questions or comments by participants; (e) maintaining order and security at the meeting; (f) removing any
stockholder who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairman of the meeting; and (g) recessing or
adjourning the meeting to a later date and time and place announced at the meeting. Unless otherwise determined by the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
Section 2.07. QUORUM; ADJOURNMENT. At any meeting of the stockholders, the presence in person or by proxy of stockholders entitled to
cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum except as otherwise provided by law, the charter or these
bylaws. If a quorum shall not be present at any meeting of the stockholders, the stockholders entitled to vote at such meeting, present in person or by
proxy, shall have the power to adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice other
than announcement at the meeting. At such adjourned meeting at which a quorum is present, any business may be transacted that might have been
transacted at the meeting as originally noticed.
The stockholders present either in person or by proxy, at a meeting which has been duly called and convened, may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
Section 2.08. VOTING. A plurality of all the votes cast by the stockholders present in person or by proxy at an annual meeting at which a
quorum is present may, without the necessity for concurrence by the board of directors, vote to elect a director. Each share may be voted for as many
individuals as there are
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directors to be elected and for whose election the share is entitled to be voted. Except as otherwise required by law, the charter or these bylaws, a
majority of the votes cast at a meeting of the stockholders duly called and at which a quorum is present shall be sufficient to approve any other matter
which may properly come before the meeting. Unless otherwise provided in the charter, each outstanding share, regardless of class, shall be entitled to
one vote on each matter submitted to a vote at a meeting of the stockholders.
Section 2.09. PROXIES. A stockholder may cast the votes entitled to be cast by the shares of stock owned of record by the stockholder in person
or by proxy executed by the stockholder or by the stockholder's duly authorized agent in any manner permitted by law. Such proxy or evidence of
authorization of such proxy shall be filed with the secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the proxy.
Section 2.10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock registered in the name of a corporation, partnership, trust or other entity,
if entitled to be voted, may be voted by the president, a vice president, a general partner, or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such stock. Any director or other fiduciary may vote stock registered in his name as such fiduciary,
either in person or by proxy.
Shares of the Corporation's stock owned directly or indirectly by it shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case, subject to the
terms of the charter, they may be voted and shall be counted in determining the total number of outstanding shares at any given time.
The board of directors may adopt by resolution a procedure by which a stockholder may certify in writing to the Corporation that any shares of
stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information
to be contained in it; if the certification is with respect to a record date or closing of the stock transfer books, the time after the record date or closing of
the stock transfer books within which the certification must be received by the Corporation; and any other provisions with respect to the procedure
which the board of directors considers necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded
as, for the purposes set forth in the certification, the stockholder of record of the specified stock in place of the stockholder who makes the certification.
Section 2.11. INSPECTORS.
(a) The board of directors or the chairman of the meeting may, but need not, appoint one or more individual inspectors or one or more
entities that designate individuals as inspectors to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person appointed as an inspector fails to appear or act,
the vacancy may be filled by appointment made by the board of directors in advance of the meeting or at the meeting by the chairman of the meeting.
(b) The inspectors, if any, shall determine the number of shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and
questions arising
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in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. Each such report shall be in writing and signed by him or her or by a majority of them if there is more
than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of
the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.
Section 2.12. NOMINATIONS AND STOCKHOLDER BUSINESS.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the board of directors and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (A) pursuant to the Corporation's notice of such meeting; (B) by or at the direction of the board of
directors; or (C) by any stockholder of the Corporation who (i) was a stockholder of record both at the time of giving of notice provided for in this
Section 2.12(a) and at the time of the annual meeting in question; (ii) is entitled to vote at such meeting; and (iii) has complied with the notice
procedures set forth in this Section 2.12(a).
(2) For nominations or other business to be properly brought at an annual meeting by a stockholder pursuant to this paragraph (a)
(2) or paragraph (a)(1) of this Section 2.12, the stockholder must give timely notice thereof in writing to the secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to the secretary at the principal executive office of the Corporation not less than 45 days prior to the first
anniversary of the date of mailing of the notice for the preceding year's annual meeting; provided, however, that in the event that the date of the date of
mailing of the notice for the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of mailing of the notice
for the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of
the 45th day prior to the date of mailing of the notice for such annual meeting or the 10th day following the day on which disclosure of the date of
mailing of the notice for such meeting is first made. In no event shall the public announcement of a postponement or adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (A) as to each person
whom the stockholder proposes to nominate for election or re-election as a director (i) the name, age, business address, and residence address of such
person; (ii) the class and number of shares of stock of the Corporation that are beneficially owned by such person; and (iii) all other information relating
to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest (even if an election contest is not
involved), or is otherwise required pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including
such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business
that the stockholder proposes to bring before the meeting, (i) a brief description of the business desired to be brought before the meeting; (ii) the reasons
for conducting such business at the meeting; and (iii) any material interest in such business that such stockholder and beneficial owner, if any, on whose
behalf the proposal is made, may have; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination
or proposal is made, (i) the name and address of such stockholder and beneficial owner, if any, as such appears on the Corporation's books; and (ii) the
number of shares of each class of stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 2.12 to the contrary, in the event that the
number of directors to be elected to the board of directors is increased and there is no public announcement naming all of the nominees for directors or
specifying the size of the increased board of directors made by the Corporation at least 100 days prior to the first anniversary of the
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date of mailing of the notice for the preceding year's annual meeting, a stockholder's notice required by this Section 2.12(a) shall also be considered
timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal
executive offices of the Corporation no later than the close of business on the 10th day following the day on which such public announcement is first
made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of said meeting. Nominations of persons for election to the board of directors may be
made at a special meeting of stockholders at which directors are to be elected (i) pursuant to the Corporation's notice of said meeting including the
notice contemplated by Section 2.03; (ii) by or at the direction of the board of directors; or (iii) provided the board of directors has determined that
directors shall be elected at such special meeting, by any stockholder of the Corporation who (A) is a stockholder of record both at the time of giving of
notice provided for in this Section 2.12(b) at the time of the special meeting; (B) is entitled to vote at the meeting; and (C) complied with the notice
procedures set forth in this Section 2.12(b). In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more
directors to the board of directors, any such stockholder may nominate a person or persons (as the case may be) for election to such position as specified
in the Corporation's notice of meeting, if the stockholder's notice containing the information required by paragraph (a)(2) of this Section 2.12 shall be
delivered to the secretary at the principal executive offices of the Corporation not earlier than the 120th day prior to such special meeting and not later
than the close of business on the later of the 45th day prior to such special meeting or the tenth day following the day on which public announcement is
first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting. In no event shall the
public announcement of a postponement or adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as
described above.
(c) General.
(1) Only such persons who are nominated in accordance with the procedures set forth in this Section 2.12 shall be eligible to serve
as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the
procedures set forth in this Section 2.12. The presiding officer of the meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 2.12, and, if any proposed
nomination or business is not in compliance with this Section 2.12, to declare that such defective nomination or proposal, if any, be disregarded.
(2) For purposes of this Section 2.12, (i) the “date of mailing of the notice” shall mean the date of the proxy statement for the
solicitation of proxies for election of directors and (ii) “public announcement” shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 2.12, a stockholder shall also comply with all applicable
requirements of state law and the Exchange Act and the rules and regulations promulgated thereunder with respect to the matters set forth in this Section
2.12. Nothing in this Section 2.12 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
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Section 2.13. VOTING BY BALLOT. Voting on any question or in any election may be viva voce unless the presiding officer shall order, or
any stockholder shall demand, that voting be by ballot.
ARTICLE III
DIRECTORS
Section 3.01. GENERAL POWERS. The business and affairs of the Corporation shall be managed under the direction of its board of directors.
Section 3.02. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or at any special meeting called for that purpose, a
majority of the members then serving on the board of directors may establish, increase, or decrease the number of directors, provided that, except as
otherwise provided in the charter, the number thereof shall never be less than the minimum number required by the MGCL or the charter (whichever is
greater), nor more than the maximum number of directors set forth in the charter, and further provided that, except as may be provided in the terms of
any preferred stock issued by the Corporation, the tenure of office of a director shall not be affected by any decrease in the number of directors.
Section 3.03. ANNUAL AND REGULAR MEETINGS. An annual meeting of the board of directors shall be held immediately after and at the
same place as the annual meeting of stockholders, no notice other than this Bylaw being necessary. In the event such meeting is not so held, the meeting
may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors. The
board of directors may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of
the board of directors without other notice than such resolution.
Section 3.04. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the chairman of the board,
president or by a majority of the board of directors. The person or persons authorized to call special meetings of the board of directors may fix any
place, either within or without the State of Maryland, as the place for holding any special meeting of the board of directors called by them. The board of
directors may provide, by resolution, the time and place for the holding of special meetings of the board of directors without other notice than such
resolution.
Section 3.05. NOTICE. Notice of any special meeting of the board of directors shall be delivered personally, or by telephone, electronic mail,
facsimile transmission, United States mail, or courier to each director at his business or residence address. Notice by personal delivery, telephone,
electronic mail, or facsimile transmission shall be given at least two days prior to the meeting. Notice by United States mail shall be given at least five
days prior to the meeting and shall be deemed to be given when deposited in the United States mail properly addressed, with postage prepaid thereon.
Telephone notice shall be deemed to be given when the director or his agent is personally given such notice in a telephone call to which he or his agent
is a party. Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address given to the Corporation
by the director. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to
the Corporation by the director and receipt of a completed answer-back indicating receipt. Notice by courier shall be deemed to be given when deposited
with or delivered to a courier properly addressed. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of
the board of directors need be stated in the notice, unless specifically required by statute or these bylaws.
Section 3.06. QUORUM. A majority of the directors then serving shall constitute a quorum for transaction of business at any meeting of the
board of directors, provided that if less than a majority of such
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directors are present at said meeting, a majority of the directors present may adjourn the meeting from time to time without further notice, and provided
further that, if pursuant to the charter or these bylaws, the vote of a majority of a particular group of directors is required for action, a quorum must also
include a majority of such group. The directors present at a meeting which has been duly called and convened may continue to transact business until
adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum.
Section 3.07. VOTING. The action of the majority of the directors present at a meeting at which a quorum is present shall be the action of the
board of directors, unless the concurrence of a greater proportion is required for such action by applicable statute or the charter. If enough directors have
withdrawn from a meeting to leave less than a quorum but the meeting is not adjourned, the action of the majority of the directors still present at such
meeting shall be the action of the board of directors, unless the concurrence of a greater proportion is required for such action by the MGCL or the
charter.
Section 3.08. ORGANIZATION. At each meeting of the board of directors, the chairman of the board or, in the absence of the chairman, the
vice chairman of the board, if any, shall act as chairman. In the absence of both the chairman and vice chairman of the board, the chief executive officer
or in the absence of the chief executive officer, the president or in the absence of the president, a director chosen by a majority of the directors present,
shall act as chairman. The secretary or, in his or her absence, an assistant secretary of the Corporation, or in the absence of the secretary and all assistant
secretaries, a person appointed by the chairman, shall act as secretary of the meeting.
Section 3.09. ACTION BY WRITTEN CONSENT OR BY ELECTRONIC TRANSMISSION; INFORMAL ACTION. Any action required or
permitted to be taken at any meeting of the board of directors may be taken without a meeting, if a consent to such action is given in writing or by
electronic transmission by each director, and such consent is filed in paper or electronic form with the minutes of proceedings of the board of directors.
Section 3.10. TELEPHONE MEETINGS. directors may participate in a meeting of the board of directors by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these
means shall constitute presence in person at the meeting.
Section 3.11. REMOVAL. At any meeting of stockholders called expressly, but not necessarily solely, for that purpose, any director or the entire
board of directors may be removed, with or without cause, by a vote of the holders of a majority of the shares then entitled to vote on the election of
directors.
Section 3.12. VACANCIES. If for any reason any or all the directors cease to be directors, such event shall not terminate the Corporation or
affect these bylaws or the powers of the remaining directors hereunder (even if fewer than the statutory minimum remain) Any vacancy on the board of
directors for any cause shall be filled by a majority of the remaining directors, although such majority is less than a quorum. Any individual so elected
as a director shall hold office until the next annual meeting of stockholders and until his or her successor is elected and qualifies.
Section 3.13. COMPENSATION. The directors may, in the discretion of the entire board of directors, receive compensation for their services as
directors, including but not limited to fixed sums per meeting and/or per visit to real property or other facilities owned or leased by the Corporation,
and/or for any service or activity performed or engaged in as directors on behalf of the Corporation. Directors may be reimbursed for expenses of
attendance, if any, at each annual, regular or special meeting of the board of directors or of any committee thereof and for their reasonable out-of-pocket
expenses, if any, in connection with each such
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meeting, property visit, and/or other service or activity they performed or engaged in as directors on behalf of the Corporation. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
Section 3.14. LOSS OF DEPOSITS. No director shall be liable for any loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom monies or stock have been deposited.
Section 3.15. SURETY BONDS. Unless required by law, no director shall be obligated to give any bond or surety or other security for the
performance of any of his duties.
Section 3.16. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The directors shall have no responsibility to
devote their full time to the affairs of the Corporation. Any director or officer of the Corporation, in his personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business interests and engage in business activities similar to, in addition to, or in
competition with those of or relating to the Corporation, subject to the provisions of the charter.
ARTICLE IV
COMMITTEES
Section 4.01. NUMBER, TENURE AND QUALIFICATIONS. The board of directors may designate an Executive Committee, an Audit
Committee, a Compensation Committee, a Nominating and Corporate Governance Committee and other committees composed of at least one director.
Section 4.02. COMPOSITION. Such committees shall serve at the pleasure of the board of directors. The members of the Nominating and
Corporate Governance Committee, Audit Committee and Compensation Committee shall at all times consist solely of Independent Directors, and the
majority of the members of all committees shall be Independent Directors.
Section 4.03. MEETINGS. Notice of committee meetings shall be given in the same manner as notice for special or regular meetings of the
board of directors. A majority of the members of the committee shall constitute a quorum for the transaction of business at any meeting of the
committee. Except as provided in this charter, the act of a majority of the committee members present at a meeting shall be the act of such committee.
The board of directors may designate a chairman of any committee, and such chairman or, in the absence of a chairman, any two members of any
committee may fix the time and place of its meeting unless the board shall otherwise provide. In the absence of any member of any such committee, the
members thereof present at any meeting, whether or not they constitute a quorum, may appoint another director to act in the place of such absent
member. Each committee shall keep minutes of its proceedings.
Section 4.04. TELEPHONE MEETINGS. Members of a committee of the board of directors may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation
in a meeting by these means shall constitute presence in person at the meeting.
Section 4.05. ACTION BY WRITTEN CONSENT; INFORMAL ACTION. Any action required or permitted to be taken at any meeting of a
committee of the board of directors may be taken without a meeting, if a consent in writing to such action is signed by each member of the committee
and such written consent is filed with the minutes of proceedings of such committee.
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Section 4.07. VACANCIES. Subject to the provisions hereof, and the charter, the board of directors shall have the power at any time to change
the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any
such committee.
ARTICLE V
OFFICERS
Section 5.01. GENERAL PROVISIONS. The officers of the Corporation shall include a president, a secretary and a treasurer and may include a
chairman of the board, a vice chairman of the board, one or more vice presidents, a chief operating officer, a chief financial officer, one or more
assistant secretaries and one or more assistant treasurers. In addition, the board of directors may from time to time appoint such other officers with such
powers and duties as they shall deem necessary or desirable. The officers of the Corporation shall be elected annually by the board of directors at the
first meeting of the board of directors held after each annual meeting of stockholders, except that the president may appoint one or more vice presidents,
assistant secretaries and assistant treasurers. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as
may be convenient. Each officer shall hold office until his successor is elected and qualifies or until his death, resignation or removal in the manner
hereinafter provided. Any two or more offices, except president and vice president, may be held by the same person. In its discretion, the board of
directors may leave unfilled any office except that of president, treasurer and secretary. Election of an officer or agent shall not of itself create contract
rights between the Corporation and such officer or agent.
Section 5.02. REMOVAL AND RESIGNATION. Any officer or agent of the Corporation may be removed by the board of directors if in its
judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Any officer of the Corporation may resign at any time by giving written notice of his resignation to the board of directors, the
chairman of the board, the president or the secretary. Any resignation shall take effect at any time subsequent to the time specified therein or, if the time
when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it
effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Corporation.
Section 5.03. VACANCIES. A vacancy in any office may be filled by the board of directors for the balance of the term.
Section 5.04. CHIEF EXECUTIVE OFFICER. The board of directors may designate a chief executive officer. In the absence of such
designation, the president shall be the chief executive officer of the Corporation. The chief executive officer shall have general responsibility for
implementation of the policies of the Corporation, as determined by the board of directors, and for the management of the business and affairs of the
Corporation.
Section 5.05. CHIEF OPERATING OFFICER. The board of directors may designate a chief operating officer. The chief operating officer shall
have the responsibilities and duties as set forth by the board of directors or the chief executive officer.
Section 5.06. CHIEF FINANCIAL OFFICER. The board of directors may designate a chief financial officer. The chief financial officer shall
have the responsibilities and duties as set forth by the board of directors or the chief executive officer.
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Section 5.07. CHAIRMAN OF THE BOARD. The board of directors shall designate a chairman of the board. The chairman of the board shall
preside over the meetings of the board of directors and of the stockholders at which he shall be present. The chairman of the board shall perform such
other duties as may be assigned to him or them by the board of directors.
Section 5.08. PRESIDENT. In the absence of a chief executive officer, the president shall in general supervise and control all of the business and
affairs of the Corporation. In the absence of a designation of a chief operating officer by the board of directors, the president shall be the chief operating
officer. He may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly
delegated by the board of directors or by these bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise
executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the board of directors
from time to time.
Section 5.09. VICE PRESIDENTS. In the absence of the president or in the event of a vacancy in such office, the vice president (or in the event
there be more than one vice president, the vice presidents in the order designated at the time of their election or, in the absence of any designation, then
in the order of their election) shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the
restrictions upon the president; and shall perform such other duties as from time to time may be assigned to him by the president or by the board of
directors. The board of directors may designate one or more vice presidents as executive vice president or as vice president for particular areas of
responsibility.
Section 5.10. SECRETARY. The secretary shall (a) keep the minutes of the proceedings of the stockholders, the board of directors and
committees of the board of directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the
provisions of these bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation; (d) keep a register of the
post office address of each stockholder which shall be furnished to the secretary by such stockholder; (e) have general charge of the share transfer books
of the Corporation; and (f) in general perform such other duties as from time to time may be assigned to him by the chief executive officer, the president
or by the board of directors.
Section 5.11. TREASURER. The treasurer shall have the custody of the funds and securities of the Corporation and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to
the credit of the Corporation in such depositories as may be designated by the board of directors. In the absence of a designation of a chief financial
officer by the board of directors, the treasurer shall be the chief financial officer of the Corporation.
The treasurer shall disburse the funds of the Corporation as may be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and board of directors, at the regular meetings of the board of directors or whenever it may so require,
an account of all his transactions as treasurer and of the financial condition of the Corporation.
If required by the board of directors, the treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers, vouchers, moneys and other property of whatever kind in his possession or
under his control belonging to the Corporation.
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Section 5.12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant secretaries and assistant treasurers, in general,
shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the president or the board of directors. The
assistant treasurers shall, if required by the board of directors, give bonds for the faithful performance of their duties in such sums and with such surety
or sureties as shall be satisfactory to the board of directors.
Section 5.13. SALARIES. The salaries and other compensation of the officers shall be fixed from time to time by the board of directors and no
officer shall be prevented from receiving such salary or other compensation by reason of the fact that he is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 6.01. CONTRACTS. The board of directors may authorize any officer or agent to enter into any contract or to execute and deliver any
instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances. Any agreement, deed,
mortgage, lease or other document executed by one or more of the directors or by an authorized person shall be valid and binding upon the board of
directors and upon the Corporation when authorized or ratified by action of the board of directors.
Section 6.02. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or agent of the Corporation in such manner as shall from time to time be
determined by the board of directors.
Section 6.03. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the board of directors may designate.
ARTICLE VII
STOCK
Section 7.01. CERTIFICATES. If the board of directors authorizes the issuance of certificates, each certificate shall be signed by the chief
executive officer, the president, the chief operating officer or a vice president and countersigned by the secretary or an assistant secretary or the treasurer
or an assistant treasurer and may be sealed with the seal, if any, of the Corporation. The signatures may be either manual or facsimile. Certificates shall
be consecutively numbered; and if the Corporation shall, from time to time, issue several classes of stock, each class may have its own number series. A
certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. Each certificate representing shares
which are preferred or limited as to their dividends which are restricted as to their transferability or voting powers, or as to their allocable portion of the
assets upon liquidation or which are redeemable at the option of the Corporation, shall have a statement of such restriction, limitation, preference or
redemption provision, or a summary thereof, plainly stated on the certificate. If the Corporation has authority to issue stock of more than one class, the
certificate shall contain on the face or back a full statement or summary of the designations and any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of each class of stock and,
if the Corporation is authorized to issue any preferred or special class in series, the differences in the relative rights and preferences between the shares
of each series to the extent they have been set and the authority of the board of directors to set the relative rights and preferences of subsequent series. In
lieu of such statement or
11
summary, the certificate may state that the Corporation will furnish a full statement of such information to any stockholder upon request and without
charge. If any class of stock is restricted by the Corporation as to transferability, the certificate shall contain a full statement of the restriction or state
that the Corporation will furnish information about the restrictions to the stockholder on request and without charge. Notwithstanding anything herein to
the contrary, nothing in this Article VII shall not be interpreted to limit the authority of the board of directors to issue some or all of the shares of any or
all of its classes or series without certificates.
Section 7.02. TRANSFERS; REGISTERED STOCKHOLDERS. Transfers of shares of any class of stock will be subject in all respects to the
charter and all of the terms and conditions contained therein. The Corporation shall be entitled to treat the holder of record of any share of stock as the
holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or on the part of any
other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland.
Section 7.03. LOST, STOLEN, OR DESTROYED CERTIFICATES. The Corporation shall issue a new certificate in place of any certificate for
shares previously issued if the registered owner of the certificate satisfies the following requirements:
(a) Claim. The registered owner makes proof in affidavit form that a previously issued certificate for shares has been lost, destroyed, or
stolen;
(b) Timely Request. The registered owner requests the issuance of a new certificate before the Corporation has notice that the certificate
has been acquired by a purchaser for value in good faith and without notice of an adverse claim;
(c) Bond. The registered owner gives a bond in such form, and with such surety or sureties, with fixed or open penalty, as the board of
directors may direct, in its discretion, to indemnify the Corporation (and its transfer agent and registrar, if any) against any claim that may be made on
account of the alleged loss, destruction, or theft of the certificate; and
(d) Other Requirements. The registered owner satisfies any other reasonable requirements imposed by the board of directors.
When a certificate has been lost, destroyed or stolen and the stockholder of record fails to notify the Corporation within a reasonable time after
he has notice of it, if the Corporation registers a transfer of the shares represented by the certificate before receiving such notification, the stockholder of
record is precluded from making any claim against the Corporation for the transfer or for a new certificate.
Section 7.04. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The board of directors may (i) set, in advance, a record
date for the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or determining stockholders entitled to
receive payment of any dividend or the allotment of any other rights, or in order to make a determination of stockholders for any other proper purpose,
(such record date, in any case, may not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days before the
date on which the meeting or particular action requiring such determination of stockholders of record is to be held or taken); or (ii) in lieu of fixing a
record date, direct that the stock transfer books be closed for a period not greater than 20 days. In the case of a meeting of the stockholders, the record
date or the date set for the closing of the stock transfer books shall be at least ten days before the date of such meeting.
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If no record date is fixed and stock transfer books are not closed for the determination of stockholders, (i) the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall be the later of (a) the close of business on the day on which the notice of
meeting is mailed or (b) the 30th day before the meeting; and (ii) the record date for the determination of stockholders entitled to receive payment of a
dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the board of directors declaring the
dividend or allotment of rights is adopted, provided that the payment or allotment may not be made more than 60 days after the date on which such
resolution is adopted.
When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, except when (i) the determination has been made through the closing of the transfer books and the
stated period of closing has expired or (ii) the meeting is adjourned to a date more than 120 days after the record date fixed for the original meeting, in
either of which case a new record date shall be determined as set forth herein.
Section 7.05. STOCK LEDGER. The Corporation shall maintain at one or more of its principal offices or at the office of its counsel,
accountants, or transfer agent, an original or duplicate share ledger containing the name and address of each stockholder and the number of shares of
each class held by such stockholder.
Section 7.06. FRACTIONAL STOCK; ISSUANCE OF UNITS. The board of directors may issue fractional stock or provide for the issuance of
scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the charter or these bylaws, the board
of directors may issue units consisting of different securities of the Corporation. Any security issued in a unit shall have the same characteristics as any
identical securities issued by the Corporation, except that the board of directors may provide that for a specified period securities of the Corporation
issued in such unit may be transferred on the books of the Corporation only in such unit.
The board of directors shall have the power, from time to time, to fix the fiscal year of the Corporation by a duly adopted resolution.
ARTICLE VIII
ACCOUNTING YEAR
ARTICLE IX
DISTRIBUTIONS
Section 9.01. AUTHORIZATION. Dividends and other distributions upon the stock of the Corporation may be authorized by the board of
directors, subject to the provisions of law and the charter. Dividends and other distributions may be paid in cash, property or stock of the Corporation,
subject to the provisions of law and the charter.
Section 9.02. CONTINGENCIES. Before payment of any dividends or other distributions, there may be set aside out of any assets of the
Corporation available for dividends or other distributions such sum or sums as the board of directors may from time to time, in its absolute discretion,
think proper as a reserve fund for contingencies, for equalizing any property of the Corporation or for such other purpose as the board of directors shall
determine to be in the best interest of the Corporation, and the board of directors may modify or abolish any such reserve.
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Subject to the provisions of the charter, the board of directors may from time to time adopt, amend, revise or terminate any policy or policies
with respect to investments by the Corporation as it shall deem appropriate in its sole discretion.
ARTICLE X
INVESTMENT POLICY
ARTICLE XI
SEAL
Section 11.01. SEAL. The board of directors may authorize the adoption of a seal by the Corporation. The seal shall contain the name of the
Corporation and the year of its incorporation and the words “Incorporated Maryland.” The board of directors may authorize one or more duplicate seals
and provide for the custody thereof.
Section 11.02. AFFIXING SEAL. Whenever the Corporation is permitted or required to affix its seal to a document, it shall be sufficient to meet
the requirements of any law, rule or regulation relating to a seal to place “[SEAL]” adjacent to the signature of the person authorized to execute the
document on behalf of the Corporation.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter or these bylaws or pursuant to applicable law, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by
statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for
the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
Unless provided otherwise herein, these bylaws may be amended or repealed and new bylaws may be adopted solely by the board of directors.
No bylaw adopted, amended or repealed by the stockholders shall be readopted, amended or repealed by the board of directors.
ARTICLE XIII
AMENDMENT OF BYLAWS
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Section 4: EX-4.1 (STATEMENT REGARDING TRANSFER OF SHARES)
STATEMENT REGARDING RESTRICTIONS ON
TRANSFERABILITY OF SHARES OF COMMON STOCK
(To Appear On Stock Certificate Or To Be Sent
To Stockholders Issued Shares Without Certificates)
Exhibit 4.1
The shares represented by this certificate are subject to restrictions on Beneficial Ownership, Constructive Ownership and Transfer for the purpose of the Corporation's maintenance of
its status as a Real Estate Investment Trust under the Internal Revenue Code of 1986, as amended (the “Code”). Subject to certain further restrictions and except as expressly provided
in the Corporation's charter: (a) no Person may Beneficially Own or Constructively Own shares of the Corporation's Common Stock in excess of 9.8% (in value or number of shares)
of the outstanding shares of Common Stock of the Corporation unless such Person is an Excepted Holder (in which case the Excepted Holder Limit for such Excepted Holder shall be
applicable); (b) no Person may Beneficially Own or Constructively Own shares of Capital Stock of the Corporation in excess of 9.8% of the value of the total outstanding shares of
Capital Stock of the Corporation, unless such Person is an Excepted Holder (in which case the Excepted Holder Limit for such Excepted Holder shall be applicable); (c) no Person
may Beneficially Own or Constructively Own Capital Stock that would result in the Corporation being “closely held” under Section 856(h) of the Code or otherwise cause the
Corporation to fail to qualify as a REIT; and (d) other than as provided in the Corporation's charter, no Person may Transfer shares of Capital Stock if such Transfer would result in
the Capital Stock of the Corporation being owned by fewer than 100 Persons. Any Person who Beneficially Owns or Constructively Owns or attempts to Beneficially Own or
Constructively Own shares of Capital Stock which causes or will cause a Person to Beneficially Own or Constructively Own shares of Capital Stock in excess or in violation of the
above limitations must immediately notify the Corporation. If any of the restrictions on Transfer or ownership are violated, the shares of Capital Stock represented hereby will be
automatically transferred to a Trustee of a Trust for the benefit of one or more Charitable Beneficiaries. In addition, upon the occurrence of certain events, attempted Transfers in
violation of the restrictions described above may be void ab initio.
All capitalized terms in this legend have the meanings defined in the charter of the Corporation, as the same may be amended from time to time, a copy of which, including the
restrictions on Transfer and ownership, will be furnished to each holder of Capital Stock of the Corporation on request and without charge.
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Section 5: EX-4.2 (THIRD AMENDED AND RESTATED DRP)
THIRD AMENDED AND RESTATED
DISTRIBUTION REINVESTMENT PLAN
EXHIBIT 4.2
Columbia Property Trust, Inc., a Maryland corporation (the “Company”), has adopted a Distribution Reinvestment Plan (the “DRP”), the terms and
conditions of which are set forth below. Capitalized terms shall have the same meaning as set forth in the Company's charter unless otherwise defined herein.
1. Number of Shares Issuable. The number of shares of Common Stock authorized for issuance under the DRP is 185,000,000.
2. Participants. “Participants” are holders of the Company's shares of Common Stock who elect to participate in the DRP.
3. Distribution Reinvestment. The Company will apply that portion (as designated by a Participant) of the distributions (“Distributions”) declared and paid in
respect of a Participant's shares of Common Stock to the purchase of additional shares of Common Stock for such Participant. The Company will pay no selling
commissions or the dealer manager fee in connection with the purchase of additional shares of Common Stock hereunder.
4. Procedures for Participation. Qualifying stockholders may elect to become a Participant by completing and executing an enrollment form or any other
Company-approved authorization form as may be available from the Company. To increase their participation, Participants must complete a new enrollment form.
Participation in the DRP will begin with the next Distribution payable after receipt of a Participant's enrollment or authorization. Shares will be purchased under the
DRP on the date that the Company makes a Distribution.
5. Purchase of Shares. Participants will acquire Common Stock at a price equal to 95.5% of the estimated value per share of the Company's Common Stock.
Participants in the DRP may also purchase fractional shares so that 100% of the Distributions will be used to acquire shares. However, a Participant will not be able to
acquire shares under the DRP to the extent such purchase would cause it to exceed the Ownership Limit (unless exempted by the Company's board of directors).
6. Taxation of Distributions. The reinvestment of Distributions in the DRP does not relieve Participants of any taxes that may be payable as a result of those
Distributions and their reinvestment pursuant to the terms of this DRP.
7. Share Certificates. The shares issuable under the DRP shall be uncertificated until the board of directors determines otherwise.
8. Voting of DRP Shares. In connection with any matter requiring the vote of the Company's stockholders, each Participant will be entitled to vote all of the
shares, including fractional shares, acquired by the Participant through the DRP.
9. Reports. Within five business days after the end of each quarter, the Company shall provide each Participant a confirmation of any quarterly purchases
under the distribution reinvestment plan, which confirmation shall disclose each distribution reinvested for the Participant's account during the quarter; the date of the
reinvestment; the number and price of the shares purchased by the Participant; and the total number of shares in the Participant's account.
10. Termination by Participant. A Participant may terminate participation in the DRP at any time by delivering to the Company a written notice. To be
effective for any Distribution, such notice must be received by the Company at least 10 business days prior to the last day of the fiscal period to which the
Distribution relates. Any
transfer of shares by a Participant will terminate participation in the DRP with respect to the transferred shares. Upon termination of DRP participation, Distributions
will be distributed to the stockholder in cash.
11. Amendment or Termination of DRP by the Company. The board of directors of the Company 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) shall only take effect
upon 10 days' written notice to the Participants.
12. Liability of the Company. The Company shall not be liable for any act done in good faith, or for any good faith omission to act.
13. Governing Law. This DRP shall be governed by the laws of the State of Maryland.
14. Effective Date. The DRP became effective on November 26, 2003. This third amended and restated DRP is effective as of February 28, 2013.
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Section 6: EX-10.9 (RENEWAL ADVISORY AGREEMENT)
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.
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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.
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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.
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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
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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).
6
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
7
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.
8
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;
9
(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)
(r)
(s)
provide the Company with all necessary cash management services;
deliver to or maintain on behalf of the Company copies of all appraisals obtained in connection with the investments in Properties;
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
10
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
11
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.
12
(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;
13
(iv)
(v)
(vi)
(vii)
(viii)
interest and other costs for borrowed money, including discounts, points and other similar fees;
taxes and assessments on income or Property and taxes as an expense of doing business;
costs associated with insurance required in connection with the business of the Company or by the Board;
all expenses in connection with payments to the Board and meetings of the Board;
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
14
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,
15
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.
(a)
Representations and Warranties.
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.
16
(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)
Agreement.
The Advisor will maintain the resources necessary to ensure the proper performance of the services to be provided under this
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
17
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)
Agreement; and
all unpaid reimbursements of expenses and all earned but unpaid fees payable to the Advisor prior to termination of this
(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)
(iv)
deliver to the Board all assets, including Properties, and documents of the Company then in the custody of the Advisor; and
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
18
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:
To the Board and to the Company:
To the Advisor:
Wells Real Estate Investment Trust II, Inc.
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
Wells Real Estate Advisory Services II, LLC
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
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.
19
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.]
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IN WITNESS WHEREOF, the parties hereto have executed this Renewal Advisory Agreement as of the 28th day of December, 2012.
WELLS REAL ESTATE INVESTMENT TRUST II, INC.
By:
Name:
Title:
/s/ George W. Sands
George W. Sands
Authorized Signatory
WELLS REAL ESTATE ADVISORY SERVICES II, LLC
By:
WELLS REAL ESTATE FUNDS, INC., its sole member
By:
Name:
Title:
/s/ Robert M. McCullough
Robert M. McCullough
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:
Title:
/s/ Robert M. McCullough
Robert M. McCullough
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
(Back To Top)
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Section 7: EX-10.10 (RENEWAL INVESTOR SERVICES AGREEMENT)
Exhibit 10.10
RENEWAL INVESTOR SERVICES AGREEMENT
THIS INVESTOR SERVICES 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 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 Board of Directors of the Company all as provided herein;
WHEREAS, Wells REF 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 Wells REF are currently parties to an investor services agreement that became effective on July 1, 2012, covering
the period from July 1, 2012 through December 31, 2012 (the “Initial Investor Services Agreement”);
WHEREAS, the Company and Wells REF now desire to enter this new investor services agreement between the Company and Wells REF to be
effective upon the expiration of the Initial Investor Services Agreement, with this new investor services agreement covering the period from January 1,
2013 through December 31, 2013 (the “Renewal Investor Services 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.
1
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.
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.
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.
Conflicts Committee. A committee of the Board of Directors of the Company comprised entirely of Independent Directors.
Director. A member of the Board of Directors of the Company.
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.
Independent Director. “Independent Director” shall have the meaning set forth in the Articles of Incorporation.
Initial Investor Services Agreement. The agreement between Wells REF and the Company effective as of July 1, 2012 for the period from July 1,
2012 through December 31, 2012 pursuant to which Wells REF performs stockholder services and communications.
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.
Renewal Advisory Agreement. The agreement between the Advisor and the Company effective as of January 1, 2013 for the period from January
1, 2013 through December 31, 2013.
Shares. The Company's shares of common stock, par value $0.01 per share.
Transition Services Agreement. The transition services agreement between Wells REF and the Company dated as of June 28, 2012 and effective
as of July 1, 2012, and any successor agreement.
2
Wells REF. Wells Real Estate Funds, Inc., a Georgia corporation.
conditions set forth in this Agreement, and Wells REF hereby accepts such appointment.
Appointment. The Company hereby appoints Wells REF to provide stockholder services and communications on the terms and
which include, but are not limited to, the following activities:
Duties and Authority of Wells REF. Wells REF undertakes to provide the Company's stockholder services and communications,
2.
3.
(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)
financial advisors;
the logistics and production of written materials for all other communications deemed necessary, but not required, to stockholders and
(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)
reporting;
(f)
(g)
(h)
facilitation of all annual tax reporting requirements to stockholders, including responding to client service calls relating to tax
all necessary compliance and risk management functions relating to the above activities;
all necessary information technology support and services as related to the above activities; and
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 and to the continuing and
exclusive authority of the Board over the management of the Company and the Partnership, 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
3
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 Board 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 Board and by counsel, auditors and authorized agents of the Company, at any time or from time to time during normal business hours.
Wells REF shall at all reasonable times have access to the books and records of the Company.
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 Board, in which case
Wells REF shall notify promptly the Board 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 Board. In such event Wells REF shall have no liability for acting in accordance with the
specific instructions of the Board so given. Notwithstanding the foregoing, Wells REF, its directors, officers, employees and stockholders, and
stockholders, directors and officers of Wells REF's Affiliates shall not be liable to the Company or its stockholders for any act or omission by Wells
REF, its directors, officers or employees, or stockholders, directors or officers of Wells REF's Affiliates except as provided in Paragraphs 14 and 15 of
this Agreement.
7.
Expenses.
(a)
Reimbursable Expenses. The Company shall pay directly or reimburse Wells REF for all of the expenses paid or incurred by Wells
REF (to the extent not reimbursable by another party) in connection with the services it provides to the Company pursuant to this Agreement, including,
but not limited to:
(i)
(ii)
the actual cost of goods and services used by the Company and obtained from entities not affiliated with Wells REF;
all expenses in connection with meetings of stockholders;
(iii)
the stockholders;
expenses in connection with payments of Distributions in cash or otherwise made or caused to be made by the Company to
(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; and
(v)
administrative service expenses, including all costs and expenses incurred by Wells REF in fulfilling its duties hereunder, such
as reasonable wages and salaries (but excluding bonuses) and other employee-related expenses of all employees of Wells REF or its Affiliates to
the extent engaged in the provision of services under this Agreement, 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.
4
(b)
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 3, such services shall be separately compensated at such rates and in such amounts as are mutually agreed by Wells
REF 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. In addition, these other services shall not be subject to the limit on reimbursements under Paragraph 7(c) below.
(c)
Timing of and Limitation on Reimbursements.
(i)
Expenses incurred by Wells REF on behalf of the Company and payable pursuant to this Paragraph 7 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.
(ii)
Notwithstanding the foregoing, the Company shall have no obligation to reimburse Wells REF any expenses contemplated
under Paragraph 7(a) above to the extent such reimbursement would cause the limits imposed by Paragraphs 9(c)(ii) and 9(c)(iii) of the Renewal
Advisory Agreement to be exceeded.
8.
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 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 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.
9.
(a)
Representations and Warranties.
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
5
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 Conflicts Committee.
10.
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 upon mutual consent of the parties. The
Company, acting through the Board, will evaluate the performance of Wells REF 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).
11.
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 Wells REF, as the case may be). The provisions of Paragraphs
1, 5, 6, and 13 through 24 shall survive the termination of this Agreement.
12.
Assignment to an Affiliate. This Agreement may be assigned by Wells REF to an Affiliate with the approval of a majority of the
Conflicts Committee. Notwithstanding the foregoing, an assignment to Wells Capital, Inc. will not require Conflicts Committee approval. Wells REF
may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board. This
6
Agreement shall not be assigned by the Company without the prior written 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.
13.
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
payable to Wells REF prior to termination of this Agreement
(b)
Wells REF shall promptly upon termination:
(i)
(ii)
deliver to the Company the book and records of the Company; and
cooperate with the Company to provide an orderly transition of services provided pursuant to this Agreement.
14.
Indemnification by the Company. The Company shall indemnify and hold harmless Wells REF 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 15 for any activity which Wells REF shall be required to indemnify or hold harmless the Company pursuant to Paragraph 15.
15.
Indemnification by Wells REF. Wells REF 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 Wells REF's bad faith, fraud, willful misfeasance, misconduct, or reckless
disregard of its duties.
16.
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:
To the Board and to the Company:
To Wells REF:
Wells Real Estate Investment Trust II, Inc.
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
Wells Real Estate Funds, Inc.
6200 The Corners Parkway, Suite 250
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 16.
17.
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.
18.
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.
19.
Construction. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of
Georgia.
20.
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.
21.
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.
22.
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.
23.
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.
24.
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.]
8
IN WITNESS WHEREOF, the parties hereto have executed this Renewal Investor Services Agreement on December 28th, 2012, but effective as
of January 1, 2013.
WELLS REAL ESTATE INVESTMENT TRUST II, INC.
By:
Name:
Title:
/s/ George W. Sands
George W. Sands
Authorized Signatory
WELLS REAL ESTATE FUNDS, INC.
By:
Name:
Title:
/s/ Robert M. McCullough
Robert M. McCullough
Vice President
Renewal Investor Services Agreement Signature Page
(Back To Top)
Section 8: EX-10.11 (AMENDMENT TO TRANSITION SERVICES AGREEMENT)
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.
contrary:
Disposition Fees. Notwithstanding any provisions of the Initial Term Advisory Agreement or Renewal Advisory Agreement to the
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
2
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,
3
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.
4
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
5
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
6
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
7
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:
8
(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)
(iii)
an agreement concerning a partnership, limited liability company or joint venture;
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;
by WRES on a full-time, part-time, consulting, or other basis or providing severance benefits;
(vi)
an agreement (including a binding offer letter or similar agreement) for the employment of any individual employed
(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;
WRES;
(viii)
an agreement under which the consequences of a default or termination could have a Material Adverse Effect on
(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
9
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
10
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.
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).
(3)
(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
11
(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.
12
B.
C.
Survival of Obligations. The obligations of the parties pursuant to this Amendment shall survive the expiration of the TSA.
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.]
13
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.
2
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.
3
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.
4
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
5
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).
6
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
7
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.
8
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;
9
(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)
(r)
(s)
provide the Company with all necessary cash management services;
deliver to or maintain on behalf of the Company copies of all appraisals obtained in connection with the investments in Properties;
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
10
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
11
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.
12
(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;
13
(iv)
(v)
(vi)
(vii)
(viii)
interest and other costs for borrowed money, including discounts, points and other similar fees;
taxes and assessments on income or Property and taxes as an expense of doing business;
costs associated with insurance required in connection with the business of the Company or by the Board;
all expenses in connection with payments to the Board and meetings of the Board;
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
14
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,
15
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.
(a)
Representations and Warranties.
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.
16
(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)
Agreement.
The Advisor will maintain the resources necessary to ensure the proper performance of the services to be provided under this
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
17
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)
Agreement; and
all unpaid reimbursements of expenses and all earned but unpaid fees payable to the Advisor prior to termination of this
(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)
(iv)
deliver to the Board all assets, including Properties, and documents of the Company then in the custody of the Advisor; and
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
18
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:
To the Board and to the Company:
To the Advisor:
Wells Real Estate Investment Trust II, Inc.
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
Wells Real Estate Advisory Services II, LLC
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
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.
Georgia.
Construction. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of
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.
19
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.]
20
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
By: WELLS REAL ESTATE FUNDS, INC., its sole member
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
21
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
22
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.
indicated:
Definitions. As used in this Consulting Services Agreement (the “Agreement”), the following terms have the definitions hereinafter
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.
2
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.
3
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.
4
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.
5
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)
(c)
consulting with respect to various administrative functions of the Company;
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)
(e)
(f)
consulting with respect to financings, leases and other contracts;
providing reports concerning the value of investments or contemplated investments of the Company in Properties;
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.
6
(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.
(a)
Occupancy.
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.
(a)
Representations and Warranties.
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
7
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.
8
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:
To the Board and to the Company:
To Wells REF:
Wells Real Estate Investment Trust II, Inc.
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
Wells Real Estate Funds
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
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
9
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.]
10
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
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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.
Section 2.1-Transfer of Assets
ARTICLE II-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.
The Parties agree as follows with respect to the period following the date hereof:
Section 3.1-General
ARTICLE III-COVENANTS
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.
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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.
Section 5.1-Press Releases and Public Announcements
ARTICLE V-MISCELLANEOUS
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
3
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:
If to Wells REF or Wells Management:
Copy to:
Wells Real Estate Funds, Inc.
Alston & Bird LLP
6200 The Corners Parkway
Norcross, Georgia 30039
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: Robert M. McCullough
Attention: Mark C. Kanaly
If to WRES:
Copy to:
c/o Wells Real Estate Funds, Inc.
DLA Piper LLP (US)
6200 The Corners Parkway
4141 Parklake Avenue Suite 300
Norcross, Georgia 30039
Raleigh, NC 27612-2350
Attention: Nelson Mills
Attention: Robert Bergdolt
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
4
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]
5
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:
6
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.
2.
Recitals. The foregoing recitals are made a part of this Agreement.
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]
2
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:
3
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
1
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;
2
(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)
financial advisors;
the logistics and production of written materials for all other communications deemed necessary, but not required, to stockholders and
(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)
reporting;
(f)
(g)
(h)
facilitation of all annual tax reporting requirements to stockholders, including responding to client service calls relating to tax
all necessary compliance and risk management functions relating to the above activities;
all necessary information technology support and services as related to the above activities; and
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
3
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.
(a)
Expenses.
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)
(ii)
(iii)
the actual cost of goods and services used by the Company and obtained from entities not affiliated with Wells REF;
all expenses in connection with meetings of stockholders;
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
4
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.
(a)
Representations and Warranties.
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.
5
(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)
(ii)
deliver to the Company the book and records of the Company; and
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
6
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:
To the Company:
To Wells REF:
Wells Real Estate Investment Trust II, Inc.
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
Wells Real Estate Funds, Inc.
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
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.
Georgia.
Construction. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of
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.
7
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.]
8
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:
9
Task Description
Inbound Investor Escalated Calls - REIT
Inbound Rep Escalated Calls - REIT
DST Vision - Support and approvals
DST FANMail - Support and approvals
NIGO Resolution - REIT
Written Inquiry Processing
Employee Training & Development and
Corporate/Department Vision
DST Call Center Training
Exhibit A
Transfer Agent Support Services
Summary
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.
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.
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.
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.
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.
Draft, review and approve interest adjustment requests that come in related to share impacting transactions.
Review and respond to the daily volume of inbound email inquiries from Investors, Reps and Third Party Financial
Institutions.
Coordinate resolution on Not in Good Order items related to Financial transactions through outbound contacts to
Investors, Reps and Third Party Financial Institutions.
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.
Coordinate ongoing training for the Wells Client Services team on industry initiatives as well as product
announcements.
Coordinate ongoing training for the DST Client Services team on industry initiatives as well as product
announcements.
Coordinate educating the Sales team on Operational initiatives that will impact current and new investors as well as
their Reps and BD's.
Escalated Service / Historical Research Issues - Call
Center
Quality Review / Reporting and Delivering Feedback Review and provide feedback on a handful of recorded calls from the DST Call Center team on a bi-weekly basis.
Interest Adjustments
Client Services E-mail Inbox
Sales Support - Operational Communications and
Initiatives
Broker Dealer Back Office Relationship Management Maintain and grow existing and new relationships with Key Broker Dealer contacts to facilitate existing business and
Custodian Back Office Relationship Management
Issuer Communications
Forms and Applications - Updates, Annual Review
and Record Keeping
Forms and Applications - Updating Third Party
Vendors
Statements - Inserts and Marketing Information
WellsAccess - Look and Feel, Content - Updates
help resolve day to day issues that come up. Relationships become critical when major product events occur that
impact the Rep and BD community.
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.
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
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.
Ensure the most current product forms are provided and available on LaserApps, Quikforms, WellsAccess and DST
Vision
Responsible for Business review on all statement inserts. In some cases, also responsible for Compliance sign-off.
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.
10
Proxy - Vendor Relationship Management
Proxy - Communication Coordination and Review
Proxy - Call Center Scripting and Training
Proxy - Record Keeping
Proxy - Call Center Support
NIGO Letters - Look and Feel, Content - Updates
DST FANWeb - Look and Feel - Updates
Mail Room / Scanning
Monitoring and Enforcing Work Queue and SLAs
Monthly Written Inquiry Reporting
Fund / Product Board Reporting - CS Information
Tax Basis Requests - Current
Misc - Projects
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
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
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
Keeping historical records of the Annual and Special Proxy mailing lists, various communications and voting files
Wells Client Services team has helped solicit votes from the largest stockholders in various proxies to help achieve
the required number of votes
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.
Responsible for confirming the content, disclosures and messaging is current and as accurate as possible
Responsible for opening, sorting and directing any Investor Account related mail is forwarded to the appropriate
Transfer Agent for processing.
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
Provide monthly reports to Wells Compliance to document that Written Inquiry responses are being turned around
within the SEC guidelines
Compile and validate data to put together performance indicators that are presented to the Board on a quarterly basis
Work with Wells IT to develop account level reports that provide the historical information an Investor would need to
calculate their tax basis.
Hours allocated for one-off projects and tasks that always come up through out the year
11
Investor Communication Services
Task Description
Custodian Distribution File Support - REITs
Custodian Position File Support - REITs
Issuer Communications Mailing List Validations
Proxy Support
CDLY - Look and Feel - Updates
Checks - Look and Feel - Updates
Tax Reporting - Look and Feel - Updates
Monitoring and Enforcing Work Queue and SLAs
Quarterly Distribution - REITs - Oversight - Includes
Ownership of the Statement
Redemptions - Daily Oversight
Rep Maintenance - Daily Oversight
Escalated Issue Resolution
National Change of Address (NCOA)
Requests for Information
SEC / FINRA Audit Support
Summary
Using relationships at various custodian partners, create and maintain quarterly distribution files used to post
dividends to investor accounts.
Using relationships at various custodian partners, create and maintain monthly position files used to post
account balances to investor accounts.
Support the investor communication process by providing mailing list validation and approvals ensuring that
accurate data is provided to the mail vendors
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
Ensure daily confirmation statements (for ongoing account maintenance and re-registrations) contain current
and accurate Fund information.
Ensure dividend and redemption checks contain current and accurate Fund information
Ensure year end tax forms contain current and accurate Fund information
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.
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.
Review pending redemptions entered by DST to ensure accuracy, research and resolve any errors
Research and resolve issues related to FA relationships to investor accounts
Assist DST operations, Wells call center and DST call center in researching and resolving various service
related issues for investor accounts
Oversee the quarterly NCOA process, provide certification to Wells compliance
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.
Provide ad-hoc reports to satisfy regulatory requests for specific investor information. These requests come
both directly to Wells and through our broker dealers.
Redemption Summary Reporting - Accounting / Boards / Doug Including but not limited to - redemption accrual, redemptions by month and category, life to date
Internal and Independent Audit Support
Daily Fund Balancing and Reconciliation
redemptions by type
Produce documents used by internal audit to validate proper controls are in place. Example - quarterly
distribution packets provided to internal audit
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
12
Redemptions - Monthly Balancing and Funding
DST Invoicing
SCICOM Invoicing
Year End DST Tax Support
Convert to Universal Dealer / SalesConnect
Misc - Projects
Review pending redemptions entered by DST to ensure accuracy, research and resolve any errors, coordinate
monthly balancing and funding with DST and the Fund
Oversee vendor invoices, allocate expenses and provide to Fund, produce estimated budgets and projections
Oversee vendor invoices, allocate expenses and provide to Fund, produce estimated budgets and projections,
postage request and funding
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
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.
Hours allocated for one-off projects and tasks that always come up through out the year
13
Transfer Agent Support Services and Investor Communication Services
Task Description
Subpoena responses
Tax Basis Requests - Future
Convert State Street IRAs to First Trust
Convert statement vendor from SCICOM to DSTO
Pre-listing activities for REIT II
Transition workload from exiting staff
Implementation of A.I. Industry Initiatives
Summary
Determine requirements, gather documents and prepare responses
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
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
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.
The anticipated scope of a listing project will require over 1,000 hours from OPS / CS
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.
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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14
Section 9: EX-10.12 (AMENDMENT TO PROPERTY MANAGEMENT AGREEMENT)
Exhibit 10.12
Amendment to Master Property Management, Leasing and
Construction Management Agreement
This Amendment to the Master Property Management, Leasing and Construction Management Agreement (the “Amendment”), dated as of
December 28, 2012, is between Wells Real Estate Investment Trust II, Inc., a Maryland corporation (“Wells REIT II”), Wells Operating Partnership II,
L.P., a Delaware limited partnership (“Wells OP II”), and Wells Management Company, Inc., a Georgia corporation (“Manager”).
WHEREAS, Wells REIT II, Wells OP II and Wells Management are parties to that certain Master Property Management, Leasing and
Construction Management Agreement effective as of July 1, 2012 (the “Property Management Agreement”);
WHEREAS, Wells REIT II, Wells Real Estate Funds, Inc. (“Wells REF”), Advisor (as defined in the Property Management Agreement) and
Manager have entered into that certain Transition Services Agreement, effective July 1, 2012, as amended by the Amendment to Transition Services
Agreement dated as of December 28, 2012 (as amended, the “TSA”);
WHEREAS, in connection with and as consideration for Wells REIT II entering into the Amendment to Transition Services Agreement, Wells
REF has agreed to cause Manager to enter into this Amendment amending the Property Management Agreement.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Property Management Agreement.
2. Section 6.1 of the Property Management Agreement is hereby amended to add a new Section 6.1.D as follows:
“Immediately upon the WRES Option Closing (as defined in the Transition Services Agreement by and among Wells Real Estate Funds, Inc.,
Wells Real Estate Advisory Services II, LLC and Wells REIT II effective July 1, 2012 as amended by the Amendment to Transition Services
Agreement between such parties, Manager and Wells Real Estate Services, LLC dated December 28, 2012).”
3. Except as otherwise specifically set forth herein, the terms of the Property Management Agreement shall remain in full force and effect.
4. This Amendment shall be governed by and construed and enforced in accordance with the laws of the State of Georgia, without regard to the
conflict of law principles thereof.
5. 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.
[Signature Page Follows.]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Master Property Management, Leasing and Construction
Management Agreement as of the 28th day of December, 2012.
WELLS REAL ESTATE INVESTMENT TRUST II, INC.
By: /s/ E. Nelson Mills
Name: E. Nelson Mills
Title: President
WELLS OPERATING PARTNERSHIP II, L.P.
By: /s/ Randy Fretz
Name: Randy Fretz
Title: Vice President
WELLS MANAGEMENT COMPANY, INC.
By: /s/ Douglas P. Williams
Name: Douglas P. Williams
Title: Vice President
Amendment to Master Property Management, Leasing and Construction Management Agreement Signature Page
(Back To Top)
Section 10: EX-21.1 (SUBSIDIARIES OF COLUMBIA PROPERTY TRUST, INC.)
Subsidiaries of the Registrant
Exhibit 21.1
Wells Operating Partnership II, L.P. (“Wells OP II”)
Wells REIT II-80 M Street, LLC
Wells REIT II-100 East Pratt LLC
100 East Pratt Street Business Trust
Wells TRS II, LLC
Wells REIT II-2000 Park Lane Business Trust
Wells REIT II Texas, Inc
Wells REIT II-Park Lane Parcel 19 Business Trust
Wells REIT II-Cranberry Woods Development, Inc
Wells REIT II-1200 Morris Business Trust
Market Square East & West, LLC
Wells REIT II - Market Square East & West, LLC
Wells REIT II - KCP, LLC
Wells KCP TRS, LLC
Wells Energy TRS, LLC
Wells REIT II - Market Square Lender, LLC
Wells OP II LP, LLC
WRII-Property Management, LLC
Wells TRS II-Fitness, LLC
Wells TRS II-Hotel, LLC
Wells TRS II-Concierge, LLC
Indirect Subsidiaries of the Registrant
Wells REIT II - 544 Lakeview, LLC
Wells TRS II - 544 Lakeview, LLC
Key Center Lessee Limited Partnership
Direct Subsidiaries of Wells OP II
(each single member LLCs)
Wells REIT II-Republic Drive, LLC
Wells REIT II-9 Technology Drive, LLC
Wells REIT II-180 Park Avenue, LLC
Wells REIT II-One Glenlake, LLC
Wells REIT II-Opus/Finley Portfolio, LLC
Wells REIT II-Wildwood Properties, LLC
Wells REIT II-Emerald Point, LLC
Wells REIT II-Emerald Point, LP
Wells REIT II-Gaithersburg MD, LLC (formerly known as MR 270 NMD I, LLC)
Wells REIT II-Corridors III, LLC
Wells REIT II-Highland Landmark III, LLC
Wells REIT II-180 Park Avenue B105, LLC
Wells Governor's Pointe 4241 Irwin Simpson, LLC
Wells Governor's Pointe 8990 Duke, LLC
Wells REIT II-5995 Opus Parkway, LLC
Wells REIT II-215 Diehl Road, LLC
Wells REIT II-8909 Purdue Road, LLC
Wells REIT II-180 East 100 South, LLC
Wells Robbins Road, LLC
2420 Lakemont Avenue MM, LLC
Wells REIT II-University Circle, LP
Wells REIT II-University Circle, LLC
Wells REIT II-Key Center, LLC
Wells REIT II-MacArthur Ridge I, LLC
Wells REIT II-MacArthur Ridge I, LP
Wells REIT II-5 Houston Center, LP
Wells REIT II-Tampa Commons, LLC
Wells REIT II-LakePointe 3, LLC
Wells REIT II-LakePointe 5, LLC
Wells REIT II-Utah Parking, LLC
Wells REIT II-11950 Corporate Boulevard, LLC
Wells REIT II-263 Shuman Boulevard, LLC
Wells REIT II-80 Park Plaza, LLC
Wells REIT II-4300 Centreway Place, LP
Wells REIT II-4300 Centreway Place, LLC
Wells REIT II-Edgewater Corporate Center One, LLC
Wells REIT II-International Financial Tower, LLC
Wells REIT II-SanTan Corporate Center I, LLC
Wells REIT II-SanTan Corporate Center II, LLC
Wells REIT II-Sterling Commerce, LP
Wells REIT II-Sterling Commerce, LLC
Wells REIT II-One Century Place, LLC
Wells REIT II-Eagle Rock Executive Office Center IV, LLC
Wells REIT II-Pasadena Corporate Park, LP
Wells REIT II-Pasadena Corporate Park, LLC
Wells REIT II-7031 Columbia Gateway Drive, LLC
Wells REIT II-222 East 41st Street, LLC
Wells REIT II-Bannockburn Lakes III, LLC
Wells REIT II-South Jamaica Street, LLC
Wells REIT II-15815 25th Avenue, LLC
Wells REIT II-16201 25th Avenue, LLC
Wells International Real Estate II (CY) Ltd
Wells REIT II-Parkside/Atlanta, LLC
Wells REIT II-1277 LPB Atlanta, LLC
Wells REIT II-Three Glenlake, LLC
Wells REIT II-1580 A&B West Nursery, LLC
Wells REIT II-1580 A&B West Nursery Land, LLC
Wells REIT II-13655 Riverport Drive, LLC
Wells REIT II-11200 W. Parkland, LLC
Wells REIT II-Lindbergh Center, LLC
Wells REIT II-147 South Street UT, LLC
Wells REIT II-Lakehurst Britton, LLC
Wells REIT II-550 King Street, LLC
Wells REIT II-Energy Center I, LLC
Wells REIT II-200 Orange Street, LLC
Wells REIT II-800 Brooksedge, LLC
Wells REIT II-333 Market Street, LLC
Wells REIT II/Lincoln-Highland Landmark III, LLC
Wells REIT II-Robbins Road, LLC
Nashoba View Ownership, LLC
2420 Lakemont Avenue, LLC
Key Center Properties, LLC
Landlink Ltd.
Eastvale Finance Limited
I-10 EC Corridor Limited Partnership
Wells REIT II - Energy Center I GP, LLC
Three Glenlake Building, LLC
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Section 11: EX-23.1 (CONSENT)
Indirect Subsidiaries of Wells OP II
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in this Post-Effective Amendment No. 7 to Form S-11 to Registration Statement No. 333-144414 on Form S-3 of our report dated
February 28, 2013, relating to the consolidated financial statements and consolidated financial statement schedule of Columbia Property Trust, Inc. (formerly Wells Real Estate
Investment Trust II, Inc.) appearing in the Annual Report on Form 10-K of Columbia Property Trust, Inc. for the year ended December 31, 2012, and to the reference to us under the
heading “Experts” in the Prospectus, which is part of such Registration Statement.
/S/ Deloitte & Touche LLP
Atlanta, Georgia
February 28, 2013
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Section 12: EX-23.2 (CONSENT)
CONSENT OF INDEPENDENT AUDITORS
Exhibit 23.2
We consent to the incorporation by reference in the Post Effective Amendment No. 7 to Form S-11 to Registration Statement No. 333-144414 on Form S-3 of our
report dated February 27, 2013, relating to the Wells Real Estate Advisory Services II, LLC and Wells Real Estate Services, LLC carve-out combined financial
statements as of and for the years ended December 31, 2012 and 2011, appearing in the Annual Report on Form 10-K of Columbia Property Trust, Inc. for the year
ended December 31, 2012.
/S/ Frazier & Deeter, LLC
February 27, 2013
Atlanta, Georgia
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Section 13: EX-31.1 (SECTION 302 PEO CERTIFICATION)
EXHIBIT 31.1
PRINCIPAL EXECUTIVE OFFICER
CERTIFICATION
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. 1350)
I, E. Nelson Mills, certify that:
1.
2.
3.
4.
I have reviewed this quarterly report on Form 10-K of Columbia Property Trust, Inc. for the quarter ended December 31, 2012;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
Dated:
February 28, 2013
By:
/s/ E. Nelson Mills
E. Nelson Mills
Principal Executive Officer
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Section 14: EX-31.2 (SECTION 302 PFO CERTIFICATION)
EXHIBIT 31.2
PRINCIPAL FINANCIAL OFFICER
CERTIFICATION
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. 1350)
I, Wendy W. Gill, certify that:
1.
2.
3.
I have reviewed this quarterly report on Form 10-Q of Columbia Property Trust, Inc. for the quarter ended December 31, 2012;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
Dated:
February 28, 2013
By:
/s/ Wendy W. Gill
Wendy W. Gill
Principal Financial Officer
(Back To Top)
Section 15: EX-32.1 (SECTION 906 PEO AND PFO CERTIFICATIONS)
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. 1350)
In connection with the Quarterly Report of Columbia Property Trust, Inc. (the “Registrant”) on Form 10-Q for the quarter ended December 31, 2012, as filed with the Securities and
Exchange Commission (the “Report”), the undersigned, E. Nelson Mills, Principal Executive Officer of the Registrant, and Wendy W. Gill, Principal Financial Officer of the
Registrant, hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) that, to the best of our knowledge and belief:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
/s/ E. NELSON MILLS
E. Nelson Mills
Principal Executive Officer
February 28, 2013
/s/ WENDY W. GILL
Wendy W. Gill
Principal Financial Officer
February 28, 2013
(Back To Top)
Section 16: EX-99.1 (SIXTH AMENDED AND RESTATED SRP)
SIXTH AMENDED AND RESTATED SHARE REDEMPTION PROGRAM
(effective as of February 28, 2013)
Exhibit 99.1
The board of directors (the “Board”) of Columbia Property Trust, Inc., a Maryland corporation (the “Company”), has adopted this Sixth
Amended and Restated Share Redemption Program (the “SRP”), the terms and conditions of which are set forth below. Capitalized terms shall have the
same meaning as set forth in the Company's charter unless otherwise defined herein.
1. Share Redemption. Subject to the terms and conditions of this SRP, including the limitations on redemptions set forth in paragraph 3 and the
procedures for redemption set forth in paragraph 4, the Company will redeem such number of shares of the Company's Common Stock (“Shares”) as
requested by a stockholder or the authorized representative of a stockholder.
2. Redemption Price. The price at which the Company will redeem a Share depends on whether the redemption is sought within two years of a
stockholder's death or Qualifying Disability (as defined in paragraph 6 below) or in connection with a stockholder's (or stockholder's spouse) qualifying
for federal assistance for confinement to a Long-Term Care Facility (as defined in paragraph 7 below) (collectively, a “Special Redemption”). The
redemption of a Share that is not a Special Redemption is referred to herein as an “Ordinary Redemption.”
a. The price that the Company will pay to redeem a Share pursuant to an Ordinary Redemption is $6.25.
b. The price that the Company will pay to redeem a Share pursuant to a Special Redemption is the most recent estimated per Share
value as determined based on an appraisal of the Company's assets and liabilities and as publicly disclosed by the Company.
The prices to be paid pursuant to this paragraph 2 shall be adjusted as appropriate for any stock dividends, combinations, splits and
recapitalizations and for aggregate distributions per Share of any net sale proceeds from the sale of one or more of the Company's assets, and for other
special distributions so designated by the Board. The Company will report the redemption price in its annual report and three quarterly reports publicly
filed with the Securities and Exchange Commission.
3. Limitations on Redemption. Notwithstanding anything contained in this SRP to the contrary, the Company's obligation to redeem Shares
pursuant to paragraph 1 hereof is limited as follows:
a. The Company will not redeem Shares from those who purchased their Shares from another stockholder if the date of such purchase is
after July 27, 2010. A “purchase” shall not include transfers by gift, transfers by inheritance, intrafamily transfers, transfers as a result of family
dissolutions, transfers to affiliates and transfers by operation of law. For the avoidance of doubt, once Shares are transferred for value by a stockholder,
if such transfer occurs after the date of the announcement referenced above, the transferee and all subsequent holders of the Shares are not eligible to
participate in this SRP.
b. Except as set forth in paragraph 5(a) below, the Company will not make an Ordinary Redemption of a Share until such Share has
been issued and outstanding for at least one year, provided that, if the Company is redeeming all of a stockholder's Shares, then the Company will
redeem
1
Shares purchased by such stockholder pursuant to the Company's distribution reinvestment plan even if such Shares have not been issued and
outstanding for at least one year.
c. The Company will not redeem Shares on any Redemption Date to the extent that such redemptions would cause the total number of
Shares redeemed (excluding those within two years of a stockholder's death) during the then-current calendar year to exceed 5% of the weighted-
average number of Shares outstanding in the prior calendar year. Redemption requests precluded by this limit will not be considered for the limit below.
d. The Company will not redeem Shares on any Redemption Date to the extent that such redemption would cause both (i) the aggregate
amount paid for all redemptions (including those within two years of a stockholder's death) during the then-current calendar year to exceed 100% of the
net proceeds from the Company's distribution reinvestment plan during such calendar year, and (ii) the total number of all Shares redeemed (including
those within two years of a stockholder's death) during the then-current calendar year to exceed 5% of the weighted-average number of Shares
outstanding in the prior calendar year.
4. Procedures for Redemption. The Company will redeem Shares on the last business day of each month (each such date, a “Redemption
Date”) and in all events on a date other than a distribution payment date. For a stockholder's Shares to be eligible for redemption on a given Redemption
Date, the Company must receive a written redemption request from the stockholder or from an authorized representative of the stockholder setting forth
the number of Shares requested to be redeemed at least five business days before the Redemption Date. If the Company cannot repurchase all Shares
presented for redemption in any month because of the limitations on redemption set forth in paragraphs 3(a) and (b), then the Company will honor
redemption requests on a pro rata basis, except that if a pro rata redemption would result in a stockholder owning less than $1,000, then the Company
would redeem all of such stockholder's Shares.
If the Company does not completely satisfy a redemption request at month-end because the Company did not receive the request in time or
because of the limitations on redemption set forth in paragraphs 3(a) and (b), then the Company will treat the unsatisfied portion of the redemption
request as a request for redemption at the next Redemption Date on which funds are available for redemption, unless the redemption request is
withdrawn. Any stockholder can withdraw a redemption request by sending written notice to the Company at the address set forth in paragraph 8,
provided such notice is received before the Redemption Date.
5. Provisions Relating to Special Redemptions. Notwithstanding anything herein to the contrary, the Company will treat Special Redemption
requests differently than Ordinary Redemptions, as follows:
a. There is no requirement that Shares be issued and outstanding for at least one year before being redeemed; and
b. The special redemption pricing terms set forth in paragraph 2(b) will apply.
Except as specifically set forth in paragraph 3 and this paragraph 5, Special Redemptions are subject to the same limitations and terms
and conditions as other redemptions, including the redemption request procedures set forth in paragraph 4. A stockholder that is a trust may only redeem
on the terms available in connection with a Special Redemption if the deceased or disabled was or is the sole
2
beneficiary of the trust or if the only other beneficiary of the trust was or is the spouse of the deceased or disabled.
6. Qualifying Disability Determinations. In order for a stockholder's disability (a “Qualifying Disability”) to entitle such stockholder to the
special redemption terms described in paragraph 5, (a) the stockholder must receive a determination of disability based upon a physical or mental
condition or impairment arising after the date the stockholder acquired the Shares to be redeemed, and (b) such determination of disability must be made
by the governmental agency responsible for reviewing the disability retirement benefits that the stockholder could be eligible to receive (the
“Applicable Government Agency”). The Applicable Government Agencies are limited to the following: (i) if the stockholder paid Social Security
taxes and, therefore, could be eligible to receive Social Security disability benefits, then the Applicable Governmental Agency is the Social Security
Administration or the agency charged with responsibility for administering Social Security disability benefits at that time if other than the Social
Security Administration; (ii) if the stockholder did not pay Social Security taxes and, therefore, could not be eligible to receive Social Security disability
benefits, but the stockholder could be eligible to receive disability benefits under the Civil Service Retirement System (“CSRS”), then the Applicable
Governmental Agency is the U.S. Office of Personnel Management or the agency charged with responsibility for administering CSRS benefits at that
time if other than the Office of Personnel Management; or (iii) if the stockholder did not pay Social Security taxes and, therefore, could not be eligible
to receive Social Security benefits but suffered a disability that resulted in the stockholder's discharge from military service under conditions that were
other than dishonorable and, therefore, could be eligible to receive military disability benefits, then the Applicable Governmental Agency is the
Department of Veterans Affairs or the agency charged with the responsibility for administering military disability benefits at that time if other than the
Department of Veterans Affairs.
A disability determination by a governmental agency for purposes other than those listed above, including but not limited to worker's
compensation insurance, administration or enforcement of the Rehabilitation Act or Americans with Disabilities Act, or waiver of insurance premiums
will not be considered a Qualifying Disability. Redemption requests following an award by the Applicable Governmental Agency of disability benefits
must be accompanied by (a) the investor's initial application for disability benefits, and (b) a Social Security Administration Notice of Award, a U.S.
Office of Personnel Management determination of disability under CSRS, a Department of Veterans Affairs record of disability-related discharge or
such other documentation issued by the Applicable Governmental Agency that the Company deems acceptable and that demonstrates an award of the
disability benefits.
Because the following disabilities do not entitle a worker to Social Security disability benefits, they will not be considered Qualifying
Disabilities, except in the limited circumstances when the investor is awarded disability benefits by the other Applicable Governmental Agencies
described above:
a. disabilities occurring after the legal retirement age;
b. temporary disabilities; and
c. disabilities that do not render a worker incapable of performing substantial gainful activity.
7. Qualifying for Federal Assistance for Confinement to a Long-Term Care Facility. With respect to the Special Redemption terms described in
paragraph 5 sought in connection with a stockholder's (or stockholder's spouse) qualifying for federal assistance for confinement to a Long-Term Care
Facility, a “Long-Term Care Facility” shall mean an institution that: (a) either (i) is approved by
3
Medicare as a provider of skilled nursing care, or (ii) is licensed as a skilled nursing home by the state or territory in which it is located (it must be
within the United States, Puerto Rico, or U.S. Virgin Islands); and (b) meets all of the following requirements: (i) its main function is to provide skilled,
intermediate or custodial nursing care; (ii) it provides continuous room and board to three or more persons; (iii) it is supervised by a registered nurse or
licensed practical nurse; (iv) it keeps daily medical records of all medication dispensed; and (v) its primary service is other than to provide housing for
residents.
A stockholder seeking a Special Redemption of his or her Shares in order to qualify for federal assistance for confinement of the stockholder (or
the stockholder's spouse) to a Long-Term Care Facility must submit: (a) a written statement from a licensed physician certifying either (i) the
continuous and continuing confinement of the stockholder (or the stockholder's spouse) to a Long-Term Care Facility beginning at any time in the last
two years, or (ii) that the licensed physician has determined that the stockholder (or the stockholder's spouse) should be or is eligible to be indefinitely
confined to a Long-Term Care Facility; and (b) evidence satisfactory to the Company in its sole discretion that the redemption of the Shares and
complete or partial exhaustion of the redemption proceeds is necessary for the stockholder (or the stockholder's spouse) to meet the income or asset
levels required by applicable state or federal assistance programs in order to qualify for state or federal assistance in paying for his or her Long-Term
Care Facility.
The Company may not effect a Special Redemption of Shares if the stockholder seeking redemption was confined to (or eligible to be confined
to) a Long-Term Care Facility on the date he or she became a stockholder. If the Shares are not held by a natural person, or through a revocable grantor
trust or an IRA or other retirement or profit sharing plan, then the right of redemption described in this paragraph 7 does not apply.
8. Termination, Suspension or Amendment of the SRP by the Company. The Company may amend, suspend or terminate the SRP for any
reason upon 30 days' notice to the Company's stockholders; provided that the effective date of any amendment may be accelerated as determined by the
board of directors if the amendment does not adversely affect the rights of redeeming stockholders. The Company is not restricted in the manner in
which it may notify stockholders of an amendment, suspension or termination of the SRP.
The SRP provides stockholders a limited ability to redeem Shares for cash until a secondary market develops for the Shares. If and when such a
secondary market develops, the SRP will terminate automatically.
9. Address for Notice of Redemption Requests. Stockholders who desire to redeem their Shares must provide written notice to Columbia
Property Trust Investor Services, c/o DST Systems, Inc., P.O. Box 219073, Kansas City, Missouri 64121-9073.
10. Liability of the Company. The Company shall not be liable for any act done in good faith or for any good faith omission to act.
11. Governing Law. The SRP shall be governed by the laws of the State of Maryland.
(Back To Top)
Section 17: EX-99.2 (PRO FORMA FINANCIAL STATEMENTS)
4
Exhibit 99.2
COLUMBIA PROPERTY TRUST, INC.
Summary of Unaudited Pro Forma Financial Statements
This pro forma information should be read in conjunction with the consolidated financial statements and notes thereto of the Registrant included herein on its annual report filed on
Form 10-K for the twelve months ended December 31, 2012. In addition, this pro forma information should be read in conjunction with the financial statements and notes thereto of
certain acquired entities included as an exhibit to this current report.
From inception through February 27, 2013, Columbia Property Trust, Inc. ("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 a property management agreement.
On February 28, 2013, Columbia Property Trust terminated the advisory and property management agreements and acquired WREAS II and WRES. As a result, the services described
above will be performed by employees of Columbia Property Trust going forward. 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 (the "Self-Management Transactions").
The following unaudited pro forma balance sheet as of December 31, 2012 has been prepared to give effect to the Self-Management Transactions as if they occurred on December 31,
2012. The following unaudited pro forma statement of operations for the twelve months ended December 31, 2012, has been prepared to give effect to the Self-Management
Transactions as if they occurred on January 1, 2012. These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of
future results or of actual results that would have been achieved had the Self-Management Transactions been consummated as of December 31, 2012 with respect to the pro forma
balance sheet, or as of January 1, 2012 with respect to the pro forma statement of operations.
Assets:
Real estate assets, at cost:
Land
Buildings and improvements
Intangible lease assets
Construction in progress
Total real estate assets
Cash and cash equivalents
Tenant receivables
Prepaid expenses and other assets
Due from affiliates
Deferred financing costs
Intangible lease origination costs
Deferred lease costs
Investment in development authority bonds
Total assets
Liabilities:
Line of credit and notes payable
Bonds payable
Accounts payable, accrued expenses, and accrued capital expenditures
Due to affiliates
Deferred income
Intangible lease liabilities
Obligations under capital leases
Total liabilities
Commitments and Contingencies
Redeemable Common Stock
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
COLUMBIA PROPERTY TRUST, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2012
(in thousands, unaudited)
Historical (a)
Self-Management Transactions
Pro Forma Total
$
789,237
$
$
$
$
$
3,468,218
341,460
12,680
4,611,595
53,657
134,099
29,373
—
10,490
206,927
98,808
586,000
5,730,949
1,401,618
248,678
102,858
1,920
28,071
98,298
586,000
2,467,443
—
99,526
5,476
4,897,782
(1,634,531)
(99,526)
(5,221)
3,163,980
—
3,163,980
5,730,949
$
$
$
—
—
—
—
—
2,860
—
99
(b)
1,980
(c)
2,215
(d)
(1,920)
(e)
—
—
—
—
5,234
—
—
36,250
(f)
1,364
(g)
(1,920)
(e)
391
(h)
—
—
—
36,085
—
—
—
—
(36,250)
(f)
1,980
(c)
3,419
(i)
—
—
(30,851)
—
(30,851)
789,237
3,468,218
341,460
12,680
4,611,595
56,517
134,099
31,452
295
10,490
206,927
98,808
586,000
5,736,183
1,401,618
248,678
140,472
391
28,071
98,298
586,000
2,503,528
99,526
—
5,476
4,897,782
(1,665,382)
(99,526)
(5,221)
3,133,129
—
3,133,129
5,736,183
Total liabilities, redeemable common stock, and equity
$
$
5,234
$
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2012
(a) Historical balances were extracted from the historical consolidated balance sheet as of December 31, 2012 of Columbia Property Trust, included herein on page F-3.
(b) Reflects WREAS II's and WRES' prepaid 2013 operating expenses.
(c) Reflects goodwill related to the in-place work force acquired in connection with the Self-Management Transactions, estimated based on the cost to assemble such workforce.
(d) Reflects the amounts due to WREAS II and WRES from affiliated real estate funds, primarily related to asset management services provided by WREAS II and property management services
provided by WRES.
(e) Reflects the elimination of amounts due from/to Columbia Property Trust and WREAS II/WRES as of December 31, 2012, which is comprised of the following (in thousands):
Administrative reimbursements
Asset and property management fees
Total
$
$
1,360
560
1,920
(f) Reflects fees incurred under the consulting services agreement ($30.50 million) and the transition services agreements ($5.75 million) upon executing the Self Management Transactions, which
are payable monthly throughout 2013.
(g) Reflects payroll accruals and administrative expenses owed to third-party vendors by WREAS II and WRES.
(h) Reflects the administrative expenses owed by WREAS II and WRES to affiliated entities, primarily for operating expenses paid on WREAS II's and WRES' behalf by Wells Management or
Wells Capital, Inc.
(i) Reflects the balance of members' equity of WREAS II and WRES as of December 31, 2012.
COLUMBIA PROPERTY TRUST, INC.
PROFORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2012
(in thousands, unaudited)
Historical (a)
Self-Management Transactions
Pro Forma Total
$
$
—
—
—
Revenues:
Rental income
Tenant reimbursements
Hotel income
Other property income
Expenses:
Property operating costs
Hotel operating costs
Asset and property management fees:
Related-party
Other
Depreciation
Amortization
Impairment loss on real estate assets
General and administrative
Acquisition fees and expenses
Real estate operating income
Other income (expense):
Interest expense
Interest and other income
Loss on interest rate swaps
Income (loss) before income tax (expense) benefit
Income tax (expense) benefit
Income (loss) from continuing operations
Discontinued operations:
Operating income (loss) from discontinued operations
Gains on dispositions of discontinued operations
Income from discontinued operations
Net income (loss)
$
442,284
104,863
23,049
6,495
576,691
173,466
18,362
34,394
2,826
114,107
97,649
—
25,163
1,876
467,843
108,848
(106,391)
39,871
(1,225)
(67,745)
41,103
(586)
40,517
(12,591)
20,117
7,526
48,043
Less: net income attributable to nonredeemable noncontrolling interests
Net income (loss) attributable to the common stockholders of Wells Real Estate Investment Trust II, Inc.
$
(4)
48,039
$
442,284
104,863
23,049
9,280
579,476
173,466
18,362
—
2,826
114,107
97,649
—
66,362
376
473,148
106,328
(106,391)
39,875
(1,225)
(67,741)
38,587
(586)
38,001
(10,523)
20,117
9,594
47,595
(4)
47,591
55,071
(b)
(36,462)
(c)
(15,824)
(d)
2,785
—
—
(34,394)
(c)
—
—
—
—
24,190
(e)
(15,824)
(d)
34,270
(f)
(1,311)
(h)
(126)
(i)
(1,500)
(j)
5,305
(2,520)
—
2,941
(g)
(1,311)
(h)
(126)
(i)
(1,500)
(j)
—
4
(2,516)
—
(2,516)
2,068
(c)
—
2,068
(448)
—
(448)
$
NOTES TO UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2012
(a) Historical balances were extracted from the audited consolidated statements of operations as of December 31, 2012 of Columbia Property Trust included herein on page F-4.
(b) Reflects asset and property management fees, and salary and expense reimbursements earned by WREAS II and WRES during 2012.
(c) Reflects the elimination of asset and property management fees of $32.0 million and $4.5 million, respectively, incurred by Columbia Property Trust for services provided by WREAS II and
WRES during 2012. Of the total fees incurred, $2.1 million relates to nine properties sold in December 2012 for $260.5 million, and is, therefore, included in operating income (loss) from
discontinued operations.
(d) Reflects the elimination of salary and expense reimbursements incurred by Columbia Property Trust related to services provided by WREAS II and WRES during 2012.
(e) Reflects general and administrative costs incurred by WREAS II and WRES during 2012, primarily related to salaries and benefits and information technology costs.
(f) Reflects fees incurred under the consulting services agreement ($30.5 million) and the transition services agreements ($5.75 million) upon executing the Self Management Transactions, which
are payable monthly throughout 2013. A portion of these fees ($1.98 million) was allocated to goodwill (which is included in prepaid and other assets on the balance sheet) based on the
estimated value of the workforce acquired from WREAS II and WRES by Columbia Property Trust.
(g) Reflects the fees earned by WREAS II in connection with: (h) the sale of nine properties for $260.5 million in December 2012, (i) leasing space to Columbia Property Trust at WREF's corporate
headquarters from July 2012 through December 2012, and (j) the acquisition of the 333 Market Street Building for $395.0 million in December 2012.
(h) Reflects the elimination of the disposition fees payable to WREAS II related to selling nine properties in December of 2012 for $260.5 million.
(i) Reflects the elimination of the $26,000 per month of rent payable to WREAS II in connection with leasing space at the WREF's corporate headquarters from July 2012 through December 2012.
(j) Reflects the elimination of the acquisition fees payable to WREAS II related to the acquisition of the 333 Market Street Building for $395.0 million in December 2012.
(Back To Top)
Section 18: EX-99.3 (WREAS II AND WRES FINANCIAL STATEMENTS)
Exhibit 99.3
Carve-Out Combined Financial Statements
Wells Real Estate Advisory Services II, LLC
and Wells Real Estate Services, LLC
Years Ended December 31, 2012 and 2011
Wells Real Estate Advisory Services II, LLC
and Wells Real Estate Services, LLC
Carve-Out Combined Financial Statements
Years Ended December 31, 2012 and 2011
Contents
Independent Auditors' Report
Carve-Out Combined Balance Sheets
Carve-Out Combined Statements of Operations
Carve-Out Combined Statements of Changes in Members' Equity
Carve-Out Combined Statements of Cash Flows
Notes to Carve-Out Combined Financial Statements
1
2
3
4
5
6
INDEPENDENT AUDITORS' REPORT
To the Members and Management
Wells Real Estate Advisory Services II, LLC
and Wells Real Estate Services, LLC
Norcross, Georgia
We have audited the accompanying carve-out combined financial statements of Wells Real Estate Advisory Services II, LLC and Wells Real Estate Services, LLC
(collectively, the Company) which are comprised of the carve-out combined balance sheets as of December 31, 2012 and 2011, and the related carve-out combined
statements of operations, changes in members' equity, and cash flows for the years then ended, and the related notes to the carve-out combined financial statements.
Management's Responsibility for the Carve-Out Combined Financial Statements
Management is responsible for the preparation and fair presentation of these carve-out combined financial statements in accordance with accounting principles
generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of carve-out combined financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these carve-out combined financial statements based on our audits. We conducted our audits in accordance with
auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the carve-out combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on
the auditors' judgment, including the assessment of the risks of material misstatement of the carve-out combined financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the carve-out combined financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the carve-out combined financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the carve-out combined financial statements referred to above present fairly, in all material respects, the financial position of Wells Real Estate
Advisory Services II, LLC and Wells Real Estate Services, LLC as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the
years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ Frazier & Deeter, LLC
Atlanta, Georgia
February 27, 2013
1
Assets:
Cash
Due from affiliates
Prepaid expenses and other assets
Total assets
Liabilities:
Accounts payable and accrued expenses
Due to affiliates
Total liabilities
Commitments and contingencies
Members' equity
Total liabilities and members' equity
See accompanying notes.
Wells Real Estate Advisory Services II, LLC
and Wells Real Estate Services, LLC
Carve-Out Combined Balance Sheets
December 31,
2012
2011
$
$
$
$
2,860,285 $
2,215,000
99,244
5,174,529 $
1,364,148 $
391,362
1,755,510
—
3,419,019
5,174,529 $
140,658
3,951,541
31,815
4,124,014
1,147,019
989,017
2,136,036
—
1,987,978
4,124,014
2
Wells Real Estate Advisory Services II, LLC
and Wells Real Estate Services, LLC
Carve-Out Combined Statements of Operations
Revenues:
Asset management fees
Acquisition and advisory fees
Property management and leasing fees
Salary and general and administrative expense reimbursements
Disposition fees
Other income
Expenses:
Salaries and benefits
Deferred compensation expense
General and administrative
Net income
See accompanying notes.
3
Years Ended December 31
2012
2011
$
$
32,000,000 $
1,500,000
6,037,243
17,034,376
1,311,400
129,648
58,012,667
17,673,556
680,802
5,835,879
24,190,237
33,822,430 $
32,093,942
1,304,896
6,621,272
17,468,489
—
85,564
57,574,163
17,063,935
222,550
7,812,989
25,099,474
32,474,689
Wells Real Estate Advisory Services II, LLC
and Wells Real Estate Services, LLC
Carve-Out Combined Statements of Changes in Members' Equity
Balance, December 31, 2010
Member contributions
Member distributions
Net income
Balance, December 31, 2011
Member contributions
Member distributions
Net income
Balance, December 31, 2012
See accompanying notes.
4
Members' Equity
3,048,978
3,720,992
(37,256,681)
32,474,689
1,987,978
17,849,981
(50,241,370)
33,822,430
3,419,019
$
$
Wells Real Estate Advisory Services II, LLC
and Wells Real Estate Services, LLC
Carve-Out Combined Statements of Cash Flows
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Changes in assets and liabilities:
Due from affiliates
Prepaid expenses and other assets
Accounts payable and accrued expenses
Due to affiliates
Total adjustments
Net cash provided by operating activities
Financing activities:
Member contributions
Member distributions
Net cash used in financing activities
Net increase (decrease) in cash
Cash:
Beginning of the year
Ending of the year
Supplemental disclosures of non-cash activities:
Contribution of common stock of affiliate
See accompanying notes.
5
Years ended December 31
2012
2011
$
33,822,430 $
32,474,689
1,736,541
(67,429)
217,129
(597,655)
1,288,586
35,111,016
17,849,981
(50,241,370)
(32,391,389)
1,012,661
121,068
45,773
10,651
1,190,153
33,664,842
3,329,780
(37,256,681)
(33,926,901)
2,719,627
(262,059)
$
$
140,658
2,860,285 $
402,717
140,658
— $
391,212
Wells Real Estate Advisory Services II, LLC
and Wells Real Estate Services, LLC
Notes to Carve-Out Combined Financial Statements
December 31, 2012 and 2011
1. Organization and Business
Wells Real Estate Advisory Services II, LLC (WREAS II) was organized on December 11, 2007 as a limited liability company under the Georgia Limited
Liability Company Act and was wholly-owned by Wells Real Estate Funds, Inc. (WREF), of which Leo F. Wells, III is the sole stockholder. Wells Advisory
Services II, LLC (WAS II) was organized on July 12, 2010 as a limited liability company under the Georgia Limited Liability Company Act and is wholly-
owned by WREF. On July 12, 2010, WREF transferred ownership of WREAS II to WAS II; however, on July 27, 2012, WAS II transferred WREAS II
ownership back to WREF. WAS II closed on July 30, 2012. Wells Real Estate Services, LLC (WRES), a wholly-owned subsidiary of Wells Management
Company, Inc. (Wells Management), was organized on November 25, 2008 as a limited liability company under the Georgia Limited Liability Company Act.
On August 1, 2010, WREAS II entered into an advisory agreement with Wells Real Estate Investment Trust II, Inc. (Wells REIT II) and became the advisor
to Wells REIT II. Prior to August 1, 2010, Wells Capital, Inc. (Wells Capital), a wholly-owned subsidiary of WREF, served as the advisor to Wells REIT II.
Wells REIT II was incorporated on July 3, 2003 and commenced its initial public offering on December 1, 2003. Wells REIT II, which operates as a real
estate investment trust, engages in the acquisition and ownership of commercial real estate properties, typically focusing on high-quality, income-generating
office properties leased to creditworthy companies and government entities. As of June 30, 2010, Wells REIT II had raised gross offering proceeds from the
sale of common stock under its public offerings of approximately $5.7 billion. On June 30, 2010, Wells REIT II terminated the public offering. In its capacity
as the advisor to Wells REIT II, WREAS II and other subsidiaries of WREF perform certain services.
Wells Management, a wholly-owned subsidiary of WREF, served as the property manager to Wells REIT II under a Master Property Leasing and
Construction Management Agreement (Property Management Agreement) (See Note 3). On January 1, 2011, the Property Management Agreement was
assigned to WREAS II. On July 1, 2012, the Property Management Agreement was assigned back to Wells Management with the majority of the services
provided by WRES. In this capacity the Company performs managerial, leasing and other administrative services.
WRES was formed for the purpose of providing real estate property management services. WRES provides these services to Wells REIT II, Wells Core
Office Income Real Estate Investment Trust, Inc. (Wells Core), affiliated public limited partnerships (the Wells LPs), Wells Section 1031 Program, and Wells
Mid-Horizon Value-Added Fund I, LLC (VAF), (collectively, the Wells Products) through property management, leasing, and construction agreements.
In 2011, WREAS II directly employed five executive level personnel to act as the management team accountable for oversight of the managerial, leasing and
other administrative services described above.
In addition, WREAS II used the services of personnel employed by Wells Capital and Wells Management (together, Service Providers) under Master Service
Agreements with those companies. The types of services provided by Wells Capital include shareholder services, communication services, and various
support services. Various real estate, accounting, and financial reporting services are provided by Wells Management. In exchange for the provision of these
services to WREAS II, the Service Providers are entitled to compensation in the form of reimbursement of all expenses paid or incurred by the Service
Providers in connection with the services provided to WREAS II (to the extent not reimbursable by another party).
6
1. Organization and Business (continued)
In March 2012, WREAS II increased the number of directly employed personnel to 36, all of whom perform certain core services as outlined in the advisory
agreement, including presenting, structuring, and acquiring real estate investment opportunities, entering into leases and service contracts for acquired
properties, arranging for and completing the disposition of properties, and accounting and other administrative functions. WREAS II continues to rely on
Wells Capital and Wells Management as Service Providers for functions not directly performed by WREAS II employees. As of December 31, 2012,
WREAS II directly employed 52 people.
As of December 31, 2012, WRES directly employed 47 people, all of whom perform managerial, leasing, and other administrative services.
Collectively, any reference to the Company in these carve-out combined financial statements refers to the activities of WREAS II or WRES or to the activities
of WREF and its subsidiaries while it performed the duties of advisor and property manager to Wells REIT II and to the activities of WRES as property
manager to the other Wells Products.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company's carve-out combined financial statements are prepared in accordance with accounting principles generally accepted in the United States of
America (U.S. GAAP) and include accounts of WREAS II and WRES. All significant intercompany transactions have been eliminated in combination. The
Company has adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification (Codification). The Codification is the single
official source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities, and all of the Codification's content carries
the same level of authority.
The accompanying carve-out combined financial statements and related notes thereto represent the carve-out combined balance sheets and carve-out
combined statements of operations, changes in members' equity and cash flows of WREAS II, WRES and WREF and its subsidiaries for services provided to
Wells REIT II in the advisor and property management roles as well as to the activities of WRES as property manager to the other Wells Products. The carve-
out combined financial statements have been prepared in accordance with the Securities and Exchange Commission Staff Bulletin Topic 1-B, "Allocation of
Expenses and Related Disclosure in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity." Certain assumptions
and estimates were made in order to allocate a reasonable share of such expenses to WREAS II so that the accompanying carve-out combined financial
statements reflect substantially all costs of doing business.
Certain corporate overhead expenses have been allocated to WREAS II and WRES, including overhead charges for personnel costs for support functions such
as accounting, finance, human resources, legal and facilities, and non-personnel costs such as professional fees and other costs. Prior to 2012, the corporate
overhead charges were allocated to WREAS II based upon estimated headcount relative to time dedicated to the services provided to Wells REIT II. The
corporate overhead charges were allocated to WRES and, in 2012, to WREAS II based on employee headcount. In addition, personnel costs related to the
acquisition and advisory services provided have been allocated to WREAS II based on the percentage of time dedicated to Wells REIT II. Management
believes the bases of the allocations are reasonable.
Use of Estimates
The preparation of the Company's carve-out combined financial statements in conformity with U.S. GAAP requires management to make certain estimates
and assumptions that affect the amounts reported in the carve-out combined financial statements and accompanying notes. These estimates and assumptions
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
7
2. Summary of Significant Accounting Policies (continued)
Use of Estimates (continued)
carve-out combined financial statements and the reported amounts of revenues and expenses during the reporting periods.
Also, certain amounts in the accompanying carve-out combined financial statements have been allocated in a way that management believes is reasonable and
consistent in order to depict the historical financial position, results of operations, and cash flows of the Company on a stand-alone basis. Actual results could
differ from these estimates.
Revenue Recognition
Substantially all of the Company's revenues are comprised of fees and reimbursements for services provided by the Company to the Wells Products, the
majority of which is earned from Wells REIT II. Such amounts are recognized by the Company when earned.
Reserve for Doubtful Accounts Receivable
As of December 31, 2012 and 2011, all significant outstanding receivables are due from the Wells Products. Management believes that all significant
receivables are collectible based on the financial viability of and historical collections from such affiliates. Accordingly, no reserves for such receivables have
been provided for in the accompanying carve-out combined financial statements.
Investments in Variable Interest Entities
The Company has evaluated its investments and relationships with affiliates to determine whether any entities qualify as variable interest entities (VIE) and, if
so, determine if the Company is the primary beneficiary. The Company has evaluated its involvement with Wells REIT II. As of December 31, 2012 and
2011, Wells REIT II is considered a VIE of the Company, primarily as a result of the service provider fees charged between the Company and the VIE. The
Company has determined it is not the primary beneficiary as of December 31, 2012 or 2011.
Wells REIT II was formed on July 3, 2003 as a Maryland corporation that has elected to be taxed as a real estate investment trust for federal income tax
purposes. As of December 31, 2012, Wells REIT II's total debt and equity is $1.7 million and $3.2 billion, respectively.
See Note 3 for amounts due from Wells REIT II as of December 31, 2012 and 2011.
Salary and General and Administrative Expense Reimbursements
The Company is reimbursed for certain expenses related to administrative services provided to the Wells Products by WREAS II, WRES and other WREF
subsidiaries under the Advisory Agreement and Property Management Agreement (see Note 3). Such amounts are allocated among the various WREF entities
based on certain allocation criteria. In the opinion of management, this allocation is a reasonable estimation of such expenses. The related reimbursements are
recognized by the Company when earned.
Asset Management Fees
The Company performs asset management services and records fees on a monthly basis related to all properties owned by Wells REIT II, subject to certain
vacancy limitations. Such fees are recognized by the Company when earned.
8
2. Summary of Significant Accounting Policies (continued)
Income Taxes
WREAS II and WRES are both single member limited liability companies. All federal and state income tax positions taken or anticipated to be taken in the
income tax returns are attributable to the owners and not to the entities. The Company recognizes the tax benefit from an uncertain tax position only if it is
more likely than not that the tax position will be sustained on examination by the taxing authority, based on the technical merits of the position. Tax years that
remain subject to examination by major tax jurisdictions date back to the year ended December 31, 2008. As of December 31, 2012 and 2011, there are no
known items which would result in a material accrual related to where the Company has federal or state attributable tax positions.
Risks and Uncertainties
The Company depends exclusively on the Wells Products for substantially all of its revenues. The Company's operations would be significantly impacted by a
decline in services provided to the Wells Products. Consequently, any such decline could have a material adverse effect on the financial position and results
of operations of the Company in the period of decline.
The Company maintains its cash in bank deposits, which at times may exceed federally-insured limits. The Company has not experienced any losses in such
accounts.
Subsequent Events
The Company has evaluated subsequent events through February 27, 2013, which is the date these carve-out combined financial statements were available to
be issued. All subsequent events, if any, requiring recognition as of December 31, 2012, have been incorporated into these carve-out combined financial
statements.
3. Related Party Transactions
On October 22, 2004, Wells Management entered into a Property Management Agreement with Wells REIT II. On January 1, 2011, the Property
Management Agreement with Wells REIT II was amended by WREF and its subsidiaries to assign the Property Management Agreement to WREAS II
through June 30, 2012. On July 1, 2012, a new Property Management Agreement with Wells REIT II was entered into by Wells Management. This agreement
will automatically extend each year unless one or both parties agree to terminate the agreement. Either party may terminate the Property Management
Agreement upon 60 days' written notice.
On November 1, 2004, Wells Capital entered into an advisory agreement (Advisory Agreement) with Wells REIT II through July 31, 2010. On August 1,,
2010, Wells REIT II signed an Advisory Agreement with WREAS II. On January 1, 2011, Wells REIT II renewed the Advisory Agreement with the
Company through July 31, 2011, under substantially the same terms. On August 1, 2011, Wells REIT II amended certain components of the Advisory
Agreement and extended the agreement through December 31, 2011. This amended advisory agreement (Amended Advisory Agreement) limits the
reimbursements. Wells REIT II will not reimburse the Company for general and administrative expenses and personnel expenses that would cause the total
general and administrative expense reimbursements from Wells REIT II to exceed $18,721,166 for the annual period from January 1, 2011 through
December 31, 2011. Further, Wells REIT II's personnel expense reimbursements shall not exceed $10,554,167, for the annual period from January 1, 2011
through December 31, 2011. On January 1, 2012, Wells REIT II renewed the Amended Advisory Agreement through March 31, 2012 (Second Amended
Advisory Agreement) with substantially the same terms, except for Wells REIT II will not reimburse the Company for general and administrative expenses
and personnel expenses that would cause the total general and administrative expense reimbursements from Wells REIT II to exceed $4,542,000 for the three-
month period or $18,167,000 annualized. Further, Wells REIT II's personnel expense reimbursements shall not exceed $2,500,000 for the three-month period
or $10,000,000 annualized. Whereas the Amended Advisory Agreement
9
3. Related Party Transactions (continued)
limits the reimbursement revenue for WREAS II, it does not limit the amount due to WREAS II service providers. In addition, acquisition fees will not
exceed $1,500,000 during the term of the agreement or exceed 2% of gross proceeds of Wells REIT II under the dividend reinvestment program (DRP) in
2012. On April 1, 2012, Wells REIT II renewed the agreement through June 30, 2012 (Third Amended Advisory Agreement), with substantially the same
terms. The Amended Advisory Agreement, Second Amended Advisory Agreement, and Third Amended Advisory Agreement are collectively referred to as
the Amended Advisory Agreements.
On July 1, 2012, WREAS II and Wells REIT II entered into the Initial Term Advisory Agreement with the same expense reimbursement limitations per the
Amended Advisory Agreements for the annual period January 1, 2012 through December 31, 2012. Fees otherwise due under the terms of the agreement will
be reduced by $83,333 per month for the period July 1, 2012 through December 31, 2012. Wells REIT II will pay the Company $21,000 per month for
occupancy costs for WREAS II's dedicated office space. Stockholder and communications services and expense reimbursements related thereto will be earned
under a new Investor Services Agreement between Wells REIT II and Wells Capital.
On July 1, 2012, WREF, WREAS II and Wells REIT II entered into a Transition Services Agreement (TSA) that expires on December 31, 2013. The TSA
grants Wells REIT II the option, in its sole discretion upon delivery of written notice to WREF at any time on or after January 1, 2013 and before the
expiration of this agreement on December 31, 2013, to require WREF to transfer, convey and assign to Wells REIT II all of the issued and outstanding equity
interests in WREAS II. Under the terms of the TSA, Wells REIT II will pay WREF $500,000 per month from July 31, 2012 to June 30, 2013 for transition
services.
On December 28, 2012, Wells REIT II amended the TSA (Amended TSA) to grant Wells REIT II the option, in its sole discretion upon delivery of written
notice to WREF at any time on or after January 1, 2013 and before the expiration of this agreement on December 31, 2013, to require WREF to transfer,
convey, and assign to Wells REIT II all of the issued and outstanding equity interests in WRES. As soon as reasonably practicable: (i) WREF will transfer,
convey and assign to Wells REIT II all of the outstanding equity interests in WREAS II and WRES, and (ii) WREF will enter into a Consulting Services
Agreement with respect to the provision of certain services currently provided under the Initial Term Advisory Agreement. The Amended TSA limits the
acquisition and advisory fees to $1,500,000 for 2012 and 2013 combined. Additionally, disposition fees from July 1, 2012 to December 31, 2013 will not
exceed $1,500,000. Per the Amended TSA, Wells REIT II will pay WREF $500,000 per month from July 31, 2013 to November 30, 2013 with $250,000 due
December 31, 2013 for transition services. The Consulting Services Agreement is between WREF and Wells REIT II and states that Wells REIT II will pay
an asset management consulting fee, similar to the asset management fee paid to WREAS II under the Initial Term Advisory Agreement.
Pursuant to the Advisory Agreement, the Amended Advisory Agreements, the Initial Term Advisory Agreement, TSA, Amended TSA, and the Property
Management Agreement, the Company is entitled to the following fees and reimbursements:
Acquisition and Advisory Fees
As the advisor to Wells REIT II, the Company receives fees for the investigation, selection and acquisition of properties of 2% of the gross proceeds raised by
Wells REIT II. Since the close of the Wells REIT II public offering on June 30, 2010, the Company has only earned acquisition and advisory fees on the
shares issued through the Wells REIT II DRP. Beginning August 1, 2011, the Amended Advisory Agreement states the Company will no longer earn
acquisition and advisory fees on the shares issued through the Wells REIT II DRP. In addition, the Amended Advisory Agreements allow for acquisition and
advisory fees of 1% of the amount actually paid for the future purchase of new properties. The fee is limited to the lesser of $1,500,000 or 2% of gross
proceeds from Wells REIT II DRP for each calendar year. The Company earned acquisition and advisory fees of $1,500,000 and $1,304,896, respectively, for
the years ended December 31, 2012 and 2011.
10
3. Related Party Transactions (continued)
Asset Management Fees
The Company receives asset management fees on a monthly basis equal to one-twelfth of 0.625% of the lower of cost or fair value of substantially all
properties owned by Wells REIT II and Wells REIT II's investments in joint ventures, subject to certain vacancy limitations. The fee percentage remains at
0.625% until the monthly payment equals $2,708,333, at which point the monthly payment will remain at $2,708,333 until the value of all properties equals
or exceeds $6.5 billion. Once this milestone is achieved, the Wells REIT II asset management fee will be calculated at 0.50% of the cost of all Wells REIT II
properties. Through March 31, 2011 the Wells REIT II asset management fee was calculated based on the 0.625% rate. On March 7, 2011, REIT II purchased
the Market Square Buildings and as a result, the asset management fee reached the monthly amount of $2,708,333, the maximum monthly fee until the value
of all properties equals or exceeds $6.5 billion. In November 2011 and 2012, a net asset valuation for all Wells REIT II properties was completed; however,
there was no impact on the total monthly fee that the Company receives. Beginning July 1, 2012, a fee credit of $83,333 was applied to the Wells REIT II
asset management fee per the Initial Term Advisory Agreement reducing the monthly amount to $2,625,000. The Company earned asset management fees of
$32,000,000 and $32,093,942, respectively, for the years ended December 31, 2012 and 2011.
Property Management and Leasing Fees
In consideration for providing property management services, the Company collects property management and leasing fees from properties it manages on
behalf of the Wells Products. The fees may be a flat fee or range from 1% to 6% of the rental income and operating reimbursements collected by the
properties. The Company earned property management and leasing fees of $6,037,243 and $6,621,272, respectively, for the years ended December 31, 2012
and 2011.
Salary and General and Administrative Expense Reimbursements
The Company is reimbursed for all costs and expenses it incurs in fulfilling its duties for the Wells Products, including wages and salaries and other
employee-related expenses of the Company's and affiliates' employees engaged in the real estate management, administration, finance, operations, and
marketing functions. Employee-related expenses include taxes, insurance, and benefits relating to such employees, and legal, travel, and other out-of-pocket
expenses that are directly related to the services they provide. The Company recorded reimbursement revenues of $17,034,376 and $17,468,489, respectively,
for the years ended December 31, 2012 and 2011 for salary and general and administrative expenses.
Disposition Fees
Subject to certain limitations, the Company is entitled to receive disposition fees or real estate commissions in the event that, among other things, a substantial
portion of the services rendered in connection with the disposition of one or more properties owned by Wells REIT II are performed by the Company. The
Company earned disposition fees of $1,311,400 and $0, respectively, for the years ended December 31, 2012 and 2011.
Participation Fees
Under certain conditions, the Company is also entitled to receive a subordinated participation fee on net proceeds generated from the sale of properties by
Wells REIT II and a subordinated incentive listing fee payable to the Company in the event that Wells REIT II becomes listed on a public stock exchange.
The Company did not earn any participation fees for the years ended December 31, 2012 and 2011.
11
3. Related Party Transactions (continued)
Due from Affiliates
Due from affiliates primarily relates to reimbursements and fees due under the Amended Advisory Agreement, TSA, and Property Management Agreement
as well as receivables from other Wells Products. The detail of amounts due from affiliates is provided below as of December 31, 2012 and 2011:
Wells REIT II
Wells Core
Other Affiliates
Due to Affiliates
2012
2011
$
$
1,985,353 $
107,623
122,024
2,215,000 $
3,845,030
72,970
33,541
3,951,541
WREAS II relies on Service Providers to assist in providing some of the services to Wells REIT II under the Advisory Agreement, Amended Advisory
Agreement, and TSA (see Note 1). Due to affiliates is primarily comprised of amounts due for services performed by these Service Providers.
The detail of amounts due to affiliates is provided below as of December 31, 2012 and 2011:
Wells Capital
Wells Management
Total
Nonmonetary transactions
2012
2011
$
$
300,634 $
90,728
391,362 $
527,721
461,296
989,017
During 2011, the Company received a contribution of common stock of a former affiliated real estate investment trust related to the distribution to employees
for the Wells Stock Distribution Plan I. This contribution was recorded at the fair value of the underlying stock as of the date of transfer.
4. Defined Contribution Plan
WREF sponsors a 401(k) defined contribution plan (the Plan) under which the Company is allowed to make contributions for all of its employees. The Plan
functions as the primary retirement program for the Company. Eligible participants may contribute a percentage of their annual compensation, subject to
maximum amounts established by the United States Internal Revenue Service. The Company makes employer-matching contributions equal to $0.25 per
dollar invested in the Plan for participants during their first two years of service. During the pay period beginning the participants' third year of service, the
Company increases matching contributions to $0.50 per dollar invested in the Plan. During the pay period beginning the participants' fourth year of service,
the Company increases matching contributions to $0.75 per dollar invested in the Plan. During the pay period beginning the participants' fifth year of service,
the Company increases matching contributions to $1.00 per dollar invested in the Plan. Employer matching contributions are 100% vested and non-forfeitable
and are capped at 11% of each employee's income on a biweekly basis. The Company's contributions under this plan were $525,491 and $361,723,
respectively, for the years ended December 31, 2012 and 2011 and are included in salaries and benefits expenses in the accompanying carve-out combined
statements of operations.
12
5. Long-term Incentive Compensation Plan
On November 14, 2006, WREF formally adopted a Long-Term Incentive Compensation Plan (LTIP) of which certain WRES employees are participants. On
January 1, 2011, WREAS II formally adopted a similar LTIP referred to as LTIP Plan 2. The plans are a deferred compensation arrangement for a select
group of management level employees employed directly by the Company. According to the LTIP agreements, senior management of WREF shall meet at
least once in each calendar year and irrevocably specify the name of each employee who shall be entitled to participate in the LTIP. The award date is January
1 of the current calendar year and compensation expense is recognized over a three-year period. The Company's expense under the LTIP was $680,802 and
$222,550, respectively, for the years ended December 31, 2012 and 2011 and is included in salaries and benefits expenses in the accompanying carve-out
combined statements of operations.
As of December 31, 2012, the total LTIP unvested award balance is approximately $650,000. Assuming the individual employees named under the plan meet
all plan requirements, approximately $410,000 will be recognized as compensation expense on January 1, 2014 and approximately $240,000 will be
recognized as compensation expense on January 1, 2015, unless early vesting is approved by management as allowed for in the plan documents. Distributions
will be made within 60 plan days of vesting in accordance with the LTIP documents.
6. PNC Line of Credit
On September 8, 2010, WREF and certain of its subsidiaries, including the Company, entered into a $20,000,000 revolving credit facility agreement (PNC
Line of Credit) with PNC Bank, National Association (PNC Bank), which originally expired September 8, 2012. On September 7, 2012, the PNC Line of
Credit First Amendment extended this agreement to September 8, 2015. As of December 31, 2011, WREF had an outstanding balance of $6,900,000 on the
PNC Line of Credit. On December 11, 2012 the Company was released from the PNC Line of Credit. The PNC Line of Credit bears interest at various
floating rate bases plus a spread, as may be elected by management at the time of each draw, and is payable monthly. The PNC Line of Credit is collateralized
by 1,386,139 shares of common stock in Piedmont Office Realty Trust, Inc. owned by an affiliate of the Company. Mandatory prepayments may be required
if a certain margin on the collateral, as defined in the PNC Line of Credit agreement, is not maintained.
7. Legal Matters
In the ordinary course of business, the Company may become subject to litigation or claims. Except as disclosed below, there are no material pending legal
proceedings involving the Company.
WRES has been named in a lawsuit in which the plaintiff was injured on a Wells REIT II property. The appropriate insurance provider has been notified. At
this time, management is unable to determine if the likelihood of an unfavorable outcome is either probable or remote. Accordingly, no reserves have been
provided for in the accompanying carve-out combined financial statements.
8. Subsequent Events
On January 1, 2013, Wells REIT II and WREAS II entered into the Renewal Advisory Agreement through December 31, 2013 with the same expense
reimbursement limitations as the Initial Term Advisory Agreement, however fees otherwise due under the terms of the agreement will be reduced by
$166,667 per month.
On February 8, 2013, Wells REIT II executed its option under the Amended TSA, in writing, setting the closing for February 28, 2013.
(Back To Top)
13
Corporate Directory
Corporate Governance
Columbia Property Trust is subject to certain laws
pertaining to corporate governance of publicly registered
companies. As of December 31, 2012, Columbia Property
Trust was fully compliant with all requirements of
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002,
which was enacted to increase corporate accountability.
In 2012, in addition to the certifications required by
Sections 302 and 906, Columbia Property Trust continued
to document and test controls over its financial reporting
processes in order to comply with Section 404(a) of the
Sarbanes-Oxley Act of 2002 for the year ended
December 31, 2012.
Executive Offices
One Glenlake Parkway
Suite 1200
Atlanta, GA 30328-7267
Toll-free
800-899-8411
Home Office 404-465-2200
404-465-2201
Fax
Website access to U.S. Securities and Exchange
Commission filings
All reports filed electronically by Columbia Property Trust
with the U.S. Securities and Exchange Commission, including
the Annual Report on Form 10-K, Quarterly Reports on
Forms 10-Q, and current event reports on Forms 8-K, are
accessible at www.columbiapropertytrust.com.
Investor Relations and Communications
To sign up for electronic communications or for additional
information about Columbia Property Trust, please visit
our investor website, www.columbiapropertytrust.com.
To access your account information, click the
(lock) icon
and choose “Investor/e-Delivery Log-In.” Investors
also may contact Columbia Property Trust Investor
Relations for assistance at 800-557-4830 (Monday
through Friday); 770-243-8198 (fax); or
Investor.Relations@columbiapropertytrust.com.
Transfer Agent
Mailing Address:
c/o DST Systems, Inc.
P.O. Box 219073
Kansas City, MO 64121-9073
Street Address
c/o DST Systems, Inc.
430 West 7th Street
Suite 219073
Kansas City, MO 64105
Notice of Annual General Meeting
The Annual Meeting of the shareholders of Columbia
Property Trust will be held at the Atlanta Marriott Perimeter
Center at 246 Perimeter Center Parkway NE in Atlanta,
Georgia, at 1:30 p.m., ET, on July 17, 2013.
Also online at www.columbiapropertytrust.com
© 2013 Columbia Property Trust / 0009-CPTREPI1301
designed by Thackway McCord / printed by DG3
columbiapropertytrust.com
Columbia Property Trust
One Glenlake Parkway
Suite 1200
Atlanta, GA 30328-7267
800-899-8411
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