Chambers Street – First Quarter 2014 Financial Results

– Core FFO per Diluted Share Increases over 6% Year Over Year to $0.17 –

– Executes over 827,000 Square Feet of New and Renewal Leases –

– Company Reaffirms 2014 Annual Guidance –

PRINCETON, N.J.--()--Chambers Street Properties (NYSE:CSG) ("Chambers Street" or the "Company"), a real estate investment trust focused on acquiring, owning and managing net leased industrial and office properties, today reported its financial results for the three-month period ended March 31, 2014.

Jack A. Cuneo, President and Chief Executive Officer of Chambers Street commented, "We continued to successfully execute our strategies to strengthen our cash flow and grow our portfolio in the first quarter of 2014. Our team leased over 827,000 square feet and, as part of our strategic effort to improve the quality and growth profile of our portfolio, we sold a multi-tenant office property and acquired a new, fully-leased industrial property. We continue to see a strong pipeline of potential accretive acquisitions that we believe will complement our portfolio of assets in our efforts to increase shareholder value.”

Operational and Financial Highlights First Quarter 2014

  • Grew Core Funds from Operations ("Core FFO") to $0.17 per diluted share, an improvement of $0.01 per share compared to the first quarter of 2013
  • Total portfolio percentage leased was 96.1% as of March 31, 2014
  • Executed 15 leases, representing over 827,000 square feet
  • Acquired one industrial property totaling 622,440 rentable square feet in Indianapolis, Indiana for a purchase price of $30.2 million
  • Sold one unconsolidated property for a gross sales price of $13.1 million, of which the Company's pro rata share was approximately $10.5 million
  • Obtained an investment grade credit rating of BBB- with a stable outlook from Standard & Poor's Ratings Services (“S&P”) in addition to the investment grade rating of Baa3 received from Moody's in December 2013

Financial Results for the Three Months Ended March 31, 2014

Core FFO for the first quarter of 2014 increased to $39.6 million, or $0.17 per diluted share, compared to $39.5 million, or $0.16 per diluted share, for the first quarter of 2013.

Funds from Operations ("FFO") as defined by NAREIT for the first quarter 2014 was $39.2 million, or $0.17 per diluted share, as compared to $39.3 million, or $0.16 per diluted share, for the first quarter of 2013.

Net income for the first quarter 2014 totaled $3.3 million, or $0.01 per diluted share, as compared to $82.0 million, or $0.33 per diluted share, for the first quarter of 2013. Net income in the first quarter of 2013 was primarily due to a $77.2 million non-recurring gain recognized upon the purchase of the remaining equity interest in 17 properties previously held in the Company's joint venture with Duke Realty.

Investment Activity

In January, the Company acquired a newly developed 622,440 square foot single tenant distribution/warehouse property located in Indianapolis, Indiana for $30.2 million. The property is 100% leased. Additionally, during the quarter, the Company sold a multi-tenant office property, One Conway Park in suburban Chicago, Illinois, for gross proceeds of $13.1 million, of which the Company's pro rata share was $10.5 million.

Balance Sheet

As of March 31, 2014, the Company had total debt outstanding of approximately $1.6 billion, including its pro rata share of unconsolidated entities. The Company's debt had a weighted average interest rate of 3.9%, and an average remaining term to maturity of 4.93 years.

In January 2014, the Company received a BBB- corporate issuer rating with a stable outlook from Standard & Poor's Ratings Services (“S&P”).

Common Share Dividend

On April 29, 2014, the Company's Board of Trustees approved a monthly distribution of $0.042 per common share for each of the months of July, August and September of 2014. The July dividend will be paid on August 7, 2014 to all shareholders of record on July 31, 2014, the August dividend will be paid on September 8, 2014 to all shareholders of record on August 29, 2014, and the September dividend will be paid on October 7, 2014 to all shareholders of record on September 30, 2014.

2014 Guidance

The Company is reaffirming its full year 2014 guidance for Core FFO of $0.65 to $0.69 per share, based on management’s expectations as of the date of this release. The guidance presented does not include the effects of unannounced property acquisitions, dispositions or capital transaction activity completed subsequent to March 31, 2014.

Supplemental Information

The Company released supplemental information, available at www.ChambersStreet.com under the Investors Relations section, with additional detail, including a description of non-GAAP financial measures and reconciliation to GAAP measures.

Investor Conference Webcast and Conference Call

The Company will host a webcast and conference call at 8:30 a.m. Eastern Time on Friday, May 2, 2014, to discuss first quarter results. The number to call is 1-877-407-9039 (domestic) or 1-201-689-8470 (international). The live webcast will be available at www.ChambersStreet.com under the Investor Relations section. A replay of the conference call will be available through May 16, 2014, by dialing 1-877-870-5176 (domestic) or 1-858-384-5517 (international) and entering the passcode 13579922.

About Chambers Street Properties (NYSE: CSG)

Chambers Street is a real estate investment trust focused on acquiring, owning and operating net leased industrial and office properties, leased to creditworthy tenants. As of March 31, 2014, Chambers Street owned or had a majority interest in 129 properties located across 20 U.S. states, France, Germany, and the United Kingdom encompassing approximately 35.8 million rentable square feet.

For additional information, please visit: www.ChambersStreet.com.

   
CHAMBERS STREET PROPERTIES
Consolidated Balance Sheets

as of March 31, 2014 and December 31, 2013

($ In Thousands, Except Share Data)

 
March 31, December 31,
2014 2013
(unaudited)
ASSETS
Investments in Real Estate:
Land $ 645,592 $ 639,382
Land Available for Expansion 25,752 24,631
Buildings and Improvements 1,625,610   1,606,209  
2,296,954 2,270,222
Less: Accumulated Depreciation and Amortization (213,156 ) (195,778 )
Net Investments in Real Estate 2,083,798 2,074,444
Investments in Unconsolidated Entities 497,851 514,802
Cash and Cash Equivalents 44,565 83,007
Restricted Cash 12,216 15,236
Tenant and Other Receivables, Net 11,689 10,394
Deferred Rent 36,794 35,499
Deferred Leasing Costs and Intangible Assets, Net 242,368 248,872
Deferred Financing Costs, Net 10,931 11,585
Prepaid Expenses and Other Assets 12,100   16,757  
Total Assets $ 2,952,312   $ 3,010,596  
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Secured Notes Payable, Net $ 656,520 $ 681,200
Unsecured Term Loan Facilities 570,000 570,000
Unsecured Revolving Credit Facility 170,044 170,044
Accounts Payable, Accrued Expenses and Other Liabilities 45,892 50,053
Intangible Liabilities, Net 27,024 28,070
Prepaid Rent and Security Deposits 15,902 16,648
Distributions Payable 9,954   9,931  
Total Liabilities 1,495,336 1,525,946
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Common Shares of Beneficial Interest, $0.01 par value, 990,000,000 shares authorized; 237,010,447 and 236,463,981 issued and outstanding as of March 31, 2014 and December 31, 2013, respectively 2,360 2,359
Additional Paid-in-Capital 2,067,772 2,067,008
Accumulated Deficit (615,814 ) (589,313 )
Accumulated Other Comprehensive Income 2,658   4,596  
Total Shareholders’ Equity 1,456,976   1,484,650  
Total Liabilities and Shareholders’ Equity $ 2,952,312   $ 3,010,596  
 
 
CHAMBERS STREET PROPERTIES
Consolidated Statements of Operations

For the Three Months Ended March 31, 2014 and 2013 (unaudited)

(In Thousands, Except Share Data)

 
Three Months Ended
March 31,
2014   2013
REVENUES
Rental $ 51,876 $ 43,551
Tenant Reimbursements 15,220 9,881
Other Property Income 1,069  

-

 
Total Revenues 68,165   53,432  
EXPENSES
Property Operating 9,553 6,156
Real Estate Taxes 9,801 7,435
General and Administrative 6,864 4,960
Investment Management Fee

-

500
Acquisition-Related 290 1,841
Depreciation and Amortization 27,238 21,796
Transition and Listing

-

  35  
Total Expenses 53,746   42,723  
OTHER EXPENSES AND INCOME
Interest and Other Income 167 207
Interest Expense (14,061 ) (9,187 )
Interest Expense and Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments 26 (1,260 )
Gain on Conversion of Equity Interest to Controlling Interest

-

  77,235  
Total Other (Expenses) Income (13,868 ) 66,995  
Income Before Provision for Income Taxes and Equity in Income of Unconsolidated Entities 551 77,704
Provision For Income Taxes (58 ) (69 )
Equity in Income of Unconsolidated Entities 2,826   4,364  
NET INCOME FROM CONTINUING OPERATIONS 3,319   81,999  
DISCONTINUED OPERATIONS
Income from Discontinued Operations

-

  91  
TOTAL INCOME FROM DISCONTINUED OPERATIONS

-

  91  
NET INCOME 3,319 82,090
Net Income Attributable to Non-Controlling Operating Partnership Units

-

  (83 )
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 3,319   $ 82,007  
Basic and Diluted Net Income Per Share from Continuing Operations Attributable to Common Shareholders $ 0.01   $ 0.33  
Basic and Diluted Net Income Per Share Attributable to Common Shareholders $ 0.01   $ 0.33  
Weighted Average Common Shares Outstanding-Basic and Diluted 236,583,752   248,477,507  
Dividends Declared Per Share $ 0.126 $ 0.150
 
 
CHAMBERS STREET PROPERTIES
Reconciliation of Net Income to FFO, Core FFO, and AFFO

For the Three Months Ended March 31, 2014 and 2013 (unaudited)

(In Thousands, Except Share Data)

 
Three Months Ended
March 31,
2014   2013
Net Income $ 3,319 $ 82,090
Adjustments:
Real Estate Depreciation and Amortization 27,132 22,004
Pro Rata Share of Real Estate Depreciation and Amortization from Unconsolidated Entities 8,770 10,150
Gain on Conversion of Equity Interest to Controlling Interest

-

(77,235 )
Pro Rata Share of Realized Loss on Investment in CBRE Strategic Partners Asia

-

  2,245  
Funds from Operations 39,221 39,254
Acquisition-Related Expenses 290 1,841
Net Change in Fair Value of Non-Qualifying Derivative Financial Instruments (26 ) 917
Transition and Listing Expenses

-

35
Pro Rata Share of Unrealized Loss (Gain) on Investment in CBRE Strategic Partners Asia 69   (2,533 )
Core Funds from Operations 39,554 39,514
Amortization of Non-Cash Interest Expense (104 ) 69
Pro Rata Share of Amortization of Non-Cash Interest Expense from Unconsolidated Entities 118 190
Amortization of Above and Below Market Leases 1,482 1,373
Pro Rata Share of Amortization of Above/Below Market Leases from Unconsolidated Entities (54 ) 87
Amortization of Deferred Revenue Related to Tenant Improvements (276 )

-

Share Based Compensation 1,012 440
Straight-Line Rent Adjustments, Net (1,291 ) (1,910 )
Pro Rata Share of Straight-Line Rent Adjustments, Net from Unconsolidated Entities 506 (1,582 )
Recurring Capital Expenditures (1,852 ) (623 )
Pro Rata Share of Recurring Capital Expenditures from Unconsolidated Entities (121 ) (838 )
Adjusted Funds from Operations $ 38,974   $ 36,720  
Amounts Per Share (Basic and Diluted):
Net Income $ 0.01 $ 0.33
Funds from Operations $ 0.17 $ 0.16
Core Funds from Operations $ 0.17 $ 0.16
Adjusted Funds From Operations $ 0.16 $ 0.15
Weighted Average Common Shares Outstanding - Basic & Diluted 236,583,752 248,477,507
 

Non-GAAP Supplemental Financial Measures:

Funds from Operations

The National Association of Real Estate Investment Trusts, or NAREIT, created Funds from Operations, or FFO, as a non-GAAP supplemental measure of REIT operating performance, which is designed to reflect the impact on operations from trends in occupancy rates, rental rates and operating costs. The most directly comparable GAAP measure to FFO is net income. FFO is used commonly in the real estate industry because historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry analysts and investors consider presentations of operating results for REITs that use historical cost accounting to be insufficient.

We compute FFO in accordance with standards established by NAREIT. The revised NAREIT White Paper on FFO defines FFO as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, impairment charges and gains and losses from sales of depreciable operating property, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures.

Core Funds from Operations

Changes in the accounting and reporting rules under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that have been put into effect since the establishment of NAREIT’s definition of FFO have prompted an increase in the non-cash and non-operating items included in FFO. We calculate Core Funds from Operations, or Core FFO, as FFO exclusive of the net effects of acquisition costs, interest rate swap gains/losses, non-recurring expenses such as transition and listing costs, and unrealized gain/loss in investments in unconsolidated entities.

We believe that Core FFO is a useful measure of management’s decision-making process and appropriately presents our results of operations on a comparative basis. The items that we exclude from net income are subject to significant fluctuations from period to period that cause both positive and negative effects on our results of operations, often in inconsistent and unpredictable directions. For example, our acquisition costs are primarily the result of the volume of our acquisitions completed during each period, and therefore we believe such acquisition costs are not reflective of our operating results during each period. Similarly, unrealized gains or losses that we have recognized during a given period are based primarily upon changes in the estimated fair market value of certain of our investments due to changes in market conditions and do not necessarily reflect the operating performance of these properties during the corresponding period. Further, costs associated with certain other non-reoccurring expenses, such as the process of listing our common shares on the New York Stock Exchange and our modified “Dutch Auction” tender offer are not reflective of our operating results during each period.

We believe that Core FFO is useful to investors as a supplemental measure of operating performance because adjusting FFO to exclude acquisition costs, unrealized gains and/or losses or other non-reoccurring expenses provides investors a view of the performance of our portfolio over time, including if we cease to acquire properties on a frequent and regular basis and allows for a comparison of the performance of our portfolio with other REITs that are not currently engaging in acquisitions. We also believe that Core FFO may provide investors with a useful indication of our future performance, and of the sustainability of our current distribution policy. However, because Core FFO excludes acquisition costs, unrealized gains or losses and/or other non-recurring expenses which are important components in an analysis of our historical performance, such supplemental measure should not be construed as a historical performance measure and may not be as useful a measure for estimating the value of our common shares.

Adjusted Funds from Operations

We calculate Adjusted Funds From Operations, or AFFO, as Core FFO exclusive of the net effects of (i) amortization associated with deferred financings costs; (ii) amortization of above- and below-market lease intangibles; (iii) amortization of premium on notes payable; (iv) amortization of deferred revenue related to tenant improvements; (v) non-cash share-based compensation expense; (vi) straight-line rental revenue; and (vii) recurring capital expenditures.

Not all REITs calculate FFO, Core FFO or AFFO (or an equivalent measure), in the same manner and therefore comparisons with other REITs may not be meaningful. None of these measures present, nor do we intend for them to present, a complete picture of our financial condition and/or operating performance. We believe that net income, as computed under GAAP, appropriately remains the primary measure of our performance and that FFO, Core FFO and AFFO, when considered in conjunction with net income, improves the investing public’s understanding of the operating results of REITs and makes comparisons of REIT operating results more meaningful.

Forward-Looking Statements

This press release may contain various “forward-looking statements.” You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “would,” “could,” “should,” “seeks,” “approximately,” “intends,” “plans,” “projects,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Statements regarding the following subjects may be impacted by a number of risks and uncertainties such as our business strategy; our ability to obtain future financing arrangements; estimates relating to our future distributions; our understanding of our competition; market trends; projected capital expenditures; the impact of technology on our products, operations and business; and the use of the proceeds of any offerings of securities. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our common shares, along with the following factors that could cause actual results to vary from our forward-looking statements such as: general volatility of the securities markets in which we participate; national, regional and local economic climates; changes in supply and demand for office and industrial properties; adverse changes in the real estate markets, including increasing vacancy, decreasing rental revenue and increasing insurance costs; availability and credit worthiness of prospective tenants; our ability to maintain rental rates and maximize occupancy; our ability to identify and secure acquisitions; our failure to successfully manage growth or operate acquired properties; our pace of acquisitions and/or dispositions of properties; risks related to development projects (including construction delay, cost overruns or our inability to obtain necessary permits); payment of distributions from sources other than cash flows and operating activities; receiving and maintaining corporate debt ratings and changes in the general interest rate environment; availability of capital (debt and equity); our ability to refinance existing indebtedness or incur additional indebtedness; failure to comply with our debt covenants; unanticipated increases in financing and other costs, including a rise in interest rates; the actual outcome of the resolution of any conflict; material adverse actions or omissions by any of our joint venture partners; our ability to operate as a self-managed company; availability of and ability to retain our executive officers and other qualified personnel; future terrorist attacks in the United States or abroad; the ability of our operating partnership to continue to qualify as a partnership for U.S. federal income tax purposes; our ability to continue to qualify as a REIT for U.S. federal income tax purposes; foreign currency fluctuations; changes to accounting principles, policies and guidelines applicable to REITs; legislative or regulatory changes adversely affecting REITs and the real estate business; and environmental, regulatory and/or safety requirements. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and other of our documents that are on file with or furnished to the SEC. Any forward-looking statements made in this press release are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us or our business or operations. We undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward-looking statements.

Credit ratings may not reflect the potential impact of risks relating to the structure or trading of our shares and are provided solely for informational purposes. Credit ratings are not recommendations to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion. We do not undertake any obligation to maintain the ratings or to advise of any change in ratings. Each agency’s rating should be evaluated independently of any other agency’s rating. An explanation of the significance of the ratings may be obtained from each of the rating agencies.

The foregoing discussion related to our consolidated financial statements should be read in conjunction with the financial statements for the quarter ended March 31, 2014 included in the Form 10-Q to be filed on or about May 5, 2014.

Contacts

Institutional Relations
ICR, LLC.
Stephen Swett, 203-682-8377
Stephen.Swett@icrinc.com
or
Investor Relations
Chambers Street
Nick Dolya, 407-212-7068
Nick.Dolya@CSPREIT.com
or
Media
Tim Gallen
Tim@Gallen.com
or
Andrew Neilly
Andrew@Gallen.com
925 930-9848

Sharing

Contacts

Institutional Relations
ICR, LLC.
Stephen Swett, 203-682-8377
Stephen.Swett@icrinc.com
or
Investor Relations
Chambers Street
Nick Dolya, 407-212-7068
Nick.Dolya@CSPREIT.com
or
Media
Tim Gallen
Tim@Gallen.com
or
Andrew Neilly
Andrew@Gallen.com
925 930-9848