COLUMBIA PROPERTY TRUST, INC. The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements (and notes thereto) and the "Cautionary Note Regarding Forward-Looking Statements" preceding Part I of this report, as well as our consolidated financial statements (and the notes thereto) and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2019 Form 10-K. Executive Summary OnMarch 11, 2020 , theWorld Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. Response to the COVID-19 outbreak led to aggressive actions to reduce the spread of the disease which seriously disrupted activities in large segments of the economy, including in the regional economies where we operate. As various regions of the country begin to reopen, we are continuing to monitor the COVID-19 outbreak and its impact on our business, tenants, and industry as a whole. We are committed to the health and safety of our employees, tenants, and communities. Because our portfolio is well leased with minimum near term rollover, and our rent collections level remains high, our operating performance has not materially suffered from the COVID-19 pandemic to date. The long-term impact of the pandemic on our tenants and the global economy remains uncertain and will depend on various factors, including the scope, severity, and duration of the pandemic. A continued economic downturn and recession resulting from the pandemic could adversely affect many of our tenants which could, in turn, adversely impact our business, financial condition, and results of operations. We have worked closely with our impacted tenants and will continue to address their concerns on a case-by-case basis, seeking arrangements that address cash flow interruptions while maintaining long-term lease obligations. To date, we have executed five rent deferrals totaling$1.3 million (1), and a rent abatement withWeWork for$6.7 million ($0.6 million to be applied in 2020, and the remainder to be applied monthly throughFebruary 2029 provided the tenant is not in default). Our primary strategic objective is to generate long-term stockholder returns from a combination of growing cash flows and appreciation in the values of our properties. We own and operate high-quality office properties located in high-barrier-to-entry markets, primarilyNew York ,San Francisco ,Washington, D.C. , andBoston . Our approach is to own office buildings that are competitive within the top tier of their markets or that will be repositioned as such through value-add initiatives, including development or redevelopment. Our investment objectives include optimizing our portfolio allocation between stabilized investments and more growth-oriented, value-add investments and development projects with an emphasis on central business districts and multi-tenant buildings. OnJanuary 24, 2020 , we acquired Normandy, a developer, operator, and investment manager of office and mixed-use assets inNew York ,Boston , andWashington, D.C. , interests in three real estate funds, and contracts to provide real estate services to properties affiliated with those funds. We believe that the acquisition of Normandy will further our strategic initiatives by strengthening our platform with additional development and redevelopment expertise, deal sourcing, and other key capabilities, and by increasing our access to capital through Normandy's investor relationships. Over the past several years, we have undertaken a capital recycling program that has involved selling more than 50 properties in geographically dispersed markets for aggregate proceeds of$4.5 billion , and reinvesting those proceeds in our core markets. InJanuary 2020 , we soldCranberry Woods Drive inPittsburgh for a gross sale price of$180.0 million ; and inMarch 2020 , we soldPasadena Corporate Park inLos Angeles for a gross sale price of$78.0 million , which marked the exit of our last non-target market. InMarch 2020 , we acquired an 8.65% interest inTerminal Warehouse , a 1.2-million-square-foot property located inWest Chelsea, New York , that will be fully redeveloped into a mixed-use retail and office space, for an initial equity contribution of approximately$40.0 million . As ofJune 30, 2020 , the operating properties in our portfolio are 97.2% leased, with less than 4% of our leases scheduled to expire over the next 12 months. During the first six months of 2020, we leased a total of 87,000 square feet of space, including a lease renewal and expansion for an aggregate 68,200 square feet at1800 M Street inWashington, D.C. As ofJune 30, 2020 , due to borrowings on our line of credit, which are held as cash on hand at period end, our debt-to-real-estate-asset ratio is 41.7%(2), and approximately 35.2% on a net basis (i.e., reduced for cash on hand)(2). Additionally, 89%(2) of our portfolio is unencumbered by mortgages; and the weighted-average cost of our consolidated and pro-rata share of joint venture borrowings during the quarter is 3.10%(1) per annum. Our debt maturities are laddered, coming 36
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due over the next six years, and$951.0 million of our unsecured borrowings can be repaid prior to maturity without penalty. From time to time when we believe our stock is undervalued, we may take advantage of market opportunities by using our stock repurchase program to buy shares and return capital to our stockholders. During the first six months of 2020, we repurchased 1.2 million shares at an average price of$19.47 per share, for aggregate purchases of$23.3 million . As ofJune 30, 2020 ,$143.3 million remains available under our current repurchase program. (1)Includes our share of deferred rent earned through unconsolidated joint ventures. (2)Statistics include 100% of all of our consolidated properties and our ownership interest in the gross real estate assets and debt at properties held through unconsolidated joint ventures as described in Note 4,Unconsolidated Joint Ventures , of the accompanying financial statements. Key Performance Indicators Our operating results depend primarily upon the level of income generated by the leases at our properties. Occupancy and rental rates are key drivers of our lease income. Our portfolio was 97.2% leased as ofJune 30, 2020 , and 97.6% leased as ofJune 30, 2019 . The following table sets forth details related to the financial impact of our recent leasing activities for properties we own directly and based on our proportionate share of properties owned through unconsolidated joint ventures: Six Months Ended June Three Months Ended June 30, 30, 2020 2019 2020 2019 Total number of leases 5 13 13 26 Square feet of leasing - renewal 46,137 7,210 63,252 11,135 Square feet of leasing - new 5,904 53,721 108,453 117,012 Total square feet of leasing 52,041 60,931 171,705 128,147 Lease term (months) 76 108 148 113 Tenant improvements, per square foot - renewal$ 29.62 $ 90.00 $ 31.15 $ 93.40 Tenant improvements, per square foot - new$ 81.29 $ 101.73 $ 102.76 $ 95.50 Tenant improvements, per square foot - all leases$ 36.67 $ 100.43 $ 88.08 $ 95.38 Leasing commissions, per square foot - renewal$ 20.10 $ 33.25 $ 19.67 $ 30.69 Leasing commissions, per square foot - new$ 34.72 $ 21.42 $ 62.09 $ 51.56 Leasing commissions, per square foot - all leases$ 22.10 $ 22.73
Rent leasing spread - renewal(1) 28.5 % (0.5) % 33.1 % (0.3) % Rent leasing spread - new(1) 26.0 % 118.5 % 9.8 % 73.2 % Rent leasing spread - all leases(1) 28.3 % 55.6 % 19.9 % 60.2 % (1)Rent leasing spreads are calculated based on the change in base rental income measured on a straight-line basis; and, for new leases, only include space that has been vacant for less than one year. In 2020, rent leasing spreads (positive 28.3% and 19.9% for the three and six months endedJune 30, 2020 , respectively) primarily relate to a 68,200-square-foot lease renewal and expansion at1800 M Street inWashington, D.C. , a 15,500-square-foot office lease renewal at650 California Street , a 10,100-square-foot office lease renewal at221 Main Street , and a new 34,800-square-foot lease at315 Park Avenue South inNew York ; and current-year tenant improvements ($36.67 per square foot and$88.08 per square foot for the three and six months endedJune 30, 2020 , respectively); and leasing commissions ($22.10 per square foot and$53.40 per square foot for the three and six months endedJune 30, 2020 , respectively) primarily relate to the 68,200-square-foot lease renewal and expansion at1800 M Street inWashington, D.C. , and a new 59,500-square-foot lease at80 M Street inWashington, D.C. In 2019, rent leasing spreads were positive (55.6% and 60.2% for the three and six months endedJune 30, 2019 , respectively). primarily related to a new 5,800-square-foot office lease at 221 Main inSan Francisco and a new 3,500-square-foot retail lease at315 Park Avenue South inNew York , offset by other leasing across our portfolio. Tenant improvement costs ($100.43 and$95.38 per square foot for the three and six months endedJune 30, 2019 , respectively) and lease commissions ($22.73 and$50.31 per square foot for the three and six months endedJune 30, 2019 , respectively) primarily relate to a new 26,000- 37
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square-foot lease at 116 Huntington and the new 3,500-square-foot retail lease at315 Park Avenue South inNew York . Over the next 12 months, approximately 187,000 square feet of leases at our operating properties (approximately 4.0% of our portfolio, based on revenues) are scheduled to expire. Rent Collections and Concessions Our rent collections levels remain close to our pre-COVID-19 collection levels, and we have collected 97.8% of our second quarter of 2020 monthly billings, which reflects the impact of our executed deferrals. Several of our tenants have requested rent relief because of the impact that the COVID-19 pandemic is having on their businesses. As ofJune 30, 2020 , we had executed four rent deferrals totaling$0.5 million , including our share of deferrals made by our unconsolidated joint ventures. OnJuly 1, 2020 , we terminated our lease withWeWork at 149 Madison inNew York , which resulted in a$6.4 million termination fee, and amended two other leases withWeWork , which resulted in abating rents of$6.7 million ($0.6 million to be applied 2020, and the remainder to be applied monthly throughFebruary 2029 provided the tenant is not in default). As the impact of the pandemic continues, other tenants may request rent relief or seek to renegotiate the terms of their contracts with us, which may adversely affect our operating results and could result in additional lease terminations. Liquidity and Capital Resources Overview Cash flows generated from the operation of our properties are primarily used to fund recurring expenditures and stockholder dividends. The amount of distributions to common stockholders is determined by our board of directors and is dependent upon a number of factors, including funds deemed available for distribution based principally on our current and future projected operating cash flows, reduced by capital requirements necessary to maintain our existing portfolio, our future capital needs, and future sources of liquidity, as well as the annual distribution requirements necessary to maintain our status as a REIT under the Code. Investments in new property acquisitions and first-generation capital improvements are generally funded with capital proceeds from property sales, debt, or cash on hand. Our board of directors elected to maintain a$0.21 dividend rate for the second quarter of 2020. We continue to monitor the rapid developments around COVID-19 and the related impacts to our business. In response to the economic uncertainty that has unfolded as a result of COVID-19, we drew down$200.0 million on our Revolving Credit Facility in lateMarch 2020 and held approximately$277.7 million of cash balances as ofJune 30, 2020 . See Item IA., Risk Factors, for additional information. Short-Term Liquidity and Capital Resources During the first six months of 2020, we generated net cash flows from operating activities of$44.4 million , which consist primarily of receipts from tenants for rent and reimbursements, reduced by payments for operating costs, administrative expenses, interest expense, and lease inducements. During the same period, we paid total distributions to stockholders of$72.4 million , which included dividend payments for three quarters ($24.2 million for fourth quarter of 2019 and$48.2 million for the first two quarters of 2020). Dividend payments for the first two quarters of 2020 ($48.2 million ) exceeded cash flow from operations for the same period ($44.1 million ), primarily due to acquisition costs incurred in connection with the Normandy acquisition ($12.4 million ). During the first six months of 2020, we received$250.8 million in aggregate net sales proceeds from the sale ofCranberry Woods Drive andPasadena Corporate Park and made net borrowings on our Revolving Credit Facility of$167.0 million . These proceeds were used to fund the Terminal Warehouse Joint Venture ($40.0 million ), leasing and capital projects for consolidated and unconsolidated properties ($50.3 million ), and redemptions of common stock ($25.5 million ). As ofJune 30, 2020 , we had cash on hand of$277.7 million , which includes$200 million of proceeds drawn on our Revolving Credit Facility in lateMarch 2020 in response to the increase in economic uncertainty resulting from the unfolding of the COVID-19 pandemic. Over the short term, we expect our primary sources of capital and liquidity to be operating cash flows and cash on hand, and expect that our principal demands for capital will be to fund development and redevelopment costs, capital improvements to our existing portfolio, stockholder distributions, stock repurchases, operating expenses, and interest and principal payments. As ofJuly 24, 2020 , in addition to cash on hand, we have access to additional borrowings of 38 -------------------------------------------------------------------------------- Table of Contents$149.0 million under our Revolving Credit Facility. We believe that we will have adequate liquidity and capital resources to meet our current obligations as they come due. Long-Term Liquidity and Capital Resources Over the long term, we expect that our primary sources of capital will include operating cash flows, cash on hand, borrowing proceeds, and select property dispositions. We expect that our primary uses of capital will continue to include stockholder distributions; acquisitions; development and redevelopment costs; capital expenditures, such as building improvements, tenant improvements, and leasing costs; and repaying or refinancing debt. Consistent with our financing objectives and operational strategy over the long term, we have generally maintained debt levels at less than 40% of the undepreciated costs of our assets; however, due to the amount of cash on hand as ofJune 30, 2020 , our debt-to-real-estate-asset ratio was approximately 41.7% on a gross basis, and approximately 35.2% on a net basis (i.e., reduced for cash on hand). Our debt-to-real-estate-asset ratio includes our share of joint venture real estate assets and debt, as well as basis adjustments related to joint venture real estate assets. As described below, our variable-rate indebtedness may use London Interbank Offering Rate ("LIBOR") as a benchmark for establishing the rate. LIBOR is expected to be discontinued at the end of 2021. The anticipated discontinuation of LIBOR will require lenders and their borrowers to transition from LIBOR to an alternative benchmark interest rate, which might increase the cost of our variable-interest debt instruments. When LIBOR is discontinued as anticipated, or otherwise at our option, our Revolving Credit Facility and term loan facilities provide for alternate interest rate calculations. Unsecured Bank Debt Our Revolving Credit Facility has a capacity of$650.0 million and matures inJanuary 2023 , with two six-month extension options. As ofJune 30, 2020 , we had$501.0 million in outstanding borrowings on the Revolving Credit Facility. Amounts outstanding under the Revolving Credit Facility bear interest at either (i) LIBOR, plus an applicable margin ranging from 0.775% to 1.45% for LIBOR borrowings, or (ii) an alternate base rate, plus an applicable margin ranging from 0.00% to 0.45% for base rate borrowings, based on our applicable credit rating. The per annum facility fee on the aggregate revolving commitment (used or unused) ranges from 0.125% to 0.30%, also based on our applicable credit rating. Additionally, the Revolving Credit Facility, along with the$300 Million Term Loan, as described below, provides for four accordion options for an aggregate additional amount of up to$500 million , subject to certain limitations. Our$300 Million Term Loan matures inJanuary 2024 and bears interest, at our option, at either (i) LIBOR, plus an applicable margin ranging from 0.85% to 1.65% for LIBOR loans, or (ii) an alternate base rate, plus an applicable margin ranging from 0.00% to 0.65% for base rate loans, based on our applicable credit rating. The interest rate on the$300 Million Term Loan is effectively fixed with an interest rate swap agreement, which is designated as a cash flow hedge. Based on the terms of the interest rate swap and our current credit rating, the interest rate on the$300 Million Term Loan is effectively fixed at 2.55%. Our$150 Million Term Loan matures inJuly 2022 and bears interest, at our option, at either (i) LIBOR, plus an applicable margin ranging from 0.90% to 1.75% for LIBOR loans, or (ii) alternative base rate, plus an applicable margin ranging from 0.00% to 0.75% for base rate loans. The interest rate on the$150 Million Term Loan is effectively fixed with an interest rate swap agreement, which is designated as a cash flow hedge. Based on the terms of the interest rate swap and our current credit rating, the interest rate on the$150 Million Term Loan is effectively fixed at 3.07%. Bonds Payable We have two series of bonds outstanding as ofJune 30, 2020 : •$350.0 million of 10-year, unsecured 4.150% senior notes issued at 99.859% of their face value, which require semi-annual interest payments in April and October (the "2025 Bonds Payable"). •$350.0 million of 10-year, unsecured 3.650% senior notes issued at 99.626% of their face value, which require semi-annual interest payments in February and August (the "2026 Bonds Payable"). Columbia OP is the issuer of our Bonds Payable, both series of which are fully and unconditionally guaranteed byColumbia Property Trust .Columbia Property Trust owns 97.2% of Columbia OP, and includes the accounts of Columbia 39
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Table of Contents OP in its consolidated financial statements. The primary differences betweenColumbia Property Trust and Columbia OP are as follows:Columbia Property Trust owns one property directly and has made intercompany loans to subsidiaries of Columbia OP, andColumbia Property Trust - the publicly traded entity - issues publicly traded common stock to investors (including employees), and has engaged in share repurchases from time to time.Columbia Property Trust has contributed the substantial majority of proceeds from sales of its common stock to Columbia OP.Columbia Property Trust guarantees of Columbia OP's obligations under the Bonds Payable include the punctual payments of principal, premium, if any, and interest on the Bonds Payable, whether at stated maturity, by declaration of acceleration, call for redemption, or otherwise. The obligations ofColumbia Property Trust under its guarantees is limited to the amount necessary to prevent such guarantees from constituting a fraudulent transfer or conveyance under applicable law. The Bonds Payable are Columbia OP's senior unsecured obligations and rank equally in right of payment with all of its other existing and future senior unsecured indebtedness;Columbia Property Trust's guarantees of the Bonds Payable are its senior unsecured obligations and rank equally in right of payment with all ofColumbia Property Trust's other existing and future senior unsecured indebtedness and guarantees. As a result ofColumbia Property Trust's guarantee, we are presenting the following summarized financial information (in thousands) forColumbia Property Trust and Columbia OP pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. For purposes of the following summarized financial information, transactions betweenColumbia Property Trust and Columbia OP, presented on a combined basis, have been eliminated and information for non-guarantor subsidiaries has been excluded. Balance Sheet Information:
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