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," appearing elsewhere in this report and in our 2020 Form 10-K. Executive Summary The COVID-19 pandemic continues to impact our business, tenants, and industry as a whole. As pandemic-related state and local mandates are eased and tenants have begun to come back to their offices, we remain committed to providing healthy and safe workplaces for our employees, tenants, and communities. The long-term impact of the pandemic on our tenants, demand for office space, and the global economy continues to be uncertain and will depend on various factors, including the remaining duration of the pandemic, the development of COVID-19 variants (e.g., the Delta variant), and the effectiveness of vaccines or other treatments. Sustained work-from-home trends could negatively impact demand for office space in our markets and consequently could impede our ability to enter into new leases or to re-lease space as leases roll over. We continue to work closely with our tenants and aim to address their concerns on a case-by-case basis, including, in some cases, by implementing arrangements that address cash flow interruptions while maintaining long-term lease obligations. 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 five development or redevelopment projects. 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. We also hold interests in three real estate funds that invest in office and mixed-use assets inNew York ,Boston , andWashington, D.C. , and have contracts to provide real estate services to properties affiliated with those funds. InApril 2021 , our board of directors publically announced the commencement of a comprehensive review of strategic alternatives for the Company, which included outreach to, and identification of, multiple potential transaction counterparties. OnSeptember 7, 2021 , the strategic review process culminated when the Company, Columbia OP, Parent, and Merger Sub entered into the Merger Agreement. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Columbia OP with Columbia OP remaining as the surviving entity, and immediately following the Partnership Merger, Parent will merge with and into the Company with the Company remaining as the surviving entity. Parent and Merger Sub are affiliates of funds managed by PIMCO. The PIMCO Transaction was unanimously approved by the Company's Board of Directors. Pursuant to the Merger Agreement, the closing of the Mergers will take place on the third business day after satisfaction of waiver of the conditions to the Merger (other than those conditions that by their nature are to be satisfied or waived at the closing, but subject to the satisfaction or waiver of such conditions) or at such other date as mutually agreed to by the parties to the Merger Agreement. OnOctober 26, 2021 , we filed a definitive proxy statement with theSecurities and Exchange Commission , orSEC , in connection with the Mergers. See our definitive proxy statement on Schedule 14A, the risk factors contained below under the heading "Part II - Other Information - Item 1A. Risk Factors" and Note 1, Organization, in the accompanying Consolidated Financial Statements for further discussion of the Merger Agreement and the Mergers. The Mergers are expected to close as early as end of 2021, although closing is subject to various conditions and therefore we cannot provide any assurance that the Mergers will close in a timely manner or at all. Our ability to execute on our business plan could be adversely impacted by operating restrictions included in the Merger Agreement. We have incurred and will incur a variety of merger-related costs, which, while not recurring in nature, will not be recoverable if the Mergers are not consummated. As ofSeptember 30, 2021 , the operating properties in our portfolio were 87.9% leased, with 5.8% of our leases scheduled to expire over the next 12 months. During the first nine months of 2021, we leased a total of 203,880 square feet of space, including 44,600 square feet of new and renewal leasing at650 California Street inSan Francisco , and a 25,000-square-foot lease at799 Broadway inNew York . This is the first lease secured at this new ground-up office development. 35
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As ofSeptember 30, 2021 , our debt-to-real-estate-asset ratio was 34.1%(1), and approximately 32.8%(1) on a net basis (i.e., reduced for cash on hand). Additionally, as ofSeptember 30, 2021 , 88.1%(1) 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 was 3.56%(1) per annum. Our debt maturities are laddered over the next five years. (1)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 87.9% leased as ofSeptember 30, 2021 , and 96.3% leased as ofSeptember 30, 2020 . The following table sets forth details related to the financial impact of our recent leasing activities for properties we own directly and through joint ventures (square feet prorated for our proportional share): Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Total number of leases 7 3 22 16 Square feet of leasing - renewal 7,768 10,374 90,453 73,626 Square feet of leasing - new 30,107 - 68,385 108,453 Total square feet of leasing 37,875 10,374 158,838 182,079 Lease term (months) 121 63 94 147 Tenant improvements, per square foot - renewal$ 25.33 $ 15.50 $ 39.32 $ 29.95 Tenant improvements, per square foot - new$ 147.45 $ -$ 114.55 $ 102.76 Tenant improvements, per square foot - all leases$ 136.22 $ 15.50 $ 88.00 $ 86.87 Leasing commissions, per square foot - renewal$ 21.82 $ 24.83 $ 16.96 $ 20.06 Leasing commissions, per square foot - new$ 58.65 $ -$ 45.35 $ 62.09 Leasing commissions, per square foot - all leases$ 55.26 $ 24.83
Rent leasing spread - renewal(1) (6.0) % 5.6 % 11.3 % 31.0 % Rent leasing spread - new(1) 64.3 % - % 36.7 % 9.8 % Rent leasing spread - all leases(1) 44.7 % 5.6 % 23.1 % 19.4 % (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. For 2021, rent leasing spreads primarily relate to an 8,000-square-foot lease expansion at 116 Huntington inBoston and a 7,000-square-foot new lease at221 Main Street inSan Francisco . For 2021, tenant improvement and leasing commissions primarily relate to a new 24,700-square-foot lease at799 Broadway inNew York , a 15,600-square-foot lease at650 California Street inSan Francisco , and a 10,400-square-foot lease at 116 Huntington inBoston . For 2020, leasing activity primarily relates to a 68,200-square-foot lease renewal and expansion at1800 M Street inWashington, D.C. , a new 34,800-square-foot lease at315 Park Avenue South inNew York , a new 59,500 square-foot lease at80 M Street inWashington, D.C. , a 15,500-square-foot office lease renewal at650 California Street inSan Francisco , and a 10,100-square-foot office lease renewal at221 Main Street inSan Francisco . Rent Collections and Concessions Our tenants' businesses and operations have been impacted by the COVID-19 pandemic in a variety of ways. In certain instances, we have provided rent concessions as a temporary measure to address our tenants' near-term cash flow needs. During the third quarter of 2021, we deferred rents totaling$0.2 million (0.2% of billings) and abated rents totaling$0.2 million (0.2% of billings), including our prorated share of rents earned through unconsolidated joint 36
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ventures. Overall, our collections levels remain high and similar to our pre-COVID-19 levels. For the third quarter of 2021, our collection rates are as follows, as a percentage of original billings:
For the Three Months EndedSeptember 30, 2021 Collected 98.3 % Deferred 0.2 % Abated 0.2 % Outstanding 1.3 % Total 100.0 % 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 third quarter of 2021. As ofSeptember 30, 2021 , we had access to$486.0 million of additional borrowings under our Revolving Credit Facility and$30.1 million of cash on hand. Short-Term Liquidity and Capital Resources During the first nine months of 2021, we generated net cash flows from operating activities of$75.9 million , which consisted 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 and Preferred OP Unit holders of$98.5 million , which included dividend payments for three quarters ($24.0 million for fourth quarter of 2020 and$74.5 million for the first three quarters of 2021). During the first nine months of 2021, we had net borrowings of$54.0 million on our Revolving Credit Facility. These proceeds, along with cash on hand at the beginning of the period, were used to fund leasing and capital projects for consolidated and unconsolidated properties ($82.6 million ). As ofSeptember 30, 2021 , we had cash on hand of$30.1 million . 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, operating expenses, and interest and principal payments. As ofOctober 22, 2021 , in addition to cash on hand, we have access to additional borrowings of$490.0 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, borrowing proceeds, and select property dispositions. We expect that our primary uses of capital will include 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. As ofSeptember 30, 2021 , our debt-to-real-estate-asset ratio was approximately 34.1% on a gross basis, and approximately 32.8% on a net basis (i.e., reduced for cash on hand). 37 -------------------------------------------------------------------------------- Table of Contents 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. OnMarch 5, 2021 , theUnited Kingdom Financial Conduct Authority , which regulates LIBOR, announced that USD LIBOR will no longer be published afterJune 30, 2023 . 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 ofSeptember 30, 2021 , we had$164.0 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 ofSeptember 30, 2021 : •$350.0 million of 10-year, unsecured 4.150% senior notes issued at 99.859% of their face value, maturing onApril 1, 2025 , which require semi-annual interest payments in April and October. •$350.0 million of 10-year, unsecured 3.650% senior notes issued at 99.626% of their face value, maturing onAugust 15, 2026 , which require semi-annual interest payments in February and August. 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 97.3% of Columbia OP, and includes the accounts of Columbia 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's 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 are 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 38
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Table of Contents 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 guarantees, 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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