UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March~~June 3130, 2018

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from . to .

Commission File No. 1-35933 (Gramercy Property Trust)

Commission File No. 33-219049 (GPT Operating Partnership LP)

Gramercy Property Trust

GPT Operating Partnership LP

(Exact name of registrant as specified in its charter)



Gramercy Property Trust	Maryland	56-2466617
GPT Operating Partnership LP	Delaware	56-2466618
	(State or other jurisdiction incorporation or organization)	(I.R.S. Employer of Identification No.)

90 Park Avenue, 32^nd Floor, New York, NY 10016 (Address of principal executive offices – zip code)

(212) 297-1000 (Registrant’s telephone number, including area code)

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.

Gramercy Property Trust Yes x No ¨ GPT Operating Partnership LP Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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).

Gramercy Property Trust Yes x No ¨ GPT Operating Partnership LP Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Gramercy Property Trust



Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨
Smaller reporting company ¨	Emerging growth company ¨	(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

GPT Operating Partnership LP



Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x
Smaller reporting company ¨	Emerging growth company ¨	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Gramercy Property Trust Yes ¨ No x GPT Operating Partnership LP Yes ¨ No x

The number of shares outstanding of Gramercy Property Trust’s common shares of beneficial interest, $0.01 par value, was 160,~~785~~795,~~498~~797 as of ~~April~~July 2726, 2018.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended ~~March~~June 3130, 2018 of Gramercy Property Trust and GPT Operating Partnership LP. Unless stated otherwise or the context otherwise requires, references to "Gramercy Property Trust," the "Company" or "Gramercy" mean Gramercy Property Trust and its consolidated subsidiaries; and references to "GPT Operating Partnership LP," the "Operating Partnership" or "GPTOP" mean GPT Operating Partnership LP and its consolidated subsidiaries. The terms "we," "our" and "us" mean the Company and all the entities owned or controlled by the Company, including the Operating Partnership.

The Company is a Maryland real estate investment trust, or REIT, which operates as a self-administered and self-managed entity and is the sole general partner of the Operating Partnership. As the general partner of the Operating Partnership, the Company has full, exclusive and complete responsibility and discretion in the day-to-day management and control of the Operating Partnership.

As of ~~March~~June 3130, 2018, the Company owned 96.7542% of the outstanding general and limited partnership interest in the Operating Partnership. As of ~~March~~June 3130, 2018, noncontrolling investors owned approximately 3.2558% of the outstanding limited partnership interest in the Operating Partnership. We refer to these interests as the noncontrolling interests in the Operating Partnership.

The Company and the Operating Partnership are managed and operated as one entity. The financial results of the Operating Partnership are consolidated into the financial statements of the Company. The Company has no significant assets other than its investment in the Operating Partnership. Substantially all of the Company’s assets are held by, and its operations are conducted through, the Operating Partnership. Therefore, the assets and liabilities of the Company and the Operating Partnership are substantially the same.

Noncontrolling interests in the Operating Partnership, shareholders' equity of the Company and partners' capital of the Operating Partnership are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership.

We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:


•	Combined reports enhance investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;


•	Combined reports eliminate duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the Company's disclosure applies to both the Company and the Operating Partnership; and


•	Combined reports create time and cost efficiencies through the preparation of one combined report instead of two separate reports.

To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:


•	Consolidated financial statements; and


•	The following notes to the consolidated financial statements:


◦	Note 9, Shareholders' Equity (Deficit) of the Company;


◦	Note 10, Partners' Capital of the Operating Partnership; and


◦	Note 11, Noncontrolling Interests.

This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Company and the Operating Partnership, respectively, in order to establish that the Chief Executive Officer and the Chief Financial Officer of the Company, in both their capacity as the principal executive officer and principal financial officer of the Company and the principal executive officer and principal financial officer of the general partner of the Operating Partnership, have made the requisite certifications and that the Company and the Operating Partnership are compliant with Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended.

GRAMERCY PROPERTY TRUST

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION	1
ITEM 1.	FINANCIAL STATEMENTS	1
	Financial Statements of Gramercy Property Trust	1
	Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017	1
	Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017	1
	Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 (unaudited)	2
	Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017 (unaudited)	2
	Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2018 and 2017 (unaudited)	3
	Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2018 and 2017 (unaudited)	3
	Consolidated Statement of Shareholders’ Equity (Deficit) and Noncontrolling Interest for the three months ended March 31, 2018 (unaudited)	4
	Consolidated Statement of Shareholders’ Equity (Deficit) and Noncontrolling Interest for the six months ended June 30, 2018 (unaudited)	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited)	5
	Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (unaudited)	5
	Financial Statements of GPT Operating Partnership LP	6
	Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017	6
	Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017	6
	Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 (unaudited)	7
	Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017 (unaudited)	7
	Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2018 and 2017 (unaudited)	8
	Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2018 and 2017 (unaudited)	8
	Consolidated Statement of Partners’ Capital for the three months ended March 31, 2018 (unaudited)	9
	Consolidated Statement of Partners’ Capital for the six months ended June 30, 2018 (unaudited)	9
	Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited)	10
	Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (unaudited)	10
	Notes to Consolidated Financial Statements (unaudited)	11
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4551
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	6170
ITEM 4.	CONTROLS AND PROCEDURES	6473
PART II.	OTHER INFORMATION	6675
ITEM 1.	LEGAL PROCEEDINGS	6675
ITEM 1A.	RISK FACTORS	6675
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6677
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	6677
ITEM 4.	MINE SAFETY DISCLOSURES	6677
ITEM 5.	OTHER INFORMATION	6677
ITEM 6.	INDEX TO EXHIBITS	6778
SIGNATURES		6879

Gramercy Property Trust

Consolidated Balance Sheets

(Unaudited, amounts in thousands, except share and per share data)


PART I.	FINANCIAL INFORMATION


ITEM I.	FINANCIAL STATEMENTS

	March 31, 2018			December 31, 2017
	June 30, 2018			December 31, 2017
Assets:
Real estate investments, at cost:
Land	$	1,~~009~~008,~~568~~704		$	1,023,908
Building and improvements	4,~~821~~849,~~301~~168			4,863,916
Less: accumulated depreciation	(~~368~~410,~~815~~020		)	(333,151		)
Total real estate investments, net	5,~~462~~447,~~054~~852			5,554,673
Cash and cash equivalents	4159,~~964~~741			30,231
Restricted cash	1512,~~041~~026			12,723
Investment in unconsolidated equity investments	99147,~~113~~282			70,214
Assets held for sale, net	~~402~~—			402
Tenant and other receivables, net	9294,~~525~~260			88,750
Acquired lease assets, net of accumulated amortization of $241,939 and $220,473	563,213			598,559
Acquired lease assets, net of accumulated amortization of $265,990 and $220,473	537,824			598,559
Other assets	~~127~~134,~~664~~763			100,484
Total assets	$	6,~~401~~433,~~976~~748		$	6,456,036
Liabilities and Equity:
Liabilities:
Senior unsecured revolving credit facility	$	~~292~~441,~~543~~773		$	357,162
Mortgage notes payable, net	~~559~~499,~~473~~215			563,521
Senior unsecured notes, net	496,~~887~~990			496,785
Senior unsecured term loans, net	1,448,~~241~~330			1,448,152
Total long-term debt, net	2,~~797~~886,~~144~~308			2,865,620
Accounts payable and accrued expenses	6045,~~151~~774			59,619
Dividends payable	62,~~380~~601			61,971
Below market lease liabilities, net of accumulated amortization of $31,201 and $28,978	159,544			166,491
Below market lease liabilities, net of accumulated amortization of $33,302 and $28,978	148,661			166,491
Other liabilities	5554,~~873~~462			50,002
Total liabilities	$	3,~~135~~197,~~092~~806		$	3,203,703
Commitments and contingencies
Noncontrolling interest in the Operating Partnership	~~137~~156,~~800~~293			113,530
Equity:
Common shares, par value $0.01, 160,782,765 and 160,686,822 issued and outstanding at March 31, 2018 and December 31, 2017, respectively	1,608			1,607
Common shares, par value $0.01, 160,792,820 and 160,686,822 issued and outstanding at June 30, 2018 and December 31, 2017, respectively	1,608			1,607
Series A cumulative redeemable preferred shares, par value $0.01, liquidation preference $87,500, and 3,500,000 shares authorized, issued and outstanding at March 31, 2018 and December 31, 2017	84,394			84,394
Series A cumulative redeemable preferred shares, par value $0.01, liquidation preference $87,500, and 3,500,000 shares authorized, issued and outstanding at June 30, 2018 and December 31, 2017	84,394			84,394
Additional paid-in-capital	4,~~411~~406,~~605~~445			4,409,677
Accumulated other comprehensive income	3529,~~667~~125			12,776
Accumulated deficit	(1,~~404~~442,~~416~~153		)	(1,369,872		)
Total shareholders' equity	3,~~128~~079,~~858~~419			3,138,582
Noncontrolling interest in other entities	~~226~~230			221
Total equity	$	3,~~129~~079,~~084~~649		$	3,138,803
Total liabilities and equity	$	6,~~401~~433,~~976~~748		$	6,456,036

The accompanying notes are an integral part of these financial statements.

Gramercy Property Trust

Consolidated Statements of Operations

(Unaudited, amounts in thousands, except share and per share data)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Revenues
Rental revenue	$	~~122~~119,~~245~~177		$	~~103~~108,~~282~~261		$	241,422		$	211,543
Operating expense reimbursements	2322,~~310~~346			2019,~~368~~628			45,656			39,996
Third-party management fees	2,~~790~~374			41,~~592~~638			5,164			6,230
Other income	1,~~135~~698			1,~~752~~838			2,833			3,590
Total revenues	~~149~~145,~~480~~595			~~129~~131,~~994~~365			295,075			261,359
Operating Expenses
Operating expenses
Depreciation and amortization	7168,~~516~~479			62,~~217~~176			139,995			124,393
Property operating expenses	2726,~~088~~018			23,~~186~~219			53,106			46,405
General and administrative expenses	98,~~686~~862			89,~~756~~100			18,548			17,856
Property management expenses	2,~~542~~616			32,~~084~~435			5,158			5,519
Total operating expenses	110,832			97,243
Merger-related expenses	1,945			—			1,945			—
Operating income	38,648			32,751
Total operating expenses	107,920			96,930			218,752			194,173
Other Expenses:
Operating income	37,675			34,435			76,323			67,186
Interest expense	(25,492		)	(23,056		)
Other expenses:
Other-than-temporary impairment	—			(4,081		)
Interest expense	(25,597		)	(23,239		)	(51,089		)	(46,295		)
Portion of impairment recognized in other comprehensive loss	—			(809		)
Other-than-temporary impairment	—			—			—			(4,081		)
Net impairment recognized in earnings	—			(4,890		)
Portion of impairment recognized in other comprehensive loss	—			—			—			(809		)
Equity in net loss of unconsolidated equity investments	(926		)	(94		)
Net impairment recognized in earnings	—			—			—			(4,890		)
Loss on extinguishment of debt	—			(208		)
Gain on derivative instruments	14,970			—			14,970			—
Impairment of real estate investments	—			(12,771		)
Equity in net income (loss) of unconsolidated equity investments	(1,838		)	248			(2,764		)	154
Income (loss) from continuing operations before provision for taxes	12,230			(8,268		)
Gain on extinguishment of debt	83			268			83			60
Provision for taxes	(621		)	196
Impairment losses	(4,601		)	(5,580		)	(4,601		)	(18,351		)
Income (loss) from continuing operations	11,609			(8,072		)
Income (loss) from continuing operations before provision for taxes	20,692			6,132			32,922			(2,136		)
Loss from discontinued operations	—			(24		)
Benefit (provision) for taxes	62			(147		)	(559		)	49
Income (loss) before net gain on disposals	11,609			(8,096		)
Income (loss) from continuing operations	20,754			5,985			32,363			(2,087		)
Net gain on disposals	16,255			17,377
Loss from discontinued operations	—			(28		)	—			(52		)
Net income	27,864			9,281
Income (loss) before net gain on disposals	20,754			5,957			32,363			(2,139		)
Net income attributable to noncontrolling interest	(802		)	(154		)
Net gain on disposals	4,523			2,002			20,778			19,379
Net income attributable to Gramercy Property Trust	27,062			9,127
Net income	25,277			7,959			53,141			17,240
Preferred share dividends	(1,559		)	(1,559		)
Net (income) loss attributable to noncontrolling interest	(845		)	113			(1,647		)	(41		)
Net income available to common shareholders	$	25,503		$	7,568
Net income attributable to Gramercy Property Trust	24,432			8,072			51,494			17,199
Basic earnings per share:
Preferred share dividends	(1,558		)	(1,558		)	(3,117		)	(3,117		)
Net income from continuing operations, after preferred dividends	$	0.16		$	0.05
Net income available to common shareholders	$	22,874		$	6,514		$	48,377		$	14,082
Net income from discontinued operations	—			—
Basic earnings per share:
Net income available to common shareholders	$	0.16		$	0.05
Net income from continuing operations, after preferred dividends	$	0.14		$	0.04		$	0.30		$	0.09
Diluted earnings per share:
Loss from discontinued operations	—			—			—			—
Net income from continuing operations, after preferred dividends	$	0.16		$	0.05
Net income available to common shareholders	$	0.14		$	0.04		$	0.30		$	0.09
Net income from discontinued operations	—			—
Diluted earnings per share:
Net income available to common shareholders	$	0.16		$	0.05
Net income from continuing operations, after preferred dividends	$	0.14		$	0.04		$	0.30		$	0.09
Basic weighted average common shares outstanding	160,408,136			140,907,399
Loss from discontinued operations	—			—			—			—
Diluted weighted average common shares outstanding	160,416,900			141,875,619
Net income available to common shareholders	$	0.14		$	0.04		$	0.30		$	0.09
Basic weighted average common shares outstanding	160,420,278			148,542,916			160,414,240			144,746,251
Diluted weighted average common shares outstanding	160,433,351			149,914,443			160,425,291			145,965,936

The accompanying notes are an integral part of these financial statements.

Gramercy Property Trust

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited, amounts in thousands)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Net income	$	2725,~~864~~277		$	97,~~281~~959		$	53,141		$	17,240
Other comprehensive income (loss):
Unrealized loss on available for sale debt securities	(48		)	(2,820		)
Unrealized gain (loss) on available for sale debt securities	667			1,251			619			(1,569		)
Cumulative effect of accounting change	~~103~~—			—			103			—
Unrealized gain on derivative instruments	22,050			4,378
Unrealized gain (loss) on derivative instruments	4,990			(2,692		)	27,040			1,686
Reclassification of unrealized gain on terminated derivative instruments into earnings	268			268
Reclassification of unrealized gain (loss) on terminated derivative instruments into earnings	(11,017		)	271			(10,749		)	539
Foreign currency translation adjustments	~~518~~(1,182		)	~~691~~1,101			(664		)	1,792
Other comprehensive income	$	22,891		$	2,517
Other comprehensive income (loss)	$	(6,542	)	$	(69	)	$	16,349		$	2,448
Comprehensive income	$	5018,~~755~~735		$	117,~~798~~890		$	69,490		$	19,688
Net income attributable to noncontrolling interest	(802		)	(154		)
Net (income) loss attributable to noncontrolling interest	(845		)	113			(1,647		)	(41		)
Other comprehensive (income) loss attributable to noncontrolling interest	~~697~~(233		)	~~(11~~25		)	464			14
Comprehensive income attributable to Gramercy Property Trust	$	5017,~~650~~657		$	118,~~633~~028		$	68,307		$	19,661

The accompanying notes are an integral part of these financial statements.

Gramercy Property Trust

Consolidated Statement of Shareholders’ Equity (Deficit) and Noncontrolling Interest

(Unaudited, amounts in thousands, except share data)

	Common Shares			Preferred Shares		Additional Paid-In-Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings / (Accumulated Deficit)			~~Total~~ Gramercy Property Trust			Noncontrolling Interest		Total
	Shares	Par Value
Balance at December 31, 2017	160,686,822	$	1,607	$	84,394	$	4,409,677		$	12,776		$	(1,369,872	)	$	3,138,582		$	221	$	3,138,803
Net income	—	—		—		—			—			2751,~~062~~494			2751,~~062~~494			—		2751,~~062~~494
Cumulative effect of accounting changes	—	—		—		—			103			560			663			—		663
Change in net unrealized gain on derivative instruments	—	—		—		—			2227,~~050~~040			—			2227,~~050~~040			—		2227,~~050~~040
Change in net unrealized loss on debt securities	—	—		—		—			(48		)	—			(48		)	—		(48		)
Change in net unrealized gain on debt securities	—	—		—		—			619			—			619			—		619
Reclassification of unrealized gain on terminated derivative instruments into earnings	—	—		—		—			~~268~~(10,749		)	—			~~268~~(10,749		)	—		~~268~~(10,749		)
Offering costs	—	—		—		(3940		)	—			—			(3940		)	—		(3940		)
Share based compensation - fair value	88,094	1		—		2,023			—			—			2,024			—		2,024
Issuance of shares - share purchase plan	1,374	—		—		—			—			—			—			—		—
Dividend reinvestment program proceeds	1,811	—		—		46			—			—			46			—		46
Share-based compensation - fair value	95,223	1		—		4,045			—			—			4,046			—		4,046
Dividend reinvestment program proceeds	3,363	—		—		81			—			—			81			—		81
Conversion of OP Units to common shares	6,038	—		—		130			—			—			130			—		130
Reallocation of noncontrolling interest in the Operating Partnership	—	—		—		(~~232~~7,448		)	—			—			(~~232~~7,448		)	—		(~~232~~7,448		)
Foreign currency translation adjustment	—	—		—		—			~~518~~(664		)	—			~~518~~(664		)	—		~~518~~(664		)
Contributions to noncontrolling interest in other partnerships	—	—		—		—			—			—			—			59		59
Dividends on preferred shares	—	—		—		—			—			(13,~~559~~117		)	(13,~~559~~117		)	—		(13,~~559~~117		)
Dividends on common shares	—	—		—		—			—			(60121,~~607~~218		)	(60121,~~607~~218		)	—		(60121,~~607~~218		)
Balance at March 31, 2018	160,782,765	$	1,608	$	84,394	$	4,411,605		$	35,667		$	(1,404,416	)	$	3,128,858		$	226	$	3,129,084
Balance at June 30, 2018	160,792,820	$	1,608	$	84,394	$	4,406,445		$	29,125		$	(1,442,153	)	$	3,079,419		$	230	$	3,079,649

The accompanying notes are an integral part of these financial statements.

Gramercy Property Trust

Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)

	Three Months Ended March 31,
	Six Months Ended June 30,
	2018			2017
Operating Activities:
Net income	$	2753,~~864~~141		$	917,~~281~~240
Adjustments to net cash provided by operating activities:
Depreciation and amortization	71139,~~516~~995			62124,~~217~~393
Amortization of market lease intangibles	(~~392~~1,705		)	(~~547~~5,227		)
Amortization of deferred costs	~~825~~1,652			~~615~~1,274
Amortization of discounts and other fees	(~~632~~1,219		)	~~(409~~33		)
Straight-line rent adjustment	(712,~~025~~828		)	(714,~~260~~718		)
Other-than-temporary impairment on retained bonds	—			4,890
Impairment of real estate investments	—			12,771
Impairment losses	4,601			18,351
Net gain on disposals	(16,255		)	(17,377		)
Gain on derivative instruments	(14,970		)	—
Distributions received from unconsolidated equity investments	—			352
Net gain on disposals	(20,778		)	(19,379		)
Equity in net loss of unconsolidated equity investments	926			94
Distributions received from unconsolidated equity investments	555			689
Loss on extinguishment of debt	—			208
Equity in net (income) loss of unconsolidated equity investments	2,764			(154		)
Amortization of share-based compensation	1,856			2,054
Gain on extinguishment of debt	(83		)	(60		)
Amortization of share-based compensation	3,804			4,058
Changes in operating assets and liabilities:
Payment of capitalized leasing costs	(411,~~526~~453		)	(36,~~790~~008		)
Tenant and other receivables	37,~~253~~347			1120,~~707~~031
Other assets	(~~1,401~~488		)	(43,~~368~~125		)
Accounts payable and accrued expenses	(86,~~050~~464		)	(914,~~755~~331		)
Other liabilities	4,~~864~~412			(21,~~204~~895		)
Net cash provided by operating activities	72148,~~823~~283			58126,~~479~~062
Investing Activities:
Capital expenditures	(1764,~~825~~518		)	(1846,~~429~~119		)
Proceeds from sales of real estate	~~108~~127,~~032~~081			33207,~~053~~553
Contributions to unconsolidated equity investments	(546,~~856~~065		)	(27,~~650~~400		)
Acquisition of real estate	(1034,~~971~~722		)	(99284,~~612~~689		)
Net cash provided by (used in) investing activities	73,380			(87,638		)
Funding of loan investments	(14,756		)	—
Proceeds received from loan investments	4,271			—
Net cash used in investing activities	(28,709		)	(130,655		)
Financing Activities:
Proceeds from unsecured term loan and credit facility	~~164~~330,~~922~~179			60155,000
Repayment of unsecured term loans and credit facility	(~~230~~245,000		)	(5155,000		)
Proceeds from mortgage notes payable	—			2,582
Repayment of mortgage notes payable	(363,~~545~~263		)	(358,~~915~~014		)
Offering costs	—			(~~606~~12,346		)
Proceeds from sale of common shares	—			20305,~~081~~763
Payment of deferred financing costs	—			(~~252~~213		)
Preferred share dividends paid	(1,559		)	(1,559		)
Proceeds from settlement of forward starting swap	14,970			—
Common share dividends paid	(60,568		)	(53,025		)
Preferred share dividends paid	(3,117		)	(3,117		)
Distribution to noncontrolling interest in the Operating Partnership	(1,402		)	(118		)
Common share dividends paid	(121,175		)	(106,377		)
Other financing activities	(138		)	—
Distribution to noncontrolling interest in the Operating Partnership	(3,176		)	(205		)
Net cash provided by (used in) financing activities	(132,290		)	18,188
Other financing activities	(78		)	—
Net increase (decrease) in cash, cash equivalents, and restricted cash	13,913			(10,971		)
Net cash provided by (used in) financing activities	(90,660		)	128,073
Increase (decrease) in cash, cash equivalents, and restricted cash related to foreign currency translation	138			(105		)
Net increase in cash, cash equivalents, and restricted cash	28,914			123,480
Decrease in cash, cash equivalents, and restricted cash related to foreign currency translation	(101		)	(78		)
Cash, cash equivalents, and restricted cash at beginning of period	42,954			80,433
Cash, cash equivalents, and restricted cash at end of period	$	5771,~~005~~767		$	69203,~~357~~835

The accompanying notes are an integral part of these financial statements.

GPT Operating Partnership LP

Consolidated Balance Sheets

(Unaudited, amounts in thousands, except unit and per unit data)

	March 31, 2018			December 31, 2017
	June 30, 2018			December 31, 2017
Assets:
Real estate investments, at cost:
Land	$	1,~~009~~008,~~568~~704		$	1,023,908
Building and improvements	4,~~821~~849,~~301~~168			4,863,916
Less: accumulated depreciation	(~~368~~410,~~815~~020		)	(333,151		)
Total real estate investments, net	5,~~462~~447,~~054~~852			5,554,673
Cash and cash equivalents	4159,~~964~~741			30,231
Restricted cash	1512,~~041~~026			12,723
Investment in unconsolidated equity investments	99147,~~113~~282			70,214
Assets held for sale, net	~~402~~—			402
Tenant and other receivables, net	9294,~~525~~260			88,750
Acquired lease assets, net of accumulated amortization of $241,939 and $220,473	563,213			598,559
Acquired lease assets, net of accumulated amortization of $265,990 and $220,473	537,824			598,559
Other assets	~~127~~134,~~664~~763			100,484
Total assets	$	6,~~401~~433,~~976~~748		$	6,456,036
Liabilities and Partners’ Capital:
Liabilities:
Senior unsecured revolving credit facility	$	~~292~~441,~~543~~773		$	357,162
Mortgage notes payable, net	~~559~~499,~~473~~215			563,521
Senior unsecured notes, net	496,~~887~~990			496,785
Senior unsecured term loans, net	1,448,~~241~~330			1,448,152
Total long-term debt, net	2,~~797~~886,~~144~~308			2,865,620
Accounts payable and accrued expenses	6045,~~151~~774			59,619
Dividends and distributions payable	62,~~380~~601			61,971
Below market lease liabilities, net of accumulated amortization of $31,201 and $28,978	159,544			166,491
Below market lease liabilities, net of accumulated amortization of $33,302 and $28,978	148,661			166,491
Other liabilities	5554,~~873~~462			50,002
Total liabilities	$	3,~~135~~197,~~092~~806		$	3,203,703
Commitments and contingencies
Limited partner interest in the Operating Partnership (5,388,995 and 4,398,935 limited partner common units outstanding at March 31, 2018 and December 31, 2017, respectively)	137,800			113,530
Limited partner interest in the Operating Partnership (5,959,858 and 4,398,935 limited partner common units outstanding at June 30, 2018 and December 31, 2017, respectively)	156,293			113,530
Partners’ Capital:
Series A cumulative redeemable preferred units, liquidation preference $87,500, and 3,500,000 units issued and outstanding at March 31, 2018 and December 31, 2017	84,394			84,394
Series A cumulative redeemable preferred units, liquidation preference $87,500, and 3,500,000 units issued and outstanding at June 30, 2018 and December 31, 2017	84,394			84,394
GPT partners’ capital (1,658,060 and 1,650,858 general partner common units and 159,124,705 and 159,035,964 limited partner common units outstanding at March 31, 2018 and December 31, 2017, respectively)	3,008,797			3,041,412
GPT partners’ capital (1,663,870 and 1,650,858 general partner common units and 159,128,950 and 159,035,964 limited partner common units outstanding at June 30, 2018 and December 31, 2017, respectively)	2,965,900			3,041,412
Accumulated other comprehensive income	3529,~~667~~125			12,776
Total GPTOP partners' capital	3,~~128~~079,~~858~~419			3,138,582
Noncontrolling interest in other entities	~~226~~230			221
Total partners’ capital	$	3,~~129~~079,~~084~~649		$	3,138,803
Total liabilities and partners’ capital	$	6,~~401~~433,~~976~~748		$	6,456,036

The accompanying notes are an integral part of these financial statements.

GPT Operating Partnership LP

Consolidated Statements of Operations

(Unaudited, amounts in thousands, except unit and per unit data)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Revenues
Rental revenue	$	~~122~~119,~~245~~177		$	~~103~~108,~~282~~261		$	241,422		$	211,543
Operating expense reimbursements	2322,~~310~~346			2019,~~368~~628			45,656			39,996
Third-party management fees	2,~~790~~374			41,~~592~~638			5,164			6,230
Other income	1,~~135~~698			1,~~752~~838			2,833			3,590
Total revenues	~~149~~145,~~480~~595			~~129~~131,~~994~~365			295,075			261,359
Operating Expenses
Operating expenses
Depreciation and amortization	7168,~~516~~479			62,~~217~~176			139,995			124,393
Property operating expenses	2726,~~088~~018			23,~~186~~219			53,106			46,405
General and administrative expenses	98,~~686~~862			89,~~756~~100			18,548			17,856
Property management expenses	2,~~542~~616			32,~~084~~435			5,158			5,519
Total operating expenses	110,832			97,243
Acquisition costs and merger-related expenses	1,945			—			1,945			—
Operating income	38,648			32,751
Total operating expenses	107,920			96,930			218,752			194,173
Other Expenses:
Operating income	37,675			34,435			76,323			67,186
Interest expense	(25,492		)	(23,056		)
Other expenses:
Other-than-temporary impairment	—			(4,081		)
Interest expense	(25,597		)	(23,239		)	(51,089		)	(46,295		)
Portion of impairment recognized in other comprehensive loss	—			(809		)
Other-than-temporary impairment	—			—			—			(4,081		)
Net impairment recognized in earnings	—			(4,890		)
Portion of impairment recognized in other comprehensive loss	—			—			—			(809		)
Equity in net loss of unconsolidated equity investments	(926		)	(94		)
Net impairment recognized in earnings	—			—			—			(4,890		)
Loss on extinguishment of debt	—			(208		)
Gain on derivative instruments	14,970			—			14,970			—
Impairment of real estate investments	—			(12,771		)
Equity in net income (loss) of unconsolidated equity investments	(1,838		)	248			(2,764		)	154
Income (loss) from continuing operations before provision for taxes	12,230			(8,268		)
Gain on extinguishment of debt	83			268			83			60
Provision for taxes	(621		)	196
Impairment losses	(4,601		)	(5,580		)	(4,601		)	(18,351		)
Income (loss) from continuing operations	11,609			(8,072		)
Income (loss) from continuing operations before provision for taxes	20,692			6,132			32,922			(2,136		)
Loss from discontinued operations	—			(24		)
Benefit (provision) for taxes	62			(147		)	(559		)	49
Income (loss) before net gain on disposals	11,609			(8,096		)
Income (loss) from continuing operations	20,754			5,985			32,363			(2,087		)
Net gain on disposals	16,255			17,377
Loss from discontinued operations	—			(28		)	—			(52		)
Net income	27,864			9,281
Income (loss) before net gain on disposals	20,754			5,957			32,363			(2,139		)
Net income attributable to noncontrolling interest in other partnerships	—			(120		)
Net gain on disposals	4,523			2,002			20,778			19,379
Net income attributable to GPTOP	27,864			9,161
Net income	25,277			7,959			53,141			17,240
Preferred unit distributions	(1,559		)	(1,559		)
Net loss attributable to noncontrolling interest in other partnerships	—			137			—			17
Net income available to common unitholders	$	26,305		$	7,602
Net income attributable to GPTOP	25,277			8,096			53,141			17,257
Basic earnings per unit:
Preferred unit distributions	(1,558		)	(1,558		)	(3,117		)	(3,117		)
Net income from continuing operations, after preferred unit distributions	$	0.16		$	0.05
Net income available to common unitholders	$	23,719		$	6,538		$	50,024		$	14,140
Net income from discontinued operations	—			—
Basic earnings per unit:
Net income available to common unitholders	$	0.16		$	0.05
Net income from continuing operations, after preferred unit distributions	$	0.14		$	0.04		$	0.30		$	0.09
Diluted earnings per unit:
Loss from discontinued operations	—			—			—			—
Net income from continuing operations, after preferred unit distributions	$	0.16		$	0.05
Net income available to common unitholders	$	0.14		$	0.04		$	0.30		$	0.09
Net income from discontinued operations	—			—
Diluted earnings per unit:
Net income available to common unitholders	$	0.16		$	0.05
Net income from continuing operations, after preferred unit distributions	$	0.14		$	0.04		$	0.30		$	0.09
Basic weighted average common units outstanding	165,448,866			141,527,985
Loss from discontinued operations	—			—			—			—
Diluted weighted average common units outstanding	165,457,630			142,496,205
Net income available to common unitholders	$	0.14		$	0.04		$	0.30		$	0.09
Basic weighted average common units outstanding	166,355,043			149,103,359			165,904,457			145,336,798
Diluted weighted average common units outstanding	166,368,116			150,474,886			165,915,508			146,556,483

The accompanying notes are an integral part of these financial statements.

GPT Operating Partnership LP

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited, amounts in thousands)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Net income	$	2725,~~864~~277		$	97,~~281~~959		$	53,141		$	17,240
Other comprehensive income (loss):
Unrealized loss on available for sale debt securities	(48		)	(2,820		)
Unrealized gain (loss) on available for sale debt securities	667			1,251			619			(1,569		)
Cumulative effect of accounting change	~~103~~—			—			103			—
Unrealized gain on derivative instruments	22,050			4,378
Unrealized gain (loss) on derivative instruments	4,990			(2,692		)	27,040			1,686
Reclassification of unrealized gain on terminated derivative instruments into earnings	268			268
Reclassification of unrealized gain (loss) on terminated derivative instruments into earnings	(11,017		)	271			(10,749		)	539
Foreign currency translation adjustments	~~518~~(1,182		)	~~691~~1,101			(664		)	1,792
Other comprehensive income	$	22,891		$	2,517
Other comprehensive income (loss)	$	(6,542	)	$	(69	)	$	16,349		$	2,448
Comprehensive income	$	5018,~~755~~735		$	117,~~798~~890		$	69,490		$	19,688
Net income attributable to noncontrolling interest in other partnerships	—			(120		)
Net loss attributable to noncontrolling interest in other partnerships	—			137			—			17
Comprehensive income attributable to GPTOP	$	50,755		$	11,678
Other comprehensive loss attributable to noncontrolling interest in other partnerships	—			25			—			25
Comprehensive income attributable to GPTOP	$	18,735		$	8,052		$	69,490		$	19,730

The accompanying notes are an integral part of these financial statements.

GPT Operating Partnership LP

Consolidated Statement of Partners' Capital

(Unaudited, amounts in thousands, except unit data)

	Partners' Interest				Series A Preferred Units		Accumulated Other Comprehensive Income (Loss)			~~Total~~ GPTOP			Noncontrolling Interest
	Common Units	Common Unitholders													Total
Balance at December 31, 2017	160,686,822	$	3,041,412		$	84,394	$	12,776		$	3,138,582		$	221	$	3,138,803
Net income	—	2751,~~062~~494			—		—			2751,~~062~~494			—		2751,~~062~~494
Cumulative effect of accounting changes	—	560			—		103			663			—		663
Change in net unrealized gain on derivative instruments	—	—			—		2227,~~050~~040			2227,~~050~~040			—		2227,~~050~~040
Change in net unrealized loss on debt securities	—	—			—		(48		)	(48		)	—		(48		)
Change in net unrealized gain on debt securities	—	—			—		619			619			—		619
Reclassification of unrealized gain of terminated derivative instruments into earnings	—	—			—		~~268~~(10,749		)	~~268~~(10,749		)	—		~~268~~(10,749		)
Offering costs	—	(3940		)	—		—			(3940		)	—		(3940		)
Share based compensation - fair value	88,094	2,024			—		—			2,024			—		2,024
Issuance of common units resulting from issuance of shares under the share purchase plan	1,374	—			—		—			—			—		—
Distribution reinvestment program proceeds	1,811	46			—		—			46			—		46
Share-based compensation - fair value	95,223	4,046			—		—			4,046			—		4,046
Distribution reinvestment program proceeds	3,363	81			—		—			81			—		81
Conversion of OP Units to common units	6,038	130			—		—			130			—		130
Reallocation of limited partner interest in the Operating Partnership	—	(~~232~~7,448		)	—		—			(~~232~~7,448		)	—		(~~232~~7,448		)
Foreign currency translation adjustment	—	—			—		~~518~~(664		)	~~518~~(664		)	—		~~518~~(664		)
Contributions to noncontrolling interest in other partnerships	—	—			—		—			—			59		59
Distributions on preferred units	—	(13,~~559~~117		)	—		—			(13,~~559~~117		)	—		(13,~~559~~117		)
Distributions on common units	—	(60121,~~607~~218		)	—		—			(60121,~~607~~218		)	—		(60121,~~607~~218		)
Balance at March 31, 2018	160,782,765	$	3,008,797		$	84,394	$	35,667		$	3,128,858		$	226	$	3,129,084
Balance at June 30, 2018	160,792,820	$	2,965,900		$	84,394	$	29,125		$	3,079,419		$	230	$	3,079,649

The accompanying notes are an integral part of these financial statements.

GPT Operating Partnership LP

Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)

	Three Months Ended March 31,
	Six Months Ended June 30,
	2018			2017
Operating Activities:
Net income	$	2753,~~864~~141		$	917,~~281~~240
Adjustments to net cash provided by operating activities:
Depreciation and amortization	71139,~~516~~995			62124,~~217~~393
Amortization of market lease intangibles	(~~392~~1,705		)	(~~547~~5,227		)
Amortization of deferred costs	~~825~~1,652			~~615~~1,274
Amortization of discounts and other fees	(~~632~~1,219		)	~~(409~~33		)
Straight-line rent adjustment	(712,~~025~~828		)	(714,~~260~~718		)
Other-than-temporary impairment on retained bonds	—			4,890
Impairment of real estate investments	—4,601			1218,~~771~~351
Gain on sale of properties	(16,255		)	(17,377		)
Gain on derivative instruments	(14,970		)	—
Distributions received from unconsolidated equity investments	—			352
Net gain on disposals	(20,778		)	(19,379		)
Equity in net loss of unconsolidated equity investments	926			94
Distributions received from unconsolidated equity investments	555			689
Loss on extinguishment of debt	—			208
Equity in net (income) loss of unconsolidated equity investments	2,764			(154		)
Amortization of share-based compensation	1,856			2,054
Gain on extinguishment of debt	(83		)	(60		)
Amortization of share-based compensation	3,804			4,058
Changes in operating assets and liabilities:
Payment of capitalized leasing costs	(411,~~526~~453		)	(36,~~790~~008		)
Tenant and other receivables	37,~~253~~347			1120,~~707~~031
Other assets	(~~1,401~~488		)	(43,~~368~~125		)
Accounts payable and accrued expenses	(86,~~050~~464		)	(914,~~755~~331		)
Other liabilities	4,~~864~~412			(21,~~204~~895		)
Net cash provided by operating activities	72148,~~823~~283			58126,~~479~~062
Investing Activities:
Capital expenditures	(1764,~~825~~518		)	(1846,~~429~~119		)
Proceeds from sales of real estate	~~108~~127,~~032~~081			33207,~~053~~553
Contributions to unconsolidated equity investments	(546,~~856~~065		)	(27,~~650~~400		)
Acquisition of real estate	(1034,~~971~~722		)	(99284,~~612~~689		)
Net cash provided by (used in) investing activities	73,380			(87,638		)
Funding of loan investments	(14,756		)	—
Proceeds received from loan investments	4,271			—
Net cash used in investing activities	(28,709		)	(130,655		)
Financing Activities:
Proceeds from unsecured term loan and credit facility	~~164~~330,~~922~~179			60155,000
Repayment of unsecured term loans and credit facility	(~~230~~245,000		)	(5155,000		)
Proceeds from mortgage notes payable	—			2,582
Repayment of mortgage notes payable	(363,~~545~~263		)	(358,~~915~~014		)
Offering costs	—			(~~606~~12,346		)
Proceeds from issuance of common units	—			20305,~~081~~763
Payment of deferred financing costs	—			(~~252~~213		)
Preferred unit distributions paid	(1,559		)	(1,559		)
Proceeds from settlement of forward starting swap	14,970			—
Common unit distributions paid	(60,568		)	(53,025		)
Preferred unit distributions paid	(3,117		)	(3,117		)
Distribution to limited partnership interest in the Operating Partnership	(1,402		)	(118		)
Common unit distributions paid	(121,175		)	(106,377		)
Other financing activities	(138		)	—
Distribution to limited partnership interest in the Operating Partnership	(3,176		)	(205		)
Net cash provided by (used in) financing activities	(132,290		)	18,188
Other financing activities	(78		)	—
Net increase (decrease) in cash, cash equivalents, and restricted cash	13,913			(10,971		)
Net cash provided by (used in) financing activities	(90,660		)	128,073
Increase (decrease) in cash, cash equivalents, and restricted cash related to foreign currency translation	138			(105		)
Net increase in cash, cash, and restricted cash equivalents	28,914			123,480
Decrease in cash, cash equivalents, and restricted cash related to foreign currency translation	(101		)	(78		)
Cash, cash equivalents, and restricted cash at beginning of period	42,954			80,433
Cash, cash equivalents, and restricted cash at end of period	$	5771,~~005~~767		$	69203,~~357~~835

The accompanying notes are an integral part of these financial statements.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

1. Business and Organization

Gramercy Property Trust, or the Company or Gramercy, a Maryland real estate investment trust, or REIT, together with its subsidiary, GPT Operating Partnership LP, or the Operating Partnership, is a leading global investor and asset manager of commercial real estate. Gramercy specializes in acquiring and managing high quality, income producing commercial real estate leased to high quality tenants in major markets in the United States and Europe.

Gramercy earns revenues primarily through rental revenues on properties that it owns in the United States. The Company also owns unconsolidated equity investments in the United States, Europe, and Asia. The Company's operations are conducted primarily through the Operating Partnership. As of ~~March~~June 3130, 2018, third-party holders of limited partnership interests owned approximately 3.2558% of the Operating Partnership. These interests are referred to as the noncontrolling interests in the Operating Partnership. See Note 11 for more information on the Company’s noncontrolling interests.

As of ~~March~~June 3130, 2018, the Company’s wholly-owned portfolio consisted of ~~362~~355 properties comprising 8081,~~884~~134,~~942~~150 rentable square feet with 9796.37% occupancy. As of ~~March~~June 3130, 2018, the Company had ownership interests in 2033 properties held in unconsolidated equity investments in the United States and Europe and one property held through the investment in CBRE Strategic Partners Asia. As of ~~March~~June 3130, 2018, the Company managed approximately $12,~~960~~364,000 of commercial real estate assets, including approximately $1,~~408~~617,000 of assets in Europe.

During the ~~three~~six months ended ~~March~~June 3130, 2018, the Company acquired ~~one~~three ~~property~~properties ~~with~~aggregating ~~162~~550,~~056~~522 square feet for a total purchase price of approximately $1032,~~550~~690 and placed one development property into service with 126,722 square feet. During the ~~three~~six months ended ~~March~~June 3130, 2018, the Company sold ~~five~~14 properties and one ~~warehouse~~land ~~from~~parcel that was part of another asset aggregating 1,~~546~~890,~~091~~057 square feet for total gross proceeds of approximately $~~111~~130,~~012~~983.

Unless the context requires otherwise, all references to “Company," "Gramercy,” “we,” “our” and “us” mean Gramercy Property Trust and its subsidiaries, including the Operating Partnership and its consolidated subsidiaries.

2.Pending ~~Significant Accounting Policies~~Mergers

~~Basis~~On May 6, 2018, the Company and the Operating Partnership entered into an Agreement and Plan of ~~Quarterly~~Merger, ~~Presentation~~or the Merger Agreement, with BRE Glacier Parent L.P., or Parent, BRE Glacier L.P., or Merger Sub I, and BRE Glacier Acquisition L.P., or Merger Sub II, all of which are affiliates of Blackstone Real Estate Partners VIII L.P., an affiliate of The Blackstone Group L.P. Pursuant to the Merger Agreement, Merger Sub II will merge with and into the Operating Partnership, or the Partnership Merger, and the Company will merge with and into Merger Sub I, or the Company Merger, and, together with the Partnership Merger, the Mergers. Following the Mergers, Merger Sub I and the Operating Partnership will continue as the surviving entities and the separate existence of the Company and Merger Sub II will cease. The Merger Agreement, the Mergers, and the other transactions contemplated thereby were unanimously approved by the Company’s board of trustees. 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; however, Parent may on one or more occasions elect to delay the closing to a date that is on or prior to October 10, 2018.

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In management’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. The 2018 operating results for the period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2017 of the Company and the Operating Partnership. The Consolidated Balance Sheets at December 31, 2017 were derived from the audited Consolidated Financial Statements at that date.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

Pursuant to the terms and conditions in the Merger Agreement, each of the Company’s common shares, other than shares owned by Parent, Merger Sub I or any subsidiary of Parent, the Company or Merger Sub I and any award of restricted Company common shares, that is issued and outstanding immediately prior to the effective time of the Company Merger will automatically be converted into the right to receive an amount in cash equal to $27.50, plus, if the Mergers are consummated after October 15, 2018, a per diem amount of approximately $0.004 for each day from and after such date until, but not including, the closing date, or the Merger Consideration, without interest. Pursuant to the terms and conditions in the Merger Agreement, each of the Company’s 7.125% Series A Preferred Shares, or the Series A Preferred Shares, issued and outstanding immediately prior to the effective time of the Company Merger will be redeemed as of the closing date of the Company Merger through the payment of an amount, without interest, equal to $25.00 plus accrued and unpaid dividends, if any, until, but not including, the closing date.

At the effective time of the Partnership Merger, each outstanding Class A Unit of the Operating Partnership, or OP Unit, other than OP Units held by the Company or any of the Company’s subsidiaries or Parent, Merger Sub II, or any of their respective subsidiaries, that is issued and outstanding immediately prior to the effective time of the Partnership Merger will automatically be converted into, and will be cancelled in exchange for, the right to receive an amount in cash equal to the Merger Consideration, without interest, or in lieu of receiving the Merger Consideration, each qualifying holder of an OP Unit may elect to receive one newly created Series B Cumulative Preferred Unit in the surviving partnership for each OP Unit of such holder. Additionally, each unvested unit of limited partnership interest in the Operating Partnership granted by the Company pursuant to its share-based compensation plans, or LTIP Unit, will vest pursuant to its terms on the day prior to the effective time of the Partnership Merger and each vested LTIP Unit (including those that vest on the day prior to the effective time of the Partnership Merger) will be converted into an OP Unit immediately prior to the effective time of the Partnership Merger and treated as an OP Unit as previously described.

In addition, each award of restricted common shares and each restricted share unit, or RSU, award that is outstanding immediately prior to the effective time of the Company Merger will be cancelled in exchange for a cash payment in an amount equal to (i) the number of Company common shares subject to the restricted share or RSU award at that time multiplied by (ii) the Merger Consideration, less any applicable withholding taxes. Each option to purchase Company common shares will be cancelled in exchange for a cash payment in an amount equal to (i) the number of Company common shares subject to the option immediately prior to the effective time of the Company Merger multiplied by (ii) the excess (if any) of the Merger Consideration over the per share exercise price applicable to the option, less any applicable withholding taxes.

The Merger Agreement contains customary representations, warranties and covenants, including, among others, covenants by the Company to, in all material respects, use commercially reasonable efforts to carry on its business in the ordinary course of business consistent with past practice, subject to certain exceptions, during the period between the execution of the Merger Agreement and the consummation of the Mergers. The obligations of the parties to consummate the Mergers are not subject to any financing condition or the receipt of any financing by Parent, Merger Sub I, or Merger Sub II.

The consummation of the Mergers is subject to certain customary closing conditions, including, among others, approval of the Company Merger and the other transactions contemplated by the Merger Agreement by the affirmative vote of the holders of Company common shares entitled to cast not less than a majority of all of the votes entitled to be cast on the matter, or the Company Requisite Vote. The Company will convene a shareholders’ meeting for purposes

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

June 30, 2018

of obtaining the Company Requisite Vote on August 9, 2018, as described in its definitive proxy statement filed on June 27, 2018.

Upon a termination of the Merger Agreement, under certain circumstances, the Company will be required to pay a termination fee to Parent of $138,000. Upon termination of the Merger Agreement in certain other circumstances, Parent will be required to pay the Company a termination fee up to $414,000.

This description of certain terms of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is included as an exhibit to our definitive proxy statement on Schedule 14A which was filed on June 27, 2018.

2. Significant Accounting Policies

Basis of Quarterly Presentation

Reclassifications

Certain prior year balances have been reclassified to conform with the current year presentation. During the fourth quarter of 2017, the Company adopted Accounting Standards Update, or ASU, No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash and cash equivalents to be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the Consolidated Statements of Cash Flows. As a result of the adoption, net cash provided by operating activities changed by $~~235~~19, net cash used in investing activities changed by $~~(947)~~26,523, and net cash provided by financing activities changed by $~~909~~880, for the ~~three~~six months ended ~~March~~June 3130, 2017.

Principles of Consolidation

The Consolidated Financial Statements include the Company’s accounts and those of the Company’s subsidiaries which are wholly-owned or controlled by the Company, or entities which are variable interest entities, or VIEs, in which the Company is the primary beneficiary. The primary beneficiary is the party that absorbs a majority of the VIE’s anticipated losses and/or a majority of the expected returns. The Company has evaluated its investments for potential classification as variable interests by evaluating the sufficiency of each entity’s equity investment at risk to absorb losses.

Entities which the Company does not control and are considered VIEs, but ~~where~~for which the Company is not the primary beneficiary, are accounted for under the equity method. All significant intercompany balances and transactions have been eliminated. The equity interests of other limited partners in the Company’s Operating Partnership are reflected as noncontrolling interests. See Note 11 for more information on the Company’s noncontrolling interests.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

June 30, 2018

been eliminated. The equity interests of other limited partners in the Company’s Operating Partnership are reflected as noncontrolling interests. See Note 11 for more information on the Company’s noncontrolling interests.

Real Estate Investments

Real Estate Acquisitions

The Company evaluates its acquisitions of real estate, including equity interests in entities that predominantly hold real estate assets, to determine if the acquired assets meet the definition of a business and need to be accounted for as a business combination, or alternatively, should be accounted for as an asset acquisition. An integrated set of assets and activities acquired does not meet the definition of a business if either (i) substantially all the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets, or (ii) the asset and activities acquired do not contain at least an input and a substantive process that together significantly contribute to the ability to create outputs. The Company expects that its acquisitions of real estate will continue to not meet the definition of a business.

Acquisitions of real estate that do not meet the definition of a business, including sale-leaseback transactions that have newly-originated leases and real estate investments under construction, or build-to-suit investments, are recorded as asset acquisitions. The accounting for asset acquisitions is similar to the accounting for business combinations, except that the acquisition consideration, including acquisition costs, is allocated to the individual assets acquired and liabilities assumed on a relative fair value basis. Based on this allocation methodology, asset acquisitions do not result in the recognition of goodwill or a bargain purchase. The Company incurs internal transaction costs, which are direct, incremental internal costs related to acquisitions, that are recorded within general and administrative expense. Additionally, for build-to-suit investments in which the Company may engage a developer to construct a property or provide funds to a tenant to develop a property, the Company capitalizes the funds provided to the developer/tenant and real estate taxes, if applicable, during the construction period.

12To determine the fair value of assets acquired and liabilities assumed in an acquisition, which generally include land, building, improvements, and intangibles, such as the value of above- and below-market leases and origination costs associated with the in-place leases at the acquisition date, the Company utilizes various estimates, processes and information to determine the as-if-vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, and discounted cash flow analyses. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. The Company assesses the fair value of leases assumed at acquisition based upon estimated cash flow projections that utilize appropriate discount rates and available market information. Refer to the policy section "Intangible Assets and Liabilities" for more information on the Company’s accounting for intangibles.

Depreciation is computed using the straight-line method over the shorter of the estimated useful life at acquisition of the capitalized item or 40 years for buildings, five to ten years for building equipment and fixtures, and the lesser of the useful life or the remaining lease term for tenant improvements and leasehold interests. Maintenance and repair expenditures are expensed as incurred.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

Totransferred ~~determine~~relative to the fair value of the net assets acquired ~~and~~is ~~liabilities~~recorded ~~assumed in an acquisition, which generally include land, building, improvements, and intangibles, such~~ as ~~the~~goodwill ~~value~~or ofa ~~above-~~bargain ~~and~~purchase ~~below-market leases and origination costs associated with the in-place leases at the acquisition date~~gain, ~~the Company utilizes various estimates, processes and information to determine the~~ as~~-if-vacant~~ ~~property value~~appropriate. ~~Estimates~~Acquisition ofcosts ~~value are made using customary methods, including data from appraisals, comparable sales, and discounted cash flow analyses. Estimates~~ of ~~future~~business ~~cash~~combinations ~~flows~~ are ~~based~~expensed onas ~~a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property~~incurred. The Company assesses the fair value of leases assumed at acquisition based upon estimated cash flow projections that utilize appropriate discount rates and available market information. Refer to the policy section "Intangible Assets and Liabilities" for more information on the Company’s accounting for intangibles.

For transactions that qualify as business combinations, the Company recognizes the assets acquired and liabilities assumed at fair value, including the value of intangible assets and liabilities, and any excess or deficit of the consideration transferred relative to the fair value of the net assets acquired is recorded as goodwill or a bargain purchase gain, as appropriate. Acquisition costs of business combinations are expensed as incurred.

Capital Improvements

In leasing space, the Company may provide funding to the lessee through a tenant allowance. Certain improvements are capitalized when they are determined to increase the useful life of the building. During construction of qualifying projects, the Company capitalizes project management fees as permitted to be charged under the lease, if incremental and identifiable. In accounting for tenant allowances, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership of such improvements. If the Company is considered the owner of the leasehold improvements, the Company capitalizes the amount of the tenant allowance and depreciates it over the shorter of the useful life of the leasehold improvements or the lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements for accounting purposes, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of rental revenue.

Impairments and Disposals

The Company reviews the recoverability of a property’s carrying value when circumstances indicate a possible impairment of the value of a property, such as an adverse change in future expected occupancy or a significant decrease in the market price of an asset. The review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as changes in strategy resulting in an increased or decreased holding period, expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If management determines impairment exists due to the inability to recover the carrying value of a property, for properties to be held and used, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property, and for assets held for sale, an impairment loss is recorded to the extent that the carrying value exceeds the fair value less the estimated cost of disposal. These assessments are recorded as an impairment loss in the Consolidated Statements of Operations in the period the determination is made. The estimated fair value of the asset becomes its new cost basis. For a depreciable long-lived asset to be held and used, the new cost basis will be depreciated or amortized over the remaining useful life of that asset.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

March 31, 2018

as an impairment loss in the Consolidated Statements of Operations in the period the determination is made. The estimated fair value of the asset becomes its new cost basis. For a depreciable long-lived asset to be held and used, the new cost basis will be depreciated or amortized over the remaining useful life of that asset.

The Company recognizes sales of real estate properties upon closing, at which time the Company transfers control of the assets to the purchaser. Payments received from purchasers prior to closing are recorded as deposits. Profit on real estate sold is based on the transaction price and is recognized using the full accrual method upon closing.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company's restricted cash primarily consists of reserves for certain capital improvements, leasing, interest and real estate tax and insurance payments as required by certain mortgage note obligations, as well as proceeds from property sales held by qualified intermediaries to be used for tax-deferred, like-kind exchanges under section 1031 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sums to the total of the same such amounts shown in the Consolidated Statements of Cash Flows. 15

	As of March 31,
	2018		2017
Cash and cash equivalents	$	41,964	$	56,256
Restricted cash	15,041		13,101
Total cash, cash equivalents, and restricted cash	$	57,005	$	69,357

Variable Interest Entities

The Company had five consolidated VIEs and two unconsolidated VIEs as of March 31, 2018 and December 31, 2017, which were determined based on the structure and control provisions of each entity.

The Company’s five consolidated VIEs as of March 31, 2018 and December 31, 2017 included the Operating Partnership and four land parcels in Fort Mill, South Carolina acquired by an investment entity formed in December 2017, on which it will fund the development of four industrial facilities, or the Lakemont Development Investment. The Company has a 95.0% interest in the Lakemont Development Investment and will acquire the seller’s retained 5.0% interest when the properties are developed and leased. As of March 31, 2018 and December 31, 2017, the Company’s carrying value of the Lakemont Development Investment was $4,674 and $4,584, respectively.

Unconsolidated VIEs

The Company’s two unconsolidated VIEs as of March 31, 2018 and December 31, 2017 included its retained non-investment grade subordinate bonds, preferred shares and ordinary shares of two collateralized debt obligations, or CDOs, which are collectively herein referred to as the Retained CDO Bonds. Refer to the “Other Assets” section of this Note 2 and also to Note 7 for more information on the accounting and valuation of the Retained CDO Bonds. As of March 31, 2018 and December 31, 2017, the Company’s carrying value of the Retained CDO Bonds was $5,800 and $5,527, respectively.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018



	As of June 30,
	2018		2017
Cash and cash equivalents	$	59,741	$	163,509
Restricted cash	12,026		40,326
Total cash, cash equivalents, and restricted cash	$	71,767	$	203,835

Variable Interest Entities

The Company had five consolidated VIEs and two unconsolidated VIEs as of June 30, 2018 and December 31, 2017, which were determined based on the structure and control provisions of each entity.

The Company’s five consolidated VIEs as of June 30, 2018 and December 31, 2017 included the Operating Partnership and four land parcels in Fort Mill, South Carolina acquired by an investment entity formed in December 2017, on which it will fund the development of four industrial facilities, or the Lakemont Development Investment. The Company has a 95.0% interest in the Lakemont Development Investment and will acquire the seller’s retained 5.0% interest when the properties are developed and leased. As of June 30, 2018 and December 31, 2017, the Company’s carrying value of the Lakemont Development Investment was $4,765 and $4,584, respectively.

The Company’s two unconsolidated VIEs as of June 30, 2018 and December 31, 2017 included its retained non-investment grade subordinate bonds, preferred shares and ordinary shares of two collateralized debt obligations, or CDOs, which are collectively herein referred to as the Retained CDO Bonds. Refer to the “Other Assets” section of this Note 2 and also to Note 7 for more information on the accounting and valuation of the Retained CDO Bonds. As of June 30, 2018 and December 31, 2017, the Company’s carrying value of the Retained CDO Bonds was $6,792 and $5,527, respectively.

Tenant and Other Receivables

Tenant and other receivables are derived from rental revenue, tenant reimbursements, and management fees.

Rental revenue is recorded on a straight-line basis over the initial term of the lease. Since many leases provide for rental increases at specified intervals, straight-line basis accounting requires the Company to record a receivable, and include in revenues, unbilled rent receivables that will only be received if the tenant makes all rent payments required through the expiration of the initial term of the lease. Tenant and other receivables also include receivables related to tenant reimbursements for common area maintenance expenses and certain other recoverable expenses that are recognized as revenue in the period in which the related expenses are incurred.

Tenant and other receivables are recorded net of the ~~allowances~~allowance for doubtful accounts, which as of ~~March~~June 3130, 2018 and December 31, 2017 ~~were~~was $~~670~~692 and $638, respectively. The Company continually reviews receivables related to rent, tenant reimbursements, and management fees, including incentive fees, and determines collectability by taking into consideration the tenant or asset management clients’ payment history, the financial condition of the tenant or asset management client, business conditions in the industry in which the tenant or asset management client operates and economic conditions in the area in which the property or asset management client is located. In the event that the ~~collectability of a receivable is in doubt, the Company increases the allowance for doubtful accounts or records a direct write-off of the receivable, as appropriate.~~

~~Intangible Assets and Liabilities~~16

As discussed above in policy section, "Real Estate Acquisitions," the Company follows the acquisition method of accounting for its asset acquisitions and business combinations and thus allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Identifiable intangible assets include amounts allocated to acquired leases for above- and below-market lease rates and the value of in-place leases. Management also considers information obtained about each property as a result of its pre-acquisition due diligence.

Above-market and below-market lease values for properties acquired are recorded based on the present value of the difference between the contractual amount to be paid pursuant to each in-place lease and management’s estimate of the fair market lease rate for each such in-place lease, measured over a period equal to the remaining non-cancelable term of the lease. The present value calculation utilizes a discount rate that reflects the risks associated with the leases acquired. The above-market and below-market lease values are amortized as a reduction of and increase to rental revenue, respectively, over the remaining non-cancelable terms of the respective leases. If a tenant terminates its lease prior to its contractual expiration and no future rental payments will be received, any unamortized balance of the market lease intangibles will be written off to rental revenue.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

~~depreciation~~collectability ~~and~~of ~~amortization~~a ~~expense~~receivable ~~over~~is ~~the~~in ~~remaining~~doubt, ~~non-cancelable term of~~ the ~~respective~~Company ~~leases.~~increases ~~In no event does~~ the ~~amortization~~allowance ~~period~~ for ~~intangible~~doubtful ~~assets~~accounts ~~exceed~~or ~~the~~records ~~remaining~~a ~~depreciable~~direct ~~life~~write-off of the ~~building. If a tenant terminates its lease prior to its contractual expiration and no future rental payments will be received~~receivable, ~~any~~as ~~unamortized balance of the in-place lease intangible will be written off to depreciation and amortization expense~~appropriate.

Intangible Assets and Liabilities

The aggregate value of in-place leases represents the costs of leasing costs, other tenant related costs, and lost revenue that the Company did not have to incur by acquiring a property that is already occupied. Factors considered by management in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the anticipated lease-up period. Management also estimates costs to execute similar leases including leasing commissions and other related expenses. The value of in-place leases is amortized to depreciation and amortization expense over the remaining non-cancelable term of the respective leases. In no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease prior to its contractual expiration and no future rental payments will be received, any unamortized balance of the in-place lease intangible will be written off to depreciation and amortization expense.

Above-market and below-market ground rent intangibles are recorded for properties acquired in which the Company is the lessee pursuant to a ground lease assumed at acquisition. The above-market and below-market ground rent intangibles are valued similarly to above-market and below-market leases, except that, because the Company is the lessee as opposed to the lessor, the above-market and below-market ground lease values are amortized as a reduction of and increase to rent expense, respectively, over the remaining non-cancelable terms of the respective leases.

Refer to Note 3 for further information on the Company’s intangible assets and liabilities.

Revenue

Adoption of ASC Topic 606, "Revenue from Contracts with Customers"

The Company adopted ASC Topic 606, which is described below in the section “Recently Issued Accounting Pronouncements,” on January 1, 2018 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting guidance in ASC Topic 605. As a result of adoption, the Company recorded an increase to its opening retained earnings balance of $663 as of January 1, 2018, which represents the cumulative impact of the new guidance and is related to the Company’s sale of real estate to Strategic Office Partners in 2016. There was no impact to revenues recorded for the three months ended March 31, 2018 as a result of adoption of the new revenue guidance.17

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

June 30, 2018

The Company adopted ASC Topic 606, which is described below in the section “Recently Issued Accounting Pronouncements,” on January 1, 2018 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting guidance in ASC Topic 605. As a result of adoption, the Company recorded an increase to its opening retained earnings balance of $663 as of January 1, 2018, which represents the cumulative impact of the new guidance and is related to the Company’s sale of real estate to Strategic Office Partners in 2016. There was no impact to revenues recorded for the three and six months ended June 30, 2018 as a result of adoption of the new revenue guidance.

Revenue Recognition

The Company recognizes revenue when control of the promised goods or services is transferred to a customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company’s primary sources of revenue include rental revenue, operating expense reimbursements, third-party management fees, ~~operating expense reimbursements,~~ and other income, which are disaggregated on the Consolidated Statements of Operations and are described in detail below.

Real Estate Investments

Rental revenue from leases on real estate investments is recognized on a straight-line basis over the term of the lease, regardless of when payments are contractually due. For leases on properties that are under construction at the time of acquisition, the Company begins recognition of rental revenue upon completion of construction of the leased asset and delivery of the leased asset to the tenant.

The Company’s lease agreements with tenants also generally contain provisions that require tenants to reimburse the Company for real estate taxes, insurance costs, common area maintenance costs, and other property-related expenses. Under lease arrangements in which the Company is the primary obligor for these expenses, the Company recognizes such amounts as both revenues and operating expenses. Under lease arrangements in which the tenant pays these expenses directly, such amounts are not included in revenues or expenses. These reimbursement amounts are recognized in the period in which the related expenses are incurred.

16Management Fees

The Company’s asset and property management agreements may contain provisions for fees related to dispositions, administration of the assets including fees related to accounting, valuation and legal services, and management of capital improvements or projects on the underlying assets. The Company recognizes revenue for fees pursuant to its management agreements in the period in which they are earned. Deferred revenue from management fees received prior to the date earned are included in other liabilities on the Consolidated Balance Sheets. For management fee agreements that include multiple performance obligations, the Company allocates revenue to each performance obligation based on its relative standalone selling price, which is primarily determined based on the prices charged to customers.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

~~Management~~and ~~Fees~~revenue is recognized for them based on the Company’s estimate of the expected amount to which it will be entitled in exchange for its services. The Company recognizes promoted interest in the period in which it is determined to be appropriately earned pursuant to the terms of the specific agreement. The values of incentive fees and promoted interest fees are periodically evaluated by management.

Certain of the Company’s asset management contracts and agreements with its unconsolidated equity investments include provisions that allow it to earn additional fees, generally described as incentive fees or promoted interests, based on the achievement of a targeted valuation or the achievement of a certain internal rate of return on the managed assets held by third parties or the equity investment. The Company’s incentive fees are accounted for as variable consideration and revenue is recognized for them based on the Company’s estimate of the expected amount to which it will be entitled in exchange for its services. The Company recognizes promoted interest in the period in which it is determined to be appropriately earned pursuant to the terms of the specific agreement. The values of incentive fees and promoted interest fees are periodically evaluated by management.

Other Income

Other income primarily consists of income accretion on the Company’s Retained CDO Bonds, realized foreign currency exchange gains (losses), and interest income.

Foreign Currency

The Company's European management platform performs asset and property management services in Europe. The Company has unconsolidated equity investments in Europe and Asia and previously had two wholly-owned properties in Canada until their dispositions in March 2017. The Company also has borrowings outstanding in euros and British pounds sterling under the multicurrency portion of its revolving credit facility. Refer to Note 4 for more information on the Company’s foreign unconsolidated equity investments.

Other Assets

The Company includes prepaid expenses, capitalized software costs, contract intangible assets, deferred costs, loan investments, goodwill, derivative assets, and Retained CDO Bonds in other assets.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

March 31, 2018

Loan Investments

The Company may originate loans related to specific real estate development projects. In October 2017, the Company entered into an agreement to provide a mezzanine construction loan facility with a maximum commitment of $250,000 to an industrial developer as borrower. As of ~~March~~June 3130, 2018 and December 31, 2017, the carrying value of the Company’s loan investments was $2233,~~437~~169 and $22,154, respectively, which represents the cost, net of accumulated amortization of loan costs. As of ~~March~~June 3130, 2018, the loan investments had a weighted average interest rate of 1011.4736%. The Company evaluates its loan investments for possible credit losses each period. There were no loan reserves recorded during the three and six months ended ~~March~~June 3130, 2018 and all of the Company’s loan investments were performing in accordance with the terms of the relevant investments as of ~~March~~June 3130, 2018.

Goodwill

The Company recognized goodwill of $3,802 related to the acquisition of Gramercy Europe Limited in December 2014, which it adjusts each reporting period for the effect of foreign currency translation adjustments and tests for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. ~~The~~Based ~~carrying~~on ~~value~~the ofprevailing ~~goodwill~~operating atresults ~~March~~and projected outlook for Gramercy Europe Limited as of June 3130, 2018, ~~and~~the ~~December 31,~~Company ~~2017~~determined ~~was~~the ~~$3,394~~fair ~~and~~value ~~$3,272,~~of ~~respectively.~~Gramercy ~~The~~Europe ~~Company~~Limited ~~did~~was ~~not~~less ~~record~~than ~~any~~its carrying value and thus recorded an impairment loss of $3,293 on its goodwill during the three and six months ended ~~March~~June 3130, 2018. The fair value of Gramercy Europe Limited was determined using the income approach, wherein projections of discounted cash flows were based on factors such as forecasts of future real estate investments, operating results, management fees, and discount, promote hurdle and capitalization rates. The carrying value of goodwill at June 30, 2018 and December 31, 2017 was $0 and $3,272, respectively.

~~Retained CDO Bonds~~19

The Retained CDO Bonds are non-investment grade subordinate bonds, preferred shares and ordinary shares of two CDOs. Management estimated the timing and amount of cash flows expected to be collected and recognized an investment in the Retained CDO Bonds equal to the net present value of these discounted cash flows. There is no guarantee that the Company will realize any proceeds from this investment, or what the timing will be for the expected remaining life of the Retained CDO Bonds. The Company considers these investments to be not of high credit quality and does not expect a full recovery of interest and principal. Therefore, the Company has suspended interest income accruals on these investments. The Company classifies the Retained CDO Bonds as available for sale. On a quarterly basis, the Company evaluates the Retained CDO Bonds to determine whether significant changes in estimated cash flows or unrealized losses on these investments, if any, reflect a decline in value which is other-than-temporary. If there is a decrease in estimated cash flows and the investment is in an unrealized loss position, the Company will record an other-than-temporary impairment, or OTTI, in the Consolidated Statements of Operations. To determine the component of the OTTI related to expected credit losses, the Company compares the amortized cost basis of the Retained CDO Bonds to the present value of the revised expected cash flows, discounted using the pre-impairment effective yield. Conversely, if the security is in an unrealized gain position and there is a decrease or significant increase in expected cash flows, the Company will prospectively adjust the yield using the effective yield method. Refer to Note 7 for further discussion regarding the fair value measurement of the Retained CDO Bonds. For the three months ended March 31, 2018 and 2017, the Company recognized OTTI on its Retained CDO Bonds of $0 and $4,890, respectively.

A summary of the Company’s Retained CDO Bonds as of March 31, 2018 is as follows:

Number of Securities			Face Value				Amortized Cost				Gross Unrealized Gain				Other-Than-Temporary Impairment				Fair Value				Weighted Average Expected Life (years)
6			$	329,597			$	5,431			$	369			$	—			$	5,800			1.1

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

Retained CDO Bonds

The Retained CDO Bonds are non-investment grade subordinate bonds, preferred shares and ordinary shares of two CDOs. Management estimated the timing and amount of cash flows expected to be collected and recognized an investment in the Retained CDO Bonds equal to the net present value of these discounted cash flows. There is no guarantee that the Company will realize any proceeds from this investment, or what the timing will be for the expected remaining life of the Retained CDO Bonds. The Company considers these investments to be not of high credit quality and does not expect a full recovery of interest and principal. Therefore, the Company has suspended interest income accruals on these investments. The Company classifies the Retained CDO Bonds as available for sale. On a quarterly basis, the Company evaluates the Retained CDO Bonds to determine whether significant changes in estimated cash flows or unrealized losses on these investments, if any, reflect a decline in value which is other-than-temporary. If there is a decrease in estimated cash flows and the investment is in an unrealized loss position, the Company will record an other-than-temporary impairment, or OTTI, in the Consolidated Statements of Operations. To determine the component of the OTTI related to expected credit losses, the Company compares the amortized cost basis of the Retained CDO Bonds to the present value of the revised expected cash flows, discounted using the pre-impairment effective yield. Conversely, if the security is in an unrealized gain position and there is a decrease or significant increase in expected cash flows, the Company will prospectively adjust the yield using the effective yield method. Refer to Note 7 for further discussion regarding the fair value measurement of the Retained CDO Bonds. For the three and six months ended June 30, 2018, the Company did not recognize any OTTI on its Retained CDO Bonds. For the three months ended June 30, 2017, the Company did not recognize any OTTI on its Retained CDO Bonds and for the six months ended June 30, 2017, the Company recognized OTTI of $4,890 on its Retained CDO Bonds.

A summary of the Company’s Retained CDO Bonds as of June 30, 2018 is as follows:



Number of Securities	Face Value		Amortized Cost		Gross Unrealized Gain		Other-Than-Temporary Impairment		Fair Value		Weighted Average Expected Life (years)
6	$	332,360	$	5,756	$	1,036	$	—	$	6,792	0.8

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash investments, debt investments and accounts receivable. The Company places its cash investments in excess of insured amounts with high quality financial institutions.

Concentrations of credit risk also arise when a number of the Company’s tenants or asset management clients are engaged in similar business activities or are subject to similar economic risks or conditions that could cause their inability to meet contractual obligations to the Company. The Company regularly monitors its portfolio to assess potential concentrations of credit risk. Management believes the current credit risk portfolio is reasonably well diversified. During the three and six months ended ~~March~~June 3130, 2018 ~~and 2017~~, there were no tenants that accounted for 10.0% or more of the Company's rental revenue. Additionally, ~~for~~during the three and six months ended ~~March~~June 3130, 2018, there were ~~three~~two states, Illinois, ~~Texas,~~ and ~~Florida~~Texas, that each accounted for 10.0% or more of the Company’s rental revenue.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

June 30, 2018

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09 (Topic 606), Revenue from Contracts with Customers, which is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to customers in an amount reflecting the consideration it expects to receive in exchange for those goods or services. In April 2016 and February 2017, the FASB issued ASU 2016-10 and ASU 2017-05, respectively, which further clarified the new revenue recognition guidance under ASC Topic 606. The Company adopted the guidance on January 1, 2018 using the modified retrospective method, which did not have a material impact on its Consolidated Financial Statements. Refer to the “Revenue” section above for further detail.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and to record changes in instruments specific credit risk for financial liabilities measured under the fair value option in other comprehensive income. The update is effective for fiscal years beginning after December 15, 2017, and for interim periods therein. The Company adopted this standard in the first quarter of 2018 and the adoption did not have a material impact on its Consolidated Financial Statements. Refer to Note 8 for more information.

In February 2016, the FASB issued ASU 2016-02, Leases, which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The update will be effective beginning in the first quarter of 2019 and early adoption is permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company’s accounting for leases in which it is a lessor, which represents most of its leasing arrangements, will be largely unchanged under ASU 2016-02; however, the Company is a lessee in several operating and ground leases and the accounting for these arrangements is more significantly impacted by the new standard. Pursuant to the new guidance, lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. The Company is continuing to evaluate the impact of adopting the new leases standard on its Consolidated Financial Statements.

19In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments, which serves to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard in the first quarter of 2018 and the adoption did not have a material impact on its Consolidated Financial Statements.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

tobased ~~record~~payment aawards ~~right-of-use~~require ~~asset~~an ~~and~~entity ato ~~lease~~apply ~~liability~~modification accounting. The guidance is effective for ~~all~~annual ~~leases~~and ~~with~~interim aperiods ~~term~~beginning ofafter ~~greater~~December ~~than~~15, 122017, ~~months~~with ~~regardless~~early ofadoption ~~their~~permitted ~~classification~~under certain circumstances. The Company isadopted ~~continuing~~this tostandard ~~evaluate~~in the ~~impact~~first quarter of ~~adopting~~2018 and the ~~new~~adoption ~~leases~~did ~~standard~~not have a material impact on its Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments, which serves to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard in the first quarter of 2018 and the adoption did not have a material impact on its Consolidated Financial Statements.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting. The amendment provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting. The guidance is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted under certain circumstances. The Company adopted this standard in the first quarter of 2018 and the adoption did not have a material impact on its Consolidated Financial Statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The transition guidance provides companies with the option of early adopting the new standard using a modified retrospective transition method in any interim period after issuance of the update, or alternatively requires adoption for fiscal years beginning after December 15, 2018. In the first quarter of 2018, the Company early adopted this standard and the adoption did not have a material impact on its Consolidated Financial Statements.

3. Real Estate Investments

Investments in real estate properties consisted of the following:

	March 31, 2018					December 31, 2017
	June 30, 2018					December 31, 2017
	Square feet1	Number of properties	Investment			Square feet1	Number of properties	Investment
Operating properties2	8081,~~884~~134,~~942~~150	~~360~~353	$	5,~~811~~828,~~702~~172		82,146,063	363	$	5,857,906
Land parcels		2	7,075				2	7,075
Less accumulated depreciation			(~~368~~410,~~815~~020		)			(333,151		)
Total operating properties and land parcels			$	5,~~449~~425,~~962~~227				$	5,531,830
Development properties	1,~~503~~653,300	56	1222,~~092~~625			1,630,022	6	22,843
Total	82,~~388~~787,~~242~~450	~~367~~361	$	5,~~462~~447,~~054~~852		83,776,085	371	$	5,554,673


1.	Represents rentable square feet for operating properties and projected rentable square feet upon completion for development properties.


2.	Includes development properties that have been completed as of the end of the period.

20Acquisitions:

Real estate acquisition activity for the three and six months ended June 30, 2018 and 2017 was as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Number of operating properties	2		10		3		17
Number of land parcels	—		2		—		2
Rentable square feet of operating properties	388,466		2,493,043		550,522		4,750,354
Total purchase price of all acquisitions	$	22,140	$	177,740	$	32,690	$	302,412

The total value of the properties acquired during the three months ended June 30, 2018 was composed of $21,691 of real estate assets and $2,060 of intangible assets, including acquisition costs capitalized for the asset acquisitions. The total value of the properties acquired during the six months ended June 30, 2018 was composed of $31,888 of real estate assets and $2,695 of intangible assets, including acquisition costs capitalized for the asset acquisitions. In addition to the operating property acquisitions noted above, during the six months ended June 30, 2018 the Company also placed into service one development property which comprised 126,722 rentable square feet.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

Acquisitions:

Real estate acquisition activity for the three months ended March 31, 2018 and 2017 was as follows:

	Three Months Ended March 31,
	2018		2017
Number of operating properties	1		7
Rentable square feet of operating properties	162,056		2,257,311
Total purchase price of all acquisitions	$	10,550	$	124,672

The total value of the properties acquired during the three months ended March 31, 2018 was comprised of $10,197 of real estate assets and $635 of intangible assets, including acquisition costs capitalized for the asset acquisitions. In addition to the operating property acquisition noted above, during the three months ended March 31, 2018 the Company also placed into service one development property which comprised 126,722 rentable square feet.

Dispositions:

Real estate disposition activity for the three and six months ended ~~March~~June 3130, 2018 and 2017 was as follows:

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Number of properties1	5		7
Number of properties1,2	9		10		14		17
Rentable square feet	1343,~~546,091~~966		~~487~~1,~~872~~739,881		1,890,057		2,227,753
Gross proceeds	$	~~111~~19,~~012~~971	$	51183,~~683~~302	$	130,983	$	234,985
Impairment of real estate investments related to asset dispositions during the period2	$	—	$	—
Impairment of real estate investments related to asset dispositions during the period3	$	—	$	528	$	—	$	13,299
Net gain on disposals	$	164,~~255~~523	$	172,~~377~~002	$	20,778	$	19,379

1. During the three and six months ended ~~March~~June 3130, 2018, the Company sold ~~five~~nine and 14 properties, respectively, and ~~one~~also ~~warehouse~~sold ~~from~~a land parcel that was part of another asset.

2. ~~Although~~During ~~there were no impairments recognized related to assets disposed during~~ the three and six months ended ~~March~~June 3130, ~~2018 and~~ 2017, ~~as presented in~~ the ~~table, the~~ Company ~~recognized~~sold ~~impairments~~10 onand ~~real~~17 ~~estate investments of $12~~properties,~~771~~ ~~during the three months ended March 31~~respectively, ~~2017~~as ~~related~~well ~~to properties held~~ as oftwo ~~March~~offices ~~31,~~that ~~2017, for which the Company determined there~~ were ~~nonrecoverable~~part ~~declines~~of inanother ~~value~~asset.

213. Although there were no impairments recognized related to assets disposed during the three and six months ended June 30, 2018, as presented in the table, the Company recognized impairments of $1,308 during these periods related to two properties held as of June 30, 2018 that were determined to have non-recoverable declines in value. In addition to the impairments recognized related to assets disposed during the three and six months ended June 30, 2017, as presented in the table, the Company recognized impairments of $5,052 during these periods related to three properties held as of June 30, 2017 that were determined to have non-recoverable declines in value.

Intangibles:

Intangible assets and liabilities as of June 30, 2018 and December 31, 2017 consisted of the following:



	Weighted average amortization period (years)	June 30, 2018		December 31, 2017
Intangible assets:
In-place leases, net of accumulated amortization of $236,602 and $194,836	9.4	$	490,350	$	545,782
Above-market leases, net of accumulated amortization of $28,930 and $25,229	7.2	41,700		46,713
Below-market ground rent, net of accumulated amortization of $458 and $408	17.3	5,774		6,064
Total intangible assets		$	537,824	$	598,559
Intangible liabilities:
Below-market leases, net of accumulated amortization of $32,733 and $28,516	39.4	$	141,929	$	159,652
Above-market ground rent, net of accumulated amortization of $569 and $462	31.8	6,732		6,839
Total intangible liabilities		$	148,661	$	166,491

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

Intangibles:

Intangible assets and liabilities consisted of the following:

	Weighted average amortization period (years)	March 31, 2018		December 31, 2017
Intangible assets:
In-place leases, net of accumulated amortization of $214,664 and $194,836	9.3	$	513,423	$	545,782
Above-market leases, net of accumulated amortization of $26,854 and $25,229	6.8	43,979		46,713
Below-market ground rent, net of accumulated amortization of $421 and $408	17.5	5,811		6,064
Total intangible assets		$	563,213	$	598,559
Intangible liabilities:
Below-market leases, net of accumulated amortization of $30,685 and $28,516	39.5	$	152,758	$	159,652
Above-market ground rent, net of accumulated amortization of $516 and $462	32.0	6,786		6,839
Total intangible liabilities		$	159,544	$	166,491

The following table provides the projected amortization expense of the intangible assets and liabilities for the next five years:

	April 1 to December 31, 2018			2019			2020			2021			2022
	July 1 to December 31, 2018			2019			2020			2021			2022
Depreciation and amortization expense	$	7044,~~211~~977		$	8481,~~228~~899		$	70,~~822~~915		$	5960,~~528~~426		$	4647,~~652~~619
Rental revenue increase	$	(13,~~571~~271	)	$	(2,~~520~~854	)	$	(43,~~004~~559	)	$	(43,~~168~~450	)	$	(65,~~260~~467	)

The Company recorded $2622,~~159~~983 and $24,~~172~~167 of amortization of in-place lease intangible assets as part of depreciation and amortization expense for the three months ended ~~March~~June 3130, 2018 and 2017, respectively. The Company recorded $~~494~~49,142 and $~~621~~48,339 of amortization of in-place lease intangible assets as part of depreciation and amortization expense for the six months ended June 30, 2018 and 2017, respectively. The Company recorded $1,433 and $4,756 of amortization of market lease intangible assets and liabilities as an increase to rental revenue for the three months ended ~~March~~June 3130, 2018 and 2017, respectively. The Company recorded $1,927 and $5,377 of amortization of market lease intangible assets and liabilities as an increase to rental revenue for the six months ended June 30, 2018 and 2017, respectively.

Assets Held for Sale

In the normal course of business, the Company identifies non-strategic assets for sale. The Company separately classifies properties held for sale in its Consolidated Financial Statements. AsThe ofCompany ~~March 31,~~had ~~2018~~no ~~and~~assets ~~December~~classified ~~31,~~as ~~2017,~~held ~~the~~for ~~Company~~sale ~~had~~as of June 30, 2018 and one asset classified as held for sale as of December 31, 2017, which had a net asset value of $402,. ~~all~~The net asset value of ~~which~~the ~~represented~~asset held for sale represents the value contained in real estate investments. Real estate investments to be disposed of are reported at the lower of carrying amount or estimated fair value, less costs to sell. Once an asset is classified as held for sale, depreciation and amortization expense is no longer recorded.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

March 31, 2018

Discontinued Operations

The Company did not have ~~significant~~ discontinued operations for the three and six months ended ~~March~~June 3130, 2018. The Company’s discontinued operations for the three and six months ended ~~March 31~~June 30, 2017 were related to the assets assumed in the Company’s merger transaction in 2015 and simultaneously designated as held for sale.

4. Unconsolidated Equity Investments

The Company has investments in a variety of ventures. The Company will co-invest in entities that own multiple properties with various investors or with one partner. The Company may manage the ventures and earn fees, such as asset and property management fees, incentive fees, and promoted interest for its services, or one of the other partners will manage the ventures for similar such fees. Depending on the structure of the venture, the Company’s voting interest may be different than its economic interest.

The Company accounts for substantially all of its unconsolidated equity investments under the equity method of accounting because it exercises significant influence, but does not unilaterally control the entities, and is not considered to be the primary beneficiary. In unconsolidated equity investments, the rights of the other investors are protective and participating. Unless the Company is determined to be the primary beneficiary, these rights preclude it from consolidating the investments. The investments are recorded initially at cost as unconsolidated equity investments, as applicable, and subsequently are adjusted for equity interest in net income and contributions and distributions. The amount of the investments on the Consolidated Balance Sheets is evaluated for impairment at each reporting period. None of the unconsolidated equity investment debt is recourse to the Company. Transactions with unconsolidated equity method entities are eliminated to the extent of the Company’s ownership in each such entity. Accordingly, the Company’s share of net income of these equity method entities is included in consolidated net income.

~~As of March 31, 2018 and December 31, 2017, the Company owned properties through unconsolidated equity investments and had investment interests in these unconsolidated entities as follows:~~24

	As of March 31, 2018								As of December 31, 2017
Investment	Ownership %		Voting Interest %		Partner	Investment in Unconsolidated Equity Investment 1		No. of Properties	Investment in Unconsolidated Equity Investment 1		No. of Properties
Strategic Office Partners	25.0	%	25.0	%	TPG Real Estate	$	28,792	13	$	28,243	13
E-Commerce JV	51.0	%	50.0	%	Ample Glow Investments	43,502		2	17,798		—
Goodman UK JV	80.0	%	50.0	%	Goodman Group	15,980		1	15,768		1
Gramercy European Property Fund III	19.9	%	50.0	%	Various	5,363		2	2,949		—
Other2	5.1% - 50.0%		5.1% - 50.0%		Various	5,476		3	5,456		3
Total						$	99,113	21	$	70,214	17

1. The amounts presented include a basis difference of $2,011 and $1,943, net of accumulated amortization, for the Goodman UK JV as of March 31, 2018 and December 31, 2017, respectively. The amounts presented include a basis difference of $(3,916), net of accumulated amortization, for the E-Commerce JV as of March 31, 2018.

2. Includes CBRE Strategic Partners Asia, the Philips JV, and the Morristown JV.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

subsequently are adjusted for equity interest in net income and contributions and distributions. The ~~following~~amount of the investments on the Consolidated Balance Sheets is aevaluated ~~summary~~for impairment at each reporting period. None of the unconsolidated equity investment debt is recourse to the Company’s. Transactions with unconsolidated equity ~~investments~~method ~~for~~entities are eliminated to the ~~three~~extent ~~months~~of ~~ended~~the ~~March 31~~Company’s ownership in each such entity. Accordingly, ~~2018:~~the Company’s share of net income of these equity method entities is included in its consolidated net income.

	Unconsolidated Equity Investments
Balance at January 1, 2018	$	70,214
Contributions to unconsolidated equity investments	28,731
Equity in net loss of unconsolidated equity investments, including adjustments for basis differences	(926		)
Other comprehensive income of unconsolidated equity investments	431
Cumulative effect of accounting change	663
Balance at March 31, 2018	$	99,113

As of June 30, 2018 and December 31, 2017, the Company owned properties through unconsolidated equity investments and had investment interests in these unconsolidated entities as follows:

Strategic Office Partners



	As of June 30, 2018						As of December 31, 2017
Investment	Ownership %	Voting Interest %	Partner	Investment in Unconsolidated Equity Investment ¹		No. of Properties	Investment in Unconsolidated Equity Investment ¹		No. of Properties
Strategic Office Partners	25.0%	25.0%	TPG Real Estate	$	31,512	14	$	28,243	13
E-Commerce JV	51.0%	50.0%	Ample Glow Investments	70,475		4	17,798		—
Gramercy European Property Fund III	19.9%	50.0%	Various	27,045		13	2,949		—
Goodman UK JV	80.0%	50.0%	Goodman Group	13,480		1	15,768		1
Other²	5.1% - 50.0%	5.1% - 50.0%	Various	4,770		2	5,456		3
Total				$	147,282	34	$	70,214	17

In1. ~~August~~The ~~2016,~~amounts ~~the~~presented ~~Company~~include ~~partnered~~a ~~with~~basis ~~TPG~~difference ~~Real~~of ~~Estate,~~$431 orand ~~TPG~~$1, ~~to form Strategic Office Partners~~943, annet ~~unconsolidated equity investment created for the purpose~~ of ~~acquiring,~~accumulated ~~owning~~amortization, ~~operating,~~for ~~leasing and selling single-tenant office properties located in high-growth metropolitan areas in~~ the ~~United~~Goodman ~~States.~~UK ~~The~~JV ~~Company~~as ~~provides~~of ~~asset~~June ~~and property management~~30, ~~accounting,~~2018 ~~construction,~~ and ~~leasing~~December ~~services~~31, ~~to Strategic Office Partners~~2017, ~~for~~respectively. ~~which~~The itamounts ~~earns~~presented ~~management~~include ~~fees and is entitled to~~ a ~~promoted~~basis ~~interest.~~difference ~~TPG~~of ~~and the Company have committed an aggregate~~ $~~400~~(8,~~000 to Strategic Office Partners, including $~~100),~~000~~ ~~from~~net ~~the~~of ~~Company.~~accumulated ~~During the three months ended March 31~~amortization, ~~2018,~~for the ~~Company~~E-Commerce ~~did~~JV ~~not~~as ~~make~~of ~~any~~June ~~contributions~~30, ~~to or receive any distributions from Strategic Office Partners~~2018.

~~E-Commerce~~2. As of June 30, 2018, includes CBRE Strategic Partners Asia and the Morristown JV. As of December 31, 2017, includes CBRE Strategic Partners Asia, the Philips JV, and the Morristown JV.

In November 2017, the Company formed a joint venture with an investment partner, which will acquire, own and manage Class A distribution centers leased to leading e-commerce tenants on long-term leases across the United States, or the E-Commerce JV. The ~~Company~~following ~~has joint control over the E-Commerce JV, which~~ is ~~shared~~a ~~equally~~summary with its investment partner. The Company provides asset and property management and accounting services to the E-Commerce JV, for which it earns management fees. The Company has committed capital to fund its initial acquisition of ~~six properties, as well as~~ the ~~acquisition of additional properties in the future, subject to the partners' approval. The~~ Company'’s ~~pro~~unconsolidated ~~rata~~equity ~~funding~~investments ~~commitment~~ for the ~~initial~~ six properties is estimated at approximately $110,000, of which approximately $80,000 will be funded in OP Units issued to the seller of the property and approximately $30,000 will be funded in cash. During the three months ended ~~March~~June 3130, 2018~~, the E-Commerce JV acquired two properties. During the three months ended March 31, 2018, the Company contributed $1,130 in cash and OP Units valued at approximately $25,141 to the E-Commerce JV.~~ :

Goodman UK JV



	Unconsolidated Equity Investments
Balance at January 1, 2018	$	70,214
Contributions to unconsolidated equity investments	81,356
Equity in net loss of unconsolidated equity investments, including adjustments for basis differences	(2,764		)
Other comprehensive loss of unconsolidated equity investments	(1,632		)
Distributions from unconsolidated equity investments	(555		)
Cumulative effect of accounting change	663
Balance at June 30, 2018	$	147,282

~~The Goodman UK JV invests in industrial properties in the United Kingdom. During the three months ended March 31, 2018 and 2017, the Company received no distributions from the Goodman UK JV.~~25

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

Strategic Office Partners

In August 2016, the Company partnered with TPG Real Estate, or TPG, to form Strategic Office Partners, an unconsolidated equity investment created for the purpose of acquiring, owning, operating, leasing and selling single-tenant office properties located in high-growth metropolitan areas in the United States. The Company provides asset and property management, accounting, construction, and leasing services to Strategic Office Partners, for which it earns management fees and is entitled to a promoted interest. TPG and the Company committed an aggregate $400,000 to Strategic Office Partners, including $100,000 from the Company. During the three and six months ended June 30, 2018, the Company contributed $2,950 to Strategic Office Partners. As of June 30, 2018, the Company contributed an aggregate of $32,427 to Strategic Office Partners. During the three and six months ended June 30, 2018, the Company did not receive any distributions from Strategic Office Partners.

In July 2018, the Company sold its 25.0% interest in Strategic Office Partners to TPG, and following the sale the Company’s has no outstanding commitment to Strategic Office Partners. Refer to Note 15 for more information on the transaction.

E-Commerce JV

In November 2017, the Company formed a joint venture with an investment partner, which will acquire, own and manage Class A distribution centers leased to leading e-commerce tenants on long-term leases across the United States, or the E-Commerce JV. The Company has joint control over the E-Commerce JV, which is shared equally with its investment partner. The Company provides asset and property management and accounting services to the E-Commerce JV, for which it earns management fees. The Company has committed capital to fund the E-Commerce JV’s initial acquisition of six properties, as well as the acquisition of additional properties in the future, subject to the partners' approval. The Company's pro rata funding commitment for the initial six properties is estimated at approximately $110,000, of which approximately $80,000 will be funded in OP Units issued to the seller of the property and approximately $30,000 will be funded in cash. During the three and six months ended June 30, 2018, the E-Commerce JV acquired two and four properties, respectively. During the three and six months ended June 30, 2018, the Company contributed $14,435 and $15,565, respectively, in cash and also contributed OP Units valued at approximately $12,416 and $37,557, respectively, to the E-Commerce JV.

European Investment Funds

Gramercy European Property Fund III

In October 2017, the Company formed a new European investment fund with several other equity investment partners, or the Gramercy European Property Fund III, which has total initial capital commitments of $~~323~~310,~~359~~643 (€262,622) from all investors, of which the Company’s initial capital commitment is $6461,~~257~~730 (€52,187), representing an interest of approximately 19.9%. The Company provides asset and property management and accounting services to the Gramercy European Property Fund III, for which it is entitled to management fees and a promoted interest. During the three and six months ended ~~March~~June 3130, 2018, the Gramercy European Property Fund III acquired ~~two~~eleven and thirteen properties, respectively. During the three and six months ended ~~March~~June 3130, 2018, the Company contributed $222,~~460~~710 (€118,~~977~~987) and $25,170 (€20,964), respectively, to the Gramercy European Property Fund III. As of June 30, 2018, the Company contributed an aggregate of $28,186 (€23,478) to the Gramercy European Property Fund III.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

June 30, 2018

Gramercy European Property Fund

In July 2017, the Gramercy European Property Fund sold 100.0% of its assets to a third party, and, concurrently, the Company sold its 5.1% direct interest in the Goodman Europe JV to the same entity that acquired the Gramercy European Property Fund's assets. In connection with the sale transactions, the Company's management contract arrangement with the Gramercy European Property Fund was terminated; however, the Company ~~continues~~continued to manage the assets for the new owner through ~~June~~July 4, 2018.

~~The~~Goodman ~~following~~UK ~~are the balance sheets for the Company’s unconsolidated equity investments at March 31, 2018:~~JV

	Strategic Office Partners		E-Commerce JV		Goodman UK JV		Gramercy European Property Fund III		Other1
Assets:
Real estate assets, net2	$	264,099	$	149,895	$	19,150	$	62,284	$	108,993
Other assets	80,897		48,894		1,751		5,428		18,421
Total assets	$	344,996	$	198,789	$	20,901	$	67,712	$	127,414
Liabilities and members' equity:
Mortgage notes payable	$	213,699	$	108,473	$	—	$	35,873	$	38,341
Other liabilities	16,698		5,018		732		4,850		19,043
Total liabilities	230,397		113,491		732		40,723		57,384
Company's equity	28,792		43,502		15,980		5,363		5,476
Other members' equity	85,807		41,796		4,189		21,626		64,554
Liabilities and members' equity	$	344,996	$	198,789	$	20,901	$	67,712	$	127,414

The Goodman UK JV owns one industrial property in the United Kingdom. During the three and six months ended June 30, 2018 and 2017, the Company received no distributions from the Goodman UK JV.

1.The ~~Includes~~following ~~CBRE~~are ~~Strategic~~the ~~Partners~~balance ~~Asia,~~sheets for the ~~Philips~~Company’s ~~JV,~~unconsolidated ~~and~~equity ~~the~~investments ~~Morristown~~at ~~JV.~~June 30, 2018:



	Strategic Office Partners		E-Commerce JV		Gramercy European Property Fund III		Goodman UK JV		Other¹
Assets:
Real estate assets, net²	$	277,863	$	302,636	$	314,022	$	16,122	$	60,361
Other assets	88,048		62,200		68,677		921		15,628
Total assets	$	365,911	$	364,836	$	382,699	$	17,043	$	75,989
Liabilities and members' equity:
Mortgage notes payable	$	226,427	$	216,863	$	238,339	$	—	$	—
Other liabilities	14,009		9,786		8,253		—		15,793
Total liabilities	240,436		226,649		246,592		—		15,793
Company's equity	31,512		70,475		27,045		13,480		4,770
Other members' equity	93,963		67,712		109,062		3,563		55,426
Liabilities and members' equity	$	365,911	$	364,836	$	382,699	$	17,043	$	75,989


1.	Includes CBRE Strategic Partners Asia and the Morristown JV.


2.	Includes basis adjustments recorded by the Company to adjust the unconsolidated equity investments to fair value.

2527

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

The following are the balance sheets for the Company’s unconsolidated equity investments at December 31, 2017:



	Strategic Office Partners		E-Commerce JV		Goodman UK JV		Other¹
Assets:
Real estate assets, net²	$	265,014	$	—	$	18,633	$	107,949
Other assets	78,243		35,727		1,473		34,022
Total assets	$	343,257	$	35,727	$	20,106	$	141,971
Liabilities and members' equity:
Mortgage notes payable	$	213,205	$	—	$	—	$	38,662
Other liabilities	15,002		830		203		19,329
Total liabilities	228,207		830		203		57,991
Company's equity	28,243		17,798		15,768		8,405
Other members' equity	86,807		17,099		4,135		75,575
Liabilities and members' equity	$	343,257	$	35,727	$	20,106	$	141,971


1.	Includes CBRE Strategic Partners Asia, the Philips JV, the Morristown JV, and the Gramercy European Property Fund III.


2.	Includes basis adjustments recorded by the Company to adjust the unconsolidated equity investments to fair value.

Certain real estate assets in the Company’s unconsolidated equity investments are subject to mortgage notes. The following is a summary of the secured financing arrangements within the Company’s unconsolidated equity investments as of March 31, 2018:28

					Outstanding Balance2
Property	Unconsolidated Equity Investment	Economic Ownership	Interest Rate1	Maturity Date	March 31, 2018			December 31, 2017
Strategic Office Partners Facility 13	Strategic Office Partners	25.0%	4.70%	10/7/2019	$	169,380		$	169,380
Strategic Office Partners Facility 24	Strategic Office Partners	25.0%	9.21%	10/8/2020	39,540			39,540
E-Commerce JV Facility4	E-Commerce JV	51.0%	3.38%	2/10/2023	109,846			—
Gramercy European Property Fund III Facility4	Gramercy European Property Fund III	19.9%	1.57%	3/12/2023	36,084			—
Henderson, NV	Strategic Office Partners	25.0%	4.75%	8/6/2025	8,593			8,636
Somerset, NJ	Philips JV	25.0%	6.90%	9/11/2035	38,341			38,662
Total mortgage notes payable					$	401,784		$	256,218
Net deferred financing costs and net debt discount					(5,398		)	(4,351		)
Total mortgage notes payable, net					$	396,386		$	251,867

Gramercy Property Trust and GPT Operating Partnership LP

1.Notes ~~Represents the current effective rate as of March 31, 2018, including the swapped interest rate for mortgage notes that have interest rate swaps. The current interest rate is not adjusted~~ to ~~include~~Consolidated ~~the~~Financial ~~amortization of fair market value premiums or discounts.~~Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

June 30, 2018

The following is a summary of the outstanding financing arrangements of the Company’s unconsolidated equity investments as of June 30, 2018:



					Outstanding Balance²
Property	Unconsolidated Equity Investment	Economic Ownership	Interest Rate¹	Maturity Date	June 30, 2018			December 31, 2017
Gramercy European Property Fund III Bridge Facility³	Gramercy European Property Fund III	19.9%	1.50%	9/26/2019	$	49,715		$	—
Strategic Office Partners Facility 1⁴	Strategic Office Partners	25.0%	5.02%	10/7/2019	169,380			169,380
Strategic Office Partners Facility 2⁴	Strategic Office Partners	25.0%	6.03%	10/8/2020	52,020			39,540
E-Commerce JV Facility⁴	E-Commerce JV	51.0%	3.38%	2/10/2023	220,000			—
Gramercy European Property Fund III Facility 1⁴	Gramercy European Property Fund III	19.9%	1.54%	3/12/2023	45,685			—
Solingen, Germany	Gramercy European Property Fund III	19.9%	1.66%	3/31/2023	9,785			—
Gramercy European Property Fund III Facility 2⁴	Gramercy European Property Fund III	19.9%	1.18%	6/22/2023	126,538			—
Offenau, Germany	Gramercy European Property Fund III	19.9%	1.89%	6/30/2023	9,125			—
Henderson, NV	Strategic Office Partners	25.0%	4.75%	8/6/2025	8,551			8,636
Total mortgage notes payable					$	690,799		$	217,556
Net deferred financing costs and net debt discount					(9,170		)	(4,351		)
Total mortgage notes payable, net					$	681,629		$	213,205


1.	Represents the current effective rate as of June 30, 2018, including the swapped interest rate for mortgage notes that have interest rate swaps. The current interest rate is not adjusted to include the amortization of fair market value premiums or discounts.


2.	Mortgage notes are presented at 100.0% of the amount held by the unconsolidated equity investment.

3. AsRepresents ofthe ~~March~~loan ~~31,~~facility ~~2018,~~that ~~there~~is ~~were~~used ~~ten~~to ~~properties~~generate ~~under~~bridge ~~this~~financing ~~mortgage~~for ~~note~~acquisitions and working capital needs of the Gramercy European Property Fund III.

4. As of ~~March~~June 3130, 2018, there were ~~two~~ten properties under ~~each~~the ofStrategic ~~these~~Office ~~mortgage~~Partners ~~notes~~Facility 1, three properties under the Strategic Office Partners Facility 2, four properties under the E-Commerce JV Facility, four properties under the Gramercy European Property Fund III Facility 1, and seven properties under the Gramercy European Property Fund III Facility 2.

2629

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

The following are the statements of operations for the Company’s unconsolidated equity investments for the three months ended ~~March~~June 3130, 2018:

	Strategic Office Partners			E-Commerce JV			~~Goodman~~Gramercy UKEuropean JVProperty Fund III			~~Gramercy~~Goodman ~~European~~UK ~~Property Fund III~~JV			Other1
Revenues	$	11,~~143~~765		$	26,~~165~~771		$	—1,730		$	~~482~~180		$	1(5,~~994~~632	)
Operating expenses	4,~~151~~328			~~583~~1,703			~~260~~376			~~682~~105			~~106~~272
Interest expense	3,~~113~~390			~~669~~2,003			—450			97—			~~666~~—
Depreciation and amortization	45,~~823~~148			~~862~~2,855			~~206~~761			~~209~~210			~~333~~20
Total expenses	12,~~087~~866			26,~~114~~561			~~466~~1,587			~~988~~315			~~1,105~~292
Net income (loss) from operations	(~~944~~1,101		)	51210			~~(466~~143		)	(~~506~~135		)	~~889~~(5,924		)
Gain on derivatives	492			—			—			—			—
Gain (loss) on derivatives	177			—			(781		)	—			—
Loss on extinguishment of debt	—			~~(1,200~~—		)	—(461		)	—			—
Net income (loss)	$	(452	)	$	(1,149	)	$	(466	)	$	(506	)	$	889
Provision for taxes	—			—			(36		)	—			—
Company's share in net income (loss)	$	26		$	(520	)	$	(373	)	$	(93	)	$	20
Net income (loss)	$	(924	)	$	210		$	(1,135	)	$	(135	)	$	(5,924	)
Adjustments for REIT basis	—			18			(4		)	—			—
Company's share in net income (loss)	$	(92	)	$	260		$	(184	)	$	(108	)	$	(312	)
Company's equity in net income (loss) within continuing operations	$	26		$	(502	)	$	(377	)	$	(93	)	$	20
Adjustments for REIT basis2	—			63			—			(1,465		)	—
Company's equity in net income (loss) within continuing operations	$	(92	)	$	323		$	(184	)	$	(1,573	)	$	(312	)

1. Includes CBRE Strategic Partners Asia, ~~the Philips JV,~~ and the Morristown JV.

~~The~~2. ~~following~~Goodman ~~are~~UK ~~the~~JV ~~statements~~amount includes write-down of ~~operations~~$1,462 ~~for~~recorded on the Company’s ~~unconsolidated~~outside ~~equity~~basis ~~investments~~during ~~for~~ the three months ended ~~March 31~~June 30, ~~2017:~~2018 related to its accumulated foreign currency translation adjustments recorded on the investment.

	Gramercy European Property Fund 1
	Goodman Europe JV			Gramercy European Property Fund2		Total			Strategic Office Partners			Goodman UK JV			Other 3
Revenues	$	4,955		$	10,118	$	15,073		$	5,526		$	295		$	(1,331	)
Operating expenses	922			2,951		3,873			1,474			302			576
Interest expense	672			1,474		2,146			1,510			—			641
Depreciation and amortization	2,021			4,473		6,494			2,503			375			333
Total expenses	3,615			8,898		12,513			5,487			677			1,550
Net income (loss) from operations	1,340			1,220		2,560			39			(382		)	(2,881		)
Gain (loss) on derivatives	—			1,221		1,221			(349		)	—			—
Provision for taxes	(17		)	146		129			—			(8		)	—
Net income (loss)	$	1,323		$	2,587	$	3,910		$	(310	)	$	(390	)	$	(2,881	)
Company’s share in net income (loss)	$	67		$	446	$	513		$	(15	)	$	(312	)	$	(155	)
Adjustments for REIT basis	(36		)	—		(36		)	—			(89		)	—
Company’s equity in net income (loss) within continuing operations	$	31		$	446	$	477		$	(15	)	$	(401	)	$	(155	)

1. As of and for the three months ended March 31, 2017, the Company had a 5.1% direct interest in the Goodman Europe JV as well as an indirect interest in the remaining 94.9% interest that was held through the Company’s 14.2% interest in the Gramercy ~~European~~ Property ~~Fund.~~Trust ~~For~~and ~~the~~GPT ~~three~~Operating ~~months~~Partnership ~~ended March 31, 2017, the Company’s equity in net income (loss) from the entities is based on these ownership interest percentages during the period.~~LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

June 30, 2018

The following are statements of operations for the Company’s unconsolidated equity investments for the six months ended June 30, 2018:



	Strategic Office Partners			E-Commerce JV			Gramercy European Property Fund III			Goodman UK JV			Other¹
Revenues	$	22,908		$	8,936		$	2,212		$	180		$	(3,638	)
Operating expenses	8,479			2,286			1,058			365			378
Interest expense	6,503			2,672			547			—			666
Depreciation and amortization	9,971			3,717			970			416			353
Total expenses	24,953			8,675			2,575			781			1,397
Net income (loss) from operations	(2,045		)	261			(363		)	(601		)	(5,035		)
Gain (loss) on derivatives	669			—			(781		)	—			—
Loss on extinguishment of debt	—			(1,200		)	(461		)	—			—
Provision for taxes	—			—			(36		)	—			—
Net loss	$	(1,376	)	$	(939	)	$	(1,641	)	$	(601	)	$	(5,035	)
Company’s share in net loss	$	(66	)	$	(260	)	$	(277	)	$	(481	)	$	(292	)
Adjustments for REIT basis²	—			81			—			(1,469		)	—
Company’s equity in net loss within continuing operations	$	(66	)	$	(179	)	$	(277	)	$	(1,950	)	$	(292	)


1.	Includes CBRE Strategic Partners Asia and the Morristown JV.


2.	Goodman UK JV amount includes write-down of $1,462 recorded on the Company’s outside basis during the six months ended June 30, 2018 related to its accumulated foreign currency translation adjustments recorded on the investment.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

June 30, 2018

The following are the statements of operations for the Company’s unconsolidated equity investments for the three months ended June 30, 2017:



	Gramercy European Property Fund ¹
	Goodman Europe JV			Gramercy European Property Fund²			Total			Strategic Office Partners			Goodman UK JV			Other ³
Revenues	$	5,323		$	11,479		$	16,802		$	7,174		$	293		$	1,324
Operating expenses	945			2,802			3,747			2,316			225			399
Interest expense	614			1,798			2,412			2,055			—			700
Depreciation and amortization	2,024			5,322			7,346			2,852			261			333
Total expenses	3,583			9,922			13,505			7,223			486			1,432
Net income (loss) from operations	1,740			1,557			3,297			(49		)	(193		)	(108		)
Gain (loss) on derivatives	—			1,049			1,049			(413		)	—			—
Provision for taxes	(15		)	(424		)	(439		)	—			(20		)	—
Net income (loss)	$	1,725		$	2,182		$	3,907		$	(462	)	$	(213	)	$	(108	)
Company’s share in net income (loss)	$	88		$	439		$	527		$	(36	)	$	(171	)	$	5
Adjustments for REIT basis²	(37		)	—			(37		)	—			(40		)	—
Company’s equity in net income (loss) within continuing operations	$	51		$	439		$	490		$	(36	)	$	(211	)	$	5

As of and for the three months ended June 30, 2017, the Company had a 5.1% direct interest in the Goodman Europe JV as well as an indirect interest in the remaining 94.9% interest that was held through the Company’s 14.2% interest in the Gramercy European Property Fund. For the three months ended June 30, 2017, the Company’s equity in net income (loss) from the entities is based on these ownership interest percentages during the period.


2.	Excludes the results of the Gramercy European Property Fund’s 94.9% interest in the Goodman Europe JV, as the Goodman Europe JV is separately presented.


3.	Includes CBRE Strategic Partners Asia, the Philips JV, the Morristown JV, and European Fund Carry Co.

2732

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

The following are the statements of operations for the Company’s unconsolidated equity investments for the six months ended June 30, 2017:



	Gramercy European Property Fund ¹
	Goodman Europe JV			Gramercy European Property Fund²			Total			Strategic Office Partners			Goodman UK JV			Other³
Revenues	$	10,278		$	21,597		$	31,875		$	12,700		$	588		$	(7	)
Operating expenses	1,867			5,753			7,620			3,790			527			975
Interest expense	1,286			3,272			4,558			3,565			—			1,341
Depreciation and amortization	4,045			9,795			13,840			5,355			636			666
Total expenses	7,198			18,820			26,018			12,710			1,163			2,982
Net income (loss) from operations	3,080			2,777			5,857			(10		)	(575		)	(2,989		)
Gain (loss) on derivatives	—			2,270			2,270			(762		)	—			—
Provision for taxes	(32		)	(278		)	(310		)	—			(28		)	—
Net income (loss)	$	3,048		$	4,769		$	7,817		$	(772	)	$	(603	)	$	(2,989	)
Company’s share in net income (loss)	$	155		$	885		$	1,040		$	(51	)	$	(483	)	$	(150	)
Adjustments for REIT basis²	(73		)	—			(73		)	—			(129		)	—
Company’s equity in net income (loss) within continuing operations	$	82		$	885		$	967		$	(51	)	$	(612	)	$	(150	)

As of and for the six months ended June 30, 2017, the Company had a 5.1% direct interest in the Goodman Europe JV as well as an indirect interest in the remaining 94.9% interest that was held through the Company’s 14.2% interest in the Gramercy European Property Fund. For the six months ended June 30, 2017, the Company’s equity in net income (loss) from the entities is based on these ownership interest percentages during the period.


2.	Excludes the results of the Gramercy European Property Fund’s 94.9% interest in the Goodman Europe JV, as the Goodman Europe JV is separately presented.


3.	Includes CBRE Strategic Partners Asia, the Philips JV, the Morristown JV, and European Fund Carry Co.

5. Debt Obligations

Secured Debt

Mortgage Notes

Certain real estate assets are subject to mortgage notes. During the ~~three~~six months ended ~~March~~June 3130, 2018, the Company did not assume ~~or pay off~~ any mortgages notes. During the year ended December 31, 2017, the Company assumed $181,107 of non-recourse mortgages in connection with seven real estate acquisitions. During the three and six months ended ~~March~~June 3130, 2018, the Company paid off the mortgage notes on four properties and recorded a net gain on extinguishment of debt of $83 related to the payoffs. During the three and six months ended June 30, 2017, the Company paid off the mortgage notes on two properties. During the six months ended June 30, 2017, the Company refinanced the debt on two properties encumbered by a mortgage ~~note~~loan for $10,456 and subsequently transferred the mortgage on these two properties to the buyer of the properties,. During the three and, assix amonths ~~result~~ended June 30, 2017, the Company recorded a net ~~loss~~gain on the early extinguishment of debt of $~~208~~268 and $60, respectively. The Company’s mortgage notes include a series of financial and other covenants with which the Company must comply in order to borrow under them. The Company was in compliance with the covenants under the mortgage note facilities as of ~~March~~June 3130, 2018.

2833

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

The following is a summary of the Company’s secured financing arrangements as of ~~March~~June 3130, 2018 and December 31, 2017:

Property	Interest Rate 1	Maturity Date	Outstanding Balance
			March 31, 2018		December 31, 2017
			June 30, 2018		December 31, 2017
Greenwood, IN	3.59%	6/15/2018	$	7,211	$	7,257
Philadelphia, PA	4.99%	1/1/2019	$	11,743	$	11,943
Greenfield, IN	3.63%	6/15/2018	5,828		5,865
Bridgeview, IL	3.90%	5/1/2019	5,745		5,838
Logistics Portfolio - Pool 32	3.96%	8/1/2018	43,302		43,302
Spartanburg, SC	3.20%	6/1/2019	427		632
Philadelphia, PA	4.99%	1/1/2019	11,842		11,943
Charleston, SC	3.11%	8/1/2019	181		457
Bridgeview, IL	3.90%	5/1/2019	5,792		5,838
Lawrence, IN	5.02%	1/1/2020	19,730		20,061
Spartanburg, SC	3.20%	6/1/2019	530		632
Charlotte, NC	3.28%	1/1/2020	1,185		1,538
Charleston, SC	3.11%	8/1/2019	320		457
Hawthorne, CA	3.52%	8/1/2020	16,960		17,207
Lawrence, IN	5.02%	1/1/2020	19,896		20,061
Charleston, SC	3.32%	10/1/2020	633		758
Charlotte, NC	3.28%	1/1/2020	1,363		1,538
Charleston, SC	2.97%	10/1/2020	622		746
Hawthorne, CA	3.52%	8/1/2020	17,042		17,207
Charleston, SC	3.37%	10/1/2020	622		746
Charleston, SC	3.32%	10/1/2020	696		758
Charlotte, NC	3.38%	10/1/2020	540		647
Charleston, SC	2.97%	10/1/2020	684		746
Des Plaines, IL	5.54%	10/31/2020	2,344		2,385
Charleston, SC	3.37%	10/1/2020	684		746
Waco, TX	4.75%	12/19/2020	14,741		14,890
Charlotte, NC	3.38%	10/1/2020	594		647
Deerfield, IL	3.71%	1/1/2021	10,263		10,447
Des Plaines, IL	5.54%	10/31/2020	2,365		2,385
Winston-Salem, NC	3.41%	6/1/2021	2,913		3,354
Waco, TX	4.75%	12/19/2020	14,815		14,890
Winston-Salem, NC	3.42%	7/1/2021	971		1,114
Deerfield, IL	3.71%	1/1/2021	10,355		10,447
Logistics Portfolio - Pool 12	4.27%	1/1/2022	37,603		38,107
Winston-Salem, NC	3.41%	6/1/2021	3,135		3,354
CCC Portfolio2	4.24%	10/6/2022	22,572		22,814
Winston-Salem, NC	3.42%	7/1/2021	1,043		1,114
Logistics Portfolio - Pool 12	4.27%	1/1/2022	37,856		38,107
CCC Portfolio2	4.24%	10/6/2022	22,691		22,814
Logistics Portfolio - Pool 42	4.36%	12/5/2022	79,500		79,500
Romeoville, IL	3.80%	4/6/2023	24,~~835~~724		24,951
Romeoville, IL3	9.37%	4/6/2023	6,~~613~~605		6,623
KIK USA Portfolio2	4.31%	7/6/2023	7,~~077~~001		7,154
Yuma, AZ	5.27%	12/6/2023	11,~~804~~752		11,858
Allentown, PA	5.16%	1/6/2024	22,~~586~~487		22,690
Spartanburg, SC	3.72%	2/1/2024	5,~~447~~256		5,635
Natick, MA	5.21%	3/1/2024	31,~~121~~027		31,224
Natick, MA3	10.38%	3/1/2024	3,~~458~~447		3,469
Maple Grove, MN	3.88%	5/6/2024	16,~~291~~201		16,380
Curtis Bay, MD	4.31%	7/1/2024	13,500		13,500
Rialto, CA	3.91%	8/1/2024	54,~~543~~344		54,741
Houston, TX	3.68%	9/1/2024	26,000		26,000
Durham, NC	4.02%	9/6/2024	3,~~614~~597		3,631
Charleston, SC	3.80%	2/1/2025	5,~~831~~658		6,001
Hackettstown, NJ	5.49%	3/6/2026	9,~~420~~387		9,455
Hutchins, TX	5.41%	6/1/2029	2120,~~269~~955		21,578
Total mortgage notes payable			$	550,953	$	554,498
Greenwood, IN	3.59%	6/15/2018	—		7,257
Net deferred financing costs and net debt premium			8,520		9,023
Greenfield, IN	3.63%	6/15/2018	—		5,865
Total mortgage notes payable, net			$	559,473	$	563,521
Logistics Portfolio - Pool 3	3.96%	8/1/2018	—		43,302
Total mortgage notes payable			$	491,236	$	554,498
Net deferred financing costs and net debt premium			7,979		9,023
Total mortgage notes payable, net			$	499,215	$	563,521

1. Represents the interest rate as of ~~March~~June 3130, 2018 that was recorded for financial reporting purposes, which reflects the effect of interest rate swaps and amortization of financing costs and fair market value premiums or discounts.

2. As of ~~March~~June 3130, 2018, there were ~~two properties under the Logistics Portfolio - Pool 3 mortgage,~~ three properties under the Logistics Portfolio - Pool 1 mortgage, five properties under the CCC Portfolio mortgage, six properties under the Logistics Portfolio - Pool 4 mortgage, and three properties under the KIK USA Portfolio mortgage.


3.	Mortgage notes represent mezzanine financing at the properties.

2934

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

Unsecured Debt

2015 Credit Facility and Term Loans

In December 2015, the Company entered into an agreement, or the Credit Agreement, for a new $1,900,000 credit facility, or the 2015 Credit Facility, consisting of an $850,000 senior unsecured revolving credit facility, or the 2015 Revolving Credit Facility, and a $1,050,000 term loan facility with JPMorgan Securities LLC and Merrill Lynch, Pierce, Fenner and Smith Incorporated. The 2015 Revolving Credit Facility consists of a $750,000 U.S. dollar revolving credit facility and a $100,000 multicurrency revolving credit facility. The 2015 Revolving Credit Facility matures in January 2020, but may be extended for two additional six-month periods upon the payment of applicable fees and satisfaction of certain customary conditions. The term loan facility, or the 2015 Term Loan, consists of a $300,000 term loan facility that matures in January 2019 with one 12-month extension option, or the 3-Year Term Loan, and a $750,000 term loan facility that matures in January 2021, or the 5-Year Term Loan. In December 2015, the Company also entered into a ~~new~~ $175,000 7-year unsecured term loan with Capital One, N.A, or the 7-Year Term Loan, which matures in January 2023. In October 2017, the Company modified the 7-Year Term Loan by increasing the loan amount to $400,000 and reducing the interest rate to the terms described below.

Outstanding borrowings under the 2015 Revolving Credit Facility incur interest at a floating rate based upon, at the Company's option, either (i) adjusted LIBOR plus an applicable margin ranging from 0.88% to 1.55%, depending on the Company's credit ratings, or (ii) the alternate base rate plus an applicable margin ranging from 0.00% to 0.55%, depending on the Company's credit ratings. The Company is also required to pay quarterly in arrears a 0.13% to 0.30% facility fee, depending on its credit ratings, on the total commitments under the 2015 Revolving Credit Facility. Outstanding borrowings under the 2015 Term Loan and the 7-Year Term Loan incur interest at a floating rate based upon, at the Company's option, either (i) adjusted LIBOR plus an applicable margin ranging from 0.90% to 1.75%, depending on the Company's credit ratings, or (ii) the alternate base rate plus an applicable margin ranging from 0.00% to 0.75%, depending on the Company's credit ratings. The alternate base rate for the 2015 Revolving Credit Facility and the 7-Year Term Loan is the greater of (x) the prime rate announced by JPMorgan Chase Bank, N.A. or Capital One, respectively, (y) 0.50% above the Federal Funds Effective Rate, and (z) the adjusted LIBOR for a one-month interest period plus 1.00%.

The Company’s unsecured borrowing facilities include a series of financial and other covenants with which the Company must comply in order to borrow under the facilities. The Company was in compliance with the covenants under the facilities as of ~~March~~June 3130, 2018. Refer to the table at the end of this Note 5 for specific terms and the Company’s outstanding borrowings under the facilities.

Senior Unsecured Notes

During 2015 and 2016, the Company issued and sold an aggregate $500,000 principal amount of senior unsecured notes payable in private placements, which have maturities ranging from 2022 through 2026 and bear interest semiannually at rates ranging from 3.89% to 4.97%. Refer to the table later in Note 5 for specific terms of the Company's Senior Unsecured Notes.

Exchangeable Senior Notes

In September 2017, the Company's $115,000 of 3.75% Exchangeable Senior Notes were exchanged for 5,258,420 of the Company's common shares.

3035

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

The terms of the Company’s unsecured debt obligations and outstanding balances as of ~~March~~June 3130, 2018 and December 31, 2017 are set forth in the table below:

	Stated Interest Rate		Effective Interest Rate 1		Maturity Date	Outstanding Balance
						March 31, 2018			December 31, 2017
						June 30, 2018			December 31, 2017
2015 Revolving Credit Facility - USD tranche	23.8908	%	23.8908	%	1/8/2020	$	~~275~~405,000		$	345,000
2015 Revolving Credit Facility - Multicurrency tranche	1.3211	%	1.3211	%	1/8/2020	1736,~~543~~773			12,162
3-Year Term Loan	23.9123	%	2.33	%	1/8/2019	300,000			300,000
5-Year Term Loan	23.9123	%	2.70	%	1/8/2021	750,000			750,000
7-Year Term Loan	23.7608	%	3.00	%	1/9/2023	400,000			400,000
2015 Senior Unsecured Notes	4.97	%	5.07	%	12/17/2024	150,000			150,000
2016 Senior Unsecured Notes	3.89	%	4.00	%	12/15/2022	150,000			150,000
2016 Senior Unsecured Notes	4.26	%	4.38	%	12/15/2025	100,000			100,000
2016 Senior Unsecured Notes	4.32	%	4.43	%	12/15/2026	100,000			100,000
Total unsecured debt						2,~~242~~391,~~543~~773			2,307,162
Net deferred financing costs and net debt discount						(4,~~872~~680		)	(5,063		)
Total unsecured debt, net						$	2,~~237~~387,~~671~~093		$	2,302,099

1. Represents the rate at which interest expense is recorded for financial reporting purposes as of ~~March~~June 3130, 2018, which reflects the effect of interest rate swaps and amortization of financing costs and fair market value premiums or discounts.

Combined aggregate principal maturities of the Company’s unsecured debt obligations and non-recourse mortgages, in addition to associated interest payments, as of ~~March~~June 3130, 2018 are as follows:

	April 1 to December 31, 2018		2019		2020		2021		2022		Thereafter		Above market interest		Total
	July 1 to December 31, 2018		2019		2020		2021		2022		Thereafter		Above market interest		Total
2015 Revolving Credit Facility	$	—	$	—	$	~~292~~441,~~543~~773	$	—	$	—	$	—	$	—	$	~~292~~441,~~543~~773
Term Loans	—		300,000		—		750,000		—		400,000		—		1,450,000
Mortgage Notes Payable 1	666,~~599~~880		30,450		62,834		19,256		141,929		229,~~885~~887		—		~~550~~491,~~953~~236
Senior Unsecured Notes	—		—		—		—		150,000		350,000		—		500,000
Interest Payments 2	8254,~~144~~009		97104,~~025~~625		8789,~~135~~976		5758,~~199~~015		53,~~364~~868		64,~~772~~822		3,~~648~~299		~~445~~428,~~287~~614
Total	$	~~148~~60,~~743~~889	$	~~427~~435,~~475~~075	$	~~442~~594,~~512~~583	$	~~826~~827,~~455~~271	$	345,~~293~~797	$	1,044,~~657~~709	$	3,~~648~~299	$	3,~~238~~311,~~783~~623


1.	Mortgage note payments reflect accelerated repayment dates, when applicable, pursuant to the related agreement.


2.	Interest payments do not reflect the effect of interest rate swaps.

6. Transactions with Trustee Related Entities and Related Parties

The Company’s CEO, Gordon F. DuGan, was on the board of directors of the Gramercy European Property Fund prior to its sale in July 2017 and committed and fully funded approximately $1,388 (€1,250) in capital to the Gramercy European Property Fund. The two Managing Directors of Gramercy Europe Limited collectively committed and fully funded approximately $1,388 (€1,250) in capital to the Gramercy European Property Fund prior to the sale of its assets in July 2017.

3136

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

7. Fair Value Measurements

ASC 820-10, “Fair Value Measurements and Disclosures,” provides guidance on the fair value measurement of a financial asset or liability. Inputs used to develop fair value measurements are classified into one of three categories: Level I, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level II, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level III, defined as unobservable inputs for which there is little or no market or pricing data, thus requiring management to use its judgment and develop its own assumptions.

The following table presents the carrying value in the financial statements and approximate fair value of assets and liabilities measured on a recurring and non-recurring basis at ~~March~~June 3130, 2018 and December 31, 2017:

	March 31, 2018				December 31, 2017
	June 30, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Interest rate swaps	$	4135,~~888~~212	$	4135,~~888~~212	$	19,668	$	19,668
Retained CDO Bonds	56,~~800~~792		56,~~800~~792		5,527		5,527
Real estate investments1	—2,592		—2,592		87,996		87,996
Investment in CBRE Strategic Partners Asia	2,~~869~~062		2,~~869~~062		2,820		2,820
Loan investments2	2233,~~437~~169		2028,~~990~~872		22,154		21,362
Financial liabilities:
Interest rate swaps	$	13—	$	13—	$	173	$	173
Long-term debt:
2015 Revolving Credit Facility2	~~292~~441,~~543~~773		~~292~~441,~~492~~823		357,162		357,369
3-Year Term Loan2	300,000		300,~~090~~066		300,000		300,091
5-Year Term Loan2	750,000		750,~~653~~573		750,000		750,678
7-Year Term Loan2	398,~~241~~330		400,~~020~~006		398,152		400,010
Mortgage notes payable2	~~559~~499,~~473~~215		~~565~~502,~~329~~870		563,521		573,826
Senior Unsecured Notes2	496,~~887~~990		~~502~~494,~~349~~455		496,785		513,229

1. ~~Amount~~Amounts ~~represents~~represent two and seven real estate investments, respectively, that were impaired by the Company and held as of June 30, 2018 and December 31, 2017.


2.	Long-term debt instruments are classified as Level III due to the significance of unobservable inputs which are based upon management assumptions.

The following methods and assumptions were used to estimate the fair value of each class of assets and liabilities for which it is practicable to estimate the value:

Cash and cash equivalents, marketable securities, accrued interest, and accounts payable: These balances in the Consolidated Financial Statements reasonably approximate their fair values due to the items’ short maturities.

Loan investments: Loan investments are presented in other assets on the Consolidated Financial Statements at amortized cost and not fair value. The fair value of each investment is estimated by a discounted cash flow model, using discount rates that best reflect current market rates for financings with similar characteristics and credit quality.

Mortgage notes payable, unsecured term loans, unsecured revolving credit facilities and senior unsecured notes: These instruments are presented in the Consolidated Financial Statements at amortized cost and not at fair

3237

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

value. The fair value of each instrument is estimated by a discounted cash flows model, using discount rates that best reflect current market rates for financings with similar characteristics and credit quality.

Retained CDO Bonds, investment in CBRE Strategic Partners Asia, real estate investments, and interest rate swaps: Refer to section below, “Valuation of Level III Instruments,” for valuation methods and assumptions used for these Level III assets and liabilities measured at fair value in the Consolidated Financial Statements.

The following discussion of fair value was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, fair values are not necessarily indicative of the amounts the Company could realize on disposition of the assets or liabilities. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Assets and liabilities measured at fair value on a recurring and non-recurring basis are categorized as follows:

At March 31, 2018	Total			Level I		Level II		Level III
At June 30, 2018	Total			Level I		Level II		Level III
Financial Assets:
Retained CDO Bonds	$	56,~~800~~792		$	—	$	—	$	56,~~800~~792
Investment in CBRE Strategic Partners Asia	2,869			—		—		2,869
Real estate investments	2,592			—		—		2,592
Interest rate swaps	41,888			—		—		41,888
Investment in CBRE Strategic Partners Asia	2,062			—		—		2,062
	$	50,557		$	—	$	—	$	50,557
Interest rate swaps	35,212			—		—		35,212
Financial Liabilities:
	$	46,658		$	—	$	—	$	46,658
Interest rate swaps	$	(13	)	$	—	$	—	$	(13	)
	$	(13	)	$	—	$	—	$	(13	)



At December 31, 2017	Total			Level I		Level II		Level III
Financial Assets:
Retained CDO Bonds	$	5,527		$	—	$	—	$	5,527
Real estate investments	87,996			—		—		87,996
Investment in CBRE Strategic Partners Asia	2,820			—		—		2,820
Interest rate swaps	19,668			—		—		19,668
	$	116,011		$	—	$	—	$	116,011
Financial Liabilities:
Interest rate swaps	$	(173	)	$	—	$	—	$	(173	)
	$	(173	)	$	—	$	—	$	(173	)

Valuation of Level III Instruments

Retained CDO Bonds: Retained CDO Bonds are valued on a recurring basis using an internally developed discounted cash flow models, which require significant assumptions and judgment. The models are most sensitive to the unobservable inputs such as the amount of the recoveries of the underlying securities.

Investment in CBRE Strategic Partners Asia: The Company's investment in CBRE Strategic Partners Asia is based on the Level III valuation inputs applied by the investment manager of CBRE Strategic Partners Asia, utilizing a mix of different approaches for valuing the underlying real estate related investments within the investment company. The valuations are most sensitive to the unobservable inputs of discount rates, as well as capitalization rates an expected future cash flows.

3338

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

The valuations are most sensitive to the unobservable inputs of discount rates, as well as capitalization rates an expected future cash flows.

Real estate investments: Real estate investments impaired during a period are reported at estimated fair value and real estate investments impaired during a period that are classified as held for sale as of the end of the period are reported at estimated fair value less costs to sell. The fair value of real estate investments and their related lease intangibles is determined using third-party valuation support, including purchase-sale contracts and other available market information. Key assumptions in the valuations, to which the fair value determinations are most sensitive, include discount and capitalization rates as well as expected future cash flows.

Interest rate swaps: The Company's derivative instruments as of ~~March~~June 3130, 2018 and December 31, 2017 consist of interest rate swaps, which are valued with the assistance of a third-party derivative specialist using a discounted cash flow model, that requires a combination of observable market-based inputs, such as interest rate curves, and unobservable inputs which require significant judgment such as the credit valuation adjustments due to the risk of nonperformance by both the Company and its counterparties. The most significant unobservable input in the fair valuation of interest rate swaps is the credit valuation adjustment as it requires significant management judgment regarding changes in the credit risk of the Company or its counterparties, however the primary driver of the fair value of the interest rate swaps is the forward interest rate curve.

Fair Value on a Recurring Basis

Quantitative information regarding the valuation techniques and the range of significant unobservable Level III inputs used to determine fair value measurements on a recurring basis as of ~~March~~June 3130, 2018 are as follows:

Financial Asset (Liability)	Fair Value		Valuation Technique	Unobservable Inputs	Range
Non-investment grade, subordinate CDO bonds	$	56,~~800~~792	Discounted cash flows	Discount rate	19.0%
Investment in CBRE Strategic Partners Asia	2,~~869~~062		Discounted cash flows	Discount rate	20.0%
Interest rate swaps1	41,875		Hypothetical derivative method	Credit borrowing spread	110 to 190 basis points
Interest rate swaps	35,212		Hypothetical derivative method	Credit borrowing spread	110 to 175 basis points

1.The ~~Fair~~following ~~value~~rollforward ~~includes~~table ~~interest~~reconciles ~~rate~~the ~~swap~~beginning and ending balances of financial assets (liabilities) ~~with~~measured anat ~~aggregate~~fair value on a recurring basis using Level III inputs as of ~~$(13).~~June 30, 2018:



	Retained CDO Bonds		Investment in CBRE Strategic Partners Asia			Interest Rate Swaps			Total Financial Assets (Liabilities) - Level III
Balance at January 1, 2018	$	5,527	$	2,820		$	19,495		$	27,842
Amortization of discounts or premiums	646		—			(35		)	611
Adjustments to fair value:
Termination of derivative instrument	—		—			(11,288		)	(11,288		)
Unrealized gain on derivatives	—		—			27,040			27,040
Unrealized loss in other comprehensive income from fair value adjustment	619		—			—			619
Total loss on fair value adjustments	—		(251		)	—			(251		)
Distributions from financial assets	—		(507		)	—			(507		)
Balance at June 30, 2018	$	6,792	$	2,062		$	35,212		$	44,066

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

The following rollforward table reconciles the beginning and ending balances of financial assets (liabilities) measured at fair value on a recurring basis using Level III inputs as of March 31, 2018:

	Retained CDO Bonds			Investment in CBRE Strategic Partners Asia		Interest Rate Swaps		Total Financial Assets (Liabilities) - Level III
Balance at January 1, 2018	$	5,527		$	2,820	$	19,495	$	27,842
Amortization of discounts or premiums	321			—		330		651
Adjustments to fair value:
Unrealized gain on derivatives	—			—		22,050		22,050
Unrealized loss in other comprehensive income from fair value adjustment	(48		)	—		—		(48		)
Total gain on fair value adjustments	—			49		—		49
Balance at March 31, 2018	$	5,800		$	2,869	$	41,875	$	50,544

Fair Value on a Non-Recurring Basis

The Company measures its real estate investments impaired during a period, including both assets classified as held for sale and assets held for investment, on a non-recurring basis, and records impairment on these assets as a result of a change in intent to hold the real estate investments. ~~Real~~There ~~estate~~were ~~investments~~two ~~impaired~~assets ~~during~~measured on a ~~period~~non-recurring ~~are~~basis ~~reported~~as atof ~~estimated~~June 30, ~~fair~~2018, ~~value~~which ~~and~~were ~~real~~both ~~estate investments impaired during a period that are~~ classified as held for ~~sale~~investment asand ofrecorded ~~the end of the period are reported~~ at ~~estimated~~$2,592 ~~fair value less costs to sell. There were no assets measured on a non-recurring basis~~ as of ~~March~~June 3130, 2018. There were seven assets measured on a non-recurring basis as of December 31, 2017, which were all classified as held for investment and recorded at $87,996 as of December 31, 2017.

8. Derivatives and Non-Derivative Hedging Instruments

In the normal course of business, the Company is exposed to the effect of interest rate changes and foreign exchange rate changes. The Company limits these risks by following established risk management policies and procedures including the use of derivatives and net investment hedges. The Company uses a variety of derivative instruments to manage, or hedge, interest rate risk. The Company enters into hedging and derivative instruments that will be maximally effective in reducing the interest rate risk and foreign currency exchange rate risk exposure that they are designated to hedge. This effectiveness is essential for qualifying for hedge accounting. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. The Company uses a variety of commonly used derivative products that are considered “plain vanilla” derivatives. These derivatives typically include interest rate swaps, forward starting swaps, caps, collars and floors. The Company expressly prohibits the use of unconventional derivative instruments and the use of derivative instruments for trading or speculative purposes. Further, the Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors.

The Company recognizes all derivatives on the Consolidated Balance Sheets at fair value within other assets or other liabilities, depending on the balance at the end of the period. Derivatives that are not designated as hedges must be adjusted to fair value through income. If a derivative is designated and qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be recognized in other comprehensive income until the hedged item is recognized in earnings. Prior to the Company’s adoption of ASU 2017-12 on January 1, 2018, described in Note 2, the ineffective portion of the change in fair value of a derivative designated as a hedge was immediately recognized in earnings, however subsequent to adoption, the entire change in fair value is recognized in other comprehensive income until the hedged item is recognized in earnings. As a result of adoption, the Company recorded a decrease to its opening retained earnings balance and a corresponding increase to its opening accumulated other comprehensive income balance of $103 as of January 1, 2018, which represents the cumulative amount of hedge ineffectiveness recorded in the Consolidated Statements of Operations at the time of adoption. Derivative accounting may increase or decrease reported net income and shareholders’ equity prospectively, depending on future levels of the LIBOR swap spreads and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows, provided the contract is carried through to full term. Refer to Note 7 for additional information on the Company's derivative instruments, including the fair value measurement of these instruments.

Borrowings on the Company’s multicurrency tranche of the 2015 Revolving Credit Facility, which are designated as non-derivative net investment hedges, are recognized at par value based on the exchange rate in effect on the date of the draw. Subsequent changes in the exchange rates of the Company’s non-derivative net investment hedges are recognized as part of the cumulative foreign currency translation adjustment within other comprehensive income.

3540

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

The Company’s derivatives and hedging instruments as of ~~March~~June 3130, 2018 are as follows:

Benchmark Rate

Notional Value

Strike Rate

Effective Date

Expiration Date

Fair Value

Interest Rate Swap - Waco

1 mo. USD-LIBOR-BBA

14,~~815~~741 USD

4.55%

12/19/2013

12/19/2020

~~(13~~64

)

Interest Rate Swap - 3-Year Term Loan

1 mo. USD-LIBOR-BBA

100,000 USD

1.22%

12/19/2016

12/17/2018

~~615~~472

Interest Rate Swap - 3-Year Term Loan

1 mo. USD-LIBOR-BBA

100,000 USD

1.23%

12/19/2016

12/17/2018

~~612~~470

Interest Rate Swap - 3-Year Term Loan

1 mo. USD-LIBOR-BBA

100,000 USD

1.24%

12/19/2016

12/17/2018

~~604~~465

Interest Rate Swap - 5-Year Term Loan

1 mo. USD-LIBOR-BBA

750,000 USD

1.60%

12/17/2015

12/17/2020

1719,~~010~~539

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

175,000 USD

1.82%

12/17/2015

1/9/2023

56,~~660~~853

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

60,000 USD

1.95%

10/13/2017

1/9/2023

12,~~599~~025

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

40,000 USD

2.01%

10/13/2017

1/9/2023

~~953~~1,243

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

39,500 USD

1.96%

10/13/2017

1/9/2023

1,~~016~~298

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

31,500 USD

1.96%

10/13/2017

1/9/2023

~~809~~1,038

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

31,500 USD

2.00%

10/13/2017

1/9/2023

~~765~~991

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

22,500 USD

1.95%

10/13/2017

1/9/2023

~~593~~754

Forward Starting Swap1

3 mo. USD-LIBOR-BBA

250,000 USD

2.23%

12/20/2017

12/20/2027

11,652

Net Investment Hedge in GBP-denominated investments

USD-GBP exchange rate

9,000 GBP

N/A

7/15/2016

N/A

—

Net Investment Hedge in EUR-denominated investments

USD-EUR exchange rate

421,~~000~~300 EUR

N/A

3/8/2018

N/A

—

Total hedging instruments

4135,~~875~~212

1As of June 30, 2018, the Company’s derivative instruments consisted of interest rate swaps, which are cash flow hedges used to hedge exposure to variability in future interest payments on its debt facilities. The ~~forward~~Company's ~~starting~~interest rate swap ~~has~~derivative ainstruments ~~mandatory~~were ~~early~~reported ~~termination~~in ~~date~~other assets at fair value of ~~June~~$35,212 20at June 30, 2018.

As of March 31, 2018, the Company’s derivative instruments consisted of interest rate swaps, which are cash flow hedges used to hedge exposure to variability in future interest payments on its debt facilities. The Company's interest rate swap derivative instruments were reported in other assets at fair value of $41~~,888 and in other liabilities at fair value of $(13) at March 31, 2018.~~

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

The table below details the location in the financial statements of the gain or loss recognized on the interest rate swaps designated as cash flow hedges for the three and six months ended ~~March~~June 3130, 2018 and 2017:

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Accumulated other comprehensive income:
Gain recognized in accumulated other comprehensive income1	$	224,~~153~~990	$	—	$	27,143	$	—
Interest expense:
Gain reclassified from accumulated other comprehensive income into interest expense1	$	268	$	268
Loss reclassified from accumulated other comprehensive income into interest expense1	$	271	$	271	$	539	$	539
Gain recognized in interest expense (ineffective portion)2	—		46—		—		46
Total recognized in interest expense on statements of operations	$	~~268~~271	$	~~314~~271	$	539	$	585
Gain on derivative instruments:
Gain reclassified from other comprehensive income into gain on derivative instruments3	$	14,970	$	—	$	14,970	$	—

1. Periods prior to January 1, 2018, when the Company adopted ASU 2017-12, include only the effective portion and periods subsequent to January 1, 2018 include both the effective and ineffective portions as the two amounts are no longer separately measured and reported. The ~~first~~six ~~quarter~~months ofended June 30, 2018 includes $103 related to the adoption of ASU 2017-02.


2.	Represents the ineffective portion and pertains only to periods prior to January 1, 2018, when the Company adopted ASU 2017-12.

During the next 12 months, the Company expects that $(7,947) will be reclassified from other comprehensive income as an increase in interest expense for the Company’s interest rate swaps as of March 31, 20183. ~~Additionally,~~Amounts ~~the~~represent ~~Company~~gain ~~will~~recognized ~~recognize~~during ~~$1,295 in interest expense on a straight-line basis over~~ the ~~remaining~~three ~~original~~and ~~term~~six ofmonths ~~terminated~~ended ~~swaps through~~ June ~~2019~~30, ~~representing~~2018 ~~amortization of the remaining accumulated other comprehensive income balance~~ related to the ~~swap,~~Company’s ~~and~~termination of ~~this~~its ~~amount~~forward ~~$1,087~~starting ~~will~~swap ~~be recognized~~ in ~~interest~~June ~~expense during the next 12 months~~2018.

~~The~~During ~~Company hedges exposure to changes in~~ the ~~exchange~~next ~~rates~~12 underlying its investments based in foreign currencies using non-derivative net investment hedges in conjunction with borrowings under the multicurrency tranche of its 2015 Revolving Credit Facility. In March 2018months, the Company ~~entered~~expects ~~into~~that a$(9,553) ~~non-derivative~~will ~~net~~be ~~investment~~reclassified ~~hedge on its euro-denominated investment in the Gramercy European Property Fund III and in prior periods,~~ from ~~September~~other ~~2015~~comprehensive ~~until~~income ~~disposal~~as ofan ~~the~~increase ~~underlying investments~~ in ~~July~~interest ~~2017,~~expense ~~the~~for ~~Company had a non-derivative net investment hedge on its investments in~~ the ~~Gramercy European Property Fund and the Goodman Europe JV, all of which had euros as their functional currencies. The~~ Company’s ~~non-derivative~~interest ~~net investment hedge on its British pound sterling-denominated investments, which was entered into in July 2016, is used to hedge exposure to changes in the British pound sterling U.S. dollar exchange~~ rate ~~underlying~~swaps ~~its unconsolidated equity investment in the Goodman UK JV, which has British pounds sterling~~ as ~~its functional currency. The Company’s non-derivative net investment hedge values are reported at carrying value and are included in the balance~~ of ~~the senior unsecured revolving credit facility on the Consolidated Balance Sheets. During the three months ended March~~June 3130, 2018. ~~and 2017~~Additionally, the Company ~~recorded~~will arecognize ~~net loss of~~ $~~459 and $923~~1,024 ~~respectively,~~ in ~~other~~interest ~~comprehensive~~expense ~~income~~on ~~from~~a ~~the impact of exchange rates related to the non~~straight-~~derivative~~line ~~net~~basis ~~investment~~over ~~hedges. When~~ the ~~non-derivative~~remaining ~~net~~original ~~investments~~term ~~being~~of ~~hedged~~terminated ~~are~~swaps ~~sold~~through orJune ~~substantially liquidated~~2019, ~~the~~representing ~~balance~~amortization of the ~~translation~~remaining ~~adjustment~~ accumulated in other comprehensive income ~~will~~balance berelated ~~reclassified~~to ~~into~~the ~~earnings~~swap.

37The Company hedges exposure to changes in the exchange rates underlying its investments based in foreign currencies using non-derivative net investment hedges in conjunction with borrowings under the multicurrency tranche of its 2015 Revolving Credit Facility. In March 2018, the Company entered into a non-derivative net investment hedge on its euro-denominated investment in the Gramercy European Property Fund III and in prior periods, from September 2015 until disposal of the underlying investments in July 2017, the Company had a non-derivative net investment hedge on its investments in the Gramercy European Property Fund and the Goodman Europe JV, all of which had euros as their functional currencies. The Company’s non-derivative net investment hedge on its British pound sterling-denominated investments, which was entered into in July 2016, is used to hedge exposure to changes in the British pound sterling U.S. dollar exchange rate underlying its unconsolidated equity investment in the Goodman UK JV, which has British pounds sterling as its functional currency. The Company’s non-derivative net investment hedge values are reported at carrying value and are included in the balance of the senior unsecured revolving credit facility on the Consolidated Balance Sheets. During the three and six months ended June 30, 2018, the Company recorded a net gain of $1,027 and $568, respectively, in other comprehensive income from the impact of exchange rates related to the non-derivative net investment hedges. During the three and six months ended June 30, 2017, the Company recorded a net loss of $4,196 and $5,119, respectively, in other comprehensive income from the impact of exchange rates related to the non-

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

derivative net investment hedges. When the non-derivative net investments being hedged are sold or substantially liquidated, the balance of the translation adjustment accumulated in other comprehensive income will be reclassified into earnings.

9. Shareholders’ Equity (Deficit) of the Company

As of ~~March~~June 3130, 2018 and December 31, 2017, the Company's authorized capital shares consisted of 500,000,000 shares of beneficial interest, $0.01 par value per share, of which the Company is authorized to issue up to 490,000,000 common shares of beneficial interest, $0.01 par value per share, or common shares, and 10,000,000 preferred shares of beneficial interest, $0.01 par value per share, or preferred shares. As of ~~March~~June 3130, 2018, 160,~~782~~792,~~765~~820 common shares and 3,500,000 preferred shares were issued and outstanding.

InDuring ~~February 2018,~~ the ~~Company’s~~six ~~board~~months ofended ~~trustees~~June 30, ~~authorized~~2018, ~~and~~ the Company’s ~~declared a dividend of $0.375 per~~ common ~~share~~dividends ~~for~~were ~~the first quarter of 2018, which was paid on April 16, 2018 to holders of record~~ as ~~of March 30, 2018.~~follows:



Quarter Ended	Record Date	Payment Date	Common dividend per share
March 31, 2018	3/30/2018	4/16/2018	$	0.375
June 30, 2018	6/29/2018	7/16/2018	$	0.375

Employee Share Purchase Plan

In June 2017, the Company’s shareholders approved an Employee Share Purchase Plan, or ESPP, which enables the Company’s eligible employees to purchase the common shares through payroll deductions, subject to the restrictions in the Merger Agreement. The ESPP has a maximum of 250,000 common shares available for issuance and provides for eligible employees to purchase the common shares during defined offering periods at a purchase price determined at the discretion of the board of trustees, which ~~has~~was ~~been~~ initially established to be equal to 90.0% of the lower of either (i) the closing price of the Company’s common shares on the first day of the offering period and (ii) the closing price of the Company’s common shares on the last day of the offering period. As of ~~March~~June 3130, 2018, there were no1,374 shares issued under the ESPP. As of June 30, 2018, the ESPP has been suspended, subject to the terms of the Merger Agreement.

Dividend Reinvestment Plan

In June 2016, the Company adopted a dividend reinvestment plan, or DRIP, under which shareholders may use their dividends and optional cash payments to purchase additional common shares of the Company, subject to the restrictions in the Merger Agreement. In August 2016, the Company registered 3,333,333 common shares related to the DRIP. During the ~~three~~six months ended ~~March~~June 3130, 2018, 13,~~811~~363 shares were issued under the DRIP and as of ~~March~~June 3130, 2018 there were 3,~~323~~322,~~962~~410 shares available for issuance under the DRIP.

At-The-Market Equity Offering Program

In July 2016, the Company’s board of trustees approved the establishment of an “at the market” equity issuance program, or ATM Program, pursuant to which the Company may offer and sell common shares with an aggregate gross sales price of up to $375,000, subject to the restrictions in the Merger Agreement. During the ~~three~~six months ended ~~March~~June 3130, 2018, the Company did not sell any common shares through the ATM Program.

~~Preferred Shares~~43

Holders of the Company's 7.125% Series A Preferred Shares, or Series A Preferred Shares, are entitled to receive annual dividends of $1.78125 per share on a quarterly basis and dividends are cumulative, subject to certain provisions. On or after August 15, 2019, the Company can, at its option, redeem the Series A Preferred Shares at par for cash. At March 31, 2018, the Company had 3,500,000 of its Series A Preferred Shares outstanding with a mandatory liquidation preference of $25.00 per share.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

Preferred Shares

Holders of the Company's Series A Preferred Shares are entitled to receive annual dividends of $1.78125 per share on a quarterly basis and dividends are cumulative, subject to certain provisions. On or after August 15, 2019, the Company can, at its option, redeem the Series A Preferred Shares at par for cash. At June 30, 2018, the Company had 3,500,000 of its Series A Preferred Shares outstanding with a mandatory liquidation preference of $25.00 per share.

Equity Incentive Plans

In June 2016, the Company instituted its 2016 Equity Incentive Plan, which was approved by the Company’s board of trustees and shareholders. As of ~~March~~June 3130, 2018, there were 2,~~634~~625,~~080~~800 shares available for grant under the 2016 Equity Incentive Plan. The Company accounts for share-based compensation awards using fair value recognition provisions and assumes an estimated forfeiture rate which impacts the amount of compensation cost recognized over the benefit period.

Through ~~March~~June 3130, 2018, 1,129,130 restricted shares had been issued under the Company’s equity incentive plans, including the 2016 Equity Incentive Plan and the Company’s previous equity incentive plans, of which 67.2% have vested. As of ~~March~~June 3130, 2018 and December 31, 2017, the Company had ~~316~~341,~~183~~089 and 347,676 weighted average restricted shares outstanding, respectively. Compensation expense of $541 and $817 was recorded for the three months ended March 31, 2018 and 2017, respectively, related to the Company’s equity incentive plans. Compensation expense of $4,757 will be recorded over the course of the next 26 months representing the remaining weighted average vesting period of equity awards issued under the equity incentive plans as of March 31, 2018.

Compensation expense of $~~1,138~~617 and $1,~~056~~158 was recorded for the three and six months ended ~~March 31~~June 30, 2018, respectively, related to the Company’s equity incentive plans. Compensation expense of $755 and $1,572 was recorded for the three and six months ended June 30, 2017, respectively, ~~for~~related to the Company'’s ~~Outperformance~~equity ~~Plans~~incentive plans. Compensation expense of $104,~~188~~141 will be recorded over the course of the next 3523 months, representing the remaining weighted average vesting period of ~~the~~equity awards issued under the ~~Outperformance~~equity ~~Plans~~incentive plans as of ~~March~~June 3130, 2018.

Compensation expense of $1,151 and $2,289 was recorded for the three and six months ended June 30, 2018, respectively, for the Company's Outperformance Plans. Compensation expense of $1,070 and $2,126 was recorded for the three and six months ended June 30, 2017, respectively, for the Company's Outperformance Plans. Compensation expense of $9,037 will be recorded over the course of the next 32 months, representing the remaining weighted average vesting period of the awards issued under the Outperformance Plans as of June 30, 2018.

Earnings per Share

The Company presents both basic and diluted earnings per share, or EPS. Basic EPS is computed by dividing net income available to common shareholders, as adjusted for unallocated earnings attributable to certain participating securities, if any, by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares, as long as their inclusion would not be anti-dilutive. The two-class method is an earnings allocation methodology that determines EPS for common shares and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The Company has certain share-based payment awards that contain nonforfeitable rights to dividends, which are considered participating securities for the purposes of computing EPS pursuant to the two-class method, and therefore the Company applies the two-class method in its computation of EPS.

3944

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

Earnings per share for the three and six months ended ~~March~~June 3130, 2018 and 2017 are computed as follows:

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Numerator – Income (loss):
Net income (loss) from continuing operations	$	1120,~~609~~754		$	(85,~~072~~985	)	$	32,363		$	(2,087	)
Net loss from discontinued operations	—			(2428		)	—			(52		)
Net income (loss) before net gain on disposals	1120,~~609~~754			(85,~~096~~957		)	32,363			(2,139		)
Net gain on disposals	164,~~255~~523			172,~~377~~002			20,778			19,379
Net income	2725,~~864~~277			97,~~281~~959			53,141			17,240
Less: Net income attributable to noncontrolling interest	(802		)	(154		)
Less: Net (income) loss attributable to noncontrolling interest	(845		)	113			(1,647		)	(41		)
Less: Nonforfeitable dividends allocated to participating shareholders	(~~203~~206		)	(~~276~~337		)	(409		)	(635		)
Less: Preferred share dividends	(1,~~559~~558		)	(1,~~559~~558		)	(3,117		)	(3,117		)
Net income available to common shares outstanding	$	2522,~~300~~668		$	76,~~292~~177		$	47,968		$	13,447
Denominator – Weighted average shares:
Basic weighted average shares outstanding	160,~~408~~420,~~136~~278			~~140~~148,~~907~~542,~~399~~916			160,414,240			144,746,251
Effect of dilutive securities:
Unvested non-participating share based payment awards	—			71,848
Unvested non-participating share-based payment awards	—			86,452			—			79,552
Options	813,~~764~~073			1519,~~576~~196			11,051			14,471
Exchangeable Senior Notes	—			~~880~~1,~~796~~265,879			—			1,125,662
Diluted weighted average shares outstanding	160,~~416~~433,~~900~~351			~~141~~149,~~875~~914,~~619~~443			160,425,291			145,965,936

The Company’s options and other share-based payment awards used in the computation of EPS were calculated using the treasury share method. As discussed in Note 5, 100.0% of the Company’s Exchangeable Senior Notes were exchanged for 5,258,420 of the Company’s common shares in September 2017, however for the three and six months ended ~~March~~June 3130, 2017, the Company had the intent and ability to settle the debt component of the Exchangeable Senior Notes in cash and the excess conversion premium in shares, thus for that period the Company only included the effect of the excess conversion premium in the calculation of Diluted EPS.

For the three and six months ended ~~March~~June 3130, 2018, the net income (loss) attributable to the outside interests in the Operating Partnership has been excluded from the numerator and 5,934,765 and 5,490,217, respectively, weighted average shares related to the outside interests in the Operating Partnership have been excluded from the denominator for the purpose of calculating Diluted EPS as there would have been no effect had such amounts been included. For the three and six months ended June 30, 2017, the net income (loss) attributable to the outside interests in the Operating Partnership has been excluded from the numerator and 5560,~~040,730~~443 and ~~620~~590,~~586~~547, respectively, weighted average shares related to the outside interests in the Operating Partnership have been excluded from the denominator for the purpose of calculating Diluted EPS as there would have been no effect had such amounts been included. Refer to Note 11 for more information on the outside interests in the Operating Partnership.

4045

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

Accumulated ~~other~~Other ~~comprehensive~~Comprehensive ~~income (loss)~~Income

Accumulated other comprehensive income ~~(loss)~~ as of ~~March~~June 3130, 2018 and December 31, 2017 is ~~comprised~~composed of the following:

	March 31, 2018			December 31, 2017
	June 30, 2018			December 31, 2017
Net unrealized gain on derivative securities	$	3742,~~680~~670		$	15,630
Net unrealized gain on debt instruments	~~369~~1,036			417
Foreign currency translation adjustments:
Net gain on non-derivative net investment hedges1	~~(162~~865		)	297
Other foreign currency translation adjustments	(46,~~757~~966		)	(5,734		)
Reclassification of swap gain into interest expense	2,434			2,166
Reclassification of swap gain (loss) into interest expense	(8,583		)	2,166
Cumulative effect of accounting change	103			—
Total accumulated other comprehensive income	$	3529,~~667~~125		$	12,776

1. The foreign currency translation adjustment associated with the Company’s non-derivative net investment hedge related to its European investments is included in other comprehensive income ~~(loss)~~. The balance reflects write-offs of $1,851 on the Company’s non-derivative net investment hedge during the year ended December 31, 2017.

10. Partners’ Capital of the Operating Partnership

The Company is the sole general partner of the Operating Partnership. As of ~~March~~June 3130, 2018, the Company owned 160,~~782~~792,~~765~~820 of the outstanding general and limited partnership interests, or 96.7542%, of the Operating Partnership. The number of common units in the Operating Partnership is equivalent to the number of outstanding common shares of the Company, and the entitlement of all the Operating Partnership’s common units to quarterly distributions and payments in liquidation are substantially the same as those of the Company's common shareholders. Similarly, in the case of each series of preferred units in the Operating Partnership held by the Company, there is a series of preferred shares that is equivalent in number and carries substantially the same terms as such series of the Operating Partnership’s preferred units.

Limited Partner Units

As of ~~March~~June 3130, 2018, limited partners other than the Company owned 5,~~388~~959,~~995~~858 common units, or 3.2558%, of the Operating Partnership.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

March 31, 2018

Earnings per Unit

The Operating Partnership's earnings per unit for the three and six months ended ~~March~~June 3130, 2018 and 2017 are computed as follows:

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Numerator – Income (loss):
Net income (loss) from continuing operations	$	1120,~~609~~754		$	(85,~~072~~985	)	$	32,363		$	(2,087	)
Net loss from discontinued operations	—			(2428		)	—			(52		)
Net income (loss) before net gain on disposals	1120,~~609~~754			(85,~~096~~957		)	32,363			(2,139		)
Net gain on disposals	164,~~255~~523			172,~~377~~002			20,778			19,379
Net income	2725,~~864~~277			97,~~281~~959			53,141			17,240
Less: Net gain attributable to noncontrolling interest in other partnerships	—			(120		)
Less: Net loss attributable to noncontrolling interest in other partnerships	—			137			—			17
Less: Nonforfeitable dividends allocated to participating unitholders	(~~203~~206		)	(~~276~~337		)	(409		)	(635		)
Less: Preferred unit distributions	(1,~~559~~558		)	(1,~~559~~558		)	(3,117		)	(3,117		)
Net income available to common units outstanding	$	2623,~~102~~513		$	76,~~326~~201		$	49,615		$	13,505
Denominator – Weighted average units:
Basic weighted average units outstanding	~~165~~166,~~448~~355,~~866~~043			~~141~~149,~~527~~103,~~985~~359			165,904,457			145,336,798
Effect of dilutive securities:
Unvested non-participating share based payment awards	—			71,848
Unvested non-participating share-based payment awards	—			86,452			—			79,552
Options	813,~~764~~073			1519,~~576~~196			11,051			14,471
Exchangeable Senior Notes	—			~~880~~1,~~796~~265,879			—			1,125,662
Diluted weighted average units outstanding	~~165~~166,~~457~~368,~~630~~116			~~142~~150,~~496~~474,~~205~~886			165,915,508			146,556,483

11. Noncontrolling Interests

Noncontrolling interests represent the outside equity interests in the Operating Partnership as well as third-party equity interests in the Company’s other consolidated subsidiaries.

Outside ~~equity~~Equity ~~interests~~Interests in Operating Partnership

The outside equity interests in the Operating Partnership include ~~common units of limited partnership interest in the Operating Partnership, or~~ OP Units, and ~~the~~ earned and vested ~~portion of limited partnership interests in the Operating Partnership granted by the Company pursuant to its share-based compensation plans, or~~ LTIP Units, which are convertible on a one-for-one basis into OP Units. The aggregate outstanding noncontrolling interest in the Operating Partnership as of ~~March~~June 3130, 2018 represented an interest of approximately 3.2558% in the Operating Partnership. A portion of the Operating Partnership’s net income (loss) during each reporting period is attributed to noncontrolling interests based on the weighted average percentage ownership of both OP Unit holders and earned and vested LTIP Unit holders relative to the sum of the Company’s total outstanding common shares, OP Units, and earned and vested LTIP Units.

OP Units

During the ~~three~~six months ended ~~March~~June 3130, 2018, the Company issued ~~996~~1,~~098~~566,961 OP Units as part of its contribution to fund its pro rata share of the E-Commerce JV’s acquisition of ~~two~~four properties. As of ~~March~~June 3130, 2018, 45,~~729~~300,~~480~~343 OP Units were outstanding, which can be redeemed for 45,~~729~~300,~~480~~343 of the Company's shares. During the ~~three~~six months ended ~~March~~June 3130, 2018 and the year ended December 31, 2017, 6,038 and 134,607 OP Units, respectively, were converted on a one-for-~~one basis into common shares of the Company. At March 31, 2018, 4,729,480 common shares of the Company~~

4246

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

one basis into common shares of the Company. At June 30, 2018, 5,300,343 common shares of the Company were reserved for issuance upon redemption of OP Units. OP Units are recorded at the greater of cost basis or fair market value based on the closing share price of the Company’s common shares at the end of the reporting period. As of ~~March~~June 3130, 2018, the value of the OP ~~units~~Units was $~~137~~156,~~800~~293.

LTIP Units

As of ~~March~~June 3130, 2018, noncontrolling interest owners held 659,515 earned and vested LTIP Units, which, upon conversion into OP Units, can be redeemed for 659,515 of the Company’s common shares. During the ~~three~~six months ended ~~March~~June 3130, 2018 and year ended December 31, 2017, there were no earned and vested LTIP Units converted into OP Units or redeemed for common shares of the Company. At ~~March~~June 3130, 2018, 659,515 common shares of the Company were reserved for issuance upon conversion of the earned and vested LTIP Units into OP Units and their subsequent redemption for common shares.

Below is the rollforward of the activity relating to the noncontrolling interests in the Operating Partnership as of ~~March~~June 3130, 2018:

	Noncontrolling Interest
Balance at January 1, 2018	$	113,530
Issuance of noncontrolling interests in the Operating Partnership	2537,~~142~~558
Redemption of noncontrolling interests in the Operating Partnership	(130		)
Net income attribution	~~802~~1,647
Fair value adjustments	~~232~~7,448
Dividends	(13,~~776~~760		)
Balance at March 31, 2018	$	137,800
Balance at June 30, 2018	$	156,293

Interests in Other Entities

There are entities that the Company consolidates into its Consolidated Financial Statements based on the structure of the entities and their control provisions. As of ~~March~~June 3130, 2018, the Company consolidated the Lakemont Development Investment and during the year ended December 31, 2017 until its dissolution in the fourth quarter of 2017, the Company consolidated European Fund Manager, which were both consolidated VIEs of the Company. The Company’s interest in these entities is presented in the equity section of its Consolidated Financial Statements. Refer to Note 2 for further discussion of these entities and consolidation considerations.

12. Commitments and Contingencies

Funding Commitments

As of ~~March~~June 3130, 2018, the Company is obligated to fund the development of ~~one~~two ~~property~~properties and remaining improvements at ~~three~~two development properties, for which it has remaining cumulative future commitments of $5940,~~104~~265.

The Company has committed $6461,~~257~~730 (€52,187) to the Gramercy European Property Fund III. The Company contributed $228,~~460~~186 (€123,~~977~~478) to the Gramercy European Property Fund III as of ~~March~~June 3130, 2018. Foreign currency commitments have been converted into U.S. dollars based on (i) the foreign exchange rate at the closing date for completed transactions and (ii) the exchange rate that prevailed on ~~March~~June 3130, 2018, in the case of unfunded commitments.

4347

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

The Company has a 51.0% interest in the E-Commerce JV and has committed capital to fund its pro rata share of the E-Commerce JV’s initial acquisition of six properties, as well as the acquisition of additional properties in the future, subject to the partners' approval. The Company's pro rata funding commitment for the initial six properties is estimated at approximately $110,000, which will be funded using a combination of OP Units and cash. As of ~~March~~June 3130, 2018, the Company contributed approximately $3061,~~206~~304 to the E-Commerce JV, of which $115,~~130~~565 was contributed in cash.

The Company ~~has~~ committed to fund $100,000 to Strategic Office Partners, of which $2932,~~477~~427 was funded as of ~~March~~June 3130, 2018. ~~and~~In ~~December~~July 312018, ~~2017~~the Company sold its 25.0% interest in Strategic Office Partners to TPG, and following the sale the Company has no outstanding commitment to Strategic Office Partners. Refer to Note 15 for more information on the transaction. See Note 4 for further information on the Gramercy European Property Fund III, the E-Commerce JV, and Strategic Office Partners.

Legal Proceedings

Gramercy and its board of trustees are named as defendants in three pending lawsuits brought by purported Gramercy shareholders challenging the proposed transaction between the Company and affiliates of Blackstone: Anderson v. Gramercy Property Trust et al., No. 1:18-cv-05335-PCK, a purported class action, was filed in the United States District Court for the Southern District of New York on June 13, 2018, Franchi v. Gramercy Property Trust et al., No. 1:18-cv-01842-ELH, a purported class action, was filed in the United States District Court for the District of Maryland on June 20, 2018, and Madry v. Gramercy Property Trust et al., No. 1:18-cv-01851-TDC, an individual action, was filed in the United States District Court for the District of Maryland on June 21, 2018. The complaints allege, among other things, that the individual defendants caused the Company to file a materially incomplete and~~/or~~ ~~one~~misleading preliminary proxy statement relating to the proposed transaction in violation of Sections 14(a) and 20(a) of the Exchange Act. The Anderson and Madry complaints seek a variety of equitable and injunctive relief, including enjoining defendants from consummating the proposed merger transaction unless and until the Company provides supplemental disclosures, unspecified damages and, in the case of the Anderson complaint, rescission of the Merger Agreement or ~~more~~any of ~~its~~the ~~subsidiaries~~terms isthereof, ~~party~~or rescissory damages. The Franchi complaint seeks, among other relief, to ~~various~~enjoin ~~litigation~~defendants ~~matters~~from ~~that~~proceeding ~~are~~with, ~~considered~~consummating ~~routine~~or ~~litigation~~closing ~~incidental~~the toproposed ~~its~~merger transaction, rescission of the merger transaction or ~~their~~rescissory ~~business~~damages, ~~none~~and dissemination of ~~which~~a supplemental proxy statement. All three complaints also seek an award of attorneys’ and expert fees and expenses. The Company believes the lawsuits are ~~considered~~without ~~material~~merit. The Company is unable to predict the outcome of these matters.

In addition, the Company and/or one or more of its subsidiaries is party to various litigation matters that are considered routine litigation incidental to its or their business, none of which are considered material.

Office Leases

The Company has several office locations, which are each subject to operating lease agreements. These office locations include the Company’s corporate office at 90 Park Avenue, New York, New York, and the Company’s various regional offices located across the United States and Europe.

Capital and Operating Ground Leases

Certain properties acquired are subject to ground leases, which are accounted for as operating and capital leases, as applicable. The ground leases have varying ending dates, renewal options and rental rate escalations, with the latest lease extending to June 2053. Future minimum rental payments to be made by the Company under these non-cancelable ground leases, excluding increases resulting from increases in the consumer price index, are as follows:

	April 1 to December 31, 2018		2019		2020		2021		2022		Thereafter		Total
Ground Leases - Operating	$	1,888	$	2,593	$	2,596	$	2,567	$	2,598	$	73,175	$	85,417
Ground Leases - Capital	1		—		—		—		—		329		330
Total	$	1,889	$	2,593	$	2,596	$	2,567	$	2,598	$	73,504	$	85,747

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

June 30, 2018

lease extending to June 2053. Future minimum rental payments to be made by the Company under these non-cancelable ground leases, excluding increases resulting from increases in the consumer price index, are as follows:



	July 1 to December 31, 2018		2019		2020		2021		2022		Thereafter		Total
Ground Leases - Operating	$	1,266	$	2,593	$	2,596	$	2,567	$	2,598	$	73,175	$	84,795
Ground Leases - Capital	—		—		—		—		—		329		329
Total	$	1,266	$	2,593	$	2,596	$	2,567	$	2,598	$	73,504	$	85,124

13. Income Taxes

The Company has elected to be taxed as a REIT, under Sections 856 through 860 of the Internal Revenue Code beginning with its taxable year ended December 31, 2004. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute annually at least 90.0% of its ordinary taxable income to its shareholders. As a REIT, the Company generally will not be subject to U.S. federal income tax on taxable income that it distributes to its shareholders. The Operating Partnership is a limited partnership and therefore is generally not liable for federal corporate income taxes as income is reported in the tax returns of its partners. The Operating Partnership may, however, be subject to certain state and local taxes. The Operating Partnership has in the past established taxable REIT subsidiaries, or TRSs, to effect various taxable transactions. Typical transactions that could cause these TRSs to be subject to federal, state and local taxes would include, but are not limited to, gains on property sales and management fee income. Tax expense from the Operating Partnership’s TRS for the three and six months ended June 30, 2018 and 2017 was immaterial.

44The Company’s policy for interest and penalties, if any, on material uncertain tax positions recognized in the financial statements is to classify these as interest expense and operating expense, respectively. As of June 30, 2018 and December 31, 2017, the Company did not incur any material interest or penalties.

Gramercy Property Trust and GPT Operating Partnership LP

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts in thousands, except per share and per unit data)

~~March~~June 3130, 2018

property sales and management fee income. Tax expense from the Operating Partnership’s TRS for the three months ended March 31, 2018 and 2017 was immaterial.

The Company’s policy for interest and penalties, if any, on material uncertain tax positions recognized in the financial statements is to classify these as interest expense and operating expense, respectively. As of March 31, 2018 and December 31, 2017, the Company did not incur any material interest or penalties.

14. Supplemental Cash Flow Information

The following table represents supplemental cash flow disclosures for the ~~three~~six months ended ~~March~~June 3130, 2018 and 2017:

	Three Months Ended March 31,
	Six Months Ended June 30,
	2018			2017
Supplemental cash flow disclosures:
Interest paid	$	1950,~~320~~194		$	1744,~~447~~441
Income taxes paid	60218			71296
Proceeds from 1031 exchanges from sale of real estate	5			23170,~~219~~210
Use of funds from 1031 exchanges for acquisitions of real estate	(5		)	(23140,~~218~~987		)
Non-cash activity:
Fair value adjustment to noncontrolling interest in the Operating Partnership	$	~~232~~7,448		$	~~(296~~576	)
Debt assumed in acquisition of real estate	—			3,680
Debt transferred in disposition of real estate	—			(10,456		)
Non-cash acquisition of consolidated VIE	—			24,930
Dividend reinvestment plan proceeds	4681			81103
Redemption of units of noncontrolling interest in the Operating Partnership for common shares	(130		)	(2,~~164~~697		)
Contributions to unconsolidated equity investments for units of noncontrolling interests in the operating partnership	2537,~~141~~558			—

15. Subsequent Events

InSubsequent ~~April~~to June 30, 2018, the Company ~~declared~~sold aits ~~second~~25.0% ~~quarter~~interest ~~2018~~in ~~common~~Strategic ~~dividend~~Office ofPartners ~~$0.375~~to ~~per~~its ~~share~~investment partner, ~~payable on July 16~~TPG, ~~2018~~for togross ~~shareholders~~proceeds of ~~record as of June 29~~$45,382 ~~2018.~~in ~~In April 2018, the Company also declared~~ a ~~second~~transaction ~~quarter~~that ~~2018~~valued ~~dividend~~the oninvestment ~~its~~portfolio ~~7.125%~~at ~~Series~~an Aaggregate ~~Preferred~~value ~~Shares in the amount~~ of $0388,000.~~44531~~ ~~per~~Also ~~share,~~subsequent ~~payable~~to onJune ~~July 2~~30, 2018, tothe ~~preferred~~Company ~~shareholders~~closed ofon ~~record~~the asdisposition of ~~the~~two ~~close~~properties offor ~~business~~gross onproceeds ~~June 19,~~of ~~2018~~approximately $36,650.

Subsequent to March 31, 2018, the Company closed on the disposition of a parcel of land for gross proceeds of approximately $975. Subsequent to March 31, 2018, the Company issued 570,863 OP Units valued at approximately $16,663 in connection with its contribution to the E-Commerce JV for the acquisition of two properties.50


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Unaudited, dollar amounts in thousands, except per share and per unit data)

Overview

Gramercy Property Trust, or the Company or Gramercy, a Maryland real estate investment trust, or REIT, together with its subsidiary, GPT Operating Partnership LP, or the Operating Partnership, is a leading global investor and asset manager of commercial real estate. We specialize in acquiring and managing high quality, income producing commercial real estate leased to high quality tenants in major markets in the United States and Europe.

We earn revenues primarily through rental revenues on properties that we own in the United States. We also own unconsolidated equity investments in the United States, Europe, and Asia. Our operations are conducted primarily through the Operating Partnership, of which we are the sole general partner. As of ~~March~~June 3130, 2018, third-party holders of limited partnership interests owned approximately 3.2558% of the Operating Partnership. These interests are referred to as the noncontrolling interests in the Operating Partnership.

As of ~~March~~June 3130, 2018, our wholly-owned portfolio consisted of ~~362~~355 properties comprising 8081,~~884~~134,~~942~~150 rentable square feet with 9796.37% occupancy. As of ~~March~~June 3130, 2018, we had ownership interests in 2033 properties held in unconsolidated equity investments in the United States and Europe and one property held through the investment in CBRE Strategic Partners Asia. As of ~~March~~June 3130, 2018, we managed approximately $12,~~960~~364,000 of commercial real estate assets, including approximately $1,~~408~~617,000 of assets in Europe.

During the ~~three~~six months ended ~~March~~June 3130, 2018, we acquired ~~one~~three ~~property~~properties ~~with~~aggregating ~~162~~550,~~056~~522 square feet for a total purchase price of approximately $1032,~~550~~690 and placed one development property into service with 126,722 square feet. During the ~~three~~six months ended ~~March~~June 3130, 2018, we sold ~~five~~14 properties and one ~~warehouse~~land ~~from~~parcel that was part of another asset aggregating 1,~~546~~890,~~091~~057 square feet for total gross proceeds of approximately $~~111~~130,~~012~~983.

Gramercy Property Trust has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, and generally will not be subject to U.S. federal income taxes to the extent we distribute our taxable income, if any, to our shareholders. The Operating Partnership is a limited partnership and therefore is generally not liable for federal corporate income taxes as income is reported in the tax returns of its partners. We have in the past established, and may in the future establish taxable REIT subsidiaries, or TRSs, to effect various taxable transactions. Those TRSs are subject to federal, state and local taxes on the taxable income from their activities.

45Pending Mergers

On May 6, 2018, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with BRE Glacier Parent L.P., or Parent, BRE Glacier L.P., or Merger Sub I, and BRE Glacier Acquisition L.P., or Merger Sub II, all of which are affiliates of Blackstone Real Estate Partners VIII L.P., an affiliate of The Blackstone Group L.P. Pursuant to the Merger Agreement, Merger Sub II will merge with and into the Operating Partnership, or the Partnership Merger, and we will merge with and into Merger Sub I, or the Company Merger, and, together with the Partnership Merger, the Mergers. Following the Mergers, Merger Sub I and the Operating Partnership will continue as the surviving entities and the separate existence of the Company and Merger Sub II will cease. 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; however, Parent may on one or more occasions elect to delay the closing to a date that is on or prior to October 10, 2018. On June 27, 2018, we filed a definitive proxy statement with the Securities and Exchange Commission, or SEC, 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 in the accompanying Consolidated Financial Statements for further discussion of the Merger Agreement and the Mergers.

The Mergers are expected to close during the second half of 2018, although closing is subject to various conditions, including the approval of the Company Merger by our common shareholders, 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, including restrictions on acquiring new assets and raising additional capital. 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.

Results of Operations

Comparison of the three months ended ~~March~~June 3130, 2018 to the three months ended ~~March~~June 3130, 2017

Revenues

	2018			2017			Change
Rental revenue	$	~~122~~119,~~245~~177		$	~~103~~108,~~282~~261		$	1810,~~963~~916
Operating expense reimbursements	2322,~~310~~346			2019,~~368~~628			2,~~942~~718
Third-party management fees	2,~~790~~374			41,~~592~~638			~~(1,802~~736		)
Other income	1,~~135~~698			1,~~752~~838			(~~617~~140		)
Total revenues	$	~~149~~145,~~480~~595		$	~~129~~131,~~994~~365		$	1914,~~486~~230
Equity in net loss of unconsolidated equity investments	$	(926	)	$	(94	)	$	(832	)
Equity in net income (loss) of unconsolidated equity investments	$	(1,838	)	$	248		$	(2,086	)

The increase of $1810,~~963~~916 in rental revenue and $2,~~942~~718 in operating expense reimbursements is due to the increase in our wholly-owned property portfolio of ~~362~~355 properties as of ~~March~~June 3130, 2018 compared to ~~318~~320 properties as of ~~March~~June 3130, 2017.

The ~~decrease~~increase of $~~1,802~~736 in third-party management fees is primarily attributable to ~~a decrease of $3,162 in asset management, property management, incentive fees and accounting fees earned from our contract with KBS, which expired on March 31, 2017. This partially offset by~~ an increase of $~~1,080~~520 in revenue from our European management platform during the three months ended ~~March~~June 3130, 2018 compared to the three months ended ~~March~~June 3130, 2017.

~~For~~The ~~the~~equity ~~three~~in ~~months~~net ~~ended~~income ~~March 31,~~(loss) ~~2018,~~of ~~other~~unconsolidated ~~income~~equity isinvestments ~~primarily comprised~~ of ~~investment~~$(1,838) ~~income~~and of $~~894.~~248 ~~For~~for the three months ended ~~March~~ 31June 30, 2018 and 2017, ~~other~~respectively, ~~income~~represents isour ~~primarily~~proportionate share ~~comprised~~ of ~~property~~the ~~related~~ income of(loss) ~~$1,127~~generated ~~and~~by ~~investment~~our ~~income~~equity ~~of $633~~investments.

The equity in net loss of unconsolidated equity investments of $926 and $94 for the three months ended March 31, 2018 and 2017, respectively, represents our proportionate share of the loss generated by our equity investments. 53

Expenses

	2018			2017			Change
Depreciation and amortization	$	7168,~~516~~479		$	62,~~217~~176		$	96,~~299~~303
Property operating expenses	2726,~~088~~018			23,~~186~~219			32,~~902~~799
General and administrative expenses	98,~~686~~862			89,~~756~~100			~~930~~(238		)
Property management expenses	2,~~542~~616			32,~~084~~435			~~(542~~181		)
Interest expense	25,492			23,056			2,436
Merger-related expenses	1,945			—			1,945
Net impairment recognized in earnings	—			4,890			(4,890		)
Interest expense	25,597			23,239			2,358
Loss on extinguishment of debt	—			208			(208		)
Gain on derivative instruments	(14,970		)	—			(14,970		)
Impairment of real estate investments	—			12,771			(12,771		)
Gain on extinguishment of debt	(83		)	(268		)	185
Provision for taxes	621			(196		)	817
Impairment losses	4,601			5,580			(979		)
Net gain on disposals	(16,255		)	(17,377		)	1,122
(Benefit) provision for taxes	(62		)	147			(209		)
Total expenses	$	120,690		$	120,595		$	95
Net gain on disposals	(4,523		)	(2,002		)	(2,521		)
Total expenses	$	118,480		$	123,626		$	(5,146	)

The increase of $96,~~299~~303 in depreciation and amortization expense and $32,~~902~~799 in property operating expenses is due to our wholly-owned property portfolio of ~~362~~355 properties as of ~~March~~June 3130, 2018 compared to ~~318~~320 properties as of ~~March~~June 3130, 2017. Property operating expenses are ~~comprised~~composed of expenses directly attributable to our real estate portfolio. Property operating expenses include property related costs which we are responsible for during the lease term but can be passed through to the tenant as operating expense reimbursement revenue.

The increase of $~~930~~1,945 in ~~general~~merger-related ~~and~~expenses ~~administrative expense~~ is ~~primarily~~due ~~attributable~~ to ~~the~~legal ~~increase~~and inprofessional ~~transaction~~ costs ofincurred ~~$901~~related ~~during~~to the ~~three~~pending ~~months ended March 31, 2018~~Mergers.

~~Property management expenses are comprised of costs related to our asset and property management business.~~ The ~~decrease~~increase of $~~542~~2,358 in ~~property~~interest ~~management~~expense ~~expenses~~ is primarily ~~related~~due to ~~the~~increased ~~reduction~~borrowings ofon ~~expenses~~our ~~associated~~2015 ~~with~~Revolving ~~the~~Credit ~~KBS~~Facility ~~arrangement~~and ~~which ended in~~ the ~~first~~upsize ~~quarter~~ of ~~2017. The decrease is partially offset by the increase in expenses related to~~ our ~~European~~7-Year ~~management~~Term ~~platform~~Loan.

~~The~~During ~~increase~~the ofthree ~~$2,436~~months inended ~~interest~~June ~~expense~~30, is2018, ~~primarily~~we ~~due~~recognized toa ~~increased~~gain ~~borrowings~~ on ~~our~~derivative ~~2015~~instruments ~~Revolving~~of ~~Credit~~$14,970 ~~Facility~~related ~~and~~to the ~~upsize~~termination of our ~~7-Year~~forward ~~Term~~starting ~~Loan~~swap.

During the three months ended ~~March~~June 3130, ~~2017~~2018, we ~~recorded~~recognized ~~net~~ impairment ~~recognized~~losses inof ~~earnings~~$4,601, of which $41,~~890~~308 onis ~~our~~related ~~Retained~~to ~~CDO~~two ~~Bonds~~properties ~~due~~held as of June 30, 2018 that were determined to ~~adverse~~have ~~changes~~non-recoverable declines in ~~expected~~value ~~cash~~during ~~flows~~the period and $3,293 is related to the ~~Retained~~goodwill ~~CDO~~associated ~~Bonds~~with our European management platform. During the three months ended June 30, 2017, we recognized an impairment on real estate investments of $5,580 related to three properties held as of June 30, 2017 that were determined to have non-recoverable declines in value during the period.

During the three months ended ~~March~~June 3130, 2018 and 2017, we ~~recognized~~realized ana ~~impairment~~net gain on ~~real~~disposals ~~estate investments~~ of $124,~~771~~523 ~~related~~and to$2,002, ~~two~~respectively, ~~properties~~related ~~that were determined~~ to ~~have~~the ~~non-recoverable~~disposals ~~declines~~of inproperties ~~value~~ during the ~~period~~periods.

The provision for taxes was $621 and $(196) for the three months ended March 31, 2018 and 2017, respectively. The increase in our tax provision is primarily attributable to the increase in estimated taxes related to our European management platform.54

~~During~~Comparison of the ~~three~~six months ended ~~March~~June 3130, 2018 ~~and 2017, we realized a net gain on disposals of $16,255 and $17,377, respectively, related~~ to the ~~disposals~~six ofmonths ~~properties~~ended ~~during~~June 30, ~~the~~2017 ~~periods.~~

47Revenues



	2018			2017		Change
Rental revenue	$	241,422		$	211,543	$	29,879
Operating expense reimbursements	45,656			39,996		5,660
Third-party management fees	5,164			6,230		(1,066		)
Other income	2,833			3,590		(757		)
Total revenues	$	295,075		$	261,359	$	33,716
Equity in net income (loss) of unconsolidated equity investments	$	(2,764	)	$	154	$	(2,918	)

The increase of $29,879 in rental revenue and $5,660 in operating expense reimbursements is due to our wholly-owned property portfolio of 355 properties as of June 30, 2018 compared to 320 properties as of June 30, 2017.

The decrease of $1,066 in third-party management fees is primarily attributable to a decrease of $3,086 in asset management, property management, incentive fees and accounting fees earned from our contract with KBS, which expired on March 31, 2017. This is partially offset by an increase of $1,600 in revenue from our European management platform during the six months ended June 30, 2018 compared to the six months ended June 30, 2017.

For the six months ended June 30, 2018, other income is primarily composed of investment income of $1,934 and property related income of $935. For the six months ended June 30, 2017, other income is primarily composed of investment income of $899, property related income of $1,588, and lease termination fees of $953.

The equity in net income (loss) of unconsolidated equity investments of $(2,764) and $154 for the six months ended June 30, 2018 and 2017, respectively, represents our proportionate share of the income (loss) generated by our unconsolidated equity investments.

Expenses



	2018			2017			Change
Depreciation and amortization	$	139,995		$	124,393		$	15,602
Property operating expenses	53,106			46,405			6,701
General and administrative expenses	18,548			17,856			692
Property management expenses	5,158			5,519			(361		)
Merger-related expenses	1,945			—			1,945
Interest expense	51,089			46,295			4,794
Net impairment recognized in earnings	—			4,890			(4,890		)
Gain on derivative instruments	(14,970		)	—			(14,970		)
Gain on extinguishment of debt	(83		)	(60		)	(23		)
Impairment losses	4,601			18,351			(13,750		)
(Benefit) provision for taxes	559			(49		)	608
Net gain on disposals	(20,778		)	(19,379		)	(1,399		)
Total expenses	$	239,170		$	244,221		$	(5,051	)

The increase of $15,602 in depreciation and amortization expense and $6,701 in property operating expenses is due to our wholly-owned property portfolio of 355 properties as of June 30, 2018 compared to 320 properties as of June 30, 2017. Property operating expenses are composed of expenses directly attributable to our real estate portfolio. Property operating expenses include property related costs which we are responsible for during the lease term but can be passed through to the tenant as operating expense reimbursement revenue.

The increase of $692 in general and administrative expense is primarily attributable to the increase in transaction costs during the six months ended June 30, 2018.

The increase of $1,945 in merger-related expenses is due to legal and professional costs incurred related to the pending Mergers.

The increase of $4,794 in interest expense is primarily due to increased borrowings on our 2015 Revolving Credit Facility and the upsize of our 7-Year Term Loan.

During the six months ended June 30, 2017, we recorded net impairment recognized in earnings of $4,890 on our Retained CDO Bonds due to adverse changes in expected cash flows related to the Retained CDO Bonds.

During the six months ended June 30, 2018, we recognized a gain on derivative instruments of $14,970 related to the termination of our forward starting swap.

During the six months ended June 30, 2018, we recognized impairment losses of $4,601, of which $1,308 is related to two properties held as of June 30, 2018 that were determined to have non-recoverable declines in value during the period and $3,293 is related to the goodwill associated with our European management platform. During the six months ended June 30, 2017, we recognized an impairment on real estate investments of $18,351 related to two properties sold during the period as well as three properties held as of June 30, 2017 that were determined to have non-recoverable declines in value during the period.

The provision for taxes was $559 and $(49) for the six months ended June 30, 2018 and 2017, respectively. The increase in our tax provision is primarily attributable to the increase in estimated taxes related to our European management platform.

During the six months ended June 30, 2018 and 2017, we realized a net gain on disposals of $20,778 and $19,379, respectively, related to the disposals of properties during the periods.

Liquidity and Capital Resources

~~Liquidity~~The isMerger aAgreement ~~measurement~~contains ofprovisions ~~our~~which ~~ability~~restrict toor ~~meet~~prohibit ~~cash~~certain ~~requirements,~~capital ~~including~~expenditures ~~ongoing~~as ~~commitments~~well toas ~~fund~~certain ~~acquisitions~~capital oftransactions ~~real~~typically ~~estate~~used ~~assets,~~to ~~repay~~fund ~~borrowings,~~our ~~pay~~short ~~dividends~~ and ~~other~~long-term ~~general~~liquidity ~~business needs~~requirements. Until Inthe ~~addition~~Mergers toclose, ~~cash~~or onthe ~~hand,~~Merger ~~our~~Agreement ~~primary~~is ~~sources~~terminated, ofour ~~funds~~liquidity ~~for~~requirements ~~short-term~~will ~~and~~primarily ~~long-term~~be ~~liquidity~~funded ~~requirements,~~by ~~including~~our ~~working~~cash ~~capital,~~flow ~~distributions,~~from ~~debt~~operations ~~service~~ and ~~additional~~certain ~~investments,~~other ~~consist~~capital ~~of:~~activities ~~(i)~~allowed ~~borrowings~~ under ~~our~~the ~~unsecured~~Merger ~~revolving~~Agreement. ~~credit~~In ~~facility~~particular, ~~and~~we ~~term~~are ~~loans;(ii)~~subject ~~proceeds~~to ~~from~~various ~~sales~~restrictions ofunder ~~real~~the ~~estate;(iii)~~Merger ~~cash~~Agreement ~~flow~~on ~~from~~raising ~~operations;~~additional ~~and~~capital, ~~(iv)~~issuing ~~proceeds~~additional ~~from~~equity ~~our~~or ~~common~~debt, repurchasing equity ~~and~~or debt, ~~offerings.~~and Weentering ~~believe~~into ~~these~~certain ~~sources~~acquisition, ofdisposition ~~financing~~and ~~will~~leasing betransactions, ~~sufficient~~among toother ~~meet~~restrictions, ~~our~~subject ~~short-term~~to ~~and~~the ~~long-term~~restrictions ~~liquidity~~under ~~requirements~~the Merger Agreement.

~~Our~~Liquidity is a measurement of our ability to meet cash ~~flow~~requirements, ~~from~~including ~~operations~~ongoing ~~primarily~~commitments ~~consists~~to fund acquisitions of ~~rental~~real ~~revenue~~estate assets, ~~expense~~repay ~~reimbursements~~borrowings, ~~from~~pay ~~tenants,~~dividends and ~~third-party~~other ~~management~~general ~~fees~~business needs. ~~Our~~In ~~cash~~addition ~~flow~~to ~~from~~cash ~~operations~~on ishand, our ~~principal~~primary ~~source~~sources of funds ~~that~~for weshort-term ~~use~~and tolong-term ~~pay~~liquidity ~~operating~~requirements, ~~expenses~~including working capital, distributions, debt service, ~~general~~ and ~~administrative~~additional ~~expenses~~investments, ~~operating~~consist ~~capital~~of: ~~expenditures,~~(i) ~~dividends,~~cash ~~and~~flow ~~acquisition-related~~from ~~expenses.~~operations; ~~Our~~(ii) ~~ability~~borrowings tounder ~~fund~~ our ~~short-term~~unsecured ~~liquidity~~revolving ~~needs,~~credit ~~including~~facility ~~debt service~~ and ~~general~~term ~~operations~~loans; (~~including~~iii) ~~employment~~proceeds ~~related~~from ~~benefit~~sales ~~expenses),~~of ~~through~~real ~~cash~~estate; ~~flow~~and (iv) proceeds from ~~operations~~our ~~can~~common beequity ~~evaluated~~and ~~through~~debt ~~the~~offerings. ~~Consolidated~~We ~~Statements~~believe these sources of ~~Cash~~financing ~~Flows~~will ~~included~~be insufficient to meet our ~~Consolidated~~short-term ~~Financial~~and ~~Statements~~long-term liquidity requirements, subject to restrictions under the Merger Agreement.

Our cash flow from operations primarily consists of rental revenue, expense reimbursements from tenants, and third-party management fees. Our cash flow from operations is our principal source of funds that we use to pay operating expenses, debt service, general and administrative expenses, operating capital expenditures, dividends, and acquisition-related expenses. Our ability to fund our short-term liquidity needs, including debt service and general operations (including employment related benefit expenses), through cash flow from operations can be evaluated through the Consolidated Statements of Cash Flows included in the accompanying Consolidated Financial Statements.

Our ability to borrow under our 2015 Revolving Credit Facility and term loan facilities is subject to our ongoing compliance with a number of customary financial covenants including our maximum secured and unsecured leverage ratios, minimum fixed charge coverage ratios, consolidated adjusted net worth values, unencumbered asset values, occupancy rates, and portfolio lease terms.

We have several unconsolidated equity investments with partners who we consider to be financially stable. Our unconsolidated equity investments are financed with non-recourse debt or equity. We believe that cash flows from the underlying real estate investments and capital commitments will be sufficient to fund the capital needs of our unconsolidated equity investments.

To maintain our qualification as a REIT under the Internal Revenue Code, we must distribute annually at least 90.0% of our taxable income. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital for operations. As of the date of this filing, we expect that our cash on hand and cash flow from operations will be sufficient to satisfy our anticipated short-term and long-term liquidity needs as well as our recourse liabilities, if any.

See the discussion above and in Note 1 in the accompanying Consolidated Financial Statements for more information regarding restrictions under the Merger Agreement to which we are subject.

Cash Flows

Net cash provided by operating activities increased $1422,~~344~~221 to $72148,~~823~~283 for the ~~three~~six months ended ~~March~~June 3130, 2018 compared to $58126,~~479~~062 for the same period in 2017. Operating cash flow was generated primarily by net rental revenue from our real estate investments.

Net cash ~~provided~~used byin investing activities for the ~~three~~six months ended ~~March~~June 3130, 2018 was $7328,~~380~~709 compared to net cash used in investing activities of $87130,~~638~~655 during the same period in 2017. The increase in cash flow related to investing activities in 2018 is primarily attributable to a decrease in acquisition of real estate and increased proceeds from sales of real estate.

Net cash used in financing activities for the ~~three~~six months ended ~~March~~June 3130, 2018 was $~~132~~90,~~290~~660 as compared to net cash provided by financing activities of $18128,~~188~~073 during the same period in 2017. The decrease in cash flow in 2018 is primarily attributable to net paydowns on our unsecured credit facility and increased dividend payments in 2018, as well as proceeds from sales of our common shares in 2017.

Equity Structure

As of ~~March~~June 3130, 2018 and December 31, 2017, our authorized capital shares consists of 500,000,000 shares of beneficial interest, $0.01 par value per share, of which we are authorized to issue up to 490,000,000 common shares of beneficial interest, $0.01 par value per share, or common shares, and 10,000,000 preferred shares of beneficial interest, $0.01 par value per share, or preferred shares. As of ~~March~~June 3130, 2018, 160,~~782~~792,~~765~~820 common shares and 3,500,000 preferred shares were issued and outstanding.

Market Capitalization

At ~~March~~June 3130, 2018, our consolidated market capitalization was $67,~~378~~366,~~453~~668 based on a common share price of $2127.7332 per share, the closing price of our common shares on the NYSE on ~~March~~June 3130, 2018. Market capitalization includes consolidated debt and common and preferred shares.

Dividends

To maintain our qualification as a REIT, we must pay annual dividends to our shareholders of at least 90.0% of our REIT taxable income, determined before taking into consideration the dividends paid deduction and net capital gains. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, which would only be paid out of available cash, we must first meet both our operating requirements and scheduled debt service on our mortgages and other loans payable. ~~Dividends~~Under ~~per~~the Merger Agreement entered into on May 6, 2018, we were permitted to pay one additional common share ~~declared~~dividend ~~during~~of ~~2017~~$0.375 ~~and~~per share on July 16, 2018, ~~are~~but aswill ~~follows:~~not be permitted to pay common share dividends for any quarter thereafter, subject to certain exceptions.

Quarter Ended	Common dividends 1		Preferred dividends
March 31, 2017	$	0.375	$	0.445
June 30, 2017	$	0.375	$	0.445
September 30, 2017	$	0.375	$	0.445
December 31, 2017	$	0.375	$	0.445
March 31, 2018	$	0.375	$	0.445

Dividends per share declared during 2017 and 2018 are as follows:



Quarter Ended	Common dividends ¹		Preferred dividends
March 31, 2017	$	0.375	$	0.445
June 30, 2017	$	0.375	$	0.445
September 30, 2017	$	0.375	$	0.445
December 31, 2017	$	0.375	$	0.445
March 31, 2018	$	0.375	$	0.445
June 30, 2018	$	0.375	$	0.445


1.	Common dividends declared for a quarter are accrued for during the quarter and then paid to common shareholders of record as of the end of the quarter during the month following the quarter-end.

Indebtedness

Secured Debt

Mortgage Notes

Certain real estate assets are subject to mortgage notes. During the ~~three~~six months ended ~~March~~June 3130, 2018, we did not assume ~~or pay off~~ any mortgages notes. During the year ended December 31, 2017, we assumed $181,107 of non-recourse mortgages in connection with seven real estate acquisitions. During the three and six months ended ~~March~~June 3130, 2018, we paid off the mortgage notes on four properties and recorded a net gain on extinguishment of debt of $83 related to the payoffs. During the three and six months ended June 30, 2017, we paid off the mortgage notes on two properties. During the six months ended June 30, 2017, we refinanced the debt on two properties encumbered by a mortgage ~~note~~loan for $10,456 and subsequently transferred the mortgage on these two properties to the buyer of the properties,. During the three and, assix amonths ~~result~~ended June 30, 2017, we recorded a net ~~loss~~gain on the early extinguishment of debt of $~~208~~268 and $60, respectively. Our mortgage notes include a series of financial and other covenants with which we must comply in order to borrow under them. We were in compliance with the covenants under the mortgage note facilities as of ~~March~~June 3130, 2018.

As of ~~March~~June 3130, 2018, we ~~have~~had $~~550~~491,~~953~~236 total outstanding principal under our mortgage notes, which encumber 5046 properties, and have a weighted average remaining term of 4.68 years and a weighted average interest rate of 4.4248%. Weighted averages are based on outstanding principal balances as of June 30, 2018 and the interest rate reflects the effects of interest rate swaps and amortization of financing costs and fair market value premiums or discounts. Refer to Note 5 in the accompanying Consolidated Financial Statements for additional information on our secured debt obligations.

Weighted averages are based on outstanding principal balances as of March 31, 2018 and the interest rate reflects the effects of interest rate swaps and amortization of financing costs and fair market value premiums or discounts. Refer to Note 5 of the accompanying financial statements for additional information on our secured debt obligations.

Unsecured Debt

2015 Credit Facility and Term Loans

In December 2015, we entered into an agreement, or the Credit Agreement, for a new $1,900,000 credit facility, or the 2015 Credit Facility, consisting of an $850,000 senior unsecured revolving credit facility, or the 2015 Revolving Credit Facility, and a $1,050,000 term loan facility with JPMorgan Securities LLC and Merrill Lynch, Pierce, Fenner and Smith Incorporated. The 2015 Revolving Credit Facility consists of a $750,000 U.S. dollar revolving credit facility and a $100,000 multicurrency revolving credit facility. The 2015 Revolving Credit Facility matures in January 2020, but may be extended for two additional six-month periods upon the payment of applicable fees and satisfaction of certain customary conditions. The term loan facility, or the 2015 Term Loan, consists of a $300,000 term loan facility that matures in January 2019 with one 12-month extension option, or the 3-Year Term Loan, and a $750,000 term loan facility that matures in January 2021, or the 5-Year Term Loan. In December 2015, we also entered into a ~~new~~ $175,000 7-year unsecured term loan with Capital One, N.A., or the 7-Year Term Loan, which matures in January 2023. In October 2017, we modified the 7-Year Term Loan by increasing the loan amount to $400,000 and reducing the interest rate to the terms described below.

Outstanding borrowings under the 2015 Revolving Credit Facility incur interest at a floating rate based upon, at our option, either (i) adjusted LIBOR plus an applicable margin ranging from 0.88% to 1.55%, depending on our credit ratings, or (ii) the alternate base rate plus an applicable margin ranging from 0.00% to 0.55%, depending on our credit ratings. We are also required to pay quarterly in arrears a 0.13% to 0.30% facility fee, depending on the credit ratings, on the total commitments under the 2015 Revolving Credit Facility. Outstanding borrowings under the 2015 Term Loan and 7-Year Term Loan incur interest at a floating rate based upon, at our option, either (i) adjusted LIBOR plus an applicable margin ranging from 0.90% to 1.75%, depending on our credit ratings, or (ii) the alternate base rate plus an applicable margin ranging from 0.00% to 0.75%, depending on our credit ratings. The alternate base rate for the 2015 Revolving Credit Facility and 7-Year Term Loan is the greater of (x) the prime rate announced by JPMorgan Chase Bank, N.A. or Capital One, respectively, (y) 0.50% above the Federal Funds Effective Rate, and (z) the adjusted LIBOR for a one-month interest period plus 1.00%.

Our unsecured borrowing facilities include a series of financial and other covenants ~~which~~with which we must comply in order to borrow under them. We were in compliance with the covenants under the facilities as of ~~March~~June 3130, 2018. Refer to the table at the end of Note 5 ofin the accompanying ~~financial~~Consolidated ~~statements~~Financial Statements for specific terms and our outstanding borrowings under the facilities.

Senior Unsecured Notes

During 2015 and 2016, we issued and sold an aggregate $500,000 principal amount of senior unsecured notes payable in private placements, which have maturities ranging from 2022 through 2026 and bear interest semiannually at rates ranging from 3.89% to 4.97%. Refer to the table at the end of the section for specific terms of the outstanding notes.

Exchangeable Senior Notes

In September 2017, our $115,000 of 3.75% Exchangeable Senior Notes were exchanged for 5,258,420 of our common shares.

~~The terms of our unsecured sources of financing and their combined aggregate principal maturities as of March 31, 2018 and December 31, 2017 are as follows:~~59

	Stated Interest Rate	Effective Interest Rate 1	Maturity Date	Outstanding Balance
				March 31, 2018			December 31, 2017
2015 Revolving Credit Facility - USD tranche	2.89%	2.89%	1/8/2020	$	275,000		$	345,000
2015 Revolving Credit Facility - Multicurrency tranche	1.32%	1.32%	1/8/2020	17,543			12,162
3-Year Term Loan	2.91%	2.33%	1/8/2019	300,000			300,000
5-Year Term Loan	2.91%	2.70%	1/8/2021	750,000			750,000
7-Year Term Loan	2.76%	3.00%	1/9/2023	400,000			400,000
2015 Senior Unsecured Notes	4.97%	5.07%	12/17/2024	150,000			150,000
2016 Senior Unsecured Notes	3.89%	4.00%	12/15/2022	150,000			150,000
2016 Senior Unsecured Notes	4.26%	4.38%	12/15/2025	100,000			100,000
2016 Senior Unsecured Notes	4.32%	4.43%	12/15/2026	100,000			100,000
Total unsecured debt				2,242,543			2,307,162
Net deferred financing costs and net debt discount				(4,872		)	(5,063		)
Total unsecured debt, net				$	2,237,671		$	2,302,099

The terms of our unsecured sources of financing and their combined aggregate principal maturities as of June 30, 2018 and December 31, 2017 are as follows:

1. Represents the rate at which interest expense is recorded for financial reporting purposes as of March 31, 2018, which reflects the effect of interest rate swaps and amortization of financing costs and fair market value premiums or discounts.



	Stated Interest Rate	Effective Interest Rate ¹	Maturity Date	Outstanding Balance
	Stated Interest Rate	Effective Interest Rate ¹	Maturity Date	June 30, 2018			December 31, 2017
2015 Revolving Credit Facility - USD tranche	3.08%	3.08%	1/8/2020	$	405,000		$	345,000
2015 Revolving Credit Facility - Multicurrency tranche	1.11%	1.11%	1/8/2020	36,773			12,162
3-Year Term Loan	3.23%	2.33%	1/8/2019	300,000			300,000
5-Year Term Loan	3.23%	2.70%	1/8/2021	750,000			750,000
7-Year Term Loan	3.08%	3.00%	1/9/2023	400,000			400,000
2015 Senior Unsecured Notes	4.97%	5.07%	12/17/2024	150,000			150,000
2016 Senior Unsecured Notes	3.89%	4.00%	12/15/2022	150,000			150,000
2016 Senior Unsecured Notes	4.26%	4.38%	12/15/2025	100,000			100,000
2016 Senior Unsecured Notes	4.32%	4.43%	12/15/2026	100,000			100,000
Total unsecured debt				2,391,773			2,307,162
Net deferred financing costs and net debt discount				(4,680		)	(5,063		)
Total unsecured debt, net				$	2,387,093		$	2,302,099

511. Represents the rate at which interest expense is recorded for financial reporting purposes as of June 30, 2018, which reflects the effect of interest rate swaps and amortization of financing costs and fair market value premiums or discounts.

Derivatives and Non-Derivative Hedging Instruments

As of ~~March~~June 3130, 2018, our derivative instruments consist of interest rate swaps, which are cash flow hedges and are reported at fair value in other assets or other liabilities depending on the ending balance. Changes in the effective portion of the fair value of derivatives designated as hedging instruments are recognized in other comprehensive income until the hedged item expires or is recognized in earnings. Prior to our adoption of ASU 2017-12 on January 1, 2018, described in Note 2 ofin the accompanying ~~financial~~Consolidated ~~statements~~Financial Statements, the ineffective portion of the change in fair value of a derivative designated as a hedge was immediately recognized in earnings, however subsequent to adoption the entire change in fair value is recognized in other comprehensive income until the hedged item is recognized in earnings. As a result of adoption, we recorded a decrease to our opening retained earnings balance and a corresponding increase to our opening accumulated other comprehensive income balance of $103 as of January 1, 2018, which represents the cumulative amount of hedge ineffectiveness recorded in the Consolidated Statements of Operations at the time of adoption. Derivative accounting may increase or decrease reported net income and shareholders’ equity, depending on future levels of LIBOR interest rates, foreign exchange rates, and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows, provided the contract is carried through to full term.

Borrowings on the multicurrency tranche of our 2015 Revolving Credit Facility, which are designated as non-derivative net investment hedges, are recognized at par value based on the exchange rate in effect on the date of the draw. Subsequent changes in the exchange rate of our non-derivative net investment hedge are recognized as part of the cumulative foreign currency translation adjustment within other comprehensive income. Refer to Note 7 and Note 8 ofin the accompanying ~~financial~~Consolidated ~~statements~~Financial Statements for additional information on our derivatives and non-derivative hedging instruments, including the fair value measurement of these instruments, as applicable.

5261

The following table summarizes our derivatives and hedging instruments at ~~March~~June 3130, 2018. The aggregate fair value of our derivatives is presented in our Consolidated Balance Sheets in derivative instruments and the aggregate carrying value of the non-derivative net investment hedges is included in the balance of our 2015 Revolving Credit Facility. The notional value is an indication of the extent of our involvement in this instrument at that time, but does not represent exposure to credit, interest rate or market risks.

Benchmark Rate

Notional Value

Strike Rate

Effective Date

Expiration Date

Fair Value

Interest Rate Swap - Waco

1 mo. USD-LIBOR-BBA

14,~~815~~741 USD

4.55%

12/19/2013

12/19/2020

~~(13~~64

)

Interest Rate Swap - 3-Year Term Loan

1 mo. USD-LIBOR-BBA

100,000 USD

1.22%

12/19/2016

12/17/2018

~~615~~472

Interest Rate Swap - 3-Year Term Loan

1 mo. USD-LIBOR-BBA

100,000 USD

1.23%

12/19/2016

12/17/2018

~~612~~470

Interest Rate Swap - 3-Year Term Loan

1 mo. USD-LIBOR-BBA

100,000 USD

1.24%

12/19/2016

12/17/2018

~~604~~465

Interest Rate Swap - 5-Year Term Loan

1 mo. USD-LIBOR-BBA

750,000 USD

1.60%

12/17/2015

12/17/2020

1719,~~010~~539

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

175,000 USD

1.82%

12/17/2015

1/9/2023

56,~~660~~853

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

60,000 USD

1.95%

10/13/2017

1/9/2023

12,~~599~~025

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

40,000 USD

2.01%

10/13/2017

1/9/2023

~~953~~1,243

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

39,500 USD

1.96%

10/13/2017

1/9/2023

1,~~016~~298

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

31,500 USD

1.96%

10/13/2017

1/9/2023

~~809~~1,038

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

31,500 USD

2.00%

10/13/2017

1/9/2023

~~765~~991

Interest Rate Swap - 7-Year Term Loan

1 mo. USD-LIBOR-BBA

22,500 USD

1.95%

10/13/2017

1/9/2023

~~593~~754

Forward Starting Swap1

3 mo. USD-LIBOR-BBA

250,000 USD

2.23%

12/20/2017

12/20/2027

11,652

Net Investment Hedge in GBP-denominated investments

USD-GBP exchange rate

9,000 GBP

N/A

7/15/2016

N/A

—

Net Investment Hedge in EUR-denominated investments

USD-EUR exchange rate

421,~~000~~300 EUR

N/A

3/8/2018

N/A

—

Total hedging instruments

4135,~~875~~212

~~1. The forward starting swap has a mandatory early termination date of June 20, 2018.~~62

AsThe oftable ~~March 31,~~below ~~2018,~~details ~~our~~the ~~derivative~~location ~~instruments~~in ~~consist~~the offinancial ~~interest~~statements ~~rate~~of ~~swaps,~~the ~~which~~gain ~~are~~or ~~cash~~loss ~~flow~~recognized ~~hedges used to hedge exposure to variability in future interest payments~~ on ~~our~~the ~~debt facilities. Our~~ interest rate ~~swap~~swaps ~~derivative~~designated ~~instruments~~as ~~were~~cash ~~reported~~flow inhedges ~~other~~for ~~assets~~the atthree ~~fair value of $41,888~~ and insix ~~other~~months ~~liabilities~~ended ~~at fair value of $(13) at March~~June 3130, 2018. and 2017:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Accumulated other comprehensive income:
Gain recognized in accumulated other comprehensive income¹	$	4,990	$	—	$	27,143	$	—
Interest expense:
Loss reclassified from accumulated other comprehensive income into interest expense¹	$	271	$	271	$	539	$	539
Gain recognized in interest expense (ineffective portion)²	—		—		—		46
Total recognized in interest expense on statements of operations	$	271

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