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 Griffin Capital Essential Asset REIT Reports 2019 Third Quarter Results

November 12, 2019

EL SEGUNDO, Calif.--(BUSINESS WIRE)--Nov 12, 2019--

Griffin Capital Essential Asset REIT, Inc. (the “REIT”) announced its results for the quarter ended September 30, 2019. The REIT reported a 14.5 percent increase in total revenue compared to the quarter ended September 30, 2018.

The REIT had an active third quarter successfully executing the following transactions: acquisition of a McKesson Office Campus (“McKesson II”) in Scottsdale, Arizona, sale of properties in Fort Worth, Texas, Lynwood, Washington and Denver, Colorado, and realization of occupancies from new leases totaling 211,048 square feet.

These transactions highlight the company’s continued success in acquiring attractive institutional quality real estate while maximizing property values and maintaining stabilized portfolio occupancy levels.

“We continue to leverage the expertise of our asset management team, in particular their ability to execute full-cycle transactions and actively-manage our ongoing leasing opportunities,” said Michael Escalante, Chief Executive Officer of the REIT. “These strengths are core to our investment strategy. I am extremely pleased with our results, the REIT’s performance and the consistent value that we bring to our shareholders.”

As of September 30, 2019, the REIT’s portfolio (1) consisted of 101 assets encompassing approximately 27.1 million rentable square feet of space in 25 states.

Highlights and Accomplishments in Third Quarter 2019 and Results as of September 30, 2019:

Financial Results

Non-GAAP Measures

Portfolio Overview

Acquisition

Dispositions

Leasing Activity

Subsequent Events

About Griffin Capital Essential Asset REIT

Griffin Capital Essential Asset REIT, Inc. is a self-managed, publicly registered, non-traded REIT with a portfolio consisting primarily of single tenant business essential properties throughout the United States, diversified by corporate credit, physical geography, product type, and lease duration. Griffin Capital Essential Asset REIT, Inc.’s portfolio, as of September 30, 2019, consists of 101 office and industrial properties totaling 27.1 million rentable square feet, located in 25 states, representing total REIT enterprise value of approximately $4.7 billion.

Additional information is available at www.gcear.com.

This press release may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. These risks, uncertainties and contingencies include, but are not limited to: uncertainties relating to changes in general economic and real estate conditions; uncertainties relating to the implementation of our real estate investment strategy; uncertainties relating to financing availability and capital proceeds; uncertainties relating to the closing of property acquisitions; uncertainties related to the timing and availability of distributions; and other risk factors as outlined in the REIT’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission (the “SEC”). This is neither an offer nor a solicitation to purchase securities.

______________________________

 

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except units and share amounts)

 

 

September 30, 2019

 

December 31, 2018

ASSETS

 

 

 

Cash and cash equivalents

$

50,262

 

 

$

48,478

 

Restricted cash

31,913

 

 

15,807

 

Real estate:

 

 

 

Land

473,709

 

 

350,470

 

Building and improvements

3,092,799

 

 

2,165,016

 

Tenant origination and absorption cost

752,012

 

 

530,181

 

Construction in progress

14,785

 

 

27,697

 

Total real estate

4,333,305

 

 

3,073,364

 

Less: accumulated depreciation and amortization

(638,464

)

 

(538,412

)

Total real estate, net

3,694,841

 

 

2,534,952

 

Real estate assets and other assets held for sale, net

29,804

 

 

 

Investments in unconsolidated entities

20,795

 

 

30,565

 

Intangible assets, net

14,199

 

 

17,099

 

Deferred rent receivable

63,565

 

 

55,163

 

Deferred leasing costs, net

50,114

 

 

29,958

 

Goodwill

229,948

 

 

229,948

 

Due from affiliates

1,523

 

 

19,685

 

Right of use asset

41,705

 

 

 

Other assets

34,127

 

 

31,120

 

Total assets

$

4,262,796

 

 

$

3,012,775

 

LIABILITIES AND EQUITY

 

 

 

Debt, net

$

1,930,141

 

 

$

1,353,531

 

Restricted reserves

16,508

 

 

8,201

 

Interest rate swap liability

29,981

 

 

6,962

 

Redemptions payable

100,361

 

 

 

Distributions payable

15,585

 

 

12,248

 

Due to affiliates

14,867

 

 

42,406

 

Intangible liabilities, net

33,554

 

 

23,115

 

Lease liability

44,867

 

 

 

Accrued expenses and other liabilities

91,370

 

 

80,616

 

Liabilities of real estate assets held for sale

184

 

 

 

Total liabilities

2,277,418

 

 

1,527,079

 

Commitments and contingencies

 

 

 

Perpetual convertible preferred shares

125,000

 

 

125,000

 

Common stock subject to redemption

15,861

 

 

11,523

 

Noncontrolling interests subject to redemption; 558,662 and 531,161 units as of September 30, 2019 and December 31, 2018, respectively

4,887

 

 

4,887

 

Stockholders’ equity:

 

 

 

Common stock, $0.001 par value; 700,000,000 shares authorized; 235,382,622 and 174,278,341 shares outstanding in the aggregate as of September 30, 2019 and December 31, 2018, respectively

236

 

 

174

 

Additional paid-in capital

2,137,112

 

 

1,556,770

 

Cumulative distributions

(676,890

)

 

(570,977

)

Accumulated earnings

157,005

 

 

128,525

 

Accumulated other comprehensive loss

(27,008

)

 

(2,409

)

Total stockholders’ equity

1,590,455

 

 

1,112,083

 

Noncontrolling interests

249,175

 

 

232,203

 

Total equity

1,839,630

 

 

1,344,286

 

Total liabilities and equity

$

4,262,796

 

 

$

3,012,775

 

 

 

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2019

 

2018

 

2019

 

2018

Revenue:

 

 

 

 

 

 

 

Rental income

$

97,435

 

 

$

85,041

 

 

$

277,276

 

 

$

251,431

 

Expenses:

 

 

 

 

 

 

 

Property operating expense

14,717

 

 

13,055

 

 

39,091

 

 

36,060

 

Property tax expense

10,050

 

 

11,301

 

 

27,722

 

 

33,460

 

Asset management fees to affiliates

 

 

6,015

 

 

 

 

17,670

 

Property management fees to affiliates

 

 

2,503

 

 

 

 

7,049

 

Property management fees to non-affiliates

822

 

 

 

 

2,620

 

 

 

General and administrative expenses

7,519

 

 

2,111

 

 

17,708

 

 

5,042

 

Corporate operating expenses to affiliates

729

 

 

948

 

 

1,453

 

 

2,630

 

Depreciation and amortization

41,440

 

 

30,096

 

 

112,311

 

 

89,258

 

Total expenses

75,277

 

 

66,029

 

 

200,905

 

 

191,169

 

Income before other income and (expenses)

22,158

 

 

19,012

 

 

76,371

 

 

60,262

 

Other income (expenses):

 

 

 

 

 

 

 

Interest expense

(19,560

)

 

(14,161

)

 

(53,642

)

 

(41,251

)

Management fee revenue from affiliates

 

 

 

 

6,368

 

 

 

Other (loss) income, net

(1,850

)

 

57

 

 

(370

)

 

217

 

Gain (loss) from investment in unconsolidated entities

3,027

 

 

(579

)

 

1,919

 

 

(1,617

)

Gain from disposition of assets

8,441

 

 

 

 

8,441

 

 

1,158

 

Net income

12,216

 

 

4,329

 

 

39,087

 

 

18,769

 

Distributions to redeemable preferred shareholders

(2,047

)

 

(1,228

)

 

(6,141

)

 

(1,228

)

Net income attributable to noncontrolling interests

(1,149

)

 

(157

)

 

(4,226

)

 

(671

)

Net income attributable to controlling interest

9,020

 

 

2,944

 

 

28,720

 

 

16,870

 

Distributions to redeemable noncontrolling interests attributable to common stockholders

(81

)

 

(90

)

 

(240

)

 

(266

)

Net income attributable to common stockholders

$

8,939

 

 

$

2,854

 

 

$

28,480

 

 

$

16,604

 

Net income attributable to common stockholders per share, basic and diluted

$

0.04

 

 

$

0.02

 

 

$

0.13

 

 

$

0.10

 

Weighted average number of common shares outstanding, basic and diluted

245,579,526

 

 

167,037,629

 

 

216,344,938

 

 

169,430,447

 

Cash distributions declared per common share

$

0.13

 

 

$

0.17

 

 

$

0.46

 

 

$

0.51

 

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

Funds from Operations and Adjusted Funds from Operations

(in thousands)

Funds from Operations and Adjusted Funds from Operations

Our management believes that historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient.

Management is responsible for managing interest rate, hedge and foreign exchange risks. To achieve our objectives, we may borrow at fixed rates or variable rates. In order to mitigate our interest rate risk on certain financial instruments, if any, we may enter into interest rate cap agreements or other hedge instruments and in order to mitigate our risk to foreign currency exposure, if any, we may enter into foreign currency hedges. We view fair value adjustments of derivatives, impairment charges and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance.

In order to provide a more complete understanding of the operating performance of a REIT, the National Association of Real Estate Investment Trusts (“NAREIT”) promulgated a measure known as funds from operations (“FFO”). FFO is defined as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property, adding back asset impairment write-downs, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships, joint ventures and preferred distributions. Because FFO calculations exclude such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. It should be noted, however, that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently than we do, making comparisons less meaningful.

Additionally, we use Adjusted Funds from Operations (“AFFO”) as a non-GAAP financial measure to evaluate our operating performance. AFFO is a measure used among our peer group, which includes daily NAV REITs. We also believe that AFFO is a recognized measure of sustainable operating performance by the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies.

Management believes that AFFO is a beneficial indicator of our ongoing portfolio performance and ability to sustain our current distribution level. More specifically, AFFO isolates the financial results of our operations. AFFO, however, is not considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings. Further, since the measure is based on historical financial information, AFFO for the period presented may not be indicative of future results or our future ability to pay our dividends. By providing FFO and AFFO, we present information that assists investors in aligning their analysis with management’s analysis of long-term operating activities. As explained below, management’s evaluation of our operating performance excludes items considered in the calculation of AFFO based on the following economic considerations:

For all of these reasons, we believe the non-GAAP measures of FFO and AFFO, in addition to income (loss) from operations, net income (loss) and cash flows from operating activities, as defined by GAAP, are helpful supplemental performance measures and useful to investors in evaluating the performance of our real estate portfolio. However, a material limitation associated with FFO and AFFO is that they are not indicative of our cash available to fund distributions since other uses of cash, such as capital expenditures at our properties and principal payments of debt, are not deducted when calculating FFO and AFFO. The use of AFFO as a measure of long-term operating performance on value is also limited if we do not continue to operate under our current business plan as noted above. AFFO is useful in assisting management and investors in assessing our ongoing ability to generate cash flow from operations and continue as a going concern in future operating periods, and in particular, after the offering and acquisition stages are complete. However, FFO and AFFO are not useful measures in evaluating NAV because impairments are taken into account in determining NAV but not in determining FFO and AFFO. Therefore, FFO and AFFO should not be viewed as a more prominent measure of performance than income (loss) from operations, net income (loss) or to cash flows from operating activities and each should be reviewed in connection with GAAP measurements.

Neither the SEC, NAREIT, nor any other applicable regulatory body has opined on the acceptability of the adjustments contemplated to adjust FFO in order to calculate AFFO and its use as a non-GAAP performance measure. In the future, the SEC or NAREIT may decide to standardize the allowable exclusions across the REIT industry, and we may have to adjust the calculation and characterization of this non-GAAP measure.

Our calculation of FFO and AFFO is presented in the following table for the three and nine months ended September 30, 2019 and 2018 (in thousands):

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2019

 

2018

 

2019

 

2018

Net income

$

12,216

 

 

$

4,329

 

 

$

39,087

 

 

$

18,769

 

Adjustments:

 

 

 

 

 

 

 

Depreciation of building and improvements

22,843

 

 

15,991

 

 

57,473

 

 

44,390

 

Amortization of leasing costs and intangibles

18,590

 

 

14,098

 

 

54,817

 

 

44,847

 

Equity interest of depreciation of building and improvements - unconsolidated entities

712

 

 

656

 

 

2,076

 

 

1,933

 

Equity interest of amortization of intangible assets - unconsolidated entities

1,158

 

 

1,162

 

 

3,474

 

 

3,486

 

Gain from sale of depreciable operating property

(8,441

)

 

 

 

(8,441

)

 

(1,158

)

Company's share of gain on sale of unconsolidated entity

(3,609

)

 

 

 

(3,609

)

 

 

FFO

43,469

 

 

36,236

 

 

144,877

 

 

112,267

 

Distribution to redeemable preferred shareholders

(2,047

)

 

(1,228

)

 

(6,141

)

 

(1,228

)

Cash distributions to noncontrolling interest

(4,402

)

 

(1,194

)

 

(13,549

)

 

(3,543

)

FFO, net of noncontrolling interest and redeemable preferred distributions

$

37,020

 

 

$

33,814

 

 

$

125,187

 

 

$

107,496

 

Reconciliation of FFO to AFFO:

 

 

 

 

 

 

 

FFO, net of noncontrolling interest and redeemable preferred distributions

$

37,020

 

 

$

33,814

 

 

$

125,187

 

 

$

107,496

 

Adjustments:

 

 

 

 

 

 

 

Revenues in excess of cash received, net

(5,067

)

 

(4,762

)

 

(9,655

)

 

(10,210

)

Amortization of share-based compensation

950

 

 

 

 

1,589

 

 

 

Deferred rent - ground lease

293

 

 

290

 

 

879

 

 

551

 

Amortization of above/(below) market rent

(871

)

 

(663

)

 

(2,639

)

 

(135

)

Amortization of debt premium/(discount)

109

 

 

8

 

 

191

 

 

24

 

Amortization of ground leasehold interests

7

 

 

7

 

 

21

 

 

21

 

Non-cash lease termination income

 

 

 

 

(10,150

)

 

(6,304

)

Financed termination fee payments received

1,500

 

 

7,686

 

 

3,008

 

 

11,122

 

Company's share of revenues in excess of cash received (straight-line rents)- unconsolidated entity

233

 

 

77

 

 

295

 

 

39

 

Company's share of amortization of above market rent- unconsolidated entity

924

 

 

739

 

 

2,772

 

 

2,217

 

Performance fee adjustment

 

 

 

 

(2,604

)

 

 

Implementation of lease accounting guidance

2,052

 

 

 

 

 

 

 

AFFO

$

37,150

 

 

$

37,196

 

 

$

108,894

 

 

$

104,821

 

 

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

Adjusted EBITDA

(Unaudited; dollars in thousands)

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2019

 

2018

 

2019

 

2018

ADJUSTED EBITDA (1):

 

 

 

 

 

 

 

Net income

$

12,216

 

 

$

4,329

 

 

$

39,087

 

 

$

18,769

 

Adjustment to net income (2)

 

 

 

 

(5,995

)

 

 

Net income adjusted

12,216

 

 

4,329

 

 

33,092

 

 

18,769

 

Depreciation and amortization

41,440

 

 

30,096

 

 

126,523

 

 

89,258

 

Interest expense

19,615

 

 

13,406

 

 

59,192

 

 

38,957

 

Amortization - Deferred financing costs

530

 

 

747

 

 

5,260

 

 

2,270

 

Amortization - Debt premium

109

 

 

8

 

 

192

 

 

23

 

Amortization - In-place lease

(870

)

 

(663

)

 

(4,187

)

 

(135

)

Income taxes

238

 

 

213

 

 

1,110

 

 

354

 

Asset management fees

 

 

6,015

 

 

 

 

17,670

 

Property management fees to affiliates

 

 

2,503

 

 

 

 

7,049

 

Property management fees to non-affiliates

822

 

 

 

 

1,714

 

 

 

Acquisition fees and expenses

 

 

 

 

379

 

 

 

Deferred rent

(5,067

)

 

(4,762

)

 

(11,146

)

 

(10,210

)

Termination Income (Non-Cash)

 

 

 

 

(11,178

)

 

 

Termination Income (Cash)

1,500

 

 

 

 

3,008

 

 

 

Lease Accounting True Up

2,052

 

 

 

 

2,052

 

 

 

 

 

 

 

 

 

 

 

Extraordinary Losses or Gains:

 

 

 

 

 

 

 

Gain on disposition

(8,441

)

 

 

 

(8,441

)

 

(1,158

)

Gain (loss) from investment in unconsolidated entities

(3,609

)

 

 

 

(3,609

)

 

 

Equity percentage of net (income) loss for the Parent’s non-wholly owned direct and indirect subsidiaries

582

 

 

579

 

 

1,690

 

 

1,617

 

Equity percentage of EBITDA for the Parent’s non-wholly owned direct and indirect subsidiaries

4,254

 

 

2,255

 

 

8,932

 

 

6,703

 

 

65,371

 

 

54,726

 

 

204,583

 

 

171,167

 

Less: Capital reserves

(1,295

)

 

(931

)

 

(3,859

)

 

(2,751

)

Adjusted EBITDA (per credit facility agreement)

$

64,076

 

 

$

53,795

 

 

$

200,724

 

 

$

168,416

 

 

 

 

 

 

 

 

 

Principal paid and due

$

1,652

 

 

$

1,577

 

 

$

4,903

 

 

$

4,896

 

Interest expense

19,615

 

 

13,980

 

 

57,601

 

 

40,625

 

Cash dividends on Preferred Stock (including any paid under the 2018 Preferred Documents)

2,047

 

 

 

 

6,141

 

 

 

 

$

23,314

 

 

$

15,557

 

 

$

68,645

 

 

$

45,521

 

 

 

 

 

 

 

 

 

Interest Coverage Ratio (3)

3.27

 

 

3.85

 

 

3.48

 

 

4.15

 

Fixed Charge Coverage Ratio (4)

2.75

 

 

3.21

 

 

2.92

 

 

3.70

 

(1)

 

Adjusted EBITDA, as defined in our credit facility agreement, is calculated as net income before interest, taxes, depreciation and amortization (EBITDA), plus acquisition fees and expenses, asset and property management fees, straight-line rents and in-place lease amortization for the period, further adjusted for acquisitions that have closed during the quarter and certain reserves for capital expenditures.

(2)

 

Adjustment is a result of combined financial information from EA-1 and us.

(3)

 

Interest coverage is the ratio of interest expense as if the corresponding debt was in place at the beginning of the period to adjusted EBITDA.

(4)

 

Fixed charge coverage is the ratio of principal amortization for the period plus interest expense as if the corresponding debt were in place at the beginning of the period plus preferred unit distributions as if in place at the beginning of the period over adjusted EBITDA.

 

View source version on businesswire.com:https://www.businesswire.com/news/home/20191112005704/en/

CONTACT: Investor Services

888-926-2688Media Contacts

Diana Keary

Senior Vice President

Griffin Capital Company

Dkeary@griffincapital.com

949-270-9303OrJoe Berg

Director

Finsbury

Joe.berg@finsbury.com

310-633-9446

KEYWORD: CALIFORNIA UNITED STATES NORTH AMERICA

INDUSTRY KEYWORD: PROFESSIONAL SERVICES OTHER PROFESSIONAL SERVICES OTHER CONSTRUCTION & PROPERTY RESIDENTIAL BUILDING & REAL ESTATE CONSTRUCTION & PROPERTY REIT

SOURCE: Griffin Capital Essential Asset REIT, Inc.

Copyright Business Wire 2019.

PUB: 11/12/2019 12:30 PM/DISC: 11/12/2019 12:32 PM

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