Griffin Capital Essential Asset REIT Reports 2019 Second Quarter Results

Total Revenue Increased 20 Percent from Second Quarter 2018

New and Renewal Lease Activity Totaling Nearly One Million Square Feet

Griffin Capital Essential Asset REIT Reports 2019 Second Quarter Results (Photo: Business Wire)

EL SEGUNDO, Calif.--()--Griffin Capital Essential Asset REIT, Inc. (the “REIT”) announced its results for the quarter ended June 30, 2019. The REIT reported a 20 percent increase in total revenue and a 16 percent increase in AFFO compared to the quarter ended June 30, 2018. Such performance was supported by the recently completed merger announced May 1, 2019, which created a $4.7 billion self-managed REIT and generated significant benefits for shareholders, including substantial cost savings, increased operating efficiencies, and immediate accretion to earnings and cash flows.

The second quarter of 2019 is our first opportunity to demonstrate the financial benefits the REIT is experiencing as a result of the merger,” said Michael Escalante, Chief Executive Officer, of the REIT. “The REIT is now self-managed, resulting in a significant reduction in general and administrative expenses as it is no longer subject to asset management fees, performance fees, and other costs typically incurred by externally-managed REITs.”

Escalante also noted, “In addition to the merger transaction, the REIT’s strong results reflect the continued success of our asset management team in maximizing the value of the REIT’s properties, specifically the execution of almost one million square feet of new and renewed leases.”

During the quarter ended June 30, 2019, the REIT executed new and renewal leases totaling 462,545 and 431,712 square feet, respectively, which included the execution of a new 12-year lease with a Fortune 100 company.

As of June 30, 2019, the REIT’s portfolio(1) consisted of 101 assets encompassing approximately 27.2 million rentable square feet of space in 25 states.

Highlights and Accomplishments in Second Quarter 2019 and Results as of June 30, 2019:

Merger Transaction

  • On April 30, 2019, we announced the completion of the merger with the entity formerly known as Griffin Capital Essential Asset REIT, Inc. (“EA-1”). The merger created a $4.7 billion, self-managed REIT, and is generating significant benefits for shareholders, including substantial cost savings, increased operating efficiencies, and immediate accretion to earnings and cash flows.

Portfolio Overview

  • The market capitalization of our portfolio as of June 30, 2019 was $4.7 billion(2).
  • Our weighted average remaining lease term was approximately 7.6 years with average annual rent increases of approximately 2.2%.
  • Our portfolio was 96.3% leased.
  • Approximately 64.9% of our portfolio’s net rental revenue(3) was generated by properties leased to tenants and/or guarantors with investment grade credit ratings or whose non-guarantor parent companies have investment grade credit ratings (4).
  • The ratio of debt to total real estate acquisition price and debt to total market capitalization as of June 30, 2019 was 45.9% and 41.4%, respectively (1).

Financial Results

  • Total revenue was $103.4 million for the quarter ended June 30, 2019 compared to $86.0 million for the quarter ended June 30, 2018.
  • Net income attributable to common stockholders was $14.2 million, or $0.06 per basic and diluted share for the quarter ended June 30, 2019, compared to $7.5 million or $0.04 per basic and diluted share for the quarter ended June 30, 2018. The increase during the period was primarily due to the merger.

Non-GAAP Measures

  • Adjusted funds from operations, or AFFO, was approximately $38.7 million for the quarter ended June 30, 2019, compared to approximately $33.3 million for the same period in 2018. Funds from operations, or FFO(5), was approximately $49.6 million and $39.1 million for the quarters ended June 30, 2019 and 2018, respectively. Please see the financial reconciliation tables and notes at the end of this release for more information regarding AFFO and FFO.
  • Our Adjusted EBITDA, as defined per our credit facility agreement, was approximately $78.4 million for the quarter ended June 30, 2019 with a fixed charge and interest coverage ratio of 3.5X and 4.3X, respectively. Please see the financial reconciliation tables and notes at the end of this release for more information regarding adjusted EBITDA and related ratios.

Leasing Activity

  • During the quarter ended June 30, 2019, we executed new and renewal leases totaling 462,545 and 431,712 square feet, respectively, which included the execution of a new 12-year lease with a Fortune 100 e-commerce technology company for 269,000 square feet in Herndon, Virginia, a 12-year lease with American Specialty Health Incorporated for 164,333 square feet in Fort Worth, Texas and a 5-year extension with Bank of America, N.A. for 206,917 square feet in northern Los Angeles, California.

New Credit Facility

  • As part of the merger, we entered into a second amended and restated credit agreement ("Second Amended and Restated Credit Agreement") with a syndicate of lenders, under which KeyBank, National Association serves as administrative agent. Pursuant to the Second Amended and Restated Credit Agreement, we were provided with an upsized revolving credit facility with an initial commitment of $750 million, an existing $200 million term loan, a new five-year $400 million term loan and a new seven-year $150 million term loan, which commitments may be increased under certain circumstances up to a maximum total commitment of $2.0 billion. In addition, we entered into a guaranty agreement.

Subsequent Events

  • On July 17, 2019, the Heritage Common X Ltd. joint venture sold the Heritage Trace Parkway property located in Fort Worth, Texas for approximately $64 million or a profit of approximately $16 million on a cost to build of $48 million. Our 45% joint venture interest is expected to generate after-tax proceeds of approximately $7.0 million net of closing costs and other closing credits. The carrying value of our joint venture interest on the closing date was approximately $3.3 million. Upon the sale of the joint venture, we recognized a gain of approximately $3.7 million resulting in a 2.1X equity multiple. As of June 30, 2019, we had an ownership interest of approximately 45% in the joint venture.
  • On July 30, 2019, we sold the Lynnwood IV land parcel located in Lynnwood, Washington for total proceeds of $1.6 million, less closing costs and other closing credits. The carrying value of the land parcel was approximately $1.3 million. Upon the sale, we recognized a gain of approximately $0.3 million.

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 June 30, 2019, consists of 101 office and industrial properties totaling 27.2 million rentable square feet, located in 25 states, representing total REIT capitalization 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.

______________________________

1 Excludes the property information related to the acquisition of an 80% ownership interest in a joint venture with affiliates of Digital Realty Trust, L.P. and 45% ownership interest in the Heritage Common X joint venture property.

2 Total market capitalization includes the outstanding debt balance (excluding deferred financing costs and premium/discounts), plus preferred equity, plus total outstanding shares multiplied by the NAV. Total outstanding shares includes limited partnership units issued and shares issued pursuant to the DRP, net of redemptions. The increase in capitalization is a result of the Mergers on April 30, 2019. Prior period balance was restated due to change in methodology in calculating market capitalization.
3 Net rent is based on (a) the contractual base rental payments assuming the lease requires the tenant to reimburse us for certain operating expenses or the property is self-managed by the tenant and the tenant is responsible for all, or substantially all, of the operating expenses; or (b) contractual rent payments less certain operating expenses that are our responsibility for the 12-month period subsequent to June 30, 2019 and includes assumptions that may not be indicative of the actual future performance of a property, including the assumption that the tenant will perform its obligations under its lease agreement during the next 12 months.
4 Approximately 64.9% of our portfolio's net rental revenue was generated by properties leased to tenants and/or guarantors with investment grade credit ratings or whose non-guarantor parent companies have investment grade ratings or what management believes are generally equivalent ratings. Of the 64.9% investment grade tenant ratings, 57.2% is from a Nationally Recognized Statistical Rating Organization (NRSRO) credit rating, with the remaining 7.7% being from a non-NRSRO, but having a rating that we believe is generally equivalent to an NRSRO investment grade rating. Bloomberg’s default risk rating is an example of a non-NRSRO rating.
5 FFO, as described by the National Association of Real Estate Investment Trusts ("NAREIT"), is adjusted for non-controlling interest and redeemable preferred distributions.

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share amounts)

 

 

 

June 30, 2019

 

December 31, 2018

ASSETS

 

 

 

Cash and cash equivalents

$

37,537

 

 

$

48,478

 

Restricted cash

33,451

 

 

15,807

 

Real estate:

 

 

 

Land

486,345

 

 

350,470

 

Building and improvements

3,097,966

 

 

2,165,016

 

Tenant origination and absorption cost

744,610

 

 

530,181

 

Construction in progress

25,502

 

 

27,697

 

Total real estate

4,354,423

 

 

3,073,364

 

Less: accumulated depreciation and amortization

(603,362

)

 

(538,412

)

Total real estate, net

3,751,061

 

 

2,534,952

 

Investments in unconsolidated entities

26,034

 

 

30,565

 

Intangible assets, net

14,828

 

 

17,099

 

Deferred rent

59,751

 

 

55,163

 

Deferred leasing costs, net

45,909

 

 

29,958

 

Goodwill

229,948

 

 

229,948

 

Due from affiliates

1,638

 

 

19,685

 

Right of use asset

27,106

 

 

 

Other assets

36,712

 

 

31,120

 

Total assets

$

4,263,975

 

 

$

3,012,775

 

LIABILITIES AND EQUITY

 

 

 

Debt, net

$

1,935,589

 

 

$

1,353,531

 

Restricted reserves

21,653

 

 

8,201

 

Interest rate swap liability

23,245

 

 

6,962

 

Distributions payable

17,123

 

 

12,248

 

Due to affiliates

12,657

 

 

42,406

 

Below market leases, net

32,178

 

 

23,115

 

Lease liability

27,855

 

 

 

Accrued expenses and other liabilities

87,828

 

 

80,616

 

Total liabilities

2,158,128

 

 

1,527,079

 

Commitments and contingencies

 

 

 

Perpetual convertible preferred shares

125,000

 

 

125,000

 

Common stock subject to redemption

37,371

 

 

11,523

 

Noncontrolling interests subject to redemption; 557,189 and 531,161 units as of June 30, 2019 and
December 31, 2018, respectively

4,887

 

 

4,887

 

Stockholders’ equity:

 

 

 

Common Stock, $0.001 par value; 700,000,000 shares authorized; 243,610,554 and 174,470,284
shares outstanding in the aggregate, as of June 30, 2019 and December 31, 2018, respectively

244

 

 

174

 

Additional paid-in capital

2,194,174

 

 

1,556,770

 

Cumulative distributions

(636,622

)

 

(570,977

)

Accumulated earnings

148,066

 

 

128,525

 

Accumulated other comprehensive loss

(20,452

)

 

(2,409

)

Total stockholders’ equity

1,685,410

 

 

1,112,083

 

Noncontrolling interests

253,179

 

 

232,203

 

Total equity

1,938,589

 

 

1,344,286

 

Total liabilities and equity

$

4,263,975

 

 

$

3,012,775

 

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2019

 

2018

 

2019

 

2018

Revenue:

 

 

 

 

 

 

 

Rental income

$

103,356

 

 

$

85,991

 

 

$

179,841

 

 

$

166,390

 

Expenses:

 

 

 

 

 

 

 

Property operating expense

12,858

 

 

11,682

 

 

24,374

 

 

23,005

 

Property tax expense

9,782

 

 

11,140

 

 

17,672

 

 

22,159

 

Asset management fees to affiliates

 

 

5,947

 

 

 

 

11,655

 

Property management fees to affiliates

 

 

2,234

 

 

 

 

4,546

 

Property management fees to non-affiliates

882

 

 

 

 

1,798

 

 

 

General and administrative expenses

5,656

 

 

1,489

 

 

10,189

 

 

2,931

 

Corporate operating expenses to affiliates

450

 

 

848

 

 

724

 

 

1,682

 

Depreciation and amortization

36,094

 

 

31,843

 

 

70,871

 

 

59,162

 

Total expenses

65,722

 

 

65,183

 

 

125,628

 

 

125,140

 

Income before other income and (expenses)

37,634

 

 

20,808

 

 

54,213

 

 

41,250

 

Other income (expenses):

 

 

 

 

 

 

 

Interest expense

(20,275

)

 

(13,753

)

 

(34,082

)

 

(27,090

)

Management fee revenue from affiliates

1,627

 

 

 

 

6,368

 

 

 

Other (loss) income, net

(311

)

 

105

 

 

1,480

 

 

160

 

Loss from investment in unconsolidated entities

(460

)

 

(519

)

 

(1,108

)

 

(1,038

)

Gain from disposition of assets

 

 

1,158

 

 

 

 

1,158

 

Net income

18,215

 

 

7,799

 

 

26,871

 

 

14,440

 

Distributions to redeemable preferred shareholders

(2,047

)

 

 

 

(4,094

)

 

 

Net income attributable to noncontrolling interests

(1,880

)

 

(280

)

 

(3,077

)

 

(514

)

Net income attributable to controlling interest

14,288

 

 

7,519

 

 

19,700

 

 

13,926

 

Distributions to redeemable noncontrolling interests attributable to common stockholders

(80

)

 

(88

)

 

(159

)

 

(176

)

Net income attributable to common stockholders

$

14,208

 

 

$

7,431

 

 

$

19,541

 

 

$

13,750

 

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

$

0.06

 

 

$

0.04

 

 

$

0.10

 

 

$

0.08

 

Weighted average number of common shares outstanding, basic and diluted

226,122,872

 

 

167,866,188

 

 

200,404,679

 

 

169,573,603

 

Distributions declared per common share

$

0.16

 

 

$

0.17

 

 

$

0.33

 

 

$

0.34

 

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:

  • Revenues in excess of cash received, net. Most of our leases provide for periodic minimum rent payment increases throughout the term of the lease. In accordance with GAAP, these contractual periodic minimum rent payment increases during the term of a lease are recorded to rental revenue on a straight-line basis in order to reconcile the difference between accrual and cash basis accounting. As straight-line rent is a GAAP non-cash adjustment and is included in historical earnings, FFO is adjusted for the effect of straight-line rent to arrive at AFFO as a means of determining operating results of our portfolio. By adjusting for this item, we believe AFFO is reflective of the realized economic impact of our leases (including master agreements) that is useful in assessing the sustainability of our operating performance.
  • Amortization of stock-based compensation. We have excluded the effect of stock-based compensation expense from our AFFO calculation. Although stock-based compensation expense is calculated in accordance with current GAAP and constitutes an ongoing and recurring expense, such expense is excluded from AFFO because it is not an expense which generally requires cash settlement, and therefore is not used by us to assess the profitability of our operations. We also believe the exclusion of stock-based compensation expense provides a more useful comparison of our operating results to the operating results of our peers.
  • Deferred rent. Most of our leases provide for periodic minimum rent payment increases throughout the term of the lease. In accordance with GAAP, these periodic minimum rent payment increases during the term of a lease are recorded on a straight-line basis and create deferred rent. As deferred rent is a GAAP non-cash adjustment and is included in historical earnings, FFO is adjusted for the effect of deferred rent to arrive at AFFO as a means of determining operating results of our portfolio.
  • Amortization of in-place lease valuation. Acquired in-place leases are valued as above-market or below-market as of the date of acquisition based on the present value of the difference between (a) the contractual amounts to be paid pursuant to the in-place leases and (b) management's estimate of fair market lease rates for the corresponding in-place leases over a period equal to the remaining non-cancelable term of the lease for above-market leases. The above-market and below-market lease values are capitalized as intangible lease assets or liabilities and amortized as an adjustment to rental income over the remaining terms of the respective leases. As this item is a non-cash adjustment and is included in historical earnings, FFO is adjusted for the effect of the amortization of in-place lease valuation to arrive at AFFO as a means of determining operating results of our portfolio.
  • Acquisition-related costs. We were organized primarily with the purpose of acquiring or investing in income-producing real property in order to generate operational income and cash flow that will allow us to provide regular cash distributions to our stockholders. In the process, we incur non-reimbursable affiliated and non-affiliated acquisition-related costs, which in accordance with GAAP are capitalized and included as part of the relative fair value when the property acquisition meets the definition of an asset acquisition or are expensed as incurred and are included in the determination of income (loss) from operations and net income (loss), for property acquisitions accounted for as a business combination. By excluding acquisition-related costs, AFFO may not provide an accurate indicator of our operating performance during periods in which acquisitions are made. However, it can provide an indication of our on-going ability to generate cash flow from operations and continue as a going concern after we cease to acquire properties on a frequent and regular basis, which can be compared to AFFO of other non-listed REITs that have completed their acquisition activity and have similar operating characteristics to ours. Management believes that excluding these costs from AFFO provides investors with supplemental performance information that is consistent with the performance models and analyses used by management.
  • Financed termination fee, net of payments received. We believe that a fee received from a tenant for terminating a lease is appropriately included as a component of rental revenue and therefore included in AFFO. If, however, the termination fee is to be paid over time, we believe the recognition of such termination fee into income should not be included in AFFO. Alternatively, we believe that the periodic amount paid by the tenant in subsequent periods to satisfy the termination fee obligation should be included in AFFO.
  • Gain or loss from the extinguishment of debt. We use debt as a partial source of capital to acquire properties in our portfolio. As a term of obtaining this debt, we will pay financing costs to the respective lender. Financing costs are presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and amortized into interest expense on a straight-line basis over the term of the debt. We consider the amortization expense to be a component of operations if the debt was used to acquire properties. From time to time, we may cancel certain debt obligations and replace these canceled debt obligations with new debt at more favorable terms to us. In doing so, we are required to write off the remaining capitalized financing costs associated with the canceled debt, which we consider to be a cost, or loss, on extinguishing such debt. Management believes that this loss is considered an event not associated with our operations, and therefore, deems this write off to be an exclusion from AFFO.
  • Unrealized gains (losses) on derivative instruments. These adjustments include unrealized gains (losses) from mark-to-market adjustments on interest rate swaps and losses due to hedge ineffectiveness. The change in the fair value of interest rate swaps not designated as a hedge and the change in the fair value of the ineffective portion of interest rate swaps are non-cash adjustments recognized directly in earnings and are included in interest expense. We have excluded these adjustments in our calculation of AFFO to more appropriately reflect the economic impact of our interest rate swap agreements.
  • Dead deal costs. As part of investing in income-producing real property, we incur non-reimbursable affiliated and non-affiliated acquisition-related costs for transactions that fail to close, which in accordance with GAAP, are expensed and are included in the determination of income (loss) from operations and net income (loss). Similar to acquisition-related costs (see above), management believes that excluding these costs from AFFO provides investors with supplemental performance information that is consistent with the performance models and analyses used by management.

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 six months ended June 30, 2019 and 2018 (in thousands):

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2019

 

2018

 

2019

 

2018

Net income

$

18,215

 

 

$

7,799

 

 

$

26,871

 

 

$

14,440

 

Adjustments:

 

 

 

 

 

 

 

Depreciation of building and improvements

19,863

 

 

14,620

 

 

34,630

 

 

28,399

 

Amortization of leasing costs and intangibles

16,224

 

 

17,216

 

 

36,227

 

 

30,749

 

Equity interest of depreciation of building and improvements - unconsolidated entities

693

 

 

643

 

 

1,364

 

 

1,277

 

Equity interest of amortization of intangible assets - unconsolidated entities

1,158

 

 

1,162

 

 

2,316

 

 

2,324

 

Gain from sale of depreciable operating property

 

 

(1,158

)

 

 

 

(1,158

)

FFO

56,153

 

 

40,282

 

 

101,408

 

 

76,031

 

Distribution to redeemable preferred shareholders

(2,047

)

 

 

 

(4,094

)

 

 

Cash distributions to noncontrolling interest

(4,471

)

 

(1,181

)

 

(9,147

)

 

(2,349

)

FFO, net of noncontrolling interest and redeemable preferred distributions

$

49,635

 

 

$

39,101

 

 

$

88,167

 

 

$

73,682

 

Reconciliation of FFO to AFFO:

 

 

 

 

 

 

 

FFO, net of noncontrolling interest and redeemable preferred distributions

$

49,635

 

 

$

39,101

 

 

$

88,167

 

 

$

73,682

 

Adjustments:

 

 

 

 

 

 

 

Revenues in excess of cash received, net

(2,634

)

 

(3,144

)

 

(4,588

)

 

(5,448

)

Amortization of stock-based compensation

639

 

 

 

 

639

 

 

 

Deferred rent - ground lease

293

 

 

261

 

 

586

 

 

261

 

Amortization of above/(below) market rent

(854

)

 

772

 

 

(1,768

)

 

528

 

Amortization of debt premium/(discount)

75

 

 

8

 

 

82

 

 

16

 

Amortization of ground leasehold interests

7

 

 

7

 

 

14

 

 

14

 

Non-cash lease termination income

(10,150

)

 

(6,304

)

 

(10,150

)

 

(6,304

)

Financed termination fee payments received

1,508

 

 

1,830

 

 

1,508

 

 

3,436

 

Equity interest of revenues in excess of cash received (straight-line rents) - unconsolidated entities

(33

)

 

(7

)

 

62

 

 

(38

)

Equity interest of amortization of above market rent - unconsolidated entities

924

 

 

739

 

 

1,848

 

 

1,478

 

Performance fee adjustment

(683

)

 

 

 

(2,604

)

 

 

Implementation of lease accounting guidance

 

 

 

 

(2,052

)

 

 

AFFO

$

38,727

 

 

$

33,263

 

 

$

71,744

 

 

$

67,625

 

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

Adjusted EBITDA

(Unaudited; dollars in thousands)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2019

 

2018

 

2019

 

2018

ADJUSTED EBITDA(1):

 

 

 

 

 

 

 

Net income

$

18,215

 

 

$

7,799

 

 

$

26,871

 

 

$

14,440

 

Adjustment to net income(2)

(2,811

)

 

 

 

(5,995

)

 

 

Net income adjusted

15,404

 

 

7,799

 

 

20,876

 

 

14,440

 

Depreciation and amortization

39,772

 

 

31,843

 

 

85,083

 

 

59,162

 

Interest expense

20,988

 

 

13,008

 

 

39,578

 

 

25,551

 

Amortization - Deferred financing costs

3,603

 

 

736

 

 

4,730

 

 

1,523

 

Amortization - Debt premium

75

 

 

7

 

 

82

 

 

15

 

Amortization - In-place lease

(1,240

)

 

772

 

 

(3,317

)

 

528

 

Income taxes

279

 

 

(75

)

 

872

 

 

141

 

Asset management fees

 

 

5,947

 

 

 

 

11,655

 

Property management fees to affiliates

 

 

2,234

 

 

 

 

4,546

 

Property management fees to non-affiliates

884

 

 

 

 

892

 

 

 

Acquisition fees and expenses

 

 

 

 

379

 

 

 

Deferred rent

(2,993

)

 

(3,144

)

 

(6,079

)

 

(5,448

)

Extraordinary Losses or Gains:

 

 

 

 

 

 

 

Termination fee

 

 

 

 

 

 

 

Gain on disposition

 

 

(1,158

)

 

 

 

(1,158

)

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

460

 

 

519

 

 

1,108

 

 

1,038

 

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

2,417

 

 

2,262

 

 

4,678

 

 

4,448

 

 

79,649

 

 

60,750

 

 

148,882

 

 

116,441

 

Less: Capital reserves

(1,299

)

 

(931

)

 

(2,564

)

 

(1,820

)

Adjusted EBITDA (per credit facility agreement)

$

78,350

 

 

$

59,819

 

 

$

146,318

 

 

$

114,621

 

 

 

 

 

 

 

 

 

Principal paid and due

$

1,632

 

 

$

1,558

 

 

$

3,251

 

 

$

3,319

 

Interest expense

19,132

 

 

13,610

 

 

37,986

 

 

26,645

 

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

2,047

 

 

 

 

4,094

 

 

 

 

$

22,811

 

 

$

15,168

 

 

$

45,331

 

 

$

29,964

 

 

 

 

 

 

 

 

 

Interest Coverage Ratio(3)

4.10

 

 

4.39

 

 

3.85

 

 

4.30

 

Fixed Charge Coverage Ratio(4)

3.43

 

 

3.94

 

 

3.23

 

 

3.83

 

(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.

 

Contacts

Investor Services
888-926-2688

Media:
Diana Keary
Senior Vice President
Griffin Capital Company
Dkeary@griffincapital.com
949-270-9303
Or
Joe Berg
Director
Finsbury
Joe.berg@finsbury.com
310-633-9446

Contacts

Investor Services
888-926-2688

Media:
Diana Keary
Senior Vice President
Griffin Capital Company
Dkeary@griffincapital.com
949-270-9303
Or
Joe Berg
Director
Finsbury
Joe.berg@finsbury.com
310-633-9446