Attached files
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EX-32.1 - EXHIBIT 32.1 - HGR Liquidating Trust | exhibit32_1.htm |
EX-31.2 - EXHIBIT 31.2 - HGR Liquidating Trust | exhibit31_2.htm |
EX-31.1 - EXHIBIT 31.1 - HGR Liquidating Trust | exhibit31_1.htm |
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 10-Q
(Mark
One)
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R
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the quarterly period ended September 30, 2009
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or
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the transition period from to
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Commission
file number: 333-156742
________________
Hines
Global REIT, Inc.
(Exact
Name of Registrant as Specified in its Charter)
Maryland
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26-3999995
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(State
or Other Jurisdiction of
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(I.R.S.
Employer
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Incorporation
or Organization)
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Identification
No.)
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2800
Post Oak Boulevard
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Suite 5000
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Houston,
Texas
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77056-6118
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(Address
of principal executive offices)
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(Zip
code)
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Registrant’s
telephone number, including area code:
(888) 220-6121
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. Yes x
No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, 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).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of
the Exchange Act (Check one):
Large
accelerated filer o
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Accelerated
Filer o
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Non-accelerated
Filer ý
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Smaller
Reporting Company o
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes o No x
As of
November 5, 2009, 834,634 shares of the registrant’s common stock were
outstanding.
TABLE
OF CONTENTS
PART I –
FINANCIAL INFORMATION
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|||||
Item 1.
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Condensed
Consolidated Financial Statements (Unaudited)
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||||
Condensed
Consolidated Balance Sheets
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1 | ||||
Condensed
Consolidated Statements of Operations
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2 | ||||
Condensed
Consolidated Statement of Equity
|
3 | ||||
Condensed
Consolidated Statement of Cash Flows
|
4 | ||||
Notes
to the Condensed Consolidated Financial Statements
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5 | ||||
Item 2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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10 | |||
Item 3.
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Quantitative
and Qualitative Disclosures About Market Risk
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16 | |||
Item 4T.
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Controls
and Procedures
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16 | |||
PART II –
OTHER INFORMATION
|
|||||
Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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17
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|||
Item 4.
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Submission
of Matters to a Vote of Security Holders
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17 | |||
Item 6.
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Exhibits
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17 | |||
SIGNATURES
|
|||||
Certification
|
|||||
Certification
|
|||||
Certification
of CEO & CFO pursuant to Section 906
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|||||
PART I
FINANCIAL
INFORMATION
Item 1. Condensed Consolidated
Financial Statements (Unaudited)
HINES
GLOBAL REIT, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(Unaudited)
September 30, 2009 | December 31, 2008 | |||||||
ASSETS
|
|
|
||||||
Cash
and cash equivalents
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$
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200,000
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$
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—
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||||
Escrowed
investor proceeds
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903,400
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—
|
||||||
Total
Assets
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$
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1,103,400
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$
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—
|
||||
LIABILITIES
AND EQUITY
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||||||||
Liabilities:
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||||||||
Accounts
payable and accrued expenses
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$
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14,356
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$
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—
|
||||
Escrowed
investor proceeds liability
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903,400
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—
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||||||
Due
to affiliates
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41,648
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—
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||||||
Total
liabilities
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959,404
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—
|
||||||
Commitments
and contingencies
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||||||||
Equity
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||||||||
Stockholder’s
equity
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||||||||
Common
stock, $.001 par value; 1,500,000,000 shares authorized, 1,111
and none issued and outstanding as of September 30, 2009 and
December 31, 2008, respectively
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1
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—
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||||||
Accumulated
deficit
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(2,800
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)
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—
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|||||
Additional
paid-in capital
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9,999
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—
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||||||
Total
stockholder’s equity
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7,200
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—
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||||||
Noncontrolling
interest
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136,796
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—
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||||||
Total
equity
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143,996
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—
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||||||
Total
liabilities and equity
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$
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1,103,400
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$
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—
|
See notes
to the condensed consolidated financial statements.
1
HINES
GLOBAL REIT, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009
(UNAUDITED)
Three
Months Ended September 30, 2009
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Nine
Months Ended September 30, 2009
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|||||||
Revenue
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$
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—
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$
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—
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||||
Expenses-
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||||||||
General
and administrative expenses
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56,004
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56,004
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||||||
Total
expenses
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56,004
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56,004
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||||||
Net
loss
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(56,004
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)
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(56,004
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)
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||||
Add: Net loss attributable to noncontrolling
interest
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53,204
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53,204
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||||||
Net
loss attributable to common stockholder
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$
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(2,800
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)
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$
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(2,800
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)
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Basic
and diluted loss per common share:
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||||||||
Loss
per common share
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$
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(2.52
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)
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$
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(2.64
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)
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Weighted
average number of common shares outstanding
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1,111
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1,062
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See notes
to the condensed consolidated financial statements.
2
HINES
GLOBAL REIT, INC.
CONDENSED
CONSOLIDATED STATEMENT OF EQUITY
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009
(UNAUDITED)
Hines
Global REIT, Inc.
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||||||||||||||||||||||||
Common
Shares
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Amount
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Additional
Paid-in Capital
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Accumulated
Deficit
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Total
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Noncontrolling
Interest
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|||||||||||||||||||
Balance
as of January 1, 2009
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-
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$
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-
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$
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-
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$
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-
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$
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-
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$
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-
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|||||||||||||
Issuance
of common shares
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1,111
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1
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9,999
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-
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10,000
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-
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||||||||||||||||||
Contributions
from noncontrolling interest
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-
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-
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-
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190,000
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||||||||||||||||||||
Net
loss
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-
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-
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(2,800
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)
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(2,800
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)
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(53,204
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)
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||||||||||||||||
Balance
as of September 30, 2009
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1,111
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$
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1
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$
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9,999
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$
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(2,800
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)
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$
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7,200
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$
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136,796
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See notes
to the condensed consolidated financial statements.
3
HINES
GLOBAL REIT, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009
(UNAUDITED)
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||
Net
loss
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$
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(56,004)
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||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||
Increase
in accounts payable and accrued expenses
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14,356
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|||
Increase
in due to affiliates
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41,648
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|||
Net
cash provided by operating activities
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—
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|||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||
Escrowed
investor proceeds
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903,400
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|||
Escrowed
investor proceeds liability
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(903,400
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)
|
||
Proceeds
from issuance of common stock
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10,000
|
|||
Contribution
from noncontrolling interest
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190,000
|
|||
Net
cash provided by financing activities
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200,000
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|||
Net
change in cash and cash equivalents
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200,000
|
|||
Cash
and cash equivalents, beginning of period
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—
|
|||
Cash
and cash equivalents, end of period
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$
|
200,000
|
See notes
to the condensed consolidated financial statements
4
HINES
GLOBAL REIT, INC.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009
1. ORGANIZATION
The
accompanying interim unaudited condensed consolidated financial information has
been prepared according to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all adjustments and
eliminations, consisting only of normal recurring adjustments, necessary to
present fairly and in conformity with GAAP the financial position of Hines
Global REIT, Inc. as of September 30, 2009 and December 31, 2008, and the
results of operations for the three and nine months ended September 30, 2009 and
cash flows for the nine months ended September 30, 2009 have been included. The
results of operations for such interim periods are not necessarily indicative of
the results for the full year.
Hines
Global REIT, Inc. (the “Company”), was formed as a Maryland corporation on
December 10, 2008 for the purpose of engaging in the business of investing
in and owning commercial real estate properties and other real estate
investments. The business of the Company is managed by Hines Global REIT
Advisors LP (the “Advisor”), an affiliate of Hines Interests Limited
Partnership (“Hines”), pursuant to the Advisory Agreement, dated as of August 3,
2009, between the Company, the Advisor and the Operating Partnership (defined
below).
On
January 13, 2009, Hines Global REIT Investor, Limited Partnership, an
affiliate of the Advisor, purchased 1,111.111 shares of common stock for
$10,000 and was admitted as the initial stockholder of the Company. On
August 3, 2009, the Company’s board of directors amended its articles of
incorporation to authorize additional shares of common stock with a par value of
$.001 and shares of preferred stock with a par value of $.001. On August 5,
2009, the Company commenced an offering of up to $3,500,000,000 in shares of
common stock for sale to the public (the “Offering”). The Company engaged Hines
Real Estate Investments, Inc., (“HREI”), an affiliate of the Advisor, to serve
as the dealer manager for the Offering. HREI is responsible for marketing the
Company’s shares being offered pursuant to the Offering. The Company intends to
invest the net proceeds from the Offering in a diversified portfolio of quality
commercial real estate properties and other real estate investments throughout
the United States and internationally. Properties purchased by the Company may
have varying uses including office, retail, industrial, multi-family residential
and hospitality or leisure. The Company may invest in operating properties,
properties under development, and undeveloped properties such as land. In
addition, the Company may also make other real estate investments including
equity or debt interests, which may include securities in other real estate
entities and debt related to real estate. As of the date of this filing, the
Company has not made any such investments nor contracted to make any
investments, nor has the Advisor identified any investments in which there is a
reasonable probability that the Company will invest. On October 19, 2009, the
Company achieved its minimum offering requirements pursuant to the terms of the
Offering and commenced operations. As of November 5, 2009, the Company had
received gross offering proceeds of $8.3 million from the sale of 834,634
common shares.
On
January 7, 2009, the Company and Hines Global REIT Associates Limited
Partnership (“HALP”), an affiliate of the Advisor, formed Hines Global REIT
Properties, LP (the “Operating Partnership”). On January 14, 2009, the
Company and HALP made initial capital contributions to the Operating Partnership
of $10,000 and $190,000, respectively and accordingly, the Company owned a 5.0%
general partner interest in the Operating Partnership. Management expects the
Company’s ownership percentage in the Operating Partnership to increase
significantly as the Company invests net proceeds from the Offering in the
Operating Partnership. The Company anticipates that it will conduct
substantially all of its operations through the Operating
Partnership.
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
BASIS
OF PRESENTATION
The
consolidated financial statements of the Company include the accounts of Hines
Global REIT, Inc. and the Operating Partnership (over which the Company
exercises financial and operating control) as well as the noncontrolling
interest. All intercompany balances and transactions have been eliminated in
consolidation.
The
Company has evaluated subsequent events through November 13, 2009, which is the
date the financial statements were issued.
CASH
AND CASH EQUIVALENTS
The
Company considers all short-term, highly liquid investments that are readily
convertible to cash with a maturity of three months or less at the time of
purchase to be cash equivalents.
5
INVESTMENT
PROPERTY AND LEASE INTANGIBLES
Real
estate assets acquired directly by the Company will be stated at cost less
accumulated depreciation. Depreciation will be computed using the straight-line
method. The estimated useful lives for computing depreciation will generally be
10 years for furniture and fixtures, 15-20 years for electrical and
mechanical installations and 40 years for buildings. Major replacements
that extend the useful life of the assets will be capitalized and maintenance
and repair costs will be expensed as incurred.
Real
estate assets will be reviewed for impairment if events or changes in
circumstances indicate that the carrying amount of the individual property may
not be recoverable. In such an event, a comparison will be made of the current
and projected operating cash flows of each property on an undiscounted basis to
the carrying amount of such property. Such carrying amount would be adjusted, if
necessary, to the estimated fair value to reflect impairment in the value of the
asset.
Acquisitions
of properties will be accounted for utilizing the acquisition method and,
accordingly, will be recorded at the estimated fair values of the assets
acquired and liabilities assumed. The results of operations of acquired
properties will be included in the Company’s results of operations from their
respective dates of acquisition. Estimates of fair values will be based upon
estimates of future cash flows and other valuation techniques that the Company
believes are similar to those used by independent appraisers and will be
used to record the purchase of identifiable assets acquired and liabilities
assumed such as land, buildings and improvements, equipment and identifiable
intangible assets and liabilities such as amounts related to in-place leases,
acquired above- and below-market leases, tenant relationships, asset retirement
obligations, mortgage notes payable and any goodwill or gain on purchase. Values
of buildings and improvements will be determined on an as if vacant basis.
Initial valuations will be subject to change until such information is
finalized, no later than 12 months from the acquisition date.
Acquisition-related costs such as transaction costs and acquisition fees paid to
the Advisor will be expensed as incurred.
The
estimated fair value of acquired in-place leases will be the costs the Company
would have incurred to lease the properties to the occupancy level of the
properties at the date of acquisition. Such estimates include the fair value of
leasing commissions, legal costs and other direct costs that would be incurred
to lease the properties to such occupancy levels. Additionally, the Company will
evaluate the time period over which such occupancy levels would be achieved.
Such evaluation will include an estimate of the net market-based rental revenues
and net operating costs (primarily consisting of real estate taxes, insurance
and utilities) that would be incurred during the lease-up period. Acquired
in-place leases as of the date of acquisition will be amortized over the
remaining lease terms.
Acquired
above-and below-market lease values will be recorded based on the present value
(using an interest rate that reflects the risks associated with the lease
acquired) of the difference between the contractual amounts to be paid pursuant
to the in-place leases and management’s estimate of fair market value lease
rates for the corresponding in-place leases. The capitalized above- and
below-market lease values will be amortized as adjustments to rental revenue
over the remaining terms of the respective leases, which include periods covered
by bargain renewal options. Should a tenant terminate its lease, the unamortized
portion of the in-place lease value will be charged to amortization expense and
the unamortized portion of out-of-market lease value will be charged to rental
revenue.
Acquired
above- and below-market ground lease values will be recorded based on the
difference between the present values (using an interest rate that reflects the
risks associated with the lease acquired) of the contractual amounts to be paid
pursuant to the ground leases and management’s estimate of fair market value of
land under the ground leases. The capitalized above- and below-market lease
values will be amortized as adjustments to ground lease expense over the lease
term.
Management
will estimate the fair value of assumed mortgage notes payable based upon
indications of then-current market pricing for similar types of debt with
similar maturities. Assumed mortgage notes payable will be initially recorded at
their estimated fair value as of the assumption date, and the difference between
such estimated fair value and the outstanding principal balance of the note will
be amortized over the life of the mortgage note payable.
INVESTMENTS
IN REAL ESTATE LOANS
Investments
in real estate loans will be recorded at cost and reviewed for potential
impairment at each balance sheet date. A loan receivable is considered impaired
when it becomes probable, based on current information, that the Company will be
unable to collect all principal and interest payments due according to the
loan’s contractual terms. The amount of impairment, if any, would be measured by
comparing the carrying amount of the loan receivable to the present value of the
expected cash flows discounted at the loan’s effective interest rate or the fair
value of the collateral (less costs to sell assuming the Company plans to sell
the collateral). Any resulting charge would be expensed via a reserve for loan
losses.
6
ISSUER
COSTS
The
Company will reimburse the Advisor for any issuer costs related to the Offering
that it pays on the Company’s behalf, which costs are expected to consist of,
among other costs, expenses of our organization, actual legal, accounting, bona
fide out-of-pocket itemized and detailed due diligence costs, printing, filing
fees, transfer agent costs, postage, escrow fees, data processing fees,
advertising and sales literature and other offering-related costs. The Company
did not have an obligation to reimburse the Advisor for any issuer costs until
it achieved its minimum offering requirements on October 19, 2009. Therefore,
the Company did not record issuer costs within its financial statements until
that time. Organizational issuer costs, such as expenses associated with the
formation of the Company and its board of directors will be expensed, and other
issuer costs will be recorded as an offset to additional paid-in capital. As of
September 30, 2009, organizational issuer costs and other issuer costs
incurred by the Advisor on the Company’s behalf totaled approximately
$2.6 million and $343,000, respectively. Issuer costs incurred by the
Advisor on the Company’s behalf were approximately $216,600 as of
December 31, 2008.
INCOME
TAXES
The
Company will make an election to be taxed as a real estate investment trust
(“REIT”), under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the “Code”) and expects it will be taxed as such beginning
with its taxable year ending December 31, 2009. In order to qualify as a
REIT, an entity must meet certain organizational and operational requirements,
including a requirement to distribute at least 90% of its annual ordinary
taxable income to stockholders. REITs are generally not subject to federal
income tax on taxable income that they distribute to their stockholders. If the
Company fails to qualify as a REIT in any taxable year, it will then be subject
to federal income taxes on its taxable income at regular corporate rates and
will not be permitted to qualify for treatment as a REIT for federal income tax
purposes for four years following the year during which qualification is lost
unless the Internal Revenue Service granted the Company relief under certain
statutory provisions. Such an event could materially adversely affect the
Company’s net income and net cash available for distribution to stockholders.
However, the Company believes that it will be organized and operate in such a
manner as to qualify for treatment as a REIT and intends to operate in the
foreseeable future in such a manner so that the Company will remain qualified as
a REIT for federal income tax purposes.
REDEMPTION
OF COMMON STOCK
The
Company offers a share redemption program which will allow certain stockholders
to have their shares redeemed subject to approval and certain limitations and
restrictions. No fees will be paid to Hines in connection with any redemption.
The Company’s board of directors may terminate, suspend or amend the share
redemption program upon 30 days’ written notice without stockholder
approval.
The
Company initially intends to allow redemptions of its shares on a monthly basis.
Subject to funds being available as described below, the number of shares
repurchased during any consecutive 12-month period will be limited to no more
than 5% of the number of outstanding shares of common stock at the beginning of
that 12-month period. Unless the Company’s board of directors determines
otherwise, the funds available for redemptions in each month will be limited to
the funds received from the distribution reinvestment plan in the month prior to
the month in which the redemption request is received.
The
Company complies with the Distinguishing Liabilities from Equity topic of the
FASB Accounting Standards Codification, which requires, among other things, that
financial instruments that represent a mandatory obligation of the Company to
repurchase shares be classified as liabilities and reported at settlement value.
Management believes that shares tendered for redemption by the holder under the
Company’s share redemption program will not represent a mandatory obligation
until such redemptions are approved. At such time, the Company will reclassify
such obligations from equity to an accrued liability based upon their respective
settlement values.
RECENT
ACCOUNTING PRONOUNCEMENTS
In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement
No. 166, Accounting for Transfers of Financial Assets
(“SFAS No. 166”), which is not yet included in the Accounting
Standards Codification. SFAS No. 166 is a revision to FASB Statement
No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and will require more information to be
disclosed about transfers of financial assets, including securitization
transactions, and where entities have continuing exposure to the risks related
to transferred financial assets. It eliminates the concept of a “qualifying
special-purpose entity,” changes the requirements for derecognizing financial
assets, and requires additional disclosures. SFAS No. 166 is effective
at the start of a reporting entity’s first fiscal year beginning after
November 15, 2009. The adoption of SFAS No 166 is not expected to
have a significant impact on the Company’s financial statements.
7
In June
2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation
No. 46(R) (“SFAS No. 167”), which is not yet included in the
Accounting Standards Codification. SFAS No. 167 is a revision to FASB
Interpretation No. 46 (Revised December 2003), Consolidation of Variable
Interest Entities, and changes how a reporting entity determines when an entity
that is insufficiently capitalized or is not controlled through voting (or
similar rights) should be consolidated. The determination of whether a reporting
entity is required to consolidate another entity is based on, among other
things, the other entity’s purpose and design and the reporting entity’s ability
to direct the activities of the other entity that most significantly impact the
other entity’s economic performance. SFAS No. 167 is effective at the
start of a reporting entity’s first fiscal year beginning after
November 15, 2009. The adoption of SFAS No 167 is not expected to
have a significant impact on the Company’s financial statements.
3. RELATED
PARTY TRANSACTIONS
Hines or
its affiliates will receive fees and compensation in connection with the
Offering and the acquisition, management and sale of the Company’s real estate
investments, pursuant to the terms of certain agreements. Below is a summary of
such compensation.
HREI
receives a selling commission of up to 7.5% of gross offering proceeds and a
dealer manager fee of up to 2.5% of gross offering proceeds, both of which will
be recorded as an offset to additional paid-in-capital in the Company’s
financial statements. Pursuant to separately negotiated agreements, HREI may
reallow up to 7.0% of gross proceeds as a selling commission and up to 1.5% of
gross proceeds from its dealer manager fee as a marketing fee to broker-dealers
participating in the Offering. HREI may also pay to broker-dealers up to an
additional 1.0% of the gross offering proceeds as reimbursements for
distribution and marketing-related costs and expenses. No selling commissions or
dealer manager fees will be paid for sales under the Company’s distribution
reinvestment plan.
As
described in Note 2 above, the Company will reimburse the Advisor for any
issuer costs paid on its behalf. However, the total compensation related to
issuer costs, selling commissions and dealer manager fees may not exceed 15% of
gross proceeds from the Offering.
The
Advisor will also receive acquisition fees of 2.0% of (i) the purchase price of
each real estate investment the Company acquires or originates, including any
debt attributable to such investments and (ii) with respect to indirect
investments through another entity, such entity’s pro rata share of the gross
asset value of all real estate investments held by such entity.
The
Advisor will also receive debt financing fees of 1% of (i) the amount obtained,
assumed or made available to the Company under any loan or line of credit and
(ii) the Company’s pro rata share of any amount obtained, assumed or made
available under any loan or line of credit to any of its joint
ventures.
The
Advisor will also receive asset management fees of 0.125% per month of the net
equity capital invested by the Company in real estate investments as of the end
of each month.
The
Company expects to pay Hines fees for the management and leasing of some of the
Company’s properties. Property management fees are expected to be paid in an
amount equal to a market-based percentage of the gross revenues of the
properties managed by Hines or the
amount of property management fees recoverable from tenants of the properties
managed by Hines under their leases. In addition, if Hines provides
leasing services with respect to a property, the Company will pay Hines leasing
fees in an amount equal to the leasing fees charged by unaffiliated persons
rendering comparable services in the same geographic area of the applicable
property. The Company generally will be required to reimburse Hines for certain
operating costs incurred in providing property management and leasing services
pursuant to the property management and leasing agreements. Included in this
reimbursement of operating costs will be the cost of personnel and overhead
expenses related to such personnel located at the property as well as off-site
personnel located in Hines’ headquarters and regional offices, to the extent the
same relate to or support the performance of Hines’ duties under the
agreement.
Hines may
perform construction management services for the Company for both re-development
activities and tenant construction. These fees are considered incremental to the
construction effort and will be capitalized to the associated real estate
project as incurred. Costs related to tenant construction will be depreciated
over the estimated useful life. Costs related to redevelopment activities will
be depreciated over the estimated useful life of the associated project. Leasing
activities will generally be performed by Hines on the Company’s behalf. Leasing
fees will be capitalized and amortized over the life of the related lease. The
Company will also pay the Advisor a financing fee for all property-related loans
and any other debt financing we obtain. These fees will be deferred and
amortized into interest expense using the straight-line method, which
approximates the effective interest method, over the life of the related
debt.
The
Advisor or its affiliates also will be paid a disposition fee of 1.0% of the
sales price of any real estate investments sold or 1.0% of the Company’s pro
rata share of the sales price with respect to the Company’s indirect
investments. In addition, the Advisor or its affiliates will receive Special OP
Units, which will entitle them to receive distributions in an amount equal to
15% of distributions, including from sales of real estate investments,
refinancings and other sources, but only after the Company’s stockholders have
received, or are deemed to have received, in the aggregate, cumulative
distributions equal to their invested capital plus an 8.0% cumulative,
non-compounded annual pre-tax return on such invested capital.
8
At the
sole discretion of the Advisor, the acquisition fees, asset management fees,
debt financing fees and disposition fees are payable, in whole or in part, in
cash or units of the Operating Partnership (“OP Units”). For the purposes of the
payment of these fees, each OP Unit will be valued at the per-share offering
price of the Company’s common stock in its most recent public offering less
selling commissions and dealer manager fees. Upon the
Advisor’s request, each OP unit can be repurchased for cash or can be converted
into one share of the Company’s common stock. The decision to redeem each OP
unit for cash or shares is at the Company’s option except in certain
circumstances such as the Company’s decision to list its shares on a national
securities exchange, a liquidation event or upon termination or nonrenewal of
the Advisory Agreement for any reason other than by the Advisor. The
Company will recognize the expense related to these OP Units as the related
service is performed, as each OP Unit will be fully vested upon
issuance.
The
Company will reimburse the Advisor for all expenses paid or incurred by the
Advisor in connection with the services provided to the Company, subject to the
limitation that the Company will not reimburse the Advisor for any amount by
which its operating expenses (including the asset management fee) at the end of
the four preceding fiscal quarters exceeds the greater of: (A) 2% of its
average invested assets, or (B) 25% of its net income determined without
reduction for any additions to reserves for depreciation, bad debts or other
similar non-cash reserves and excluding any gain from the sale of the Company’s
assets for that period. Notwithstanding the above, the Company may reimburse the
Advisor for expenses in excess of this limitation if a majority of the
independent directors determines that such excess expenses are
justified.
4. SUBSEQUENT
EVENTS
Declaration
of Distributions
On
October 16, 2009, with the authorization of its board of directors, the
Company declared distributions for the period from October 20, 2009 through
December 31, 2009. These distributions will be calculated based
on stockholders of record each day in an amount equal to $0.00191781 per
share, per day, which, based on a purchase price of $10 per share, would
equate to a 7% annualized distribution rate if it were maintained every day
for a twelve-month period. On or before March 1, 2010, these
distributions will be paid in cash or reinvested in shares of the
Company's common stock, for those participating in the Company’s distribution
reinvestment plan. Some or
all of these distributions may be paid from sources other than cash flow from
operations, such as cash advances by our Advisor, cash resulting from a waiver
or deferral of fees, borrowings and/or proceeds from the
Offering.
9
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and the notes thereto included in Item 1
in this Form 10-Q.
Cautionary
Note Regarding Forward-Looking Statements
This
Form 10-Q includes 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 statements include
statements concerning future financial performance and distributions, future
debt and financing levels, acquisitions and investment objectives, payments
to Hines Global REIT Advisors Limited Partnership (the “Advisor”), and its
affiliates and other plans and objectives of management for future operations or
economic performance, or assumptions or forecasts related thereto as well as all
other statements that are not historical statements. These statements are only
predictions. We caution that forward-looking statements are not guarantees.
Actual events or our investments and results of operations could differ
materially from those expressed or implied in forward-looking statements.
Forward-looking statements are typically identified by the use of terms such as
“may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,”
“believe,” “continue,” “predict,” “potential” or the negative of such terms and
other comparable terminology.
The
forward-looking statements included in this Form 10-Q are based on our
current expectations, plans, estimates, assumptions and beliefs that involve
numerous risks and uncertainties. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions, the availability of future financing and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Any of the assumptions underlying
forward-looking statements could be inaccurate. To the extent that our
assumptions differ from actual results, our ability to meet such forward-looking
statements, including our ability to generate positive cash flow from
operations, pay distributions to our shareholders and maintain the value of any
real estate investments and real estate-related investments in which we may hold
an interest in the future, may be significantly hindered.
The
following are some of the risks and uncertainties, which could cause actual
results to differ materially from those presented in certain forward-looking
statements:
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We
have no prior operating history or established financing sources, and the
prior performance of other Hines affiliated entities may not be a good
measure of our future results; therefore, there is no assurance we will be
able to achieve our investment
objectives;
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Our
current offering is a best efforts offering and as such, the risk that we
will not be able to accomplish our business objectives and that the poor
performance of a single investment will materially adversely affect our
overall investment performance, will increase if only a small number of
shares are purchased in the
offering;
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–
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Whether
we will have the opportunity to invest offering and distribution
reinvestment plan proceeds to acquire properties or other investments or
whether such proceeds will be needed to redeem shares; and if proceeds are
available for investment, our ability to make such investments in a timely
manner and at appropriate amounts that provide acceptable
returns;
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–
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Competition
for tenants and real estate investment opportunities, including
competition with affiliates of Hines Interests Limited Partnership
(“Hines”);
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Our
reliance on our Advisor, Hines and affiliates of Hines for our day-to-day
operations and the selection of real estate investments, and our Advisor’s
ability to attract and retain high-quality personnel who can provide
service at a level acceptable to
us;
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–
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Risks
associated with conflicts of interests that result from our relationship
with our Advisor and Hines, as well as conflicts of interests certain of
our officers and directors face relating to the positions they hold with
other entities;
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The
potential need to fund tenant improvements, lease-up costs or other
capital expenditures, as well as increases in property operating expenses
and costs of compliance with environmental matters or discovery of
previously undetected environmentally hazardous or other undetected
adverse conditions at our
properties;
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The
availability and timing of distributions we may pay is uncertain and
cannot be assured;
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Some
or all of our distributions may be paid from sources such as cash advances
by our Advisor, cash resulting from a waiver or deferral of fees,
borrowings and/or proceeds from the offering. If we pay distributions from
sources other than our cash flow from operations, we will have less funds
available for the acquisition of properties, and your overall return may
be reduced;
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10
–
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Risks
associated with debt;
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–
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Risks
associated with adverse changes in general economic or local market
conditions, including terrorist attacks and other acts of violence, which
may affect the markets in which we and our tenants
operate;
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–
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Catastrophic
events, such as hurricanes, earthquakes and terrorist attacks; and our
ability to secure adequate insurance at reasonable and appropriate
rates;
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The
failure of any bank in which we deposit our funds could reduce the amount
of cash we have available to pay distributions and make additional
investments;
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Changes
in governmental, tax, real estate and zoning laws and regulations and the
related costs of compliance and increases in our administrative operating
expenses, including expenses associated with operating as a public
company;
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International
investment risks, including the burden of complying with a wide variety of
foreign laws and the uncertainty of such laws, the tax treatment of
transaction structures, political and economic instability, foreign
currency fluctuations, and inflation and governmental measures to curb
inflation may adversely affect our operations and our ability to make
distributions;
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–
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The
lack of liquidity associated with our assets;
and
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Our
ability to continue to qualify as a real estate investment trust (“REIT”)
for federal income tax purposes.
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These
risks are more fully discussed in, and all forward-looking statements should be
read in light of, all of the factors discussed in our Prospectus filed
on August 5, 2009 pursuant to Rule 424(b)(3) of the Securities Act of
1933, as amended.
You are
cautioned not to place undue reliance on any forward-looking statements included
in this Form 10-Q. All forward-looking statements are made as of the date
of this Form 10-Q and the risk that actual results will differ materially
from the expectations expressed in this Form 10-Q may increase with the
passage of time. In light of the significant uncertainties inherent in the
forward-looking statements included in this Form 10-Q, the inclusion of
such forward-looking statements should not be regarded as a representation by us
or any other person that the objectives and plans set forth in this
Form 10-Q will be achieved. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by reference to these risks and uncertainties. Each
forward-looking statement speaks only as of the date of the particular
statement, and we do not undertake to update any forward-looking
statement.
EXECUTIVE
SUMMARY
We are a
newly incorporated company and did not commence operations until October 19,
2009. Therefore, we do not have any meaningful operations to discuss as of
September 30, 2009. General and administrative expenses incurred through
September 30, 2009 are made up of insurance and legal fees incurred after we
commenced our offering of common shares on August 5, 2009.
Overview
Hines
Global REIT, Inc. was incorporated under the Maryland General Corporation Laws
on December 10, 2008, primarily for the purpose of investing in a
diversified portfolio of quality commercial real estate properties and other
real estate investments located throughout the United States and
internationally. We may purchase properties or make other real estate
investments that relate to varying property types including office, retail,
industrial, multi-family residential and hospitality or leisure. We may invest
in operating properties, properties under development, and undeveloped
properties such as land. Other real estate investments may include equity or
debt interests, including securities, in other real estate entities and debt
related to properties such as mortgages, mezzanine loans, B-notes, bridge loans,
construction loans and securitized debt. We have neither purchased nor
contracted to purchase any real estate investments, nor have any real estate
investments been identified in which there is a reasonable probability that we
will invest.
We will
conduct substantially all of our activities through, and substantially all of
our real estate investments will be held directly or indirectly by, Hines Global
REIT Properties, LP (the “Operating Partnership”), which was formed on
January 7, 2009. Generally, we will contribute the proceeds we receive when
we issue common shares to the Operating Partnership and the Operating
Partnership will, in turn, issue general partner interests to us, which will
entitle us to receive our share of the Operating Partnership’s earnings or
losses and distributions of cash flow. We are structured in a manner that would
allow the Operating Partnership to issue limited partner units from time to time
in exchange for real estate properties. By structuring our acquisitions in this
manner, the sellers of the real estate will generally be able to defer the
taxation of gains until they exchange their limited partner units for our common
shares or sell or redeem their units.
11
We intend
to qualify, commencing with our taxable year ending December 31, 2009, and
to remain qualified, as a REIT for federal tax purposes, thereby generally
avoiding federal income taxes.
We are
not aware of any material trends or uncertainties, favorable or unfavorable,
other than national economic conditions affecting real estate generally, that
may be reasonably anticipated to have a material impact on either capital
resources or the revenues or income to be derived from acquiring commercial real
estate properties and other real estate related investments, other than those
referred to elsewhere in this Form 10-Q.
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
On August
5, 2009, we commenced an offering of up to $3,500,000,000 in shares of common
stock for sale to the public (the “Offering”). On October 19, 2009, we achieved
our minimum offering requirements pursuant to the terms of the Offering and
commenced operations. Our principal demands for funds will be to purchase real
estate properties and make other real estate investments, for the payment of
operating expenses and distributions, and for the payment of principal and
interest on any indebtedness we incur. Generally, we expect to meet operating
cash needs from our cash flow from operations, and we expect to meet cash needs
for acquisitions and investments from the net proceeds of the Offering and from
other financings.
On
October 16, 2009, with the authorization of our board of directors, we
declared distributions for the period from October 20, 2009 through December 31,
2009. These distributions will be calculated based on stockholders of
record each day in an amount equal to $0.00191781 per share, per day, which,
based on a purchase price of $10 per share, would equate to a 7%
annualized distribution rate if it were maintained for a twelve-month
period. On or before March 1, 2010, these distributions will be paid
in cash or reinvested in shares of our common stock, for those
participating in our distribution reinvestment plan. We have not yet
generated cash flow from operations and until the proceeds from the Offering are
fully invested, and from time to time thereafter, we may not generate sufficient
cash flow from operations to fully fund distributions paid. Therefore,
particularly in the earlier part of the Offering, some or all of our
distributions may be paid from other sources, such as cash advances by our
Advisor, cash resulting from a waiver or deferral of fees, borrowings and/or
proceeds from the Offering. We have not placed a cap on the amount of our
distributions that may be paid from any of these sources.
We expect
that once we have fully invested the proceeds of the Offering and other
potential subsequent offerings, our debt financing, including our pro rata share
of the debt financing of entities in which we invest, will be in the range of
approximately 50% - 70% of the aggregate value of our real estate investments
and other assets. Financing for acquisitions and investments may be obtained at
the time an asset is acquired or an investment is made or at such later time as
determined to be appropriate. In addition, debt financing may be used from time
to time for property improvements, lease inducements, tenant improvements and
other working capital needs. Additionally, the amount of debt placed on an
individual property or related to a particular investment, including our pro
rata share of the amount of debt incurred by an individual entity in which we
invest, may be less than 50% or more than 70% of the value of such
property/investment or the value of the assets owned by such entity, depending
on market conditions and other factors. Our aggregate borrowings, secured and
unsecured, must be reasonable in relation to our net assets and must be reviewed
by our board of directors at least quarterly. Our articles limit our borrowing
to 300% of our net assets (which approximates 75% of the cost of our assets)
unless any excess borrowing is approved by a majority of our independent
directors and is disclosed to our stockholders in our next quarterly report
along with justification for the excess. Notwithstanding the above, depending on
market conditions and other factors, we may choose not to place debt on our
portfolio or our assets and may choose not to borrow to finance our operations
or to acquire properties. Any indebtedness we do incur will likely be subject to
continuing covenants, and we will likely be required to make continuing
representations and warranties about our company in connection with such debt.
Moreover, some or all of our debt may be secured by some or all of our assets.
If we default in the payment of interest or principal on any such debt, breach
any representation or warranty in connection with any borrowing or violate any
covenant in any loan document, our lender may accelerate the maturity of such
debt, requiring us to immediately repay all outstanding principal.
In
addition to making investments in accordance with our investment objectives, we
expect to use our capital resources to make certain payments to our Advisor,
Hines Real Estate Investments, Inc. (our “Dealer Manager”), and Hines Interests
Limited Partnership (“Hines”) and their affiliates during the various phases of
our organization and operation. During the organization and offering stage,
these payments will include payments to our Dealer Manager for selling
commissions and the dealer manager fee and payments to our Advisor for
reimbursement of issuer costs. During the acquisition and operational stages,
certain services related to management of our investments and operations will be
provided to us by our Advisor and Hines and its affiliates pursuant to various
agreements we have entered into or anticipate entering into with these entities.
Pursuant to those agreements, we expect that we will make various payments to
our Advisor and/or Hines and its affiliates, including acquisition fees, asset
management fees, financing fees, disposition fees, property management fees,
leasing fees, and payments for reimbursements of certain costs incurred by our
Advisor and Hines and its affiliates in providing related services to
us.
12
CRITICAL
ACCOUNTING POLICIES
Below is
a discussion of the accounting policies that management believes will be
critical in the preparation of our financial statements. We consider these
policies critical because they involve management judgments and assumptions,
require estimates about matters that are inherently uncertain and because they
will be important for understanding and evaluating our reported financial
results. These judgments affect the reported amounts of assets and liabilities
and our disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenue and expenses during the
reporting periods. With different estimates or assumptions, materially different
amounts could be reported in our financial statements. Additionally, other
companies may utilize different estimates that may impact the comparability of
our financial condition and results of operations to those of companies in
similar businesses.
Basis
of Presentation
Our
financial statements are expected to include the accounts of Hines Global REIT,
Inc., the Operating Partnership (over which we exercise financial and operating
control) and the Operating Partnership’s wholly-owned subsidiaries, if any, as
well as the related amounts of noncontrolling interest. All intercompany
balances and transactions have been eliminated in consolidation.
We will
evaluate the need to consolidate joint ventures and will consolidate those that
are determined to be variable interest entities for which we are the primary
beneficiary. We will also consolidate joint ventures that are not determined to
be variable interest entities, but for which we exercise control over major
operating decisions through substantive participation rights, such as approval
of budgets, selection of property managers, asset management, investment
activity and changes in financing.
Investment
Property and Lease Intangibles
Real
estate assets which we acquire directly will be stated at cost less accumulated
depreciation. Depreciation will be computed using the straight-line method. The
estimated useful lives for computing depreciation will generally be
10 years for furniture and fixtures, 15-20 years for electrical and
mechanical installations and 40 years for buildings. Major replacements
that extend the useful life of the assets will be capitalized and maintenance
and repair costs will be expensed as incurred.
Real
estate assets will be reviewed for impairment if events or changes in
circumstances indicate that the carrying amount of the individual property may
not be recoverable. In such an event, a comparison will be made of the current
and projected operating cash flows of each property on an undiscounted basis to
the carrying amount of such property. Such carrying amount would be adjusted, if
necessary, to the estimated fair value to reflect impairment in the value of the
asset.
Acquisitions
of properties will be accounted for utilizing the acquisition method and,
accordingly, will be recorded at the estimated fair values of the assets
acquired and liabilities assumed. The results of operations of acquired
properties will be included in our results of operations from their respective
dates of acquisition. Estimates of fair values will be based upon estimates of
future cash flows and other valuation techniques that we believe are similar to
those used by independent appraisers and will be used to record the
purchase of identifiable assets acquired and liabilities assumed such as land,
buildings and improvements, equipment and identifiable intangible assets and
liabilities such as amounts related to in-place leases, acquired above- and
below-market leases, tenant relationships, asset retirement obligations,
mortgage notes payable and any goodwill or gain on purchase. Values of buildings
and improvements will be determined on an as if vacant basis. Initial valuations
will be subject to change until such information is finalized, no later than
12 months from the acquisition date. Acquisition-related costs such as
transaction costs and acquisition fees paid to the Advisor will be expensed as
incurred.
The
estimated fair value of acquired in-place leases will be the costs we would have
incurred to lease the properties to the occupancy level of the properties at the
date of acquisition. Such estimates include the fair value of leasing
commissions, legal costs and other direct costs that would be incurred to lease
the properties to such occupancy levels. Additionally, we will evaluate the time
period over which such occupancy levels would be achieved. Such evaluation will
include an estimate of the net market-based rental revenues and net operating
costs (primarily consisting of real estate taxes, insurance and utilities) that
would be incurred during the lease-up period. Acquired in-place leases as of the
date of acquisition will be amortized over the remaining lease
terms.
Acquired
above-and below-market lease values will be recorded based on the present value
(using an interest rate that reflects the risks associated with the lease
acquired) of the difference between the contractual amounts to be paid pursuant
to the in-place leases and management’s estimate of fair market value lease
rates for the corresponding in-place leases. The capitalized above- and
below-market lease values will be amortized as adjustments to rental revenue
over the remaining terms of the respective leases, which include periods covered
by bargain renewal options. Should a tenant terminate its lease, the unamortized
portion of the in-place lease value will be charged to amortization expense and
the unamortized portion of out-of-market lease value will be charged to rental
revenue.
13
Acquired
above- and below-market ground lease values will be recorded based on the
difference between the present values (using an interest rate that reflects the
risks associated with the lease acquired) of the contractual amounts to be paid
pursuant to the ground leases and management’s estimate of fair market value of
land under the ground leases. The capitalized above- and below-market lease
values will be amortized as adjustments to ground lease expense over the lease
term.
Management
will estimate the fair value of assumed mortgage notes payable based upon
indications of then-current market pricing for similar types of debt with
similar maturities. Assumed mortgage notes payable will be initially recorded at
their estimated fair value as of the assumption date, and the difference between
such estimated fair value and the outstanding principal balance of the note will
be amortized over the life of the mortgage note payable.
Investments
in Real Estate Loans
Investments
in real estate loans will be recorded at cost and reviewed for potential
impairment at each balance sheet date. A loan receivable is considered impaired
when it becomes probable, based on current information, that we will be unable
to collect all amounts due according to the loan’s contractual terms. The amount
of impairment, if any, would be measured by comparing the carrying amount of the
loan receivable to the present value of the expected cash flows discounted at
the loan's effective interest rate or the fair value of the collateral (less
costs to sell assuming we plan to sell the collateral). Any resulting charge
would be expensed via a reserve for loan losses.
Issuer
Costs
We will
reimburse the Advisor for any issuer costs associated with the Offering that it
pays on our behalf, including up to 0.5% of the gross offering proceeds as
reimbursement for any bona fide out-of-pocket, itemized and detailed due
diligence expenses. We did not have an obligation to reimburse the Advisor for
any issuer costs until we achieved our minimum offering requirements on October
19, 2009. Therefore, we did not record issuer costs within our financial
statements until that time. Organizational issuer costs, such as expenses
associated with our formation and the formation of our board of directors will
be expensed, and other issuer costs will be recorded as an offset to additional
paid-in capital.
Treatment
of Management Compensation and Expense Reimbursements
We have
outsourced the management of our operations to the Advisor and certain other
affiliates of Hines. Fees related to these services will be accounted for based
on the nature of the service and the relevant accounting literature. Fees for
services performed that represent period costs will be expensed as incurred.
Such fees include acquisition fees and asset management fees paid to our Advisor
and property management fees paid to Hines.
At the
sole discretion of our Advisor, the acquisition fees, asset management fees,
debt financing fees and disposition fees are payable, in whole or in part, in
cash or OP Units. For the purposes of the payment of these, each OP Unit will be
valued at the per share offering price of our common stock in our most recent
public offering minus the maximum selling commissions and dealer manager fees
being allowed in such offering, to account for the fact that no selling
commissions or dealer manager fees will be paid in connection with any such
issuances. Upon the
Advisor’s request, each OP unit can be repurchased for cash or can be converted
into one share of our common stock. The decision to redeem each OP unit for cash
or shares is at our option except in certain circumstances such as our
decision to list our shares on a national securities exchange, a
liquidation event or upon termination or nonrenewal of the Advisory Agreement
for any reason other than by our Advisor. We will recognize the expense related
to these OP Units as the related service is performed, as each OP Unit will be
fully vested upon issuance.
Hines may
perform construction management services for us for both re-development
activities and tenant construction. We expect to pay development fees to Hines
or its affiliates for these services that are usual and customary for comparable
services rendered for similar projects in the same geographic area.
Income
Taxes
We will
make an election to be taxed as a REIT, under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (“the Code”), and expect we will
be taxed as such beginning with our taxable year ending December 31, 2009.
In order to qualify as a REIT, an entity must meet certain organizational and
operational requirements, including a requirement to distribute at least 90% of
its annual ordinary taxable income to stockholders. REITs are generally not
subject to federal income tax on taxable income that they distribute to their
stockholders. If we fail to qualify as a REIT in any taxable year, we will then
be subject to federal income taxes on our taxable income at regular corporate
rates and will not be permitted to qualify for treatment as a REIT for federal
income tax purposes for four years following the year during which qualification
is lost unless the Internal Revenue Service granted us relief under certain
statutory provisions. Such an event could materially adversely affect our net
income and net cash available for distribution to stockholders. However, we
believe that we will be organized and operate in such a manner as to qualify for
treatment as a REIT and intend to operate in the foreseeable future in such a
manner so that we will remain qualified as a REIT for federal income tax
purposes.
14
RELATED-PARTY
TRANSACTIONS AND AGREEMENTS
We have
entered into agreements with the Advisor, Dealer Manager and Hines or its
affiliates, whereby we expect to pay certain fees and reimbursements to these
entities, including acquisition fees, selling commissions, dealer-manager fees,
asset and property management fees, leasing fees, construction management fees,
debt financing fees, disposition fees, development management fees,
reimbursement of organizational and offering costs, and reimbursement of certain
operating costs, as described previously.
OFF-BALANCE
SHEET ARRANGEMENTS
As of
September 30, 2009 and December 31, 2008, we had no off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources.
SUBSEQUENT
EVENTS
Declaration
of Distributions
On
October 16, 2009, with the authorization of our board of directors, we
declared distributions for the remainder of October and the months
of November and December 2009. These distributions will be calculated based
on stockholders of record each day from October 20, 2009 through
December 31, 2009 in an amount equal to $0.00191781 per share, per day, which,
based on a purchase price of $10 per share, would equate to a 7%
annualized distribution rate if it were maintained every day for a
twelve-month period. On or before March 1, 2010, these distributions
will be paid in cash or reinvested in shares of our common stock, for
those participating in our distribution reinvestment plan. Some or
all of these distributions may be paid from sources other than cash flow from
operations, such as cash advances by our Advisor, cash resulting from a waiver
or deferral of fees, borrowings and/or proceeds from the
Offering.
15
Item 3.
Quantitative and
Qualitative Disclosures About Market Risk.
Market
risk includes risks that arise from changes in interest rates, foreign currency
exchange rates, commodity prices, equity prices and other market changes that
affect market-sensitive instruments. In pursuing our business plan, we expect
that interest rate risk and currency risk will be the primary market risks to
which we will be exposed.
We may be
exposed to the effects of interest rate changes primarily as a result of
long-term debt used to maintain liquidity and fund expansion of our real estate
investment portfolio and operations. Our interest rate risk management
objectives will be to limit the impact of interest rate changes on earnings and
cash flows and to lower overall borrowing costs. To achieve our objectives, we
may borrow at fixed rates or variable rates and, in some cases, with the ability
to convert variable rates to fixed rates. We may also enter into derivative
financial instruments such as interest rate swaps and caps in order to mitigate
our interest rate risk on a related financial instrument. We will not enter into
derivative or interest rate transactions for speculative purposes. As of
September 30, 2009, we had no outstanding debt and were not exposed to interest
rate risk.
Revenues
generated from any properties or other real estate investments we acquire or
ventures we enter into relating to transactions involving assets located in
markets outside the United States likely will be denominated in the local
currency. Therefore any investments we make outside the United States may
subject us to foreign currency risk due to potential fluctuations in exchange
rates between foreign currencies and the U.S. dollar. As a result, changes
in exchange rates of any such foreign currency to U.S. dollars may affect
our revenues, operating margins and distributions and may also affect the book
value of our assets and the amount of stockholders’
equity.
Item 4T.
Controls and Procedures.
In
accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of September 30, 2009, to provide reasonable
assurance that information required to be disclosed in our reports filed or
submitted under the Exchange Act is (i) recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and (ii) accumulated and communicated to our
management, including our principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
16
PART II – OTHER
INFORMATION
Item 2.
Unregistered
Sales of Equity Securities and Use of Proceeds
During
the three months ended September 30, 2009, we did not sell or issue any equity
securities that were not registered under the Securities Act.
Use of
Proceeds from Registered Securities
On August
5, 2009, our Registration Statement on Form S-11 (File No. 333-156742) (the
“Registration Statement”), covering a public offering of up to
$3,500,000,000 in shares of common stock (the “Offering”), was declared
effective under the Securities Act of 1933. The Offering commenced on August 5,
2009 and is currently expected terminate on or before August 5, 2011, unless
extended by our board of directors.
Through
Hines Real Estate Investments, Inc. ("HREI"), the dealer manager for the
Offering, we are offering to the public on a best efforts basis up to
$3,000,000,000 in shares of our common stock. We are offering up to 300,000,000
shares of our common stock at a price of $10.00 per share, however, if we sell
shares at a discounted per share price as described in the prospectus for the
Offering, we may sell more than 300,000,000 shares.
We are also offering up to 52,631,579 shares of common stock at a price of $9.50 per share, for an aggregate price of $500,000,000, to be issued pursuant to our distribution reinvestment plan.
As of
November 5, 2009, we have sold $8.3 million (834,634 shares) to the public
in connection with the Offering; no shares have been sold in connection with our
distribution reinvestment plan. The shares sold and the gross offering proceeds
received from such sales do not include the 1,111.111 shares purchased by an
affiliate of Hines Global REIT Advisors LP (the “Advisor”), for $10,000
preceding the commencement of the Offering.
We did
not have an obligation to reimburse the Advisor, for any issuer
costs, commissions or dealer manager fees until we achieved our
minimum offering requirements on October 19, 2009. Therefore, the Company did
not record issuer costs within its financial statements until that time.
As of
September 30, 2009, we have not entered into any arrangements to acquire any
specific property or to make or invest in any specific loan to make any other
permitted investment.
Item
4. Submission of Matters to a
Vote of Security Holders
On August
3, 2009, our sole stockholder, Hines Global REIT Investor Limited Partnership,
approved the Articles of Amendment and Restatement of the Company and elected
the following individuals to the board of directors, each to hold office until
the 2010 annual meeting of stockholders and until his or her successor is
elected and qualifies: Jeffrey C. Hines, C. Hastings Johnson, Charles M.
Baughn, Jack L. Farley, Thomas L. Mitchell, John S. Moody and Peter
Shaper.
Item 6.
Exhibits
The
exhibits required by this item are set forth on the Exhibit Index attached
hereto.
17
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
HINES
GLOBAL REIT, INC.
November
13,
2009
By: /s/ CHARLES N.
HAZEN
Charles N. Hazen
President
and Chief Executive Officer
November
13,
2009
By: /s/ SHERRI W.
SCHUGART
Sherri
W. Schugart
Chief Financial Officer
18
EXHIBT
INDEX
Exhibit
No.
|
Description
|
||
3.1
|
Articles
of Amendment and Restatement of Hines Global REIT, Inc. (filed as Exhibit
3.1 to Pre-Effective Amendment No. 3 to the Registration Statement on
Form S-11, File No. 333-156742, originally filed on January 15, 2009 (the
“Registration Statement”) on August 3, 2009, and incorporated herein by
reference).
|
||
3.2
|
Bylaws
of Hines Global REIT, Inc. (filed as Exhibit 3.2 to Pre-Effective
Amendment No. 1 to the Registration Statement on March 18, 2009 and
incorporated herein by reference).
|
||
10.1
|
Agreement
of Limited Partnership of Hines Global REIT Properties LP, dated as of
August 3, 2009 (filed as Exhibit 10.1 to Pre-Effective Amendment No. 3 to
the Registration Statement on August 3, 2009 and incorporated herein by
reference).
|
||
10.2
|
Advisory
Agreement, dated as of August 3, 2009, among Hines Global REIT Advisors
LP, Hines Global REIT Properties LP and Hines Global REIT, Inc. (filed as
Exhibit 10.2 to Pre-Effective Amendment No. 3 to the Registration
Statement on August 3, 2009 and incorporated herein by
reference).
|
||
31.1
|
*
|
Certification.
|
|
31.2
|
*
|
Certification.
|
|
32.1
|
*
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to
18 U.S.C., Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this
Exhibit 32.1 is furnished to the SEC and shall not be deemed to be
“filed.”
|
__________
*
|
Filed
herewith
|
19