UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 8-K/A

 

 

Amendment No. 1

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 1, 2013

 

 

Griffin Capital Essential Asset REIT, Inc.

(Exact name of registrant as specified in its charter)

 

 

Commission File Number: 000-54377

 

MD   26-3335705

(State or other jurisdiction

of incorporation)

 

(IRS Employer

Identification No.)

2121 Rosecrans Avenue, Suite 3321 El Segundo, CA 90245

(Address of principal executive offices, including zip code)

(310) 469-6100

(Registrant’s telephone number, including area code)

None

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


EXPLANATORY NOTE:

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, Griffin Capital Essential Asset REIT, Inc., a Maryland corporation (the “Registrant”), hereby amends its Current Report on Form 8-K dated May 1, 2013, for the purpose of filing the financial statements and pro forma financial information required by Item 9.01 of Form 8-K with respect to the Registrant’s acquisition of a property located in Houston, Texas (the “Schlumberger property”) in accordance with Rule 3-14 and Article 11 of Regulation S-X, respectively.

In accordance with Rule 3-14 and Article 11 of Regulation S-X, the Registrant hereby files the following financial statements and pro forma financial information, respectively.

Item 9.01. Financial Statements

 

     Page

(a) Financial Statements Applicable to the Schlumberger Property

  

•    Independent Auditors’ Report

   3

•     Statements of Revenues and Certain Operating Expenses for the Three Months Ended March 31, 2013 (unaudited) and the Year Ended December 31, 2012

   4

•     Notes to Statements of Revenues and Certain Operating Expenses

   5
(b) Unaudited Pro Forma Condensed Consolidated Financial Statements    7

•     Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2013

   8

•     Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2012

   9

•     Unaudited Pro Forma Consolidated Statement of Operations for the Three Months Ended March 31, 2013

   10

•     Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

   11

 

2


REPORT OF INDEPENDENT AUDITORS

To the Stockholders of

Griffin Capital Essential Asset REIT, Inc.

We have audited the accompanying statement of revenues and certain operating expenses of the Schlumberger property (the “Schlumberger property”, as defined in Note 1) for the year ended December 31, 2012, and the related notes to the statement of revenues and certain operating expenses.

Management’s Responsibility for the Statement of Revenue and Certain Operating Expenses

Management is responsible for the preparation and fair presentation of the statement of revenues and certain operating expenses in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the statement of revenues over certain operating expenses that is free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the statement of revenues and certain operating expenses based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statement of revenues and certain operating expenses. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the statement of revenues over certain operating expenses, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the statement of revenues and certain operating expenses in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the statement of revenues and certain operating expenses.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the statement of revenues and certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses, as described in Note 2, of the Schlumberger property for the year ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

Basis of Accounting

As described in Note 2, the statement of revenues and certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and is not intended to be a complete presentation of the Schlumberger property’s revenues and expenses. Our opinion is not modified with respect to this matter.

/s/ Ernst & Young LLP

Irvine, California

July 17, 2013

 

3


SCHLUMBERGER PROPERTY

STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES

 

     Three Months Ended
March 31, 2013
     Year Ended
December 31,  2012
 
     (unaudited)         

Revenues:

     

Rentals

   $ 725,968       $ 2,538,183   

Property operating expense reimbursement recovery

     164,849         72,006   

Property tax recovery

     81,220         30,226   
  

 

 

    

 

 

 

Total revenues

     972,037         2,640,415   

Certain operating expenses:

     

Property operating expense

     268,655         926,146   

Property tax expense

     126,113         481,156   
  

 

 

    

 

 

 

Total certain operating expenses

     394,768         1,407,302   
  

 

 

    

 

 

 

Excess of revenues over certain operating expenses

   $ 577,269       $ 1,233,113   
  

 

 

    

 

 

 

See accompanying notes

 

4


SCHLUMBERGER PROPERTY

NOTES TO STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES

 

1. Organization

Griffin Capital Essential Asset REIT, Inc. (the “Company”), through a wholly-owned subsidiary of Griffin Capital Essential Asset Operating Partnership, L.P. (the “Operating Partnership”), acquired an office building located in Houston, Texas (the “Schlumberger property”) on May 1, 2013. The Schlumberger property is 97% leased to Schlumberger Technology Corporation (“Schlumberger”) pursuant to a triple-net lease, obligating Schlumberger to all costs and expenses to operate and maintain the property, including capital expenditures. The remaining 3% of the Schlumberger property is leased to a Fitness Center, Citiline Deli and the management office.

 

2. Basis of Presentation

The accompanying statements of revenues and certain operating expenses (the “Statements”) have been prepared to comply with Rule 3-14 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). The Statements are not representative of the actual operations for the periods presented, as certain revenues and operating expenses that may not be comparable to the revenues and operating expenses the Company expects to incur in the future operations of the Schlumberger property have been excluded. Excluded items consist of interest income and certain operating expenses including depreciation and amortization. Management is not aware of any factors related to the Schlumberger property that would cause this financial information not to be indicative of future operating results.

The accompanying unaudited statement of revenues and certain operating expenses for the three months ended March 31, 2013 was prepared on the accrual basis of accounting and in accordance with principles generally accepted in the United States (“GAAP”) for interim financial information as contained in the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”), and in conjunction with rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the unaudited statement of revenues and certain operating expenses does not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited statement of revenues and certain operating expenses includes accounts and related adjustments, which are, in the opinion of management, of normal recurring nature and necessary for a fair presentation of the Schlumberger property’s results of operations.

Revenue Recognition

The Schlumberger property lease is accounted for as an operating lease. Revenue is recognized on a straight line basis in accordance with the contractual terms of the lease. Per the terms of the lease, basic rent and tenant reimbursement revenue (“additional rent”) were abated during the first 365 days of the term, (the “Gross Rent Abatement Period”), starting on the Commencement Date of February 1, 2012. Beginning on the first day following the expiration of the Gross Rent Abatement Period, one-half of basic rent was abated for the next 365 days of the term. During this period, the tenant was required to make partial basic rent payments and full additional rent payments. The Company processes the payment of certain operating expenses of the Schlumberger property, which are reimbursed monthly by the tenant based on a predetermined estimate. The Company reconciles actual expenses incurred to the total of the monthly estimates received, and the difference is either charged or refunded to the tenant.

 

5


SCHLUMBERGER PROPERTY

NOTES TO STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES

Use of Estimates

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and certain operating expenses during the reporting period. Actual results could differ from those estimates.

 

3. Lease

As of the acquisition date, the remaining term on the Schlumberger property lease was approximately 11 years. The following table summarizes the future minimum rent payments pursuant to the terms of the lease as of December 31, 2012:

 

2013

   $ 1,367,335   

2014

     2,849,423   

2015

     3,044,015   

2016

     3,117,909   

2017

     3,190,419   

Thereafter

     20,953,864   
  

 

 

 

Total

   $ 34,522,965   
  

 

 

 

 

4. Subsequent Events

The Company has completed an evaluation of all transactions subsequent to the date of the financial statements through July 17, 2013, the date the financial statements were available to be issued.

 

6


GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

 

UNAUDITED PRO FORMA

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On May 1, 2013, Griffin Capital Essential Asset REIT, Inc. (the “Company”), through a wholly-owned subsidiary of the Griffin Capital Essential Asset Operating Partnership, L.P. (the “Operating Partnership”), acquired an office building located in Houston, Texas (the “Schlumberger property”). The Schlumberger property is 97% leased to Schlumberger Technology Corporation (“Schlumberger”) pursuant to a triple-net lease, obligating Schlumberger to all costs and expenses to operate and maintain the property, including capital expenditures. On the acquisition date the remaining term of the lease was approximately 11 years. The remaining 3% of the Schlumberger property is leased to a Fitness Center, Citiline Deli and the management office. The Citiline Deli is leased pursuant to a full service gross lease expiring in 2021.

The purchase price of the Schlumberger property was $48.75 million, which was partially funded with a draw of $20.3 million made from the $200.0 million credit facility with KeyBank National Association (“KeyBank”) and other syndication partners under which $175.0 million had been fulfilled (the “KeyBank Credit Facility”).

The pro forma consolidated statements of operations for the year ended December 31, 2012 and for the three months ended March 31, 2013 have been prepared to comply with Rule 3-14 of Regulation S-X as promulgated by the Securities and Exchange Commission. The pro forma condensed consolidated balance sheet as of March 31, 2013 and the pro forma consolidated statements of operations for the year ended December 31, 2012 and for the three months ended March 31, 2013 are not necessarily indicative of what the actual financial position and operating results would have been had the properties acquired in the current year been acquired on January 1, 2012 nor do they purport to represent the Company’s future financial position or operating results.

The unaudited pro forma consolidated statement of operations for the year ended December 31, 2012 and for the three months ended March 31, 2013 should be read in conjunction with the consolidated financial statements of Griffin Capital Essential Asset REIT, Inc. and accompanying notes thereto filed on Form 10-Q for the three months ended March 31, 2013 and those included in the Company’s annual report filed on Form 10-K for the year ended December 31, 2012 and the Company’s Form 8-Ks filed on January 14, 2013, February 21, 2013 and May 7, 2013 relating to the acquisitions of the Comcast property on January 11, 2013, the Boeing property on February 15, 2013 and the Schlumberger property on May 1, 2013, respectively. In the Company’s opinion, all adjustments necessary to reflect the effects of the properties acquired, the respective debt, and the issuance of the Company’s shares have been made.

 

7


GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

 

UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED BALANCE SHEET

March 31, 2013

 

     Historical
March 31, 2013
    Pro forma
Adjustment-
Schlumberger
         Pro forma  

ASSETS:

         

Rental properties, net

   $ 343,872,141      $ 50,552,138      A    $ 394,424,279   

Above market leases, net

     7,406,516        —             7,406,516   

Cash and cash equivalents

     28,065,352        (26,374,325   B      1,691,027   

Restricted cash

     8,067,038        1,566,480      C      9,633,518   

Deferred financing costs, net

     3,128,787        33,299      D      3,162,086   

Deferred rent receivable and other assets

     6,357,290        (997,408   E      5,359,882   
  

 

 

   

 

 

      

 

 

 

Total assets

   $ 396,897,124      $ 24,780,184         $ 421,677,308   
  

 

 

   

 

 

      

 

 

 

LIABILITIES:

         

Mortgage payable, plus unamortized premium of $417,789

   $ 170,993,121      $ —           $ 170,993,121   

KeyBank Credit Facility

     48,199,848        20,300,000      F      68,499,848   

Restricted reserves

     6,159,901        1,566,480      C      7,726,381   

Below market leases, net

     8,929,192        1,802,138      A      10,731,330   

Due to affiliates, net

     580,238        —             580,238   

Prepaid rent

     1,232,763        1,111,566      G      2,344,329   

Accounts payable and other liabilities, including distributions payable

     3,312,237        —             3,312,237   
  

 

 

   

 

 

      

 

 

 

Total liabilities

     239,407,300        24,780,184           264,187,484   
  

 

 

   

 

 

      

 

 

 

Noncontrolling interests subject to redemption

     4,886,686        —             4,886,686   

Common stock subject to redemption

     4,985,480        —             4,985,480   

EQUITY:

         

Preferred Stock, $0.001 par value, 200,000,000 shares authorized, 0 shares issued and outstanding

     —          —             —     

Common Stock, $0.001 par value, 700,000,000 shares authorized, 17,837,874 shares issued and outstanding, historical and pro forma, respectively

     178,356        —             178,356   

Additional paid-in capital

     151,518,621        —             151,518,621   

Cumulative distributions

     (11,859,305     —             (11,859,305

Accumulated deficit

     (8,938,148     —             (8,938,148
  

 

 

   

 

 

      

 

 

 

Total stockholders’ equity

     130,899,524        —             130,899,524   

Noncontrolling interests

     16,718,134        —             16,718,134   
  

 

 

   

 

 

      

 

 

 

Total equity

     147,617,658        —             147,617,658   
  

 

 

   

 

 

      

 

 

 

Total liabilities and equity

   $ 396,897,124      $ 24,780,184         $ 421,677,308   
  

 

 

   

 

 

      

 

 

 

See accompanying notes

 

8


GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

 

UNAUDITED PRO FORMA

CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended December 31, 2012

 

     Historical     Comcast
Historical
     Boeing
Historical
    Schlumberger
Historical
     Pro forma
Adjustment
         Pro forma  

Revenues:

                 

Rental income

   $ 22,133,285      $ 2,169,346       $ 1,489,225      $ 2,538,183       $ 198,466      a    $ 28,528,505   

Property tax recovery

     563,797        402,166         —           30,226         —              996,189   

Propery management fee and reimbursement recovery

     2,792,936        1,759,087         —           72,006         —              4,624,029   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

      

 

 

 

Total revenue

     25,490,018        4,330,599         1,489,225        2,640,415         198,466           34,148,723   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

      

 

 

 

Expenses:

                 

Asset management fees to affiliates

     1,882,473        —            —           —            655,125      b      2,537,598   

Property operating expense

     1,211,896        1,759,087         (33,912     926,146         279,729      c      4,142,946   

Property tax expense

     2,701,126        402,166         153,529        481,156         —              3,737,977   

Acquisition fees and expenses to non-affiliates

     1,332,385        —            —           —            331,834      d      1,664,219   

Acquisition fees and expenses to affiliates

     4,816,500        —            —           —            2,632,500      d      7,449,000   

General and administrative expenses

     2,033,401        —            —           —            —              2,033,401   

Depreciation and amortization

     9,426,785        —            —           —            4,046,101      e      13,472,886   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

      

 

 

 

Total expenses

     23,404,566        2,161,253         119,617        1,407,302         7,945,289           35,038,027   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

      

 

 

 

Income (loss) from operations

     2,085,452        2,169,346         1,369,608        1,233,113         (7,746,823        (889,304

Other income (expense):

                 

Interest expense

     (7,760,015     —            —           —            (1,294,186   f      (9,054,201

Interest income

     545        —            —           —            —              545   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

      

 

 

 

Net loss

     (5,674,018     2,169,346         1,369,608        1,233,113         (9,041,009        (9,942,960

Distributions to redeemable noncontrolling interests attributable to common stockholders

     (259,612                  (259,612
  

 

 

                

 

 

 

Net loss including distributions to redeemable noncontrolling interests attributable to common stockholders

     (5,933,630                  (10,202,572
  

 

 

                

 

 

 

Net loss attributable to noncontrolling interests

     (1,739,105                  (2,746,246
  

 

 

                

 

 

 

Net loss attributable to common Stockholders

   $ (4,194,525                $ (7,456,326
  

 

 

                

 

 

 

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

   $ (0.46                $ (0.82
  

 

 

                

 

 

 

Weighted average number of common shares outstanding, basic and diluted

     9,073,641                     9,073,641   
  

 

 

                

 

 

 

See accompanying notes

 

9


GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

 

UNAUDITED PRO FORMA

CONSOLIDATED STATEMENT OF OPERATIONS

Three Months Ended March 31, 2013

 

     Historical     Comcast
Historical
     Boeing
Historical
     Schlumberger
Historical
     Pro forma
Adjustment
           Pro forma  

Revenues:

                  

Rental income

   $ 8,179,245      $ 63,636       $ 189,857       $ 725,968       $ 39,449        a       $ 9,198,155   

Property tax recovery

     628,970        11,018         —            81,220         —              721,208   

Property management fee and reimbursement recovery

     1,038,345        47,080         —            164,849         —              1,250,274   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Total revenue

     9,846,560        121,734         189,857         972,037         39,449           11,169,637   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Expenses:

                  

Asset management fees to affiliates

     666,500        —            —            —            108,019        b         774,519   

Property operating expense

     1,033,384        47,080         32,899         268,655         43,502        c         1,425,520   

Property tax expense

     970,055        11,018         18,928         126,113         —              1,126,114   

Acquisition fees and expenses to non-affiliates

     255,779        —            —            —            (197,031     d         58,748   

Acquisition fees and expenses to affiliates

     1,170,000        —            —            —            (1,170,000     d         —      

General and administrative expenses

     588,968        —            —            —            —              588,968   

Depreciation and amortization

     3,546,211        —            —            —            583,762        e         4,129,973   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Total expenses

     8,230,897        58,098         51,827         394,768         (631,748        8,103,842   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Income from operations

     1,615,663        63,636         138,030         577,269         671,197           3,065,795   

Other income (expense):

                  

Interest expense

     (2,708,794     —            —            —            (195,058     f         (2,903,852

Interest income

     174        —            —            —            —              174   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Net (loss) income

     (1,092,957     63,636         138,030         577,269         476,139           162,117   

Distributions to redeemable noncontrolling interests attributable to common stockholders

     (73,631                   (73,631
  

 

 

                 

 

 

 

Net (loss) income including distributions to redeemable noncontrolling interests attributable to common stockholders

     (1,166,588                   88,486   
  

 

 

                 

 

 

 

Net (loss) income attributable to noncontrolling interests

     (195,311                   29,051   
  

 

 

                 

 

 

 

Net (loss) income attributable to common Stockholders

   $ (971,277                 $ 59,435   
  

 

 

                 

 

 

 

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

   $ (0.06                 $ 0.00   
  

 

 

                 

 

 

 

Weighted average number of common shares outstanding, basic and diluted

     15,860,452                      15,860,452   
  

 

 

                 

 

 

 

See accompanying notes

 

10


GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO UNAUDITED PRO FORMA

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Rental Properties

On January 11, 2013, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired a four-level office building located in Greenwood Village (Denver), CO (the “Comcast property”) from an unaffiliated third party. The Comcast property is 100% leased to a single tenant, Comcast Cable Holdings, LLC (“Comcast Holdings”), a wholly-owned subsidiary of Comcast Corporation, pursuant to a triple-net lease, obligating Comcast Holdings to all costs and expenses to operate and maintain the property, including certain capital expenditures. On the acquisition date, the annual rent was $13.50 per square foot, subject to periodic rent increases pursuant to the lease, and the remaining term of the lease was approximately nine years.

On February 15, 2013, the Company, through the Operating Partnership, acquired a three-story office facility located in Renton, Washington (the “Boeing property”). The Boeing property is 100% leased pursuant to two triple-net leases to The Boeing Company (“Boeing”), obligating Boeing to all costs and expenses to operate and maintain the property, including certain capital expenditures. On the acquisition date, the annual rent was $21.00 per square foot, subject to periodic rent increases pursuant to the lease, and the remaining term was approximately five years.

On May 1, 2013, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired a six-story office facility located in Houston, Texas (the “Schlumberger property”). The Schlumberger property is 97% leased pursuant to a triple-net lease to Schlumberger Technology Corporation (“Schlumberger”), obligating Schlumberger to all costs and expenses to operate and maintain the property, including certain capital expenditures. On the acquisition date, the annual rent was $20.50 per square foot and the remaining term was approximately 11 years. The remaining 3% of the Schlumberger property is leased to a Fitness Center, Citiline Deli and the management office. The Citiline Deli is leased pursuant to a full service gross lease expiring in 2021.

The Comcast, Boeing and Schlumberger properties are hereinafter referred to as the “Properties.”

In accordance with Accounting Standards Codification (“ASC”) 805-10, Business Combinations (“ASC 805-10”), the Company performs the following procedures when allocating the acquired value of real estate: (1) estimate the fair value of the real estate as of the transaction date on an “as if vacant basis;” (2) allocate the “as if vacant” value among land, building, and tenant improvements; (3) calculate the value of the intangible assets and liabilities as the difference between the “as if vacant” value and the contributed value; and (4) allocate the intangible value to the above, below and at market leases, leasing costs associated with in-place leases, tenant relationships and other intangible assets. The acquisition value of the Properties has been allocated, as of the transaction dates, in accordance with the methodology discussed above.

The value allocated to building is depreciated and tenant improvements are amortized on a straight-line basis over an estimated useful life. The building is depreciated over a 40 year useful life and tenant improvements are amortized over the shorter of estimated useful life and remaining contractual, non-cancelable term of the in-place lease. The value of above and below market leases are amortized over the remaining contractual, non-cancelable term of the in-place lease (with consideration as to below market extension options for below market leases) and recorded as either an increase (for below market leases) or a decrease (for above market leases) to rental income. Costs associated with originating these leases are amortized over the remaining contractual, non-cancelable term of the in-place lease.

 

11


GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO UNAUDITED PRO FORMA

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet

The unaudited pro forma condensed consolidated balance sheet as of March 31, 2013 reflects the following adjustments:

A. The acquisition of the Schlumberger property is reflected in the unaudited pro forma condensed consolidated balance sheet of the Company at fair market value. Rental properties, net and in-place lease valuation are comprised of the following:

 

Building and Improvements

   $ 39,921,024   

Land at fair market value

     2,800,000   

Intangible leasing assets

     7,831,114   
  

 

 

 

Rental properties, net

   $ 50,552,138   
  

 

 

 

In-place lease valuation- below market

   $ (1,802,138
  

 

 

 

B. A total of $26.4 million in cash was used to acquire the Schlumberger property, net of closing expenses and credits.

C. A tenant improvement allowance in the amount of $1.6 million was funded by the seller through closing.

D. Financing costs totaling $0.03 million, consisting of appraisal and lender legal fees were capitalized. These fees were paid to KeyBank to close the Schlumberger property acquisition.

E. Good faith deposits totaling $1.0 million were deposited into escrow for the benefit of the seller, pursuant to the purchase and sale agreement, as amended, for the Schlumberger property acquisition. At closing, these deposits were applied against the purchase price.

F. In connection with the acquisition of the Schlumberger property, the Company drew $20.3 million from the KeyBank Credit Facility, as periodically amended, to partially finance such acquisition.

G. Pursuant to the lease terms, one-half of basic rent was abated for the second 365 days of the term. The remaining rent was paid by the tenant. In connection with the acquisition of the Schlumberger property, the Company received a credit from the seller for the amount of the remaining abated rent, which amount was applied to the purchase price by the seller and recorded to prepaid rent at the time of closing.

Adjustments to the Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2012 and for the three months ended March 31, 2013

The historical amounts for properties include historical operating revenues and certain expenses for the period presented. Property level expenses, such as depreciation, interest expense and management fees, for the Properties are presented as pro forma adjustments to the unaudited pro forma consolidated statements of operations for the year ended December 31, 2012 and for the three months ended March 31, 2013, and are derived from the results of each transaction.

 

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO UNAUDITED PRO FORMA

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The following are the explanations for operating and property level revenues and certain expenses included in the unaudited pro forma consolidated statements of operations for the year ended December 31, 2012 and for the three months ended March 31, 2013:

a. The historical rent revenue represents the contractual, straight-line rent and in-place lease valuation amortization pursuant to the lease in effect during the time period presented. The Pro Forma Adjustments are presented to adjust contractual rent revenue to a straight-line basis and to amortize the in-place lease valuation, in accordance with ASC 805-10, for the Properties as if they were acquired on January 1, 2012. The straight-line rent adjustments for the Schlumberger property are included in the rental revenues total as required by Rule 3-14 of Regulation S-X and therefore are not included in the Pro Forma Adjustments.

The following summarizes the adjustment made to rent revenue for the year ended December 31, 2012:

 

     Comcast     Boeing      Schlumberger      Total  

Adjustment to contractual and straight-line rent

   $ 42,207      $ 60,582       $ —         $ 102,789   

(Above)/below market, in-place rent

     (71,964     —          167,641         95,677   
  

 

 

   

 

 

    

 

 

    

 

 

 
   $ (29,757   $ 60,582       $ 167,641       $ 198,466   
  

 

 

   

 

 

    

 

 

    

 

 

 

The following summarizes the adjustment made to rent revenue for the three-month period ended March 31, 2013:

 

     Comcast     Boeing      Schlumberger      Total  

Adjustment to contractual and straight-line rent

   $ (4,251   $ 3,840       $ —         $ (411

(Above)/below market, in-place rent

     (1,935     —          41,795         39,860   
  

 

 

   

 

 

    

 

 

    

 

 

 
   $ (6,186   $ 3,840       $ 41,795       $ 39,449   
  

 

 

   

 

 

    

 

 

    

 

 

 

b. Asset management fees are paid monthly to the Company’s advisor, Griffin Capital Essential Asset Advisor, LLC, (the “Advisor”) at 0.0625%, or 0.75% annually, based on the aggregate book value of the Properties, pursuant to the Second Amended and Restated Advisory Agreement dated November 9, 2010.

c. Property management fees are paid to Griffin Capital Essential Asset Property Management, LLC monthly at 3.0% of gross property revenues received, pursuant to the current property management agreement.

d. Acquisition fees and expenses are incurred with each acquisition transaction, including acquisition fees and expenses paid to affiliates. Under the Advisory Agreement, the Advisor receives acquisition fees and acquisition expense reimbursements equal to 2.5% and 0.5%, respectively, of the contract purchase price for each property acquired by the Company. The pro forma adjustments reflect the acquisition of the Comcast, Boeing and Schlumberger properties as of January 1, 2012, and the related acquisition fees and expenses that would have been incurred in operations for the year ended December 31, 2012. Therefore, the fees and expenses paid for Comcast and Boeing are deducted from operations for the three-month period ended March 31, 2013.

 

13


GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO UNAUDITED PRO FORMA

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

e. Depreciation expense is reflected in the pro forma based on an estimated useful life of 40 years for building and building improvements, and the remaining contractual, in-place lease term for intangible lease value.

The following tables summarize the adjustment made to depreciation and amortization expense by asset category for the year ended December 31, 2012:

 

     Comcast      Boeing      Schlumberger      Total  

Building and building improvements

   $ 360,815       $ 134,724       $ 998,026       $ 1,493,565   

Tenant absorption and leasing costs

     991,956         832,104         728,476         2,552,536   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,352,771       $ 966,828       $ 1,726,502       $ 4,046,101   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following tables summarize the adjustment made to depreciation and amortization expense by asset category for the three months ended March 31, 2013:

 

     Comcast      Boeing      Schlumberger      Total  

Building and building improvements

   $ 9,699       $ 16,297       $ 248,823       $ 274,819   

Tenant absorption and leasing costs

     26,665         100,658         181,620         308,943   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 36,364       $ 116,955       $ 430,443       $ 583,762   
  

 

 

    

 

 

    

 

 

    

 

 

 

f. The Company drew $16.2 million, $6.6 million and $20.3 million from the KeyBank Credit Facility, as discussed below, in connection with the acquisitions of the Comcast, Boeing and Schlumberger properties, respectively. Additionally, the Company drew $10.4 million from the KeyBank Bridge Loan to partially finance the acquisition of the Comcast property. Interest expense related to the acquired property debt for each acquisition is reflected in the pro forma based on the interest rates and terms described below. The $10.4 million draw used to partially finance the acquisition of the Comcast property was fully paid on January 31, 2013 using net equity raised in the Company’s public offerings. As such, since the Comcast property is considered to be acquired as of January 1, 2012, the related KeyBank Bridge Loan is also considered to have been paid in full. Therefore, the unaudited consolidated pro forma statement of operations as of March 31, 2013 does not include interest expense for the KeyBank Bridge Loan for the Comcast property.

The following tables summarize the adjustment made to interest expense for the year ended December 31, 2012:

 

     KeyBank
Credit Facility
     KeyBank
Bridge Loan
     Total  

Comcast (at a rate of 2.96%) (1)

   $ 479,520       $ —        $ 479,520   

Comcast (at a rate of 4.71%) (1)

     —          20,456         20,456   

Boeing (at a rate of 2.96%) (1)

     195,360         —          195,360   

Schlumberger (at a rate of 2.95%) (2)

     598,850         —          598,850   
  

 

 

    

 

 

    

 

 

 
   $ 1,273,730       $ 20,456       $ 1,294,186   
  

 

 

    

 

 

    

 

 

 

 

(1) Based on interest rates in effect as of March 31, 2013.
(2) Based on interest rates in effect as of the acquisition date on May 1, 2013.

 

14


GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO UNAUDITED PRO FORMA

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The following tables summarize the adjustment made to interest expense for the three months ended March 31, 2013:

 

     KeyBank Credit
Facility
 

Comcast (at a rate of 2.96%) (1)

   $ 19,338   

Boeing (at a rate of 2.96%) (1)

     26,007   

Schlumberger (at a rate of 2.95%) (2)

     149,713   
  

 

 

 
   $ 195,058   
  

 

 

 

 

(1) Based on interest rates in effect as of March 31, 2013.
(2) Based on interest rates in effect as of the acquisition date on May 1, 2013.

g. The following table summarizes the weighted average shares and units outstanding at March 31, 2013 and December 31, 2012 and the allocable percentage of noncontrolling interest:

 

     Year Ended
December 31, 2012
    Three Months
Ended

March 31, 2013
 

Weighted average shares outstanding- historical basis

     9,073,641        15,860,452   

Operating partnership units issued in conjunction with the property contributions and acquisitions including the initial capitalization of the operating partnership (A)

     3,462,384        3,462,384   
  

 

 

   

 

 

 

Total outstanding shares and units – pro forma basis (B)

     12,536,025        19,322,836   
  

 

 

   

 

 

 

Percentage of operating partnership units (noncontrolling interests) to total outstanding shares (A/B)

     27.62     17.92
  

 

 

   

 

 

 

Net income (loss)

   $ (9,942,960   $ 162,117   
  

 

 

   

 

 

 

Net income (loss) attributable to noncontrolling interest based on the percentage of operating partnership units outstanding to total outstanding shares

   $ (2,746,246   $ 29,051   
  

 

 

   

 

 

 

 

15


Signature(s)

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 hereunto duly authorized.

 

   GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
Date: July 17, 2013    By:   

/s/ Joseph E. Miller

     

Joseph E. Miller

Chief Financial Officer and Treasurer

 

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