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| EX-23.1 - CONSENT - HINES REAL ESTATE INVESTMENT TRUST INC | ex231consent.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): | April 17, 2015 |
Hines Real Estate Investment Trust, Inc.
__________________________________
Exact name of registrant as specified in its charter)
Maryland | 000-50805 | 20-0138854 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
2800 Post Oak Blvd, Suite 5000, Houston, Texas | 77056-6118 | ||||
(Address of principal executive offices) | (Zip Code) | ||||
Registrant’s telephone number, including area code: | (888) 220-6121 |
Not Applicable
______________________________________________
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))
Item 8.01 Other Items.
On February 11, 2015, Hines REIT Civica Commons LLC, a wholly-owned subsidiary of Hines REIT Properties, L.P., which is a subsidiary of Hines Real Estate Investment Trust, Inc. (“Hines REIT”), acquired Civica Office Commons, a portfolio of two Class A office buildings located in Bellevue, Washington. The seller, Brickman Civica LLC, is not affiliated with Hines REIT or its affiliates.
This Form 8-K is being filed for the sole purpose of filing certain financial statements and pro forma financial information required by Item 9.01 of Form 8-K. After reasonable inquiry, Hines REIT is not aware of any material factors relating to the property that would cause the reported financial information not to be necessarily indicative of future operating results.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Real Estate Property Acquired. The following financial statements are submitted at the end of this Current Report on Form 8-K and are filed herewith and incorporated herein by reference.
Civica Office Commons at Bellevue, Washington — For the Year Ended December 31, 2014
Independent Auditor’s Report
Statement of Revenues and Certain Operating Expenses
Notes to Statement of Revenues and Certain Operating Expenses
(b) Unaudited Pro Forma Financial Information. The following financial information is submitted at the end of this Current Report on Form 8-K and is filed herewith and incorporated herein by reference.
Hines Real Estate Investment Trust, Inc.
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2014
Notes to Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2014
Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2014
Notes to Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2014
(d) Exhibits -
23.1 Consent of Saville Dodgen & Company PLLC
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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 hereunto duly authorized.
Hines Real Estate Investment Trust, Inc. | |||||
April 17, 2015 | By: | /s/ J. Shea Morgenroth | |||
Name: J. Shea Morgenroth | |||||
Title: Chief Accounting Officer and Treasurer | |||||
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Exhibit Index
Exhibit No. | Description | |
23.1* | Consent of Saville Dodgen & Company PLLC | |
* Filed herewith
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Report of Independent Auditor
To the Partners of
Hines REIT Properties, LP
Houston, Texas
Report on the Historical Summary
We have audited the accompanying statement of revenues and certain operating expenses (the “Historical Summary”) of Civica Office Commons (the “Property”), a portfolio of two Class A office buildings located in Bellevue, Washington for the year ended December 31, 2014, and the related notes to the statement.
Management’s Responsibility for the Historical Summary
Management is responsible for the preparation and fair presentation of this Historical Summary, in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the statement that is free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statement. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the Historical Summary, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Property’s preparation and fair presentation of the Historical Summary 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 Property’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 Historical Summary.
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, such Historical Summary presents fairly, in all material respects, the revenues and certain operating expenses discussed in Note 2 to the Historical Summary of the Property for the year ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.
Matter of Emphasis
The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in this Form 8-K of Hines Real Estate Investment Trust, Inc.) as discussed in Note 2 to the Historical Summary and is not intended to be a complete presentation of the Property’s revenues and expenses. Our opinion is not modified with respect to this matter.
/s/ Saville Dodgen & Company, PLLC
Dallas, Texas
April 17, 2015
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CIVICA OFFICE COMMONS
STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES
For the Year Ended December 31, 2014
Revenues: | Year Ended December 31, 2014 | ||
Rental revenue | $ | 10,925,152 | |
Other revenue | 2,624,378 | ||
Total revenues | 13,549,530 | ||
Certain operating expenses: | |||
Utilities | 694,142 | ||
Real estate taxes | 1,270,668 | ||
Repairs and maintenance | 314,226 | ||
Cleaning services | 546,688 | ||
Salaries and wages | 491,889 | ||
Building management services | 346,837 | ||
Insurance | 139,488 | ||
Parking garage expenses | 293,282 | ||
Total certain operating expenses | 4,097,220 | ||
Revenues in excess of certain operating expenses | $ | 9,452,310 | |
See accompanying notes to statement of revenues and certain operating expenses.
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CIVICA OFFICE COMMONS
NOTES TO STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES
For the Year Ended December 31, 2014
(1) Organization
Civica Office Commons (the “Property”) is a portfolio of two Class A office buildings located in Bellevue, Washington that contains 323,562 square feet of rentable area. The Property was acquired by Hines REIT Civica Commons LLC, a subsidiary of Hines Real Estate Investment Trust, Inc. (“Hines REIT”) on February 11, 2015.
(2) Basis of Presentation
The statement of revenues and certain operating expenses (the “Historical Summary”) has been prepared for the purpose of complying with the provisions of Article 3-14 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”), which requires certain information with respect to real estate operations to be included with certain filings with the SEC. The Historical Summary includes the historical revenues and operating expenses of the Property, exclusive of interest expense, depreciation and amortization, management fees, and other nonrecurring owner specific expenses, which may not be comparable to the corresponding amounts reflected in the future operations of the Property.
The Historical Summary and notes thereto for the year ended December 31, 2014 included in this report are audited. In the opinion of management, all adjustments necessary for a fair presentation of the Historical Summary have been included. Such adjustments consisted of normal recurring items.
In preparing the accompanying financial statements, Hines REIT evaluated events and transactions that occurred subsequent to December 31, 2014, through the date that the accompanying financial statements were available to be issued on April 17, 2015.
(3) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(4) Significant Accounting Policies
(a) Revenue Recognition
The Property’s operations consist of rental revenue earned from tenants under leasing arrangements, which provide for minimum rent, escalations, and charges to the tenants for the real estate taxes and operating expenses. The leases with the tenants are gross leases and have been accounted for as operating leases. Rental revenue is recognized by amortizing the aggregate lease payments on a straight-line basis over the entire term of the lease, which resulted in contractual rent in excess of rental revenue of $241,735 for the year ended December 31, 2014.
In addition, the Property is responsible for operating and managing parking structures. These amounts are recorded in other revenue in the Historical Summary.
(b) Repairs and Maintenance
Expenditures for repairs and maintenance are expensed as incurred.
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CIVICA OFFICE COMMONS
NOTES TO STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES
For the Year Ended December 31, 2014
(5) Rental Revenue
The aggregate annual minimum cash payments to be received on the noncancelable operating leases in effect as of December 31, 2014 are as follows:
Year ending December 31: | Amount | |||
2015 | $ | 7,434,510 | ||
2016 | 6,251,944 | |||
2017 | 5,425,778 | |||
2018 | 3,922,540 | |||
2019 | 1,748,565 | |||
Thereafter | 3,544,911 | |||
Total | $ | 28,328,248 | ||
Total minimum future rental revenue represents the base rent that the tenants are required to pay under the terms of their leases in effect at December 31, 2014, exclusive of charges for contingent rents, operating expenses and real estate taxes. There were no significant contingent rents for the year ended December 31, 2014.
Of the total rental revenue for the year ended December 31, 2014, 55.0% was earned from tenants in the banking and financial industry and 34.5% was earned from tenants in the technology industry.
* * * * *
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HINES REAL ESTATE INVESTMENT TRUST, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Hines Real Estate Investment Trust, Inc. together with Hines REIT Properties, LP (the “Company”), made the following acquisitions since January 1, 2014:
Property Name | Date of Acquisition | Net Purchase Price |
Howard Hughes Center | January 15, 2014 | $510.7 million |
Civica Office Commons | February 11, 2015 | $205.0 million |
The unaudited pro forma consolidated balance sheet assumes that the acquisition of Civica Office Commons occurred on December 31, 2014 and the unaudited pro forma consolidated statement of operations assumes that all acquisitions described above occurred on January 1, 2014.
In management’s opinion, all adjustments necessary to reflect the effects of these acquisitions have been made. The unaudited pro forma consolidated statement of operations is not necessarily indicative of what actual results of operations would have been had the Company made these acquisitions on the first day of the period presented, nor does it purport to represent the results of operations for future periods.
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HINES REAL ESTATE INVESTMENT TRUST, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of December 31, 2014
(In thousands, except per share amounts)
December 31, 2014 | Adjustments for Civica Office Commons | Pro Forma | |||||||||||
ASSETS | |||||||||||||
Investment property, net | $ | 1,634,658 | $ | 181,798 | (a) | $ | 1,816,456 | ||||||
Investment in unconsolidated entities | 187,668 | — | 187,668 | ||||||||||
Cash and cash equivalents | 56,821 | (1,610 | ) | (d) | 55,211 | ||||||||
Restricted cash | 3,049 | — | 3,049 | ||||||||||
Distribution receivables | 7,199 | — | 7,199 | ||||||||||
Tenant and other receivables | 45,851 | — | 45,851 | ||||||||||
Intangible lease assets, net | 145,688 | 26,230 | (a) | 171,918 | |||||||||
Deferred leasing costs, net | 126,772 | — | 126,772 | ||||||||||
Deferred financing costs, net | 3,476 | 120 | (d) | 3,596 | |||||||||
Other assets | 17,810 | (15,000 | ) | (e) | 2,810 | ||||||||
Total assets | $ | 2,228,992 | $ | 191,538 | $ | 2,420,530 | |||||||
LIABILITIES AND EQUITY | |||||||||||||
Liabilities: | |||||||||||||
Accounts payable and accrued expenses | $ | 64,534 | $ | 31 | (b) | $ | 64,565 | ||||||
Due to affiliates | 4,694 | 410 | (c) | 5,104 | |||||||||
Intangible lease liabilities, net | 28,762 | 3,000 | (a) | 31,762 | |||||||||
Other liabilities | 14,799 | — | 14,799 | ||||||||||
Interest rate swap contracts | 34,393 | — | 34,393 | ||||||||||
Participation interest liability | 108,911 | — | 108,911 | ||||||||||
Distributions payable | 15,403 | — | 15,403 | ||||||||||
Notes payable | 867,658 | 188,538 | (d) | 1,056,196 | |||||||||
Total liabilities | 1,139,154 | 191,979 | 1,331,133 | ||||||||||
Commitments and Contingencies | — | — | — | ||||||||||
Equity: | |||||||||||||
Stockholders’ equity: | |||||||||||||
Preferred shares, $.001 par value; 500,000 preferred shares authorized, none issued or outstanding as of December 31, 2014 | — | — | — | ||||||||||
Common shares, $.001 par value; 1,500,000 common shares authorized, 225,207 common shares issued and outstanding as of December 31, 2014 | 225 | — | 225 | ||||||||||
Additional paid-in capital | 1,072,754 | — | 1,072,754 | ||||||||||
Retained earnings (deficit) | 17,649 | (441 | ) | (b) (c) | 17,208 | ||||||||
Accumulated other comprehensive income (loss) | (790 | ) | — | (790 | ) | ||||||||
Total stockholders’ equity | 1,089,838 | (441 | ) | 1,089,397 | |||||||||
Noncontrolling interests | — | — | — | ||||||||||
Total equity | 1,089,838 | (441 | ) | 1,089,397 | |||||||||
Total liabilities and equity | $ | 2,228,992 | $ | 191,538 | $ | 2,420,530 | |||||||
See notes to unaudited pro forma consolidated balance sheet and notes to unaudited pro forma consolidated financial statements.
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Notes to Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2014
Adjustments
(a) | To record the pro forma effect of the Company’s acquisition of Civica Office Commons, assuming it had occurred on December 31, 2014. Investment property and intangible lease assets were recorded at fair value. Pro forma adjustments related to these amounts are preliminary and subject to change. |
(b) | To record the pro forma effect of the Company’s acquisition expenses related to the acquisition of Civica Office Commons. |
(c) | To record the pro forma effect of the Company’s 1.0% acquisition fee related to the acquisition of Civica Office Commons. In connection with this acquisition, the Company was obligated to pay approximately $2.1 million of acquisition fees to the Company’s Advisor, Hines Advisors Limited Partnership, half of which was payable in cash and half of which was payable as an increase to the profits interest in Hines REIT Properties, L.P. (the “Participation Interest”) held by HALP Associates Limited Partnership, an affiliate of the Advisor. These affiliates agreed to waive $0.6 million of the cash acquisition fee and all of the $1.0 million acquisition fee payable related to the Participation Interest. |
(d) | The acquisition of Civica Office Commons was funded using proceeds received from asset sales in 2014 and proceeds from the Company’s acquisition credit agreement with JPMorgan Chase Bank, N.A., which established a $158.5 million unsecured revolver loan facility and a $30.0 million secured term loan facility (the “Bridge Credit Agreement”), into which it entered simultaneously with the acquisition of Civica Office Commons. See Note 17 — Subsequent Events in the Company’s Form 10-K for the year ended December 31, 2014 for additional information regarding the Bridge Credit Agreement. |
(e) | The Company funded a deposit totaling $15.0 million during the year ended December 31, 2014 related to the acquisition of Civica Office Commons which was recorded in other assets in the consolidated balance sheet. |
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HINES REAL ESTATE INVESTMENT TRUST, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2014
(In thousands, except per share amounts)
Year Ended December 31, 2014 | Other Adjustments | Adjustments for the Civica Office Commons acquisition | Pro Forma | |||||||||||||
Revenues: | ||||||||||||||||
Rental revenue | $ | 219,435 | $ | 1,752 | (e) | $ | 10,164 | (a) | $ | 231,351 | ||||||
Other revenue | 16,588 | 278 | (e) | 2,624 | (a) | 19,490 | ||||||||||
Total revenues | 236,023 | 2,030 | 12,788 | 250,841 | ||||||||||||
Expenses: | ||||||||||||||||
Property operating expenses | 69,372 | 548 | (e) | 2,827 | (a) | 72,747 | ||||||||||
Real property taxes | 31,713 | 266 | (e) | 1,271 | (a) | 33,250 | ||||||||||
Property management fees | 5,943 | 55 | (e) | 339 | (a) | 6,337 | ||||||||||
Depreciation and amortization | 95,827 | 1,666 | (e) | 10,319 | (a) | 107,812 | ||||||||||
Acquisition related expenses | 375 | (375 | ) | (c) | — | — | ||||||||||
Asset management and acquisition fees | 37,042 | 113 | (d) | — | 37,155 | |||||||||||
General and administrative | 6,950 | — | 6,950 | |||||||||||||
Impairment losses | 3,314 | — | 3,314 | |||||||||||||
Total expenses | 250,536 | 2,273 | 14,756 | 267,565 | ||||||||||||
Operating income (loss) | (14,513 | ) | (243 | ) | (1,968 | ) | (16,724 | ) | ||||||||
Other income (expenses): | ||||||||||||||||
Gain (loss) on derivative instruments, net | 33,258 | — | 33,258 | |||||||||||||
Gain (loss) on settlement of derivative instruments | (12,334 | ) | — | (12,334 | ) | |||||||||||
Gain (loss) on sale or dissolution of unconsolidated joint venture | 13,381 | — | 13,381 | |||||||||||||
Equity in earnings (losses) of unconsolidated entities, net | 56,936 | — | 56,936 | |||||||||||||
Gain (loss) on sale of real estate investments | 18,525 | 18,525 | ||||||||||||||
Interest expense | (47,352 | ) | (3,476 | ) | (b) | (50,828 | ) | |||||||||
Interest income | 655 | — | 655 | |||||||||||||
Income (loss) from continuing operations before benefit (provision) for income taxes | 48,556 | (243 | ) | (5,444 | ) | 42,869 | ||||||||||
Benefit (provision) for income taxes | (310 | ) | — | (310 | ) | |||||||||||
Income (loss) from continuing operations | 48,246 | (243 | ) | (5,444 | ) | 42,559 | ||||||||||
Income (loss) from discontinued operations, net of taxes | (347 | ) | — | — | (347 | ) | ||||||||||
Net income (loss) | 47,899 | (243 | ) | (5,444 | ) | 42,212 | ||||||||||
Less: Net (income) loss attributable to noncontrolling interests | (299 | ) | — | — | (299 | ) | ||||||||||
Net income (loss) attributable to common stockholders | $ | 47,600 | $ | (243 | ) | $ | (5,444 | ) | $ | 41,913 | ||||||
Basic and diluted income (loss) per common share | $ | 0.21 | — | — | $ | 0.19 | ||||||||||
Distributions declared per common share | 0.27 | — | — | 0.27 | ||||||||||||
Weighted average number common shares outstanding | 226,412 | — | — | 226,412 | ||||||||||||
See notes to unaudited pro forma consolidated statement of operations and notes to unaudited pro forma consolidated financial statements.
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Notes to Unaudited Pro Forma Consolidated Statement of Operations for the
Year Ended December 31, 2014
(a) | To record the pro forma effect of the Company’s acquisition of Civica Office Commons based on its historical results of operations assuming that the acquisition had occurred on January 1, 2014. Depreciation and amortization were calculated based on the fair values of the investment property and intangible lease assets and liabilities, which are preliminary and subject to change. |
(b) | To record the pro forma effect of interest expense on borrowings of $158.5 million under the Company's unsecured revolver loan facility and $30.0 million under the Company's Bridge Credit Agreement related to the acquisition of Civica Office Commons, assuming that the borrowings were outstanding as of January 1, 2014. The interest rate on each borrowing was 1.78% as of the date of acquisition. Amount also includes the amortization of $0.1 million related to deferred financing fees capitalized as a result of the borrowing. |
(c) | To eliminate the effect of non-recurring acquisition expenses recorded in relation to (a) above. |
(d) | To record the pro forma effect of the Company’s 1.5% asset management fee payable to the Advisor for services related to managing, operating, directing and supervising the operations and administration of the Company and its assets assuming the transaction in (a) above had occurred on January 1, 2014. This fee is payable in an amount equal to 0.0625% of the net equity capital the Company has invested in real estate investments as of the end of each month. |
(e) | To record the pro forma effect of the Howard Hughes Center acquisition. |
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Notes to Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2014
(1) Investment Properties Acquired After January 1, 2014
Howard Hughes Center
On January 15, 2014, a subsidiary of the Company acquired Howard Hughes Center, a portfolio of five Class A office buildings and an athletic club located in Los Angeles, California. Howard Hughes Center consists of 1,355,641 square feet of rentable area and is 89% leased. The net purchase price for Howard Hughes Center was $510.7 million, exclusive of transaction costs and working capital reserves.
Civica Office Commons
On February 11, 2015, a subsidiary of the Company acquired Civica Office Commons, a portfolio of two Class A office buildings located in Bellevue, Washington. The Civica Office Commons consists of 323,562 square feet of rentable area and is 89% leased. The net purchase price for the Civica Office Commons was $205.0 million, exclusive of transaction costs and working capital reserves.
The unaudited pro forma consolidated balance sheet assumes that Civica Office Commons acquisition occurred on December 31, 2014 and the unaudited pro forma consolidated statement of operations assumes that all transactions described above occurred on January 1, 2014.
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