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EX-32.1 - EXHIBIT 32.1 - Griffin Capital Essential Asset REIT, Inc.gcear09302015exhibit321.htm
EX-31.1 - EXHIBIT 31.1 - Griffin Capital Essential Asset REIT, Inc.gcear09302015exhibit311.htm
EX-31.2 - EXHIBIT 31.2 - Griffin Capital Essential Asset REIT, Inc.gcear09302015exhibit312.htm
EX-32.2 - EXHIBIT 32.2 - Griffin Capital Essential Asset REIT, Inc.gcear09302015exhibit322.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________

FORM 10-Q
____________________________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission File Number: 000-54377
_______________________________________________
Griffin Capital Essential Asset REIT, Inc.
(Exact name of Registrant as specified in its charter)
________________________________________________
Maryland
 
26-3335705
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)

Griffin Capital Plaza
1520 E. Grand Ave
El Segundo, California 90245
(Address of principal executive offices)
(310) 469-6100
(Registrant’s telephone number)

__________________________________________________
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  ¨
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  x    No  ¨
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
 
Large accelerated filer
 
¨
 
Accelerated filer
 
¨
Non-accelerated filer
 
x  (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x





Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 5, 2015: 174,335,711 shares of common stock, net of 845,051 shares subject to redemption as of September 30, 2015, $0.001 par value per share.



FORM 10-Q
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
TABLE OF CONTENTS
 
 
Page No.
 
 
Item 1.
Financial Statements:
 
 
Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014 (unaudited)
 
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)
 
Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)
 
Consolidated Statements of Equity for the Year Ended December 31, 2014 and the Nine Months Ended September 30, 2015 (unaudited)
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (unaudited)
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

3


PART I. FINANCIAL INFORMATION
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q of Griffin Capital Essential Asset REIT, Inc., other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Such forward-looking statements include, in particular, statements about our plans, strategies, and prospects and are subject to risks, uncertainties, and other factors. Such statements are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. 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 and provide distributions to stockholders, our ability to find suitable investment properties, and our ability to be in compliance with certain debt covenants, may be significantly hindered. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission ("SEC"). We cannot guarantee the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
See the risk factors identified in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC for a discussion of some, although not all, of the risks and uncertainties that could cause actual results to differ materially from those presented in our forward-looking statements.

4


GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share amounts)
 
September 30,
2015
 
December 31,
2014
ASSETS
 
 
 
Cash and cash equivalents
$
28,222

 
$
68,915

Restricted cash
19,720

 
40,752

Restricted cash - real estate funds held for exchange
21,153

 
10,105

Real estate:
 
 
 
Land
355,833

 
250,078

Building and improvements
1,957,461

 
1,178,751

Tenant origination and absorption cost
515,970

 
359,416

Construction in progress
967

 
35,650

Total real estate
2,830,231

 
1,823,895

Less: accumulated depreciation and amortization
(178,770
)
 
(102,883
)
Total real estate, net
2,651,461

 
1,721,012

Real estate assets and other assets held for sale, net
68,504

 
96,862

Investments in unconsolidated entities
58,682

 
66,249

Intangible assets, net
36,491

 
23,621

Deferred rent
26,007

 
15,619

Deferred financing costs, net
13,554

 
11,791

Real estate acquisition deposits
3,000

 

Other assets, net
16,795

 
10,521

Total assets
$
2,943,589

 
$
2,065,447

LIABILITIES AND EQUITY
 
 
 
Debt:
 
 
 
Mortgages payable, plus unamortized premium of $1,623 and $1,858, respectively
$
323,955

 
$
325,696

Unsecured Term Loan (May 2014)

 
300,000

Term Loan (July 2015)
640,000

 

Revolver Loan (July 2015)
353,225

 

Total debt
1,317,180

 
625,696

Restricted reserves
11,965

 
37,050

Interest rate swap liability
14,664

 

Accounts payable and other liabilities
61,109

 
41,518

Distributions payable
6,275

 
5,083

Due to affiliates
5,317

 
1,851

Below market leases, net
45,634

 
40,394

Liabilities of real estate assets held for sale
2,576

 
3,906

Total liabilities
1,464,720

 
755,498

Commitments and contingencies (Note 10)

 

Preferred units subject to redemption, 6,079,766 and 24,319,066 units eligible towards redemption as of September 30, 2015 and December 31, 2014, respectively
63,631

 
250,000

Noncontrolling interests subject to redemption, 531,000 units eligible towards redemption as of September 30, 2015 and December 31, 2014
23,016

 
12,543

Common stock subject to redemption
88,517

 
56,421

Stockholders’ equity:
 
 
 
Preferred Stock, $0.001 par value; 200,000,000 shares authorized; no shares outstanding as of September 30, 2015 and December 31, 2014

 

Common Stock, $0.001 par value; 700,000,000 shares authorized; 174,750,370 and 129,763,016 shares outstanding as of September 30, 2015 and December 31, 2014, respectively
1,392

 
1,326

Additional paid-in capital
1,549,837

 
1,128,318

Cumulative distributions
(181,487
)
 
(104,429
)
Accumulated deficit
(65,034
)
 
(51,285
)
Accumulated other comprehensive loss
(15,324
)
 
(423
)
Total stockholders’ equity
1,289,384

 
973,507

Noncontrolling interests
14,321

 
17,478

Total equity
1,303,705

 
990,985

Total liabilities and equity
$
2,943,589

 
$
2,065,447


5


See accompanying notes.

6


GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except share and per share amounts)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
Rental income
$
65,885

 
$
42,659

 
$
160,233

 
$
120,277

Property expense recoveries
16,964

 
9,972

 
39,392

 
27,631

Total revenue
82,849

 
52,631

 
199,625

 
147,908

Expenses:
 
 
 
 
 
 
 
Asset management fees to affiliates
5,448

 
3,382

 
13,508

 
8,845

Property management fees to affiliates
2,265

 
1,446

 
5,383

 
3,986

Property operating expense
10,971

 
8,465

 
26,042

 
22,238

Property tax expense
9,813

 
6,665

 
24,548

 
17,671

Acquisition fees and expenses to non-affiliates
288

 
596

 
1,133

 
3,482

Acquisition fees and expenses to affiliates
6,206

 
5,742

 
28,477

 
22,657

General and administrative expenses
1,858

 
998

 
4,916

 
4,192

Depreciation and amortization
34,638

 
19,005

 
76,521

 
51,104

Total expenses
71,487

 
46,299

 
180,528

 
134,175

Income from operations
11,362

 
6,332

 
19,097

 
13,733

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(11,186
)
 
(5,840
)
 
(23,006
)
 
(18,704
)
Other income
145

 
86

 
809

 
279

Loss from investment in unconsolidated entities
(431
)
 
(197
)
 
(1,177
)
 
(177
)
Gain from sale of depreciable operating property
4,115

 

 
7,728

 

Net income (loss)
4,005

 
381

 
3,451

 
(4,869
)
Distributions to redeemable preferred unit holders
(1,198
)
 
(4,792
)
 
(8,789
)
 
(14,219
)
Preferred units redemption premium
(1,131
)
 

 
(8,560
)
 

Less: Net (income) loss attributable to noncontrolling interests
(41
)
 
147

 
417

 
701

Net income (loss) attributable to controlling interest
1,635

 
(4,264
)
 
(13,481
)
 
(18,387
)
Distributions to redeemable noncontrolling interests attributable to common stockholders
(91
)
 
(90
)
 
(268
)
 
(265
)
Net income (loss) attributable to common stockholders
$
1,544

 
$
(4,354
)
 
$
(13,749
)
 
$
(18,652
)
Net income (loss) attributable to common stockholders per share, basic and diluted
$
0.01

 
$
(0.03
)
 
$
(0.09
)
 
$
(0.17
)
Weighted average number of common shares outstanding, basic and diluted
173,987,254

 
127,701,177

 
148,467,065

 
106,770,021

See accompanying notes.

7


GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited; in thousands)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
4,005

 
$
381

 
$
3,451

 
$
(4,869
)
Other comprehensive loss:
 
 
 
 
 
 
 
Equity in other comprehensive loss of unconsolidated joint venture
(539
)
 

 
(670
)
 

Change in fair value of swap agreement
(14,664
)
 

 
(14,664
)
 

Total comprehensive (loss) income
(11,198
)
 
381

 
(11,883
)
 
(4,869
)
   Distributions to redeemable preferred unit holders
(1,198
)
 
(4,792
)
 
(8,789
)
 
(14,219
)
Preferred units redemption premium
(1,131
)
 

 
(8,560
)
 

Distributions to redeemable noncontrolling interests attributable to common stockholders
(91
)
 
(90
)
 
(268
)
 
(265
)
Less: other comprehensive loss attributable to noncontrolling interests
336

 
147

 
850

 
701

Comprehensive loss attributable to common stockholders
$
(13,282
)
 
$
(4,354
)
 
$
(28,650
)
 
$
(18,652
)
See accompanying notes.




8


GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the Year Ended December 31, 2014 and the Nine Months Ended September 30, 2015 (unaudited)
(In thousands, except share data)
 
 
 
 
 
 
 
 
 
 
 
Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Cumulative
Distributions
 
Accumulated
Deficit
 
 
Total
Stockholders’
Equity
 
Non-
controlling
Interests
 
Total
Equity
 
Shares
 
Amount
 
BALANCE December 31, 2013
49,893,502

 
$
508

 
$
433,644

 
$
(26,683
)
 
$
(32,631
)
 

 
$
374,838

 
$
19,736

 
$
394,574

Gross proceeds from issuance of common stock
75,545,500

 
776

 
775,831

 

 

 

 
776,607

 

 
776,607

Stock-based compensation
10,000

 

 
108

 

 

 

 
108

 

 
108

Discount on issuance of common stock

 

 
(1,885
)
 

 

 

 
(1,885
)
 

 
(1,885
)
Offering costs including dealer manager fees to affiliates

 

 
(76,638
)
 

 

 

 
(76,638
)
 

 
(76,638
)
Distributions to common stockholders

 

 

 
(32,799
)
 

 

 
(32,799
)
 

 
(32,799
)
Issuance of shares for distribution reinvestment plan
4,572,953

 
45

 
44,902

 
(44,947
)
 

 

 

 

 

Repurchase of common stock
(258,939
)
 
(3
)
 
(2,557
)
 

 

 

 
(2,560
)
 

 
(2,560
)
Additions to common stock subject to redemption

 

 
(44,947
)
 

 

 

 
(44,947
)
 

 
(44,947
)
Issuance of limited partnership units

 

 
(140
)
 
 
 
 
 

 
(140
)
 
1,504

 
1,364

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(3,050
)
 
(3,050
)
Distributions to noncontrolling interests subject to redemption

 

 

 

 

 

 

 
(14
)
 
(14
)
Net loss

 

 

 

 
(18,654
)
 
(423
)
 
(19,077
)
 
(698
)
 
(19,775
)
BALANCE December 31, 2014
129,763,016

 
$
1,326

 
$
1,128,318

 
$
(104,429
)
 
$
(51,285
)
 
$
(423
)
 
$
973,507

 
$
17,478

 
$
990,985

Issuance of shares pursuant to Signature Office REIT merger
41,764,968

 
42

 
433,448

 

 

 

 
433,490

 

 
433,490

Adjustments to redemption value of redeemable noncontrolling interest

 

 
(10,473
)
 

 

 

 
(10,473
)
 

 
(10,473
)
Stock-based compensation
667

 

 
9

 

 

 

 
9

 

 
9

Offering costs

 

 
(54
)
 

 

 

 
(54
)
 

 
(54
)
Distributions to common stockholders

 

 

 
(37,804
)
 

 

 
(37,804
)
 

 
(37,804
)
Issuance of shares for distribution reinvestment plan
3,774,469

 
27

 
39,227

 
(39,254
)
 

 

 

 

 

Repurchase of common stock
(552,750
)
 
(3
)
 
(5,419
)
 

 

 

 
(5,422
)
 

 
(5,422
)
Additions to common stock subject to redemption

 

 
(39,254
)
 

 

 

 
(39,254
)
 

 
(39,254
)
Distributions to noncontrolling interests

 

 

 

 

 

 

 
(2,299
)
 
(2,299
)
Distributions to noncontrolling interests subject to redemption

 

 

 

 

 

 

 
(8
)
 
(8
)
Write-off of offering costs on redemption of preferred units

 

 
4,035

 

 

 

 
4,035

 

 
4,035

Net loss

 

 

 

 
(13,749
)
 


 
(13,749
)
 
(417
)
 
(14,166
)
Other comprehensive loss

 

 

 

 
 
 
(14,901
)
 
(14,901
)
 
(433
)
 
(15,334
)
BALANCE September 30, 2015
174,750,370

 
$
1,392

 
$
1,549,837

 
$
(181,487
)
 
$
(65,034
)
 
$
(15,324
)
 
$
1,289,384

 
$
14,321

 
$
1,303,705

See accompanying notes.

9


GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Operating Activities:
 
 
 
Net income (loss)
$
3,451

 
$
(4,869
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation of building and building improvements
30,106

 
19,880

Amortization of leasing costs and intangibles, including ground leasehold interests
46,415

 
31,224

Amortization of above and below market leases, net
(2,147
)
 
233

Amortization of deferred financing costs
3,132

 
3,273

Amortization of debt premium
(235
)
 
(179
)
Deferred rent
(11,368
)
 
(8,119
)
Termination fee revenue receivable from tenant, net

 
(6,193
)
Gain from sale of depreciable operating property
(7,728
)
 

Loss from investment in unconsolidated entities
1,177

 
177

Stock-based compensation
9

 
106

Change in operating assets and liabilities:
 
 
 
Other assets
(4,221
)
 
3,766

Rent collections received in restricted cash collateral account
(3,912
)
 
470

Operating reserves
(1,862
)
 
1,995

Reserves for tenant improvements
3,361

 
(495
)
Accounts payable and other liabilities
7,031

 
7,187

Due to affiliates, net
996

 
(1,189
)
Net cash provided by operating activities
64,205

 
47,267

Investing Activities:
 
 
 
Acquisition of properties, net
(356,811
)
 
(582,957
)
Cash assumed from the Signature Office REIT merger
8,557

 

Proceeds from disposition of properties
34,878

 

Real estate acquisition deposits
(3,000
)
 
2,600

Real estate funds held for exchange
(11,048
)
 

Improvements to real estate
(6,156
)
 
(713
)
Payments for construction in progress
(2,090
)
 
(2,115
)
Real estate development, net of unpaid construction costs
(44,425
)
 
(4,876
)
Land acquisition - real estate development

 
(7,544
)
Investment in unconsolidated joint venture

 
(68,424
)
Distributions of capital from investment in unconsolidated entities
5,720

 
78

Net cash used in investing activities
(374,375
)
 
(663,951
)
Financing Activities:
 
 
 
Proceeds from borrowings - KeyBank credit facility

 
151,000

Proceeds from borrowings - Mortgage debt

 
132,140

Proceeds from borrowings - Unsecured Term Loan (May 2014)

 
300,000

Proceeds from borrowings - Unsecured Revolver (May 2014)
490,100

 

Proceeds from borrowings - Term Loan (July 2015)
640,000

 

Proceeds from borrowings - Revolver Loan (July 2015)
353,225

 

Principal payoff of secured indebtedness - KeyBank credit facility

 
(195,500
)
Principal payoff of secured indebtedness - KeyBank term loan

 
(282,000
)
Principal payoff of secured indebtedness - Unsecured Term Loan (May 2014)
(300,000
)
 

Principal payoff of secured indebtedness - Unsecured Revolver (May 2014)
(490,100
)
 

Principal payoff of secured indebtedness - Signature Office REIT Credit Facility
(173,000
)
 

Principal amortization payments on secured indebtedness
(1,506
)
 
(1,238
)
Deferred financing costs
(4,895
)
 
(6,688
)
Financing deposits

 
2,325

Offering costs
(54
)
 
(76,610
)
Issuance of common stock, net

 
774,723

Issuance of noncontrolling interests, net

 
1,363

Repurchase of preferred units
(190,894
)
 

Repurchase of common stock
(5,422
)
 
(1,501
)
Distributions paid on preferred units subject to redemption
(10,013
)
 
(14,271
)
Distributions to noncontrolling interests
(2,585
)
 
(2,552
)
Distributions to common stockholders
(35,379
)
 
(21,600
)
Net cash provided by financing activities
269,477

 
759,591

Net (decrease) increase in cash and cash equivalents
(40,693
)
 
142,907

Cash and cash equivalents at the beginning of the period
68,915

 
10,407

Cash and cash equivalents at the end of the period
$
28,222

 
$
153,314

Supplemental Disclosures of Cash Flow Information:
 
 
 
Cash paid for interest
$
3,566

 
$
14,342

Restricted cash - assumed upon acquisition of real estate assets
$

 
$
21,500

Supplemental Disclosures of Non-cash Transactions:
 
 
 
Change in fair value of interest rate swap agreements
$
(15,334
)
 
$

Construction in progress costs - real estate development
$
(37,331
)
 
$
(14,603
)
Unpaid construction in progress costs - real estate development
$
(7,094
)
 
$
9,727

Mortgage debt assumed in conjunction with the acquisition of real estate assets plus a premium of $0 and $1,799, respectively
$

 
$
23,843

Non-controlling interest in land development
$

 
$
7,656

Decrease in distributions payable to noncontrolling interests
$
(9
)
 
$
(1
)
Increase in distributions payable to common stockholders
$
2,425

 
$
1,790

Decrease in distributions payable to preferred unit holders
$
(1,224
)
 
$
(52
)
Distributions to redeemable noncontrolling interests attributable to common stockholders as reflected on the consolidated statements of operations
$
268

 
$
265

Common stock issued pursuant to the distribution reinvestment plan
$
39,254

 
$
31,808

Common stock redemptions funded subsequent to period-end
$
8,397

 
$
1,059

Assets and liabilities assumed in conjunction with the Signature Office REIT merger:
 
 
 
Land
$
71,530

 
$

Building and improvements
$
436,348

 
$

Tenant origination and absorption cost
$
89,358

 
$

Above market leases
$
16,860

 
$

Other assets
$
2,477

 
$

Unsecured debt
$
173,000

 
$

Below market leases
$
6,996

 
$

Accounts payable and other liabilities
$
11,644

 
$

Equity consideration for the Signature Office REIT merger
$
433,490

 
$

See accompanying notes.

10

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)


1.
Organization
Griffin Capital Essential Asset REIT, Inc., a Maryland corporation (the “Company”), was formed on August 28, 2008 under the Maryland General Corporation Law. The Company was organized primarily with the purpose of acquiring single tenant properties that are essential to the tenant’s business, and used a substantial amount of the net proceeds from the Public Offerings (as defined below) to invest in these properties. The Company satisfied requisite financial and non-financial requirements and elected to be taxed as a REIT for each taxable year ended since December 31, 2010. The Company’s year end is December 31.
Griffin Capital Corporation, a California corporation (the “Sponsor”), has sponsored the Company’s Public Offerings. The Company’s Sponsor began operations in 1995, and was incorporated in 1996, to engage principally in acquiring and developing office and industrial properties. Kevin A. Shields, the Company's Chief Executive Officer and Chairman of the Company's board of directors, controls the Sponsor as the trustee of the trust entity that is the sole shareholder of the Sponsor.
Griffin Capital Essential Asset Advisor, LLC, a Delaware limited liability company (the “Advisor”), was formed on August 27, 2008. Griffin Capital Asset Management Company, LLC (“GAMCO”) is the sole member of the Advisor, and is indirectly owned by the Sponsor. The Company has entered into an advisory agreement for the Public Offerings (as amended and restated, the “Advisory Agreement”), which states that the Advisor is responsible for managing the Company’s affairs on a day-to-day basis and identifying and making acquisitions and investments on behalf of the Company. The officers of the Advisor are also officers of the Sponsor. The Advisory Agreement has a one-year term, and it may be renewed for an unlimited number of successive one-year periods by the Company’s board of directors.
On August 28, 2008, the Advisor purchased 100 shares of common stock for $1,000 and became the Company’s initial stockholder. On February 20, 2009, the Company began to offer shares of common stock, pursuant to a private placement offering to accredited investors (the “Private Offering”), which included shares for sale pursuant to the distribution reinvestment plan (“DRP”). On November 6, 2009, the Company's registration statement was declared effective by the Securities and Exchange Commission, and the Company began to offer, in a public offering, a maximum of 82,500,000 shares of common stock, consisting of 75,000,000 shares at $10.00 per share (the “Primary Public Offering”) and 7,500,000 shares pursuant to the DRP at $9.50 per share (together with the Primary Public Offering, the “Initial Public Offering”) and terminated the Private Offering.
On February 15, 2013, the Company announced the revised share offering price under the Initial Public Offering of $10.28 per share, and a revised price under the DRP equal to 95% of the revised share offering price, which was approximately $9.77 per share.
On April 25, 2013, the Company terminated its Initial Public Offering, having issued approximately 19,200,570 shares of the Company’s common stock for gross proceeds of approximately $191.5 million, including shares issued pursuant to the DRP. On April 26, 2013, the Company began to offer, in a follow-on offering, up to $1.0 billion in shares of common stock, consisting of approximately 97.2 million shares at $10.28 per share in the primary offering (the “Primary Follow-On Offering” and together with the Primary Public Offering, the “Primary Public Offerings”) and $100 million in shares of common stock, consisting of approximately 10.2 million shares, pursuant to the DRP (together with the Primary Follow-On Offering, the “Follow-On Offering” and, collectively with the Initial Public Offering, the “Public Offerings”). On April 22, 2014, the Company announced that it was no longer accepting subscriptions in the Follow-On Offering, as the maximum amount of offering proceeds was expected to have been reached. The Company issued 107,144,337 total shares of the Company’s common stock for gross proceeds of approximately $1.1 billion in the Follow-On Offering, including 1,774,208 shares, or $17.3 million, issued pursuant to the DRP.
On May 7, 2014, the Company filed a Registration Statement on Form S-3 with the SEC for the registration of $75.0 million in shares for sale pursuant to the DRP (the “2014 DRP Offering”). On December 15, 2014, the Company announced a revised offering price for shares pursuant to the DRP Offering of $10.40 per share, effective December 27, 2014. On September 22, 2015, the Company filed a Registration Statement on Form S-3 with the SEC for the registration of $100.0 million in shares for sale pursuant to the DRP (the “2015 DRP Offering” and together with the 2014 DRP Offering, the “DRP Offerings”) and terminated the 2014 DRP Offering filed on May 7, 2014. In connection with the DRP Offerings, the Company had issued 7,300,499 shares of the Company's common stock for gross proceeds of approximately $74.0 million through September 30, 2015. The 2015 DRP Offering may be terminated at any time upon 10 days’ prior written notice to stockholders.

11

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

On November 21, 2014, the Company entered into a merger agreement with Signature Office REIT, Inc. ("SOR"). In connection with the merger (the "SOR Merger"), (1) SOR merged into a wholly-owned subsidiary of the Company, and (2) each share of common stock of SOR issued and outstanding was converted into 2.04 shares ("Merger Consideration") of the Company's common stock. On June 10, 2015, the Company issued approximately 41.8 million shares of common stock upon the consummation of the SOR Merger. The assets and liabilities of SOR are included in the Company's consolidated financial statements as of the closing date, June 10, 2015. See Note 3, Real Estate, for further discussion.
As of September 30, 2015, the Company had received aggregate gross offering proceeds of approximately $1.4 billion from the sale of shares in the Private Offering, the Public Offerings, and the DRP Offerings. There were 174,750,370 shares outstanding at September 30, 2015, including shares issued pursuant to the DRP, less shares redeemed pursuant to the share redemption plan. As of September 30, 2015 and December 31, 2014, the Company had issued $96.9 million and $57.7 million, respectively, in shares pursuant to the DRP, which are classified on the consolidated balance sheets as common stock subject to redemption, net of redemptions payable totaling approximately $8.4 million and $1.2 million, respectively, which is included in accounts payable and other liabilities on the consolidated balance sheets. See Note 8, Equity — Share Redemption Program. Since inception and through September 30, 2015, the Company had redeemed 908,649 shares of common stock for approximately $8.9 million pursuant to the share redemption plan.
On October 22, 2015, the Company's board of directors approved an estimated value per share of the Company's common stock of $10.40based on the estimated value of the Company's assets less the estimated value of the Company's liabilities, or net asset value, divided by the number of shares outstanding on a fully diluted basis, calculated as of September 30, 2015. See Note 12, Subsequent Events, for further discussion.
Griffin Capital Securities, Inc. (the “Dealer Manager”) is an affiliate of the Sponsor, and on November 1, 2013 became a wholly-owned subsidiary of the Sponsor. The Dealer Manager was responsible for marketing the Company’s shares offered during the Public Offerings. The dealer manager agreement was terminated in accordance with its terms upon the termination of the Follow-On Offering.
Griffin Capital Essential Asset Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), was formed on August 29, 2008. The Operating Partnership owns, directly or indirectly, all of the properties that the Company has acquired. The Advisor purchased an initial 99% limited partnership interest in the Operating Partnership for $200,000, and the Company contributed the initial $1,000 capital contribution, received from the Advisor, to the Operating Partnership in exchange for a 1% general partner interest. As of September 30, 2015, the Company owned approximately 94% of the limited partnership units of the Operating Partnership (approximately 97% of the common units), and, as a result of the contribution of five properties to the Company, the Sponsor and certain of its affiliates, including the Company’s Chief Executive Officer and Chairman, Kevin A. Shields, and certain officers of the Company, owned approximately 2% of the limited partnership units of the Operating Partnership. The remaining approximately 4% of the limited partnership units were owned by third parties, of which approximately 3% represented a preferred unit investment as discussed in Note 8, Equity. No common limited partnership units of the Operating Partnership have been redeemed during the nine months ended September 30, 2015 and year ended December 31, 2014. The Operating Partnership may conduct certain activities through the Company’s taxable REIT subsidiary, Griffin Capital Essential Asset TRS, Inc., a Delaware corporation (the “TRS”) formed on September 2, 2008, which is a wholly-owned subsidiary of the Operating Partnership. The TRS had no activity as of September 30, 2015.
The Company’s property manager is Griffin Capital Essential Asset Property Management, LLC, a Delaware limited liability company (the “Property Manager”), which was formed on August 28, 2008 to manage the Company’s properties. The Property Manager derives substantially all of its income from the property management services it performs for the Company.

2.
Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements of the Company are prepared by management 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 consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited consolidated financial statements include accounts and related adjustments, which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of the Company’s financial position, results

12

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

of operations and cash flows for the interim period. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The unaudited consolidated financial statements include accounts of the Company, the Operating Partnership, including a consolidated VIE (see Note 4, Investments), and the TRS. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statement and accompanying notes. Actual results could materially differ from those estimates.
Change in Consolidated Financial Statements Presentation
Certain amounts in the Company's prior period consolidated financial statements have been reclassified to conform to the current period presentation. See Assets Held for Sale in Note 3, Real Estate.
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. Cash equivalents may include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value. There were no restrictions on the use of the Company’s operating cash balance as of September 30, 2015 and December 31, 2014.
The Company maintains cash accounts with major financial institutions. The cash balances consist of business checking accounts and money market accounts. These accounts are insured by the Federal Deposit Insurance Corporation up to $250,000 at each institution. At times, the balances in these accounts may exceed the insured amounts. The Company considers balances in excess of the insured amounts to potentially be a concentration of credit risk. However, the Company has not experienced any losses with respect to cash balances in excess of government-provided insurance and does not anticipate any losses in the future.
Restricted Cash
In conjunction with the contribution of certain assets, as required by certain lease provisions or certain lenders in conjunction with an acquisition or debt financing, or credits received by the seller of certain assets, the Company assumed or funded reserves for specific property improvements and deferred maintenance, rent abatement, re-leasing costs, and taxes and insurance (see Note 3, Real Estate). As of September 30, 2015 and December 31, 2014, the balance of these reserves, included in the consolidated balance sheets as restricted cash, was $19.7 million and $40.8 million, respectively. The balance as of September 30, 2015 includes $2.6 million in rent collections from the eight properties which serve as collateral under the Midland Mortgage loan, $11.5 million designated for deferred maintenance and re-leasing costs, $2.2 million of taxes and insurance reserves to be applied to future amounts incurred, and $3.3 million in rent received from the DreamWorks property, which is to be held in escrow pending a tax-deferred real estate exchange, as permitted by Section 1031 of the Internal Revenue Code, with the sale of the Will Partners property and the pending sale of the One Century Place property. As of September 30, 2015, the One Century Place property was classified as held for sale on the Company's consolidated balance sheets.
Real Estate
Purchase Price Allocation
The Company applies the provisions in ASC 805-10, Business Combinations, to account for the acquisition of real estate, or real estate related assets, in which a lease, or other contract, is in place representing an active revenue stream, as a business combination. In accordance with the provisions of ASC 805-10, the Company recognizes the assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity at their fair values as of the acquisition date, on an “as if vacant” basis. Further, the Company recognizes the fair value of assets acquired, liabilities assumed and any noncontrolling interest in acquisitions of less than a 100% interest when the acquisition constitutes a change in control of the acquired entity. The accounting provisions have also established that acquisition-related costs and restructuring costs are considered separate and not

13

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

a component of a business combination and, therefore, are expensed as incurred. Acquisition-related costs for the three months ended September 30, 2015 and 2014 totaled $6.5 million and $6.3 million, respectively, and for the nine months ended September 30, 2015 and 2014 totaled $29.6 million and $26.1 million, respectively.
Acquired in-place leases are valued as above-market or below-market as of the date of acquisition. The valuation is measured based on the present value (using an interest rate, which reflects the risks associated with the leases acquired) of the difference between (a) the contractual amounts to be paid pursuant to the in-place leases and (b) management’s estimate of fair market lease rates for the corresponding in-place leases over a period equal to the remaining non-cancelable term of the lease for above-market leases, taking into consideration below-market extension options for below-market leases. In addition, renewal options are considered and will be included in the valuation of in-place leases if (1) it is likely that the tenant will exercise the option, and (2) the renewal rent is considered to be sufficiently below a fair market rental rate at the time of renewal. The above-market and below-market lease values are capitalized as intangible lease assets or liabilities and amortized as an adjustment to rental income over the remaining terms of the respective leases.
The aggregate fair value of in-place leases includes direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals, which are avoided by acquiring an in-place lease, and tenant relationships. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated using methods similar to those used in independent appraisals and management’s consideration of current market costs to execute a similar lease. These direct costs are considered intangible lease assets and are included with real estate assets on the consolidated balance sheets. The intangible lease assets are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid, including real estate taxes, insurance, and other operating expenses, pursuant to the in-place leases over a market lease-up period for a similar lease. Customer relationships are valued based on management’s evaluation of certain characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant. Characteristics management will consider in allocating these values include the nature and extent of the Company’s existing business relationships with tenants, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors. These intangibles are included in intangible lease assets on the consolidated balance sheets and are amortized to expense over the remaining term of the respective leases.
 
The determination of the fair values of the assets and liabilities acquired requires the use of significant assumptions about current market rental rates, rental growth rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of the purchase price allocations, which could impact the amount of the Company’s reported net income.
Depreciation and Amortization
The purchase price of real estate acquired and costs related to development, construction, and property improvements are capitalized. Repairs and maintenance costs include all costs that do not extend the useful life of the real estate asset and are expensed as incurred. The Company considers the period of future benefit of an asset to determine the appropriate useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:
Buildings
25-40 years
Building Improvements
5-20 years
Land Improvements
15-25 years
Tenant Improvements
Shorter of estimated useful life or remaining contractual lease term
Tenant origination and absorption cost
Remaining contractual lease term
In-place lease valuation
Remaining contractual lease term with consideration as to below-market extension options for below-market leases
Depreciation expense for buildings and improvements for the three months ended September 30, 2015 and 2014 was approximately $12.6 million and $7.6 million, respectively, and for the nine months ended September 30, 2015 and 2014 was approximately $30.1 million and $19.9 million, respectively. Amortization expense for intangibles, including but not limited to, tenant origination and absorption costs for the three months ended September 30, 2015 and 2014 was approximately $22.0 million and $11.4 million, respectively, and for the nine months ended September 30, 2015 and 2014 was approximately $46.4 million and $31.2 million, respectively. See Note 3, Real Estate, for amortization related to in-place lease valuations.

14

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

Assets Held for Sale
The Company accounts for properties held for sale in accordance with ASC Topic 360, Property, Plant, and Equipment ("ASC Topic 360"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and Accounting Standards Update ("ASU") No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU No. 2014-08"). Under ASU No. 2014-08, a discontinued operation is (i) a component of an entity or group of components that has been disposed of by sale, that has been disposed of other than by sale, or that is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity's operations and financial results or (ii) an acquired business or nonprofit activity that is classified as held for sale on the date of the acquisition.
In accordance with ASC 205, a component of an entity or a group of components of an entity, or a business or nonprofit activity (the entity to be sold), shall be classified as held for sale in the period in which all of the following criteria are met:
Management, having the authority to approve the action, commits to a plan to sell the entity to be sold.
The entity to be sold is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such entities to be sold.
An active program to locate a buyer or buyers and other actions required to complete the plan to sell the entity to be sold have been initiated.
The sale of the entity to be sold is probable, and transfer of the entity to be sold is expected to qualify for recognition as a completed sale, within one year, except as permitted by ASC Topic 360.
The entity to be sold is being actively marketed for sale at a price that is reasonable in relation to its current fair value.
The price at which an entity to be sold is being marketed is indicative of whether the entity currently has the intent and ability to sell the entity to be sold. A market price that is reasonable in relation to fair value indicates that the entity to be sold is available for immediate sale, whereas a market price in excess of fair value indicates that the entity to be sold is not available for immediate sale.
Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
In accordance with ASC Topic 360, upon being classified as held for sale, a property is carried at the lower of (i) its carrying amount or (ii) fair value less costs to sell. In addition, a property held for sale ceases to be depreciated. As of September 30, 2015, one property owned by the Company met the criteria to be classified as held for sale and was included in continuing operations in the consolidated statements of operations based on the Company's early adoption of ASU No. 2014-08, as it did not meet the prerequisite requirements to be classified as discontinued operations. See Note 3, Real Estate.
Impairment of Real Estate and Related Intangible Assets
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of real estate and related intangible assets may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of real estate and related intangible assets may not be recoverable, management assesses whether the carrying value of the assets will be recovered through the future undiscounted operating cash flows expected from the use of the assets and the eventual disposition. If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of the asset, the Company will record an impairment charge to the extent the carrying value exceeds the net present value of the estimated future cash flows of the asset.
Projections of expected future undiscounted cash flows require management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to re-lease the property and the number of years the property is held for investment. As of September 30, 2015 and December 31, 2014, the Company did not record any impairment charges related to its real estate assets or intangible assets.
Intangible Assets and Liabilities Arising from In-Place Leases Where the Company is the Lessee
In-place ground leases where the Company is the lessee may have value associated with effective contractual rental rates that are above or below market rates. Such values are calculated based on the present value (using a discount rate that reflects

15

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place lease and (ii) management's estimate of fair market lease rates for the corresponding in-place lease, measured over a period equal to the remaining terms of the lease. The capitalized above-market and below-market in-place lease values are recorded as intangible lease assets and liabilities, respectively, and are amortized as an adjustment to property operating expense over the remaining term of the respective lease.
The Operating Partnership, through a single purpose entity, assumed a ground lease with the acquisition of the Waste Management property on January 16, 2014. The ground lease has a remaining term of approximately 80 years, expiring on December 31, 2095. See Note 3, Real Estate.
Investments
ASC 810-10, Consolidation, provides a framework for identifying variable interest entities (“VIEs”) and determining when a company should include the assets, liabilities, noncontrolling interests, and results of activities of the VIE in its consolidated financial statements. In general, a VIE is an entity or other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. Generally, a VIE should be consolidated if a party with an ownership, contractual, or other financial interest in the VIE (a variable interest holder) has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must record all of the VIE’s assets, liabilities, and noncontrolling interest at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest. If the variable interest holder is not the primary beneficiary, the interest in the VIE is recorded under the equity method of accounting. See Note 4, Investments.
Revenue Recognition
Leases associated with the acquisition and contribution of certain real estate assets (see Note 3, Real Estate), have net minimum rent payment increases during the term of the lease and are recorded to rental revenue on a straight-line basis, commencing as of the contribution or acquisition date. If a lease provides for contingent rental income, the Company will defer the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved.
The Company recognized deferred rent from tenants of approximately $4.9 million and $3.0 million for the three months ended September 30, 2015 and 2014, respectively, and approximately $11.4 million and $8.1 million for the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015 and December 31, 2014, the cumulative deferred rent balance was $26.0 million and $15.6 million, respectively, and is included in deferred rent on the consolidated balance sheets.
Tenant reimbursement revenue, which is comprised of additional amounts collected from tenants for the recovery of certain operating expenses, including repair and maintenance, property taxes and insurance, and capital expenditures, to the extent allowed pursuant to the lease (collectively "Recoverable Expenses"), is recognized as revenue when the additional rent is due. Recoverable Expenses to be reimbursed by a tenant are determined based on the Company's estimate of the property's operating expenses for the year, pro rated based on leased square footage of the property, and are collected in equal installments as additional rent from the tenant, pursuant to the terms of the lease. At the end of the calendar year, the Company reconciles the amount of additional rent paid by the tenant during the year to the actual amount of Recoverable Expenses incurred by the Company for the same period. The difference, if any, is either charged or credited to the tenant pursuant to the provisions of the lease. In certain instances the lease may restrict the amount the Company can recover from the tenant such as a cap on certain or all property operating expenses. As of December 31, 2014, the Company estimated that approximately $0.3 million, net, was over collected from tenants throughout the year, and as a result, the Company recorded a liability. Tenant reimbursement reconciliations were also performed during the nine months ended September 30, 2015, which resulted in an additional $0.2 million in net over collections. The combined net over collection of $0.5 million has been, and will continue to be, refunded to the tenants either by a credit to contractual rent payments or as a disbursement from operating cash flow.
Organizational and Offering Costs

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

Organizational and offering costs of the Primary Public Offerings were paid either by the Company or the Sponsor, on behalf of the Advisor, for the Company, which were reimbursed from the proceeds of the Public Offerings at the estimated rate. Organizational and offering costs consist of all expenses (other than sales commissions and dealer manager fees) paid by the Company in connection with the Public Offerings, including legal, accounting, printing, mailing and filing fees, charges from the escrow holder and other accountable offering expenses, including, but not limited to, (i) amounts to reimburse the Advisor for all marketing-related costs and expenses, such as salaries and direct expenses of employees of the Advisor and its affiliates in connection with registering and marketing the Company’s shares; (ii) technology costs associated with the offering of the Company’s shares; (iii) costs of conducting training and education meetings; (iv) costs of attending seminars conducted by participating broker-dealers; and (v) payment or reimbursement of bona fide due diligence expenses.
Pursuant to the Advisory Agreement, the Company was obligated to reimburse the Advisor for organizational and offering expenses incurred in connection with the Primary Public Offerings in an amount not to exceed 3.5% of gross offering proceeds of the terminated or completed Primary Public Offerings for issuer costs (excluding sales commissions and dealer manager fees). In addition, pursuant to the Advisory Agreement, organization and offering expenses (including sales commissions and dealer manager fees and non-accountable due diligence expense allowance but excluding acquisition fees and expenses) were subject to a limitation of 15% of gross offering proceeds of the terminated or completed Public Offerings. If the organization and offering expenses exceeded such limits discussed above, within 60 days after the end of the month in which the Public Offerings terminated or were completed, the Advisor would have been obligated to reimburse the Company for any excess amounts. As long as the Company is subject to the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association (“NASAA REIT Guidelines”), such limitations discussed above will also apply to any future public offerings. As of closing of the Follow-On Offering, organizational and offering costs were 2.3% and 0.3% of gross offering proceeds, excluding sales commissions and dealer manager fees, for the Initial Public Offering and the Follow-On Offering, respectively, and 11.9% and 10.1% of gross offering proceeds, including sales commissions and dealer manager fees, for the Initial Public Offering and the Follow-On Offering, respectively. See Note 9, Related Party Transactions.
The Company has incurred organizational and offering costs, including those due to the Advisor for organizational and offering expenses incurred on the Company’s behalf, as follows:
 
Balance as of
September 30, 2015
 
Balance as of
December 31, 2014
Cumulative offering costs - Private and Public Offerings
$
130,607

 
$
130,553

Cumulative organizational costs - Private and Public Offerings
$
829

 
$
811

Deferred Financing Costs
Deferred financing costs represent commitment fees, loan fees, and other fees associated with obtaining financing. These costs are amortized to, and included as a component of, interest expense over the terms of the respective financing agreements. Amortization expense for the three and nine months ended September 30, 2015 was approximately $2.0 million and $3.1 million, respectively. Amortization expense for the three and nine months ended September 30, 2014 was $0.6 million and $3.3 million, respectively. The amortization expense for the nine months ended September 30, 2015 includes approximately $1.4 million of write-offs related to the Unsecured Credit Facility (May 2014), which was terminated upon the execution of the Unsecured Credit Facility (July 2015) on July 20, 2015. Similarly, the amortization expense for the nine months ended September 30, 2014 includes approximately $1.7 million of write-offs related to the refinancing through the AIG Loan on January 24, 2014 and the Company's previously existing KeyBank credit facility and KeyBank term loan, which were both terminated in conjunction with the execution of the Unsecured Credit Facility (May 2014) on May 8, 2014. As of September 30, 2015 and December 31, 2014, the Company’s deferred financing costs, net of accumulated amortization, were $13.6 million and $11.8 million, respectively.
Other Assets
Other assets consist primarily of tenant and non-tenant receivables, prepaid expenses, and deferred leasing commissions and other leasing costs ("Deferred Leasing Costs"), net of amortization. Non-tenant receivables primarily consist of a $5.1 million termination fee, as a result of the lease termination with World Kitchen, LLC, the former tenant at the Will Partners property, on January 24, 2014. Prepaid expenses, which are capitalized as other assets, will be expensed over the corresponding period. Leasing commissions for new, renewal or expansion leases are amortized using the straight-line method over the term of the related lease. Amortization of Deferred Leasing Costs is included in depreciation and amortization in the Company's

17

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

accompanying consolidated statements of operations. Deferred Leasing Costs, net of the Deferred Leasing Costs related to the real estate held for sale, totaled $3.7 million and $2.2 million as of September 30, 2015 and December 31, 2014, respectively.
Noncontrolling Interests
Due to the Company’s control through the general partner interest in the Operating Partnership and the limited rights of the limited partners, the Operating Partnership, including its wholly-owned subsidiaries, is consolidated with the Company, and the limited partners’ interests are reflected as noncontrolling interests on the accompanying consolidated balance sheets.
The Company reports noncontrolling interests in subsidiaries within equity in the consolidated financial statements, but separate from total stockholders’ equity. Also, any acquisitions or dispositions of noncontrolling interests that do not result in a change of control are accounted for as equity transactions. Further, the Company recognizes a gain or loss in net income (loss) when a subsidiary is deconsolidated upon a change in control. Net income (loss) allocated to noncontrolling interests is shown as an adjustment to net income (loss) attributable to common stockholders. Any future purchase or sale of an interest in an entity that results in a change of control may have a material impact on the financial statements, as the interest in the entity will be recognized at fair value with gains and losses included in net income (loss).
If noncontrolling interests are determined to be redeemable, they are classified as temporary equity and reported at their redemption value as of the balance sheet date. Since redeemable noncontrolling interests are carried at the redemption amount, net income (loss) and distributions are not allocated to redeemable noncontrolling interests. Distributions to redeemable noncontrolling interest holders are allocated between common stockholders and noncontrolling interests based on their respective weighted-average ownership percentage of the Operating Partnership. See Note 8, Equity.
Share-Based Compensation
The Company has adopted an Employee and Director Long-Term Incentive Plan (the “Plan”) pursuant to which the Company may issue stock-based awards to its directors and full-time employees (should the Company ever have employees), executive officers and full-time employees of the Advisor and its affiliate entities that provide services to the Company, and certain consultants who provide significant services to the Company. The term of the Plan is 10 years and the total number of shares of common stock reserved for issuance under the Plan is 10% of the outstanding shares of stock at any time, not to exceed 10,000,000 shares in the aggregate. Awards granted under the Plan may consist of stock options, restricted stock, stock appreciation rights and other equity-based awards. The stock-based payment will be measured at fair value and recognized as compensation expense over the vesting period.
On March 3, 2014, the compensation committee of the board of directors authorized the issuance of 5,000 shares of restricted stock to each of the Company's independent directors. These restricted shares were immediately vested upon issuance. In addition, the compensation committee authorized the future issuance of 1,000 shares of restricted stock to each of the Company's independent directors for each 12-consecutive-month period during which each independent director continuously remains a director for the Company. The future shares granted will vest over a three year period, or will immediately vest upon a change in control of the Company. Upon re-election of each independent director at the June 12, 2014 annual stockholders' meeting, the Company measured and began recognizing director compensation expense for the 1,000 shares of restricted stock granted, subject to the vesting period. One-third of the shares of restricted stock, or 333 shares, for each of the Company's independent directors, vested during the nine months ended September 30, 2015. The fair value of both issuances was estimated at $10.28 per share, the then most recent price paid to acquire a share of the Company's common stock. All issuances of restricted stock are entitled to dividends upon vesting of the shares.
Upon re-election of each independent director at the June 16, 2015 annual stockholders' meeting, the Company granted 1,000 shares of restricted common stock to each of the independent directors. The fair value of such issuance was estimated at $10.40 per share, the then most recent price paid to acquire a share of the Company's common stock related to the 2014 DRP Offering. Immediately upon granting the restricted common shares, the Company measured and began recognizing director compensation expense, subject to the same vesting period discussed above.
Derivative Instruments and Hedging Activities
FASB ASC Topic 815: Derivatives and Hedging ("ASC 815"), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c)

18

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by ASC 815, the Company recorded all derivatives on the consolidated balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, and whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. See Note 6, Interest Rate Swap.
Fair Value Measurements
The fair value of financial and non-financial assets and liabilities is based on a fair value hierarchy established by the FASB that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:
Level 1. Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets;
Level 2. Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3. Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
See Note 7, Fair Value Measurements.
Income Taxes
The Company elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, the Company must meet certain organizational and operational requirements. The Company intends to adhere to these requirements and maintain its REIT status for the current year and subsequent years. As a REIT, the Company generally will not be subject to federal income taxes on taxable income that is distributed to stockholders. However, the Company may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed taxable income, if any. If the Company fails to qualify as a REIT in any taxable year, the Company will then be subject to federal income taxes on the 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 IRS grants the Company relief under certain statutory provisions. Such an event could materially adversely affect net income and net cash available for distribution to stockholders. As of September 30, 2015, the Company satisfied the REIT requirements and distributed all of its taxable income. 
Pursuant to the Code, the Company has elected to treat its corporate subsidiary as a taxable REIT subsidiary (“TRS”). In general, the TRS may perform non-customary services for the Company’s tenants and may engage in any real estate or non real estate-related business. The TRS will be subject to corporate federal and state income tax. As of September 30, 2015, the TRS had not commenced operations.
Per Share Data
The Company reports earnings per share for the period as (1) basic earnings per share computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period,

19

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

and (2) diluted earnings per share computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding, including common stock equivalents. As of September 30, 2015 and December 31, 2014, there were no common stock equivalents that would have a dilutive effect on earnings (loss) per share for common stockholders.
Distributions declared and paid per common share assume each share was issued and outstanding each day during the three months ended September 30, 2015. Distributions declared per common share were based on daily declaration and record dates selected by the Company’s board of directors of $0.001901096 per day per share on the outstanding shares of common stock.
Segment Information
ASC Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about a public entity’s reportable segments. The Company internally evaluates all of the properties and interests therein as one reportable segment.
Unaudited Data
Any references to the number of buildings, square footage, number of leases, occupancy, annualized net rent and any amounts derived from these values in the notes to the consolidated financial statements are unaudited and outside the scope of the Company's independent registered public accounting firm's review of its consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board.
Recently Issued Accounting Pronouncements
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement Period Adjustments (“ASU No. 2015-16”). In a business combination, ASU No. 2015-16 requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer is required to disclose, by financial statement line item, the nature and amount for the adjustments and the current period income statement impact related to prior periods. The amendments in this ASU are effective for fiscal years beginning December 15, 2016 and interim periods beginning after December 15, 2017. Early adoption is permitted. The Company has elected to adopt ASU No. 2015-16 early, beginning with the quarter ended September 30, 2015.
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”) to amend the accounting guidance for the presentation of debt issuance costs. The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for public business entities for fiscal years beginning after December 15, 2015 and retrospective application is required. Early adoption of the guidance is permitted. The Company does not expect the adoption of ASU No. 2015-03 to have a significant impact on its financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation: Amendments to the Consolidation Analysis ("ASU No. 2015-02"), which amended the existing accounting standards for consolidation under both the variable interest model and the voting model. Under ASU No. 2015-02, companies will need to re-evaluate whether an entity meets the criteria to be considered a VIE, whether companies still meet the definition of primary beneficiaries, and whether an entity needs to be consolidated under the voting model. ASU No. 2015-02 may be applied using a modified retrospective approach or retrospectively, and is effective for reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the potential impact of the pending adoption of this new guidance on its consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”). The amendments in ASU No. 2014-15 require management to evaluate, for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or are available to be issued when applicable) and, if so, provide related disclosures. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for

20

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

which the financial statements have not previously been issued. The Company does not expect the adoption of ASU No. 2014-15 to have a significant impact on its financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 replaces substantially all industry-specific revenue recognition requirements and converges areas under this topic with International Financial Reporting Standards. ASU No. 2014-09 implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. ASU No. 2014-09 also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows from contracts with customers. Other major provisions in ASU No. 2014-09 include capitalizing and amortizing certain contract costs, ensuring the time value of money is considered in the applicable transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. ASU No. 2014-09 was originally effective for reporting periods beginning after December 31, 2016 (for public entities). On April 1, 2015, the FASB voted to defer the effective date of ASU No. 2014-09 by one year, to annual reporting periods beginning after December 15, 2017. On July 9, 2015, the FASB affirmed its proposal to defer the effective date to annual reporting periods beginning after December 15, 2017, although entities may elect to adopt the standard as of the original effective date. The Company is currently evaluating the potential impact of the pending adoption of this new guidance on its consolidated financial statements.


21

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

3.
Real Estate
As of September 30, 2015, the Company’s real estate portfolio consisted of 71 properties in 20 states consisting substantially of office, warehouse, and manufacturing facilities with a combined acquisition value of $2.9 billion, including the allocation of the purchase price to above and below-market lease valuation.
2015 Acquisitions, SOR Merger, and Restoration Hardware
During the nine months ended September 30, 2015, the Company acquired 3 properties from unaffiliated third parties. The aggregate purchase price of the acquisitions was $358.0 million.
As previously discussed in Note 1, the SOR Merger closed on June 10, 2015, and as part of the SOR Merger, the Company assumed 15 buildings located on 13 properties in 8 states, comprising a total of approximately 2.6 million square feet. The properties acquired through the SOR Merger have been allocated a combined value of $607.1 million.
A summary of the fair value of the assets and liabilities acquired and assumed through a merger on June 10, 2015 in exchange for approximately 41.8 million shares of the Company's stock is shown in the table below:
Cash assumed
$
8,557

Land
71,529

Building and improvements
436,350

Tenant origination and absorption cost
89,357

Above market leases
16,860

Other assets
2,477

Total assets
$
625,130

 
 
Unsecured debt (1)
$
173,000

Below market leases
6,996

Accounts payable and other liabilities
11,644

Total liabilities
191,640

Equity consideration for SOR Merger
433,490

Total liabilities and equity
$
625,130

(1)
The unsecured debt was terminated simultaneously with the closing of the SOR Merger, and repaid with borrowings from the Company's Unsecured Credit Facility (May 2014).





22

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)


The aggregate value of the 17 properties related to the 2015 acquisitions, SOR Merger, and completion of the Restoration Hardware project, which was transferred out of construction in progress in August 2015, was approximately $1.1 billion as shown below:
Property
 
Location
 
Tenant/Major Lessee
 
Acquisition/Merger
Date
 
Purchase
Price
 
Approx. Square
Feet
 
Acquisition
Fees and
Reimbursable
Expenses
Paid to the
Advisor (1)
 
Unsecured Credit
Facility
 
Year of
Lease
Expiration
(for Major Lessee)
 
2015
Annualized
Net Rent (3)
GE Aviation
 
West Chester, OH
 
General Electric Company
 
2/19/2015
 
$
66,000

 
409,800

 
$
1,980

 
$
50,000

(2) 
2020
 
$
4,903

Westgate III
 
Houston, TX
 
Wood Group Mustang, Inc.
 
4/1/2015
 
77,000

 
225,500

 
2,310

 
76,100

(2) 
2026
 
4,888

Lisle
 
Lisle, IL
 
McCain Foods USA, Inc.
 
6/10/2015
 
19,500

(4) 
94,400

 
(4) 

 
(5) 

 
2021
 
1,475

Bloomingdale
 
Bloomingdale, IL
 
BFS Retail & Commercial Operations, LLC
 
6/10/2015
 
7,450

(4) 
71,100

 
(4) 

 
(5) 

 
2018
 
1,287

Columbia
 
Columbia, MD
 
Leidos Holdings, Inc.
 
6/10/2015
 
58,130

(4) 
200,600

 
(4) 

 
(5) 

 
2019
 
4,373

Denver
 
Denver, CO
 
Jackson National Life Insurance Company
 
6/10/2015
 
35,000

(4) 
182,900

 
(4) 

 
(5) 

 
2017
 
3,861

Columbus
 
Dublin, OH
 
Qwest Communications Company, LLC
 
6/10/2015
 
27,600

(4) 
164,600

 
(4) 

 
(5) 

 
2022
 
2,271

Miramar
 
Miramar, FL
 
Humana Medical Plan Inc.
 
6/10/2015
 
24,600

(4) 
96,400

 
(4) 

 
(5) 

 
2017
 
1,866

Irving Carpenter
 
Irving, TX
 
NEC Corporation of America
 
6/10/2015
 
23,500

(4) 
119,600

 
(4) 

 
(5) 

 
2026
 
711

Frisco
 
Frisco, TX
 
T-Mobile West Corporation
 
6/10/2015
 
59,250

(4) 
284,200

 
(4) 

 
(5) 

 
2017
 
4,313

Houston Westway II
 
Houston, TX
 
VetcoGray, Inc.
(GE Oil & Gas, Inc.)
 
6/10/2015
 
82,500

(4) 
242,400

 
(4) 

 
(5) 

 
2022
 
5,656

Houston Westway I
 
Houston, TX
 
Cameron Solutions
 
6/10/2015
 
37,700

(4) 
144,000

 
(4) 

 
(5) 

 
2018
 
2,850

Atlanta Perimeter
 
Atlanta, GA
 
State Farm Mutual Automobile Insurance Company
 
6/10/2015
 
101,670

(4) 
584,800

 
(4) 

 
(5) 

 
2023
 
7,325

Herndon
 
Herndon, VA
 
Time Warner Cable Southeast, LLC
 
6/10/2015
 
87,300

(4) 
268,200

 
(4) 

 
(5) 

 
2019
 
6,978

Deerfield
 
Deerfield, IL
 
CF Industries Holdings, Inc.
 
6/10/2015
 
42,900

(4) 
171,500

 
(4) 

 
(5) 

 
2017
 
3,353

DreamWorks
 
Glendale, CA
 
DreamWorks Animation SKG, Inc.
 
7/21/2015
 
215,000

 
459,800

 
(6) 

 
205,000

(7) 
2035
 
13,285

Restoration Hardware
 
Patterson, CA
 
Restoration Hardware, Inc.
 
8/15/2015
 
99,850

(8) 
1,500,000

 
2,448

(9) 

 
2030
 
6,407

 
 
 
 
 
 
 
 
$
1,064,950

 
5,219,800

 
$
6,738

 
$
331,100

 
 
 
$
75,802

(1)
The Advisor is entitled to receive acquisition fees equal to 2.5% and acquisition expense reimbursement of up to 0.5% of the contract purchase price for each property acquired. The total is included in acquisition fees and expenses to affiliates on the consolidated statements of operations.
(2)
Represents borrowings from the Unsecured Revolver (May 2014) discussed in Note 5, Debt. The remaining purchase price was funded with net proceeds raised in the Follow-On Offering.
(3)
Net rent is based on (a) the contractual base rental payments assuming the lease requires the tenant to reimburse us for certain operating expenses or the property is self managed by the tenant and the tenant is responsible for all, or substantially all, of the operating expenses; or (b) contractual rent payments less certain operating expenses that are our responsibility for the 12-month period subsequent to September 30,

23

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

2015 and includes assumptions that may not be indicative of the actual future performance of a property, including the assumption that the tenant will perform its obligations under its lease agreement during the next 12 months.
(4)
Represents a property assumed through the SOR Merger. Purchase price represents purchase price allocations based on real estate value of $607.1 million. In conjunction with the SOR Merger on June 10, 2015, the Advisor received acquisition fees equal to 2.5%, or approximately $15.2 million, of the real estate value of $607.1 million. In addition, the Advisor also received actual expense reimbursements of $2.8 million, which was paid on July 14, 2015.
(5)
In connection with the SOR Merger on June 10, 2015, the Company, through the Operating Partnership, borrowed $173.0 million from the Unsecured Revolver (May 2014) to repay the outstanding SOR debt, as discussed in Note 5, Debt.
(6)
The Advisor received acquisition fees equal to 2.5%, or approximately $5.4 million, of the acquisition value of $215.0 million. In addition, the Advisor also received actual expense reimbursements of $0.8 million.
(7)
Represents borrowings from the Unsecured Credit Facility (July 2015) discussed in Note 5, Debt. The remaining purchase price was funded with operating cash flows.
(8)
Represents a development project with WRRH Patterson, LLC, which was placed into service on August 15, 2015. The acquisition price includes $10.5 million related to a mandatory redemption which will be due upon completion of certain items per the operating agreement. The mandatory redemption was accounted for as a component of equity in the Company's financial statements. See Note 4, Investments.
(9)
The Company expects to incur $2.4 million of acquisition fees and expense reimbursements payable to the Advisor. Such amount is included in the basis of the property.

The following summarizes the purchase price allocation of the 2015 acquisitions (1) and SOR Merger:
Property
 
Land
 
Building and
improvements
 
Tenant origination
and absorption cost
 
In-place lease
valuation -
above/(below) market
 
Total
GE Aviation
 
$
4,400

 
$
52,211

 
$
9,470

 
$
(81
)
 
$
66,000

Westgate III
 
3,209

 
60,852

 
15,085

 
(2,146
)
 
77,000

DreamWorks (2)
 
26,387

 
148,163

 
$
42,642

 
(2,192
)
 
215,000

Total acquisitions
 
$
33,996

 
$
261,226

 
$
67,197

 
$
(4,419
)
 
$
358,000

Lisle
 
2,788

 
11,209

 
4,991

 
512

 
19,500

Bloomingdale
 
1,178

 
4,689

 
493

 
1,090

 
7,450

Columbia
 
6,989

 
42,690

 
4,185

 
4,266

 
58,130

Denver
 
9,948

 
22,714

 
1,174

 
1,164

 
35,000

Columbus
 
2,943

 
14,896

 
7,755

 
2,006

 
27,600

Miramar
 
4,488

 
18,211

 
1,768

 
133

 
24,600

Irving Carpenter
 
1,842

 
19,479

 
2,573

 
(394
)
 
23,500

Frisco
 
8,239

 
47,296

 
4,099

 
(384
)
 
59,250

Houston Westway II
 
3,961

 
67,484

 
11,184

 
(129
)
 
82,500

Houston Westway I
 
6,540

 
27,765

 
2,938

 
457

 
37,700

Atlanta Perimeter
 
8,607

 
63,247

 
33,472

 
(3,656
)
 
101,670

Herndon
 
9,667

 
66,303

 
7,794

 
3,536

 
87,300

Deerfield
 
4,339

 
30,367

 
6,931

 
1,263

 
42,900

Total SOR Merger
 
$
71,529

 
$
436,350

 
$
89,357

 
$
9,864

 
$
607,100

Total acquisitions and SOR Merger
 
$
105,525

 
$
697,576

 
$
156,554

 
$
5,445

 
$
965,100

(1) See Note 4, Investments, for Restoration Hardware asset allocation.
(2) As of September 30, 2015, the purchase price for the DreamWorks property had not been finalized.

24

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

Pro Forma Financial Information    
The following condensed pro forma operating information is presented as if the Company’s properties acquired in 2015 had been included in operations as of January 1, 2014. The pro forma operating information excludes certain nonrecurring adjustments, such as acquisition fees and expenses incurred, to reflect the pro forma impact these acquisitions would have on earnings on a continuous basis:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenue
$
84,105

 
$
77,878

 
$
244,264

 
$
224,803

Net income
$
11,510

 
$
9,137

 
$
41,938

 
$
32,125

Net income attributable to noncontrolling interests
$
227

 
$
110

 
$
612

 
$
516

Distributions to redeemable noncontrolling interests attributable to common stockholders
$
(91
)
 
$
(90
)
 
$
(268
)
 
$
(265
)
Net income attributable to common stockholders (1)
$
8,863

 
$
4,145

 
$
23,709

 
$
17,125

Net income attributable to common stockholders per share, basic and diluted
$
0.05

 
$
0.02

 
$
0.14

 
$
0.12

(1)
Amount is net of net income attributable to noncontrolling interests and distributions to redeemable noncontrolling interests attributable to common stockholders.
Future Minimum Contractual Rent Payments
The future minimum contractual rent payments pursuant to the lease terms, with lease expirations ranging from 2015 to 2035, are shown in the table below:
Remaining 2015
$
61,492

2016
247,289

2017
244,580

2018
232,310

2019
204,236

Thereafter
1,108,897

Total
$
2,098,804






















25

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)


Revenue Concentration
No lessee or property, based on annualized net rent for the 12-month period subsequent to September 30, 2015, pursuant to the respective in-place leases, was greater than 6% as of September 30, 2015.
The percentage of annualized net rent for the 12-month period subsequent to September 30, 2015, by state, based on the respective in-place leases, is as follows:
State
 
Annualized
Net Rent
 
Number of
Properties
 
Percentage of
Annualized
Net Rent
California
 
$
39,889

 
8

 
17.9
%
Texas
 
26,467

 
8

 
11.8

Illinois
 
21,289

 
8

 
9.5

Ohio
 
21,115

 
8

 
9.5

Georgia
 
19,820

 
4

 
8.9

Colorado
 
18,237

 
6

 
8.2

Arizona
 
12,385

 
4

 
5.5

New Jersey
 
11,144

 
3

 
5.0

All others (1)
 
52,820

 
22

 
23.7

Total
 
$
223,166

 
71

 
100.0
%
(1)     All others account for less than 5% of total annualized net rent on an individual basis.
The percentage of annualized net rent for the 12-month period subsequent to September 30, 2015, by industry, based on the respective in-place leases, is as follows: 
Industry (1)
 
Annualized
Net Rent
 
Number of
Lessees
 
Percentage of
Annualized
Net Rent
Manufacturing
 
$
61,516

 
26

 
27.6
%
Finance & Insurance
 
50,416

 
28

 
22.6

Information (2)
 
44,369

 
11

 
19.9

Professional, Scientific & Technical Services (3)
 
23,849

 
7

 
10.7

Retail Trade
 
12,596

 
5

 
5.6

All others (4)
 
30,420

 
16

 
13.6

Total
 
$
223,166

 
93

 
100.0
%

(1)     Industry classification based on the 2012 North American Industry Classification System.
(2)     Includes Telecommunications.
(3)     Includes, but is not limited to: Scientific Research and Development Services; Architectural, Engineering, and Related Services; and Legal Services.
(4)     All others account for less than 5% of total annualized net rent on an individual basis.

26

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited; dollars in thousands unless otherwise noted)

The tenant lease expirations by year based on annualized net rent for the 12-month period subsequent to September 30, 2015 are as follows:
Year of Lease Expiration
 
Annualized
Net Rent
 
Number of
Lessees
 
Approx. Square Feet
 
Percentage of
Annualized
Net Rent
2015
 
$
799

 
3

 
265,100

 
0.4
%
2016
 
136

 
2

 
21,800

 
0.1
%
2017
 
17,128

 
9

 
928,600

 
7.7
%
2018
 
22,196

 
10

 
2,443,100

 
9.9
%
2019
 
27,045

 
9

 
1,556,900

 
12.1
%
2020
 
19,368

 
10

 
1,668,000

 
8.7
%
2021
 
10,965

 
6

 
1,077,500

 
4.9
%
2022
 
20,980

 
10

 
1,520,200

 
9.4
%
2023
 
15,822

 
6

 
1,159,100

 
7.1
%
2024
 
20,628

 
10

 
1,503,000

 
9.2
%
2025
 
20,193

 
8

 
1,479,700

 
9.0
%
2026
 
13,491

 
5

 
851,000

 
6.0
%
2027
 
1,898

 
1

 
81,600

 
0.9
%
2029
 
6,444

 
1

 
249,400

 
2.9
%
2030
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