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EX-31.2 - EXHIBIT 31.2 - Griffin Capital Essential Asset REIT, Inc.gcear12312015exhibit312.htm
EX-32.1 - EXHIBIT 32.1 - Griffin Capital Essential Asset REIT, Inc.gcear12312015exhibit321.htm
EX-32.2 - EXHIBIT 32.2 - Griffin Capital Essential Asset REIT, Inc.gcear12312015exhibit322.htm
EX-23.1 - EXHIBIT 23.1 - Griffin Capital Essential Asset REIT, Inc.gcear12312015exhibit231eyc.htm
EX-31.1 - EXHIBIT 31.1 - Griffin Capital Essential Asset REIT, Inc.gcear12312015exhibit311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
¨
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 Avenue, El Segundo, California 90245
(Address of principal executive offices)
(310) 469-6100
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
None
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes  ¨    No  ý
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  ý    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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ý    No  ¨

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment of this Form 10-K. x
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  ý
The aggregate market value of voting common stock held by non-affiliates was $1,806,641,574 assuming a market value of $10.40 per share, as of June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter.
As of March 4, 2016, there were 175,381,269 outstanding shares of common stock of the registrant.
Documents Incorporated by Reference:
The Registrant incorporates by reference in Part III (Items 10, 11, 12, 13 and 14) of this Form 10-K portions of its Definitive Proxy Statement for the 2016 Annual Meeting of Stockholders.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
TABLE OF CONTENTS
 
 
 
Page No.
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-K 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 (the “SEC”). We cannot guarantee the accuracy of any such forward-looking statements contained in this Form 10-K, 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.
As used in this report, “we,” “us” and “our” refer to Griffin Capital Essential Asset REIT, Inc. All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of this Form 10-K.


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PART I
ITEM 1.
BUSINESS
Overview
We were formed as a corporation on August 28, 2008 under the Maryland General Corporation Law primarily with the purpose of acquiring single tenant properties that are essential to the tenant's business. We were taxed as a REIT for the taxable year ended December 31, 2010, and for each year thereafter, after satisfying both financial and non-financial requirements. Our year end is December 31.
We have no employees and are externally advised and managed by an affiliate, Griffin Capital Essential Asset Advisor, LLC, a Delaware limited liability company (the "Advisor"), which was formed on August 27, 2008. Griffin Capital Asset Management Company, LLC ("GAMCO," formerly known as Griffin Capital REIT Holdings, LLC) is the sole member of the Advisor, and Griffin Capital, LLC ("GC") is the sole member of GAMCO. We entered into an advisory agreement for the Public Offerings (as defined below) (as amended and restated, the "Advisory Agreement"), which states that the Advisor is responsible for managing our affairs on a day-to-day basis and identifying and making acquisitions and investments on our behalf. The officers of the Advisor are also officers of Griffin Capital Corporation, a California corporation (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 our board of directors.
On February 20, 2009, we commenced a private offering to accredited investors only pursuant to a confidential private placement memorandum. On May 6, 2009, we satisfied our minimum offering requirement and commenced operations. We declared our first distribution to stockholders in the second quarter of 2009, which was paid on June 15, 2009.
We terminated our private offering on November 6, 2009 and began our initial offering to the public of a maximum of 82,500,000 shares of common stock, consisting of 75,000,000 shares of common stock at an initial price of $10.00 per share (the "Primary Public Offering") and 7,500,000 shares at an initial price of $9.50 per share pursuant to our distribution reinvestment plan ("DRP") (together with the Primary Public Offering, our "Initial Public Offering"). On April 25, 2013, we terminated our Initial Public Offering, having issued approximately 19,200,570 total shares of our common stock for gross proceeds of approximately $191.5 million, including 585,533 shares, or $5.6 million, issued pursuant to the DRP.
On April 26, 2013, we began to offer, in a follow-on offering, up to $1.0 billion in shares of common stock, consisting of approximately 97,200,000 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 $100.0 million in shares of common stock, consisting of approximately 10,200,000 shares pursuant to the DRP at a price equal to 95% of the share price, which was approximately $9.77 per share (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, we announced that we were no longer accepting subscriptions in the Follow-On Offering, as we expected to reach the maximum amount of offering proceeds. We issued 107,144,337 total shares of our common stock for gross proceeds of approximately $1.1 billion in our Follow-On Offering, including 1,774,208 shares, or $17.3 million, issued pursuant to the DRP.
On May 7, 2014, we 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 September 22, 2015, we 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. In connection with our DRP Offerings, we had issued 8,579,699 shares of our common stock for gross proceeds of approximately $87.3 million through December 31, 2015. The 2015 DRP Offering may be terminated at any time upon 10 days’ prior written notice to stockholders.
On November 21, 2014, we and one of our wholly-owned subsidiaries ("Merger Sub") entered into a merger agreement with Signature Office REIT, Inc. ("SOR"). In connection with the merger (the "SOR Merger"), (1) SOR merged into Merger Sub, and (2) each share of common stock of SOR issued and outstanding was converted into 2.04 shares ("Merger Consideration") of our common stock. On June 10, 2015, we issued approximately 41,800,000 shares of common stock upon the consummation of the SOR Merger. The assets and liabilities of SOR are included in our consolidated financial statements as of the closing date, June 10, 2015. See Note 3, Real Estate, to the consolidated financial statements for further discussion.
On October 22, 2015, our board of directors (the "Board"), at the recommendation of the Nominating and Corporate Governance Committee of the Board (the "Nominating and Corporate Governance Committee") comprised solely of independent directors, approved an estimated value per share of our common stock of $10.40 based on the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding on a fully diluted basis (the "NAV"), calculated as of September 30, 2015. We are providing this estimated value per share to assist broker

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dealers in connection with their obligations under applicable Financial Industry Regulatory Authority rules with respect to customer account statements. This valuation was performed in accordance with the provisions of Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Investment Program Association ("IPA") in April 2013, in addition to guidance from the SEC. For a detailed description of how we determined the NAV, see Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Since our inception and through December 31, 2015, we had redeemed 1,753,700 shares of common stock for approximately $17.3 million at a weighted average price per share of $9.88 pursuant to our share redemption program ("SRP").
As of December 31, 2015, we owned 74 properties in 20 states, encompassing approximately 18.6 million rentable square feet, which include the properties acquired in connection with our merger with SOR. For information about acquisitions and revenue concentration by geographical location and industry, see Item 2, Properties.
Primary Investment Objectives
Our primary investment objectives are to invest in income-producing real property in a manner that allows us to qualify as a REIT for federal income tax purposes, provide regular cash distributions to our stockholders, preserve and protect stockholders' invested capital, and achieve appreciation in the value of our properties over the long term. We cannot assure our stockholders that we will attain these primary investment objectives.
Exchange Listing and Other Liquidity Events
Our board of directors will determine when, and if, to apply to have our shares of common stock listed for trading on a national securities exchange, subject to satisfying then-existing applicable listing requirements. Our board of directors has begun to consider the appropriate timing for a liquidity event and has begun to weigh various strategic considerations. Subject to market conditions and the sole discretion of our board of directors, we may seek one or more of the following liquidity events:
list our shares on a national securities exchange;
merge, reorganize or otherwise transfer the company or its assets to another entity with listed securities;
commence the sale of all of our properties and liquidate the company; or
otherwise create a liquidity event for our stockholders.
However, we cannot assure our stockholders that we will achieve one or more of the above-described liquidity events. Our board of directors has the sole discretion to forego a liquidity event and continue operations if it deems such continuation to be in the best interests of our stockholders. Even if we accomplish one or more of these liquidity events, we cannot guarantee that a public market will develop for the securities listed or that such securities will trade at a price higher than what stockholders paid for their shares.
Investment Strategy
We operate a portfolio of single tenant business essential properties throughout the United States diversified by corporate credit, physical geography, product type and lease duration. Although we have no current intention to do so, we may also invest in single tenant business essential properties outside the United States. We acquire assets consistent with our single tenant acquisition philosophy by focusing primarily on properties:
essential to the business operations of the tenant;
located in primary, secondary, and certain select tertiary markets;
leased to tenants with stable and/or improving credit quality; and
subject to long-term leases with defined rental rate increases or with short-term leases with high-probability renewal and potential for increasing rent.
Our investment objectives and policies may be amended or changed at any time by our board of directors. Although we have no plans at this time to change any of our investment objectives, our board of directors may change any and all such investment objectives, including our focus on single tenant business essential properties, if they believe such changes are in the best interests of our stockholders. In addition, we may invest in real estate properties other than single tenant business essential properties if the board of directors deems such investments to be in the best interests of our stockholders.

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Our sponsor has been acquiring single tenant business essential properties for two decades. Our sponsor’s positive acquisition and ownership experience with single tenant business essential properties of the type we intend to acquire stems from the following:
the credit quality of the lease payment is determinable and equivalent to the senior unsecured credit characteristics of the tenant;
the essential nature of the asset to the tenant’s business provides greater default protection relative to the tenant’s balance sheet debt;
the percentage recovery in the event of a tenant default is empirically greater than an unsecured lender; and
long-term leases provide a consistent and predictable income stream across market cycles while short-term leases offer income appreciation upon renewal and reset.
We will seek to provide stockholders the following benefits:
a cohesive management team experienced in all aspects of real estate investment with a track record of acquiring single tenant business essential assets;
a clear alignment of interests between management and investors, as certain affiliates of our sponsor invested over $26 million in our portfolio by contributing certain properties to us;
stable cash flow backed by a portfolio of single tenant business essential real estate assets;
minimal exposure to operating and maintenance expense increases as we attempt to structure or acquire leases where the tenant assumes the responsibility for these costs;
contractual lease rate increases enabling distribution growth and a hedge against inflation;
insulation from short-term economic cycles resulting from the long-term nature of underlying asset leases;
enhanced stability resulting from diversified credit characteristics of corporate credits; and
portfolio stability promoted through geographic and product type investment diversification.
We cannot assure our stockholders that any of the properties we acquire will result in the benefits discussed above.
General Acquisition and Investment Policies
We seek to make investments that satisfy the primary investment objective of providing regular cash distributions to our stockholders. However, because a significant factor in the valuation of income-producing real property is its potential for future appreciation, we anticipate that some properties we acquire may have the potential both for growth in value and for providing regular cash distributions to our stockholders.
Our Advisor has substantial discretion with respect to the selection of specific properties. However, each acquisition will be approved by our board of directors. In selecting a potential property for acquisition, we and our Advisor consider a number of factors, including, but not limited to, the following:
tenant creditworthiness;
essentialness of the property to the business operations of the tenant;
lease terms, including length of lease term, scope of landlord responsibilities, presence and frequency of contractual rental increases, renewal option provisions, exclusive and permitted use provisions, co-tenancy requirements and termination options;
projected demand in the area;
a property’s geographic location and type;
proposed purchase price, terms and conditions;
tenant's and property's historical financial performance;
projected net cash flow yield and internal rates of return;
a property’s physical location, visibility, curb appeal and access;
construction quality and condition;
potential for capital appreciation;

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demographics of the area, neighborhood growth patterns, economic conditions, and local market conditions;
potential capital and tenant improvements and reserves required to maintain the property;
prospects for liquidity through sale, financing or refinancing of the property;
the potential for the construction of new properties in the area;
treatment under applicable federal, state and local tax and other laws and regulations;
evaluation of title and obtaining of satisfactory title insurance; and
evaluation of any reasonable ascertainable risks such as environmental contamination.
There is no limitation on the number, size, or type of properties that we may acquire. The number and mix of properties will depend upon real estate market conditions and other circumstances existing at the time of acquisition and the funds available to us for the purchase of real estate. In determining whether to purchase a particular property, we may obtain an option on such property. The amount paid for an option, if any, is normally surrendered if the property is not purchased and may or may not be credited against the purchase price if the property is ultimately purchased.
Description of Leases
We, in most instances, have acquired single tenant properties with existing net leases. When spaces in a property become vacant, existing leases expire, or we acquire properties under development or requiring substantial refurbishment or renovation, we anticipate entering into “net” leases. “Net” leases mean leases that typically require tenants to pay all or a majority of the operating expenses, including real estate taxes, special assessments and sales and use taxes, utilities, insurance, common area maintenance charges, property services and building repairs related to the property, in addition to the lease payments. Under most commercial leases, tenants are obligated to pay a predetermined annual base rent. Some of the leases also will contain provisions that increase the amount of base rent payable at points during the lease term and/or that require the tenant to pay rent based upon a percentage of the tenant’s revenues. Percentage rent can be calculated based upon a number of factors. There are various forms of net leases, typically classified as triple-net or absolute triple-net. Triple-net leases typically require the tenant to pay all costs associated with a property in addition to the base rent and percentage rent, if any. However, often times in triple-net leases certain capital expenditure costs are not paid for by the tenants (such as roof and structure costs). Absolute triple-net leases are those that require tenants to pay for all the costs in a triple-net lease as well as all the capital costs associated with a property.
To the extent we acquire multi-tenant properties, we have, and expect to have, a variety of lease arrangements with the tenants of these properties. Since each lease is an individually negotiated contract between two or more parties, each lease will have different obligations of both the landlord and tenant, and we cannot predict at this time the exact terms of any future leases into which we will enter. We weigh many factors when negotiating specific lease terms, including, but not limited to, the rental rate, creditworthiness of the tenant, location of the property, and type of property. Many large national tenants have standard lease forms that generally do not vary from property to property. We will have limited ability to revise the terms of leases with those tenants. Some of these limited negotiable terms include lease duration and special provisions on the recovery of operating expenses. In certain instances, we may be responsible for normal operating expenses up to a certain amount, which may reduce the amount of operating cash flow available for future investments.
Typically, our tenants will have lease terms of seven to 15 years at the time of the property acquisition. We may acquire properties under which the lease term has partially expired. We also may acquire properties with shorter lease terms if the property is located in a desirable location, is difficult to replace, or has other significant favorable real estate attributes. Generally, the leases require each tenant to procure, at its own expense, commercial general liability insurance, as well as property insurance covering the building for the full replacement value and naming the ownership entity and the lender, if applicable, as the additional insured on the policy.
Our Borrowing Strategy and Policies
We may incur our indebtedness in the form of bank borrowings, purchase money obligations to the sellers of properties, and publicly- or privately-placed debt instruments or financing from institutional investors or other lenders. We may obtain a credit facility or separate loans for each acquisition. Our indebtedness may be unsecured or may be secured by mortgages or other interests in our properties or underlying owner entities. We may use borrowing proceeds to finance acquisitions of new properties, to pay for capital improvements, repairs or buildouts, to refinance existing indebtedness, to pay distributions, to fund redemptions of our shares, or to provide working capital.

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There is no limitation on the amount we can borrow for the purchase of any property. Our aggregate borrowings, secured and unsecured, must be reasonable in relation to our net assets and must be reviewed by our board of directors at least quarterly. At this time, we intend to maintain a leverage ratio of less than 50% to real estate net book value. However, our charter limits our borrowing to 300% of our net assets (equivalent to 75% of the cost of our assets) unless any excess borrowing is approved by a majority of our independent directors and is disclosed to our stockholders in our next quarterly report, along with the justification for such excess. As of December 31, 2015, our leverage ratio (which we define as our debt as a percentage of the net book value of our real estate) was approximately 54%.
We may borrow amounts from our Advisor or its affiliates only if such loan is approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, as fair, competitive, commercially reasonable and no less favorable to us than comparable loans between unaffiliated parties under the circumstances.
Except as set forth in our charter regarding debt limits, we may re-evaluate and change our debt strategy and policies in the future without a stockholder vote. Factors that we could consider when re-evaluating or changing our debt strategy and policies include then-current economic and market conditions, the relative cost of debt and equity capital, any acquisition opportunities, the ability of our properties to generate sufficient cash flow to cover debt service requirements and other similar factors. Further, we may increase or decrease our ratio of debt to equity in connection with any change of our borrowing policies.
Acquisition Structure
Although we are not limited as to the form our investments may take, our investments in real estate will generally constitute acquiring fee title or interests in joint ventures or similar entities that own and operate real estate.
We will make acquisitions of our real estate investments directly through our Operating Partnership or indirectly through limited liability companies or limited partnerships, or through investments in joint ventures, partnerships, co-tenancies or other co-ownership arrangements with other owners of properties, affiliates of our Advisor, or other persons.

Insurance on Properties
Generally, the leases require each tenant to procure, at its own expense, commercial general liability insurance, as well as property insurance covering the building for the full replacement value and naming the ownership entity and the lender, if applicable, as the additional insured on the policy. As a precautionary measure, we may obtain, to the extent available, contingent liability and property insurance, as well as loss of rents insurance that covers one or more years of annual rent in the event of a rental loss. In addition, we maintain a pollution insurance policy for all of our properties to insure against the risk of environmental contaminants. However, we may decide not to obtain any or adequate earthquake or similar catastrophic insurance coverage because the premiums are too high, even in instances where it may otherwise be available.
Tenants will be required to provide proof of insurance by furnishing a certificate of insurance to our Advisor on an annual basis. The insurance certificates will be tracked and reviewed for compliance by our property managers.
Conditions to Closing Acquisitions
We intend to obtain at least a Phase I environmental assessment and history for each property we acquire. In addition, we will generally condition our obligation to close the purchase of any investment on the delivery and verification of certain documents from the seller or other independent professionals, including, but not limited to, where appropriate:
property surveys and site audits;
appraisal reports;
building plans and specifications, if available;
soil reports, seismic studies, flood zone studies, if available;
licenses, permits, maps and governmental approvals;
tenant estoppel certificates;
tenant financial statements and information, as permitted;
historical financial statements and tax statement summaries of the properties;
proof of marketable title, subject to such liens and encumbrances as are acceptable to us; and
liability and title insurance policies.

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Joint Venture Investments
We may acquire properties in joint ventures, some of which may be entered into with affiliates of our Advisor. We may also enter into joint ventures, general partnerships, co-tenancies and other participations, such as Delaware Statutory Trusts (DSTs), with real estate developers, owners and others for the purpose of owning and leasing real properties. Among other reasons, we may want to acquire properties through a joint venture with third parties or affiliates in order to diversify our portfolio of properties in terms of geographic region or property type. Joint ventures may also allow us to acquire an interest in a property without requiring that we fund the entire purchase price. In addition, certain properties may be available to us only through joint ventures. In determining whether to recommend a particular joint venture, our Advisor will evaluate the real property which such joint venture owns or is being formed to own under the same criteria that the Advisor uses to evaluate other real estate investments.
We may enter into joint ventures with affiliates of our Advisor for the acquisition of properties, but only provided that:
a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, approve the transaction as being fair and reasonable to us; and
the investment by us and such affiliate are on substantially the same terms and conditions.
To the extent possible and if approved by our board of directors, including a majority of our independent directors, we will attempt to obtain a right of first refusal or option to buy the property held by the joint venture and allow such venture partners to exchange their interest for our Operating Partnership's units or to sell their interest to us in its entirety. In the event that the venture partner were to elect to sell property held in any such joint venture, however, we may not have sufficient funds to exercise our right of first refusal to buy the venture partner’s interest in the property held by the joint venture. Entering into joint ventures with affiliates of our Advisor will result in certain conflicts of interest.
Construction and Development Activities
From time to time, we may construct and develop real estate assets or render services in connection with these activities. We may be able to reduce overall purchase costs by constructing and developing a property versus purchasing a completed property. Developing and constructing properties would, however, expose us to risks such as cost overruns, carrying costs of projects under construction or development, availability and costs of materials and labor, weather conditions, and government regulation. To comply with the applicable requirements under federal income tax law, we intend to limit our construction and development activities to performing oversight and review functions, including reviewing the construction design proposals, negotiating and contracting for feasibility studies and supervising compliance with local, state or federal laws and regulations, negotiating contracts, overseeing construction, and obtaining financing. In addition, we may use taxable REIT subsidiaries or certain independent contractors to carry out these oversight and review functions. We will retain independent contractors to perform the actual construction work.
Government Regulations
The properties we acquire likely will be subject to various federal, state and local regulatory requirements, including the Americans with Disabilities Act, environmental regulations, and other laws, such as zoning and state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. We intend to acquire properties that are in material compliance with all such regulatory requirements. However, we cannot assure stockholders that these requirements will not be changed or that new requirements will not be imposed which would require significant unanticipated expenditures by us and could have an adverse effect on our financial condition and results of operations.
Disposition Policies
We generally intend to hold each property we acquire for an extended period. However, we may sell a property at any time if, in our judgment, the sale of the property is in the best interests of our stockholders.
The determination of whether a particular property should be sold or otherwise disposed of will generally be made after consideration of relevant factors, including prevailing economic conditions, other investment opportunities and considerations specific to the condition, value and financial performance of the property. In connection with our sales of properties, we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale.

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We may sell assets to third parties or to affiliates of our Advisor. Our nominating and corporate governance committee of our board of directors, which is comprised solely of independent directors, must review and approve all transactions between us and our Advisor and its affiliates.
Investment Limitations in Our Charter
Our charter places numerous limitations on us with respect to the manner in which we may invest our funds, most of which are those typically required by various provisions of the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association (NASAA REIT Guidelines). So long as our shares are not listed on a national securities exchange, the NASAA REIT Guidelines apply to us, and we will not:
Invest in equity securities unless a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction approve such investment as being fair, competitive and commercially reasonable.
Invest in commodities or commodity futures contracts, except for future contracts when used solely for the purpose of hedging in connection with our ordinary business of investing in real estate assets and mortgages.
Invest in real estate contracts of sale, otherwise known as land sale contracts, unless the contract is in recordable form and is appropriately recorded in the chain of title.
Make or invest in mortgage loans unless an appraisal is obtained concerning the underlying property, except for those mortgage loans insured or guaranteed by a government or government agency. In cases where our independent directors determine, and in all cases in which the transaction is with any of our directors or our Advisor and its affiliates, we will obtain an appraisal from an independent appraiser. We will maintain such appraisal in our records for at least five years and it will be available to our stockholders for inspection and duplication. We will also obtain a mortgagee’s or owner’s title insurance policy as to the priority of the mortgage or condition of the title.
Make or invest in mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans on such property would exceed an amount equal to 85% of the appraised value of such property, as determined by an appraisal, unless substantial justification exists for exceeding such limit because of the presence of other loan underwriting criteria.
Make or invest in mortgage loans that are subordinate to any mortgage or equity interest of any of our directors, our Advisor or their respective affiliates.
Make investments in unimproved property or indebtedness secured by a deed of trust or mortgage loans on unimproved property in excess of 10% of our total assets.
Issue equity securities on a deferred payment basis or other similar arrangement.
Issue debt securities in the absence of adequate cash flow to cover debt service.
Issue equity securities that are assessable after we have received the consideration for which our board of directors authorized their issuance.
Issue “redeemable securities” redeemable solely at the option of the holder, which restriction has no effect on our ability to implement our share redemption program.
When applicable, grant warrants or options to purchase shares to our Advisor or its affiliates or to officers or directors affiliated with our Advisor except on the same terms as options or warrants that are sold to the general public. Further, the amount of the options or warrants cannot exceed an amount equal to 10% of outstanding shares on the date of grant of the warrants and options.
Lend money to our directors, or to our Advisor or its affiliates, except for certain mortgage loans described above.
Changes in Investment Policies and Limitations
Our charter requires that our independent directors review our investment policies at least annually to determine that the policies we are following are in the best interests of our stockholders. Each determination and the basis therefor are required to be set forth in the applicable meeting minutes. The methods of implementing our investment policies may also vary as new investment techniques are developed. The methods of implementing our investment objectives and policies, except as otherwise provided in our charter, may be altered by a majority of our directors, including a majority of our independent directors, without the approval of our stockholders. The determination by our board of directors that it is no longer in our best interests to continue to be qualified as a REIT shall require the concurrence of two-thirds of the board of directors. Investment

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policies and limitations specifically set forth in our charter, however, may only be amended by a vote of the stockholders holding a majority of our outstanding shares.
Investments in Mortgages
While we intend to emphasize on equity real estate investments and, hence, operate as what is generally referred to as an “equity REIT,” as opposed to a “mortgage REIT,” we may invest in first or second mortgage loans, mezzanine loans secured by an interest in the entity owning the real estate or other similar real estate loans consistent with our REIT status. We may make such loans to developers in connection with construction and redevelopment of real estate properties. Such mortgages may or may not be insured or guaranteed by the Federal Housing Administration, the Veterans Benefits Administration or another third party. We may also invest in participating or convertible mortgages if our directors conclude that we and our stockholders may benefit from the cash flow or any appreciation in the value of the subject property. Such mortgages are similar to equity participation.
Affiliate Transaction Policy
Our board of directors has established a nominating and corporate governance committee, which will review and approve all matters the board believes may involve a conflict of interest. This committee is composed solely of independent directors. This committee of our board of directors will approve all transactions between us and our Advisor and its affiliates.
We own a 10% interest in one affiliated DST property. See Note 4, Investments, to the consolidated financial statements. On June 24, 2013, our board of directors determined that we would not acquire any new properties in which our sponsor, or its executive officers, owns an economic interest in excess of 10% of the contract purchase price. To the extent management and the board of directors determine to acquire a property in which our sponsor owns an economic interest of 10% or less, the board of directors adopted certain procedures that they intend to apply consistently.
Tenant-in-common properties in which our sponsor owns a 10% economic interest or less. For these situations, we will require our sponsor to engage an independent third party real estate broker to market the property for sale. If we determine the price offered through such marketing efforts is a price at which we would have an interest in acquiring the property, we may submit a bid to acquire the same upon substantially the same terms and conditions otherwise dictated by the market. Should the tenant-in-common owners elect to proceed with a transaction with us and our board approves the acquisition of the property upon such terms and conditions, we will obtain an independent third party appraisal. If the appraised value of the property is equal to or greater than the proposed purchase price, we may acquire the property. Investors in the seller of such property will have the option to either (a) elect to receive their pro-rata share of the net cash proceeds from such disposition, or (b) exchange their equity for limited partnership units in our operating partnership which amounts will be grossed-up by 10% since the exchange will not include sales commissions or a dealer manager fee.
Properties owned through a DST format where our sponsor, or its executive officers, owns a 10% economic interest or less. For these situations, we typically will have the option to acquire the balance of the interests in the DST from the other investors after one year from the initial sale to one of the DST investors. If our board determines to acquire those interests, we will obtain an independent third party appraisal on the property. We intend to acquire the interests in the DST based on such appraisal. The DST investors will have the option to either (a) elect to receive their pro-rata share of the net cash proceeds from such disposition, (b) exchange their DST interests for limited partnership units in our operating partnership, or (c) elect to retain their interest in the DST interests. In certain circumstances, the DST investors may only have options (a) and (b) available depending upon the nature and structure of the underlying transaction and the financing related thereto.
Investment Company Act and Certain Other Policies
We intend to operate in such a manner that we will not be subject to regulation under the Investment Company Act of 1940 (1940 Act). Our Advisor will continually review our investment activity to attempt to ensure that we do not come within the application of the 1940 Act. Among other things, our Advisor will attempt to monitor the proportion of our portfolio that is placed in various investments so that we do not come within the definition of an “investment company” under the 1940 Act. If at any time the character of our investments could cause us to be deemed as an investment company for purposes of the 1940 Act, we will take all necessary actions to attempt to ensure that we are not deemed to be an “investment company.” In addition, we do not intend to underwrite securities of other issuers or actively trade in loans or other investments.
Subject to the restrictions we must follow in order to qualify to be taxed as a REIT, we may make investments other than as previously described, although we do not currently intend to do so. We have authority to purchase or otherwise reacquire our shares of common stock or any of our other securities. We have no present intention of repurchasing any of our shares of common stock except pursuant to our share redemption program, and we would only take such action in conformity with applicable federal and state laws and the requirements for qualifying as a REIT under the Code.

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Employees
We have no employees. The employees of our Advisor and its affiliates provide management, acquisition, advisory and certain administrative services for us.
Competition
As we purchase properties for our portfolio, we are in competition with other potential buyers for the same properties, and may have to pay more to purchase the property than if there were no other potential acquirers or we may have to locate another property that meets our investment criteria. Although we intend to acquire properties subject to existing leases, the leasing of real estate is highly competitive in the current market, and we may experience competition for tenants from owners and managers of competing projects. As a result, we may have to provide free rent, incur charges for tenant improvements, or offer other inducements, or we might not be able to timely lease the space, all of which may have an adverse impact on our results of operations. At the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchasers for its properties.
Industry Segments
We internally evaluate all of our properties and interests therein as one reportable segment. 
ITEM 1A.
RISK FACTORS
Below are risks and uncertainties that could adversely affect our operations that we believe are material to stockholders. Other risks and uncertainties may exist that we do not consider material based on the information currently available to us at this time.
Risks Related to an Investment in Griffin Capital Essential Asset REIT, Inc.
We have incurred operating losses to date and have an accumulated deficit.
We have incurred operating losses in the past and have an accumulated deficit, and may incur operating losses in the future. We had net income of $15.6 million and $0.01 million for the fiscal years ended December 31, 2015 and 2014, respectively. We incurred a net loss of $24.5 million for the fiscal year ended December 31, 2013. Our accumulated deficit was approximately $55.0 million, $51.3 million, and $32.6 million as of December 31, 2015, 2014, and 2013, respectively.
We have paid a portion of our distributions from sources other than cash flow from operations; therefore, we will have fewer funds available for the acquisition of properties, and our stockholders’ overall return may be reduced.
In the event we do not have enough cash from operations to fund our distributions, we may borrow, issue additional securities or sell assets in order to fund the distributions. We are not prohibited from undertaking such activities by our charter, bylaws or investment policies, and we may use an unlimited amount from any source to pay our distributions. Through December 31, 2015, we funded 90% of our distributions using cash flows from operations as shown on the statement of cash flows and 10% of our distributions using offering proceeds. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Distributions and Our Distribution Policy, below. If we continue to pay distributions from sources other than cash flow from operations, we will have fewer funds available for acquiring properties, which may reduce our stockholders’ overall returns. Additionally, to the extent distributions exceed cash flow from operations, a stockholder’s basis in our stock may be reduced and, to the extent distributions exceed a stockholder’s basis, the stockholder may recognize a capital gain.
We may be unable to pay or maintain cash distributions or increase distributions over time.
There are many factors that can affect the availability and timing of cash distributions to stockholders. Distributions will be based principally on distribution expectations of our potential investors and cash available from our operations. The amount of cash available for distribution will be affected by many factors, such as our ability to secure properties with leases or originate leases that generate rents to exceed our operating expense levels, as well as many other variables. Actual cash available for distribution may vary substantially from estimates. With limited prior operating history, we cannot assure our stockholders that we will be able to pay or maintain distributions or that distributions will increase over time, nor can we give any assurance that rents from the properties will increase, or that future acquisitions of real properties will increase our cash available for distribution to stockholders. Our actual results may differ significantly from the assumptions used by our board of directors in establishing the distribution rate to stockholders.
There is currently no public trading market for our shares and there may never be one; therefore, it will be difficult for our stockholders to sell their shares including under our share redemption program.

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There is currently no public market for our shares and there may never be one. Our stockholders may not sell their shares unless the buyer meets applicable suitability and minimum purchase standards, which includes owning the stock for at least one year. Our charter also prohibits the ownership of more than 9.8% of our stock, unless waived by our board of directors, which may inhibit large investors from desiring to purchase our stockholders’ shares. Moreover, our share redemption program includes numerous restrictions that would limit our stockholders’ ability to sell their shares to us. Redemption of shares, when requested, will generally be made quarterly. During any calendar year, we will not redeem in excess of 5% of the weighted average number of shares outstanding during the prior calendar year and redemptions will be funded solely from proceeds from our distribution reinvestment plan. Our board of directors could choose to amend, suspend or terminate our share redemption program upon 30 days’ notice. Therefore, it may be difficult for our stockholders to sell their shares promptly or at all. If our stockholders are able to sell their shares, they will likely have to sell them at a substantial discount to the price they paid for the shares. It also is likely that their shares would not be accepted as the primary collateral for a loan. Our stockholders should purchase the shares only as a long-term investment because of the illiquid nature of the shares.
In determining net asset value, or NAV, per share, we relied upon a valuation of our properties as of September 30, 2015. Valuations and appraisals of our properties are estimates of fair value and may not necessarily correspond to realizable value upon the sale of such properties, therefore our new asset value per share may not reflect the amount that would be realized upon a sale of each of our properties.
For the purposes of calculating our NAV per share, an independent third-party appraiser valued our properties as of September 30, 2015. The valuation methodologies used to value our properties involved certain subjective judgments. Ultimate realization of the value of an asset depends to a great extent on economic and other conditions beyond our control and the control of our Advisor and independent appraiser. Further, valuations do not necessarily represent the price at which an asset would sell, since market prices of assets can only be determined by negotiation between a willing buyer and seller. Therefore, the valuations of our properties and our investments in real estate related assets may not correspond to the timely realizable value upon a sale of those assets.
Our NAV per share is somewhat based upon subjective judgments, assumptions and opinions, which may or may not turn out to be correct. Therefore, our NAV per share may not reflect the precise amount that might be paid to stockholders for their shares in a market transaction.
Our net asset value per share was based on an estimate of the value of our properties - consisting principally of illiquid commercial real estate - as of September 30, 2015. The valuation methodologies used by the independent appraiser retained by our board of directors to estimate the value of our properties as of September 30, 2015 involved subjective judgments, assumptions and opinions, which may or may not turn out to be correct. As a result, our net asset value per share may not reflect the precise amount that might be paid to stockholders for their shares in a market transaction.
If our Advisor loses or is unable to obtain key personnel, our ability to implement our investment objectives could be delayed or hindered, which could adversely affect our ability to make distributions and the value of our stockholders’ investment.
Our success depends to a significant degree upon the contributions of certain of our executive officers and other key personnel of our Advisor and sponsor, including Kevin A. Shields, Michael J. Escalante, Joseph E. Miller, David C. Rupert, Mary P. Higgins, Howard S. Hirsch, Don G. Pescara, and Julie A. Treinen, each of whom would be difficult to replace. Our Advisor does not have an employment agreement with any of these key personnel and we cannot guarantee that all, or any particular one, will remain affiliated with us and/or our Advisor. If any of our key personnel were to cease their affiliation with our Advisor, our operating results could suffer. Further, although our sponsor has obtained key person life insurance on some of these individuals, we do not intend to separately maintain key person life insurance on any of these individuals. We believe that our future success depends, in large part, upon our Advisor's ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure stockholders that our Advisor will be successful in attracting and retaining such skilled personnel. If our Advisor loses or is unable to obtain the services of key personnel or does not establish or maintain appropriate strategic relationships, our ability to implement our investment strategies could be delayed or hindered, and the value of a stockholder's investment may decline.
Our ability to operate profitably will depend upon the ability of our Advisor to efficiently manage our day-to-day operations.
We will rely on our Advisor to manage our business and assets. Our Advisor will make all decisions with respect to our day-to-day operations. Thus, the success of our business will depend in large part on the ability of our Advisor to manage our operations. Any adversity experienced by our Advisor or problems in our relationship with our Advisor could adversely impact the operation of our properties and, consequently, our cash flow and ability to make distributions to our stockholders.
Risks Related to Conflicts of Interest

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Our sponsor, Advisor, property manager and their officers and certain of their key personnel will face competing demands relating to their time, which may cause our operating results to suffer.
Our sponsor, Advisor, property manager and their officers and certain of their key personnel and their respective affiliates currently serve as key personnel, advisors, managers and sponsors or co-sponsors to some or all of 11 other real estate programs affiliated with our sponsor, including Griffin Capital Essential Asset REIT II, Inc. (“GCEAR II”) and Griffin-American Healthcare REIT III, Inc. (“GAHR III”), both of which are publicly-registered, non-traded real estate investment trusts, Griffin-American Healthcare REIT IV, Inc. (“GAHR IV”), a non-traded real estate investment trust in registration as of December 31, 2015, Griffin-Benefit Street Partners BDC Corp. (“GB-BDC”), a non-traded business development company regulated under the 1940 Act, and Griffin Institutional Access Real Estate Fund (“GIREX”), a non-diversified, closed-end management investment company that is operated as an interval fund under the 1940 Act. Because these persons have competing demands on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and fewer resources to our business than is necessary or appropriate. If this occurs, the returns on our stockholders’ investment may suffer.
Our officers and one of our directors face conflicts of interest related to the positions they hold with affiliated entities, which could hinder our ability to successfully implement our investment objectives and to generate returns to our stockholders.
Our executive officers and one of our directors are also officers of our sponsor, our Advisor, our property manager, and other affiliated entities. As a result, these individuals owe fiduciary duties to these other entities and their owners, which fiduciary duties may conflict with the duties that they owe to our stockholders and us. Their loyalties to these other entities could result in actions or inactions that are detrimental to our business, which could harm the implementation of our investment objectives. Conflicts with our business and interests are most likely to arise from involvement in activities related to (1) allocation of new investments and management time and services between us and the other entities, (2) our purchase of properties from, or sale of properties to, affiliated entities, (3) the timing and terms of the investment in or sale of an asset, (4) development of our properties by affiliates, (5) investments with affiliates of our Advisor, (6) compensation to our Advisor, and (7) our relationship with our property manager. If we do not successfully implement our investment objectives, we may be unable to generate cash needed to make distributions to our stockholders and to maintain or increase the value of our assets.
Our Advisor will face conflicts of interest relating to the purchase of properties, and such conflicts may not be resolved in our favor, which could adversely affect our investment opportunities.
We may be buying properties at the same time as one or more of the other programs currently managed by officers and key personnel of our Advisor. Our sponsor, Advisor and its affiliates are actively involved in 11 other affiliated real estate programs, including GCEAR II, GAHR III, and GAHR IV, tenant in common programs and other real estate programs and partnerships that may compete with us or otherwise have similar business interests. Our Advisor and our property manager will have conflicts of interest in allocating potential properties, acquisition expenses, management time, services and other functions between various existing enterprises or future enterprises with which they may be or become involved. There is a risk that our Advisor will choose a property that provides lower returns to us than a property purchased by another program sponsored by our sponsor. We cannot be sure that officers and key personnel acting on behalf of our Advisor and on behalf of these other programs will act in our best interests when deciding whether to allocate any particular property to us. Such conflicts that are not resolved in our favor could result in a reduced level of distributions we may be able to pay to our stockholders and a reduction in the value of our stockholders’ investment. If our Advisor or its affiliates breach their legal or other obligations or duties to us, or do not resolve conflicts of interest, we may not meet our investment objectives, which could reduce our expected cash available for distribution to our stockholders and the value of our stockholders’ investment.
We may face a conflict of interest when purchasing properties from affiliates of our Advisor.
As of December 31, 2015, we have acquired seven of our properties from certain affiliates of our sponsor, including our Chief Executive Officer and Chairman, Kevin A. Shields, our Executive Vice President, David C. Rupert and our Vice President - Acquisitions, Don Pescara, along with several third party investors. We may purchase properties from one or more affiliates of our Advisor in the future. A conflict of interest may exist in such an acquisition and affiliates of our Advisor may be entitled to fees on both sides of such a related party transaction. The business interests of our Advisor and its affiliates may be adverse to, or to the detriment of, our interests. Additionally, the prices we pay to affiliates of our Advisor for our properties may be equal to, or in excess of, the prices paid by them, plus the costs incurred by them relating to the acquisition and financing of the properties. These prices will not be the subject of arm’s-length negotiations, which could mean that the acquisitions may be on terms less favorable to us than those negotiated in an arm’s-length transaction. Even though we will use an independent third party appraiser to determine fair market value when acquiring properties from our Advisor and its affiliates, we may pay more for particular properties than we would have in an arm’s-length transaction, which would reduce our cash available for investment in other properties or distribution to our stockholders. Furthermore, because any agreement that we enter into with affiliates of our Advisor will not be negotiated in an arm’s-length transaction, and as a result of the affiliation between our Advisor and its affiliates, our Advisor may be reluctant to enforce the agreements against such entities.

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Our nominating and corporate governance committee of our board of directors will approve all transactions between us and our Advisor and its affiliates. See Part I, Item 1, Business - Affiliate Transaction Policy.
We may face conflicts of interest when disposing of certain of our properties, which may cause us to make payments to the affiliated contributors of such properties pursuant to tax protection agreements.
In connection with the contribution of seven of our properties from certain affiliates of our sponsor and several other third party investors, we have entered into tax protection agreements with the contributors. These agreements obligate our Operating Partnership to reimburse the contributors for tax liabilities resulting from their recognition of income or gain if we cause our Operating Partnership to take certain actions with respect to the various properties, the result of which causes income or gain to the contributors for a period subsequent to the contribution of such property as specified in the tax protection agreement. As a result, we may face conflicts of interest if affiliates of our Advisor and sponsor recommend that we sell one of these properties, the result of which could cause our Operating Partnership to provide reimbursements under the tax protection agreements if we do not reinvest the proceeds of the sale pursuant to Section 1031 of the Code or any other tax deferred investment.
Our Advisor will face conflicts of interest relating to the incentive distribution structure under our operating partnership agreement, which could result in actions that are not necessarily in the long-term best interests of our stockholders.
Our Advisor and its affiliates will perform services for us in connection with the selection, acquisition and management of our properties pursuant to our advisory agreement. In addition, our Advisor will be entitled to fees and distributions that are structured in a manner intended to provide incentives to our Advisor to perform in our best interests and in the best interests of our stockholders. The amount of such compensation has not been determined as a result of arm’s-length negotiations, and such amounts may be greater than otherwise would be payable to independent third parties. While certain affiliates of our sponsor, including our Chief Executive Officer and Chairman, our Executive Vice President and our Vice President - Acquisitions, have an equity interest in our Operating Partnership through the contribution of certain of our properties, our Advisor is entitled to receive substantial minimum compensation regardless of performance. Therefore, our Advisor’s interests may not be wholly aligned with those of our stockholders. In that regard, our Advisor could be motivated to recommend riskier or more speculative investments in order for us to generate the specified levels of performance or sales proceeds that would entitle our Advisor to greater fees. In addition, our Advisor’s entitlement to fees upon the sale of our assets and to participate in sale proceeds could result in our Advisor recommending sales of our investments at the earliest possible time at which sales of investments would produce the level of return that would entitle our Advisor to compensation relating to such sales, even if continued ownership of those investments might be in our best long-term interest.
Our operating partnership agreement will require us to pay a performance-based termination distribution to our Advisor in the event that we terminate our Advisor prior to the listing of our shares for trading on an exchange or, absent such listing, in respect of its participation in net sale proceeds. To avoid paying this distribution, our independent directors may decide against terminating the advisory agreement prior to our listing of our shares or disposition of our investments even if, but for the termination distribution, termination of the advisory agreement would be in our best interest. In addition, the requirement to pay the distribution to our Advisor at termination could cause us to make different investment or disposition decisions than we would otherwise make in order to satisfy our obligation to pay the distribution to the terminated Advisor.
At the time it becomes necessary for our board of directors to determine which liquidity event, if any, is in the best interests of us and our stockholders, our Advisor may not agree with the decision of our board as to which liquidity event, if any, we should pursue if there is a substantial difference in the amount of subordinated distributions the Advisor may receive for each liquidity event. Our Advisor may prefer a liquidity event with higher subordinated distributions. If our board of directors decides to list our shares for trading on an exchange, our board may also decide to merge us with our Advisor in anticipation of the listing process. Such merger may result in substantial compensation to the Advisor which may create certain conflicts of interest.
Our Advisor will face conflicts of interest relating to joint ventures that we may form with affiliates of our Advisor, which conflicts could result in a disproportionate benefit to other joint venture partners at our expense.
We may enter into joint ventures with other programs sponsored by our sponsor, including other REITs, for the acquisition, development or improvement of properties. Our Advisor may have conflicts of interest in determining which program sponsored by our sponsor should enter into any particular joint venture agreement. The co-venturer may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. In addition, our Advisor may face a conflict in structuring the terms of the relationship between our interests and the interest of the affiliated co-venturer and in managing the joint venture. Since our Advisor and its affiliates will control both the affiliated co-venturer, and, to a certain extent, us, agreements and transactions between the co-venturers with respect to any such joint venture will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers, which may result in the co-venturer receiving benefits greater than the benefits that we receive. In addition, we may assume liabilities related to

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the joint venture that exceed the percentage of our investment in the joint venture, and this could reduce the returns on our stockholders investment.
There is no separate counsel for us and our affiliates, which could result in conflicts of interest.
Nelson Mullins Riley & Scarborough LLP ("Nelson Mullins") acts as legal counsel to us and also represents our sponsor, our Advisor, and some of their affiliates. There is a possibility in the future that the interests of the various parties may become adverse and, under the code of professional responsibility of the legal profession, Nelson Mullins may be precluded from representing any one or all of such parties. If any situation arises in which our interests appear to be in conflict with those of our Advisor or its affiliates, additional counsel may be retained by one or more of the parties to assure that their interests are adequately protected. Moreover, should a conflict of interest not be readily apparent, Nelson Mullins may inadvertently act in derogation of the interest of the parties which could affect our ability to meet our investment objectives.
Risks Related to Our Corporate Structure
The limit on the number of shares a person may own may discourage a takeover that could otherwise result in a premium price to our stockholders.
In order for us to qualify as a REIT, no more than 50% of our outstanding stock may be beneficially owned, directly or indirectly, by five or fewer individuals (including certain types of entities) at any time during the last half of each taxable year. To ensure that we do not fail to qualify as a REIT under this test, our charter restricts ownership by one person or entity to no more than 9.8% in value or number, whichever is more restrictive, of any class of our outstanding stock. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock.
Our charter permits our board of directors to issue stock with terms that may subordinate the rights of common stockholders or discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
Our charter permits our board of directors to issue up to 900,000,000 shares of capital stock. In addition, our board of directors, without any action by our stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of stock that we have authority to issue. Our board of directors may classify or reclassify any unissued common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of preferred stock with terms and conditions that could have a priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Preferred stock could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might otherwise provide a premium price for holders of our common stock. In addition, our board can authorize the issuance of preferred units under our Operating Partnership which may have similar preferential rights as preferred stock. There is no limit on the amount of preferred units our Operating Partnership could issue.
We are not afforded the protection of Maryland law relating to business combinations.
Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
any person who beneficially owns 10% or more of the voting power of the corporation’s shares; or
an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.
These prohibitions are intended to prevent a change of control by interested stockholders who do not have the support of our board of directors. Since our charter contains limitations on ownership of 9.8% or more of our common stock, we opted out of the business combinations statute in our charter. Therefore, we will not be afforded the protections of this statute and, accordingly, there is no guarantee that the ownership limitations in our charter would provide the same measure of protection as the business combinations statute and prevent an undesired change of control by an interested stockholder.
Our stockholders’ investment return may be reduced if we are required to register as an investment company under the Investment Company Act of 1940. If we become an unregistered investment company, we will not be able to continue our business.

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We do not intend to register as an investment company under the 1940 Act. As of December 31, 2015, we owned 74 properties, and our intended investments in real estate will represent the substantial majority of our total asset mix, which would not subject us to registration under the 1940 Act. In order to maintain an exemption from regulation under the 1940 Act, we must engage primarily in the business of buying real estate. If we are unable to remain fully invested in real estate holdings, we may avoid being required to register as an investment company by temporarily investing any unused proceeds in government securities with low returns, which would reduce the cash available for distribution to investors and possibly lower our stockholders’ returns.
To maintain compliance with our 1940 Act exemption, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may be required to acquire additional income- or loss-generating assets that we might not otherwise acquire or forgo opportunities to acquire interests in companies that we would otherwise want to acquire. If we are required to register as an investment company but fail to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of us and liquidate our business.
Our stockholders are bound by the majority vote on matters on which our stockholders are entitled to vote and, therefore, a stockholder’s vote on a particular matter may be superseded by the vote of other stockholders.
Stockholders may vote on certain matters at any annual or special meeting of stockholders, including the election of directors. However, stockholders will be bound by the majority vote on matters requiring approval of a majority of the stockholders even if they do not vote with the majority on any such matter.
If stockholders do not agree with the decisions of our board of directors, they only have limited control over changes in our policies and operations and may not be able to change such policies and operations, except as provided for in our charter and under applicable law.
Our board of directors determines our major policies, including our policies regarding investments, operations, capitalization, financing, growth, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of our stockholders. Under the Maryland General Corporation Law and our charter, our stockholders have a right to vote only on the following:
the election or removal of directors;
any amendment of our charter, except that our board of directors may amend our charter without stockholder approval to increase or decrease the aggregate number of our shares, to increase or decrease the number of our shares of any class or series that we have the authority to issue, or to classify or reclassify any unissued shares by setting or changing the preferences, conversion or other rights, restrictions, limitations as to distributions, qualifications or terms and conditions of redemption of such shares, provided however, that any such amendment does not adversely affect the rights, preferences and privileges of the stockholders;
our liquidation or dissolution; and
any merger, consolidation or sale or other disposition of substantially all of our assets.
All other matters are subject to the discretion of our board of directors. Therefore, our stockholders are limited in their ability to change our policies and operations.
Our rights and the rights of our stockholders to recover claims against our officers, directors and our Advisor are limited, which could reduce our stockholders’ and our recovery against them if they cause us to incur losses.
Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter, in the case of our directors, officers, employees and agents, and the advisory agreement, in the case of our Advisor, requires us to indemnify our directors, officers, employees and agents and our Advisor and its affiliates for actions taken by them in good faith and without negligence or misconduct. Additionally, our charter limits the liability of our directors and officers for monetary damages to the maximum extent permitted under Maryland law. As a result, we and our stockholders may have more limited rights against our directors, officers, employees and agents, and our Advisor and its affiliates, than might otherwise exist under common law, which could reduce our stockholders’ and our recovery against them. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents of our Advisor in some cases which would decrease the cash otherwise available for distribution to our stockholders.
Our stockholders’ interest in us will be diluted as we issue additional shares.
Our stockholders will not have preemptive rights to any shares issued by us in the future. Subject to any limitations set forth under Maryland law, our board of directors may increase the number of authorized shares of stock (currently 900,000,000

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shares), increase or decrease the number of shares of any class or series of stock designated, or reclassify any unissued shares without the necessity of obtaining stockholder approval. All of such shares may be issued in the discretion of our board of directors. Therefore, as we (1) sell additional shares in the future, including those issued pursuant to our DRP Offering, (2) sell securities that are convertible into shares of our common stock, (3) issue shares of our common stock in a private offering of securities to institutional investors, (4) issue shares of restricted common stock or stock options to our independent directors, (5) issue shares to our Advisor, its successors or assigns, in payment of an outstanding payment obligation as set forth under our operating partnership agreement, (6) issue shares of our common stock to sellers of properties acquired by us in connection with an exchange of limited partnership interests of our Operating Partnership, or (7) issue preferred units, existing stockholders and investors purchasing shares in our DRP Offering will experience dilution of their equity investment in us. Because the limited partnership interests of our Operating Partnership may, in the discretion of our board of directors, be exchanged for shares of our common stock, any merger, exchange or conversion between our Operating Partnership and another entity ultimately could result in the issuance of a substantial number of shares of our common stock, thereby diluting the percentage ownership interest of other stockholders. As of December 31, 2015, we had 175,184,519 shares of common stock issued and outstanding, and we owned approximately 97% of the limited partnership units of the Operating Partnership. Our sponsor and certain of its affiliates owned approximately 1% of the limited partnership units of the Operating Partnership, and the remaining approximately 2% of the limited partnership units were owned by third parties. Because of these and other reasons described in this “Risk Factors” section, stockholders should not expect to be able to own a significant percentage of our shares.
In addition, the net book value per share of our common stock was approximately $7.86 as of December 31, 2015 as compared to our offering price per share pursuant to our DRP Offering of $10.40. Therefore, upon a purchase of our shares in the DRP Offering, stockholders will be immediately diluted based on the net book value. Net book value takes into account a deduction of commissions and/or expenses paid by us, and is calculated to include depreciated tangible assets, deferred financing costs, and amortized intangible assets, which include in-place market leases. Net book value is not an estimate of net asset value, or of the market value or other value of our common stock.
Payment of substantial fees and expenses to our Advisor and its affiliates will reduce cash available for investment and distribution.
Our Advisor and its affiliates will perform services for us in connection with the selection and acquisition of our investments, and the management of our properties. They will be paid substantial fees for these services, which will reduce the amount of cash available for investment in properties or distribution to stockholders.
We are uncertain of our sources of debt or equity for funding our future capital needs. If we cannot obtain funding on acceptable terms, our ability to make necessary capital improvements to our properties may be impaired or delayed.
To qualify as a REIT, we generally must distribute to our stockholders at least 90% of our taxable income each year, excluding capital gains. Because of this distribution requirement, it is not likely that we will be able to fund a significant portion of our future capital needs from retained earnings. We have not identified all sources of debt or equity for future funding, and such sources of funding may not be available to us on favorable terms or at all. If, however, we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, pay other expenses or expand our business.
Risks Related to Investments in Single Tenant Real Estate
Many of our properties will depend upon a single tenant for all or a majority of their rental income, and our financial condition and ability to make distributions may be adversely affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of a single tenant, including those caused by the current economic downturn.
We expect that many of our properties will be occupied by only one tenant or will derive a majority of their rental income from one tenant and, therefore, the success of those properties will be materially dependent on the financial stability of such tenants. A tenant at one or more of our properties may be negatively affected by an economic slowdown. Lease payment defaults by tenants, including those caused by an economic downturn, could cause us to reduce the amount of distributions we pay. A default of a tenant on its lease payments to us and the potential resulting vacancy would cause us to lose the revenue from the property and force us to find an alternative source of revenue to meet any mortgage payment and prevent a foreclosure if the property is subject to a mortgage. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting the property. If a lease is terminated or an existing tenant elects not to renew a lease upon its expiration, there is no assurance that we will be able to lease the property for the rent previously received or sell the property without incurring a loss. A default by a tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a tenant’s election not to extend a lease upon its expiration, could have an adverse effect on our financial condition and our ability to pay distributions.
A significant portion of our leases are due to expire around the same period of time, which may (i) cause a loss in the value of our stockholders’ investment until the affected properties are re-leased, (ii) increase our exposure to downturns in

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the real estate market during the time that we are trying to re-lease such space and (iii) increase our capital expenditure requirements during the releasing period.
Our tenant leases are set to expire as shown below (dollars in thousands):
Year of Lease Expiration
Annualized
Net Rent
(unaudited)(1)
 
Number of
Lessees
 
Square Feet
 
Percentage of
Annualized
Net Rent
2016
$
903

 
3

 
91,700

 
0.4
%
2017
9,642

 
6

 
560,900

 
4.2
%
2018
24,017

 
11

 
2,507,800

 
10.4
%
2019
27,187

 
9

 
1,556,900

 
11.8
%
2020
19,503

 
10

 
1,668,000

 
8.5
%
2021
11,196

 
7

 
1,106,500

 
4.9
%
2022
15,513

 
9

 
1,315,300

 
6.8
%
2023
17,641

 
7

 
1,278,200

 
7.7
%
2024
27,022

 
12

 
2,980,700

 
11.8
%
2025
20,313

 
8

 
1,479,700

 
8.8
%
2026
14,299

 
5

 
851,000

 
6.2
%
2027
7,565

 
3

 
359,800

 
3.3
%
2028
2,376

 
1

 
231,400

 
1.0
%
2029
6,472

 
1

 
249,400

 
2.8
%
2030
12,858

 
2

 
1,931,400

 
5.6
%
2035
13,335

 
1

 
459,800

 
5.8
%
Total
$
229,842

 
95

 
18,628,500

 
100.0
%

(1)
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 December 31, 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.
We may experience similar concentrations of lease expiration dates in the future. As the expiration date of a lease for a single-tenant building approaches, the value of the property generally declines because of the risk that the building may not be re-leased upon expiration of the existing lease or may be re-leased on terms less favorable than those of the expiring leases. Therefore, if we were to list or liquidate our portfolio prior to the favorable re-leasing of the space, our stockholders may suffer a loss on their investment. Our stockholders may also suffer a loss (and a reduction in distributions) after the expiration of the lease terms if we are not able to re-lease such space on terms similar to or more favorable than the terms of the expiring lease. These expiring leases, therefore, increase our risk to real estate downturns during and approaching these periods of concentrated lease expirations. In addition, we may have to spend significant capital in order to ready the space for new tenants. To meet our need for cash at this time, we may have to increase borrowings or reduce our distributions, or both.
If a tenant declares bankruptcy, we may be unable to collect balances due under relevant leases.
Any of our tenants, or any guarantor of a tenant’s lease obligations, could be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States. Such a bankruptcy filing would bar all efforts by us to collect pre-bankruptcy debts from these entities or their properties, unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be paid currently. If a lease is assumed, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. This claim could be paid only in the event funds were available, and then only in the same percentage as that realized on other unsecured claims.
A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums. Such an event could cause a decrease or cessation of rental payments that would mean a reduction in our cash flow and the amount available for distributions to our stockholders. In the event of a bankruptcy, we cannot assure our stockholders that the tenant or its trustee will assume our lease. If a given lease, or guaranty of a lease, is not assumed, our cash flow and the amounts available for distributions to our stockholders may be adversely affected.

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Net leases may not result in fair market lease rates over time.
We expect a large portion of our rental income to come from net leases. Net leases are typically characterized by (1) longer lease terms; (2) fixed rental rate increases during the primary term of the lease; and (3) fixed rental rates for initial renewal options, and, thus, there is an increased risk that these contractual lease terms will fail to result in fair market rental rates. As a result, our income and distributions to our stockholders could be lower than they would otherwise be if we did not engage in net leases.
Our real estate investments may include special-use single tenant properties that may be difficult to sell or re-lease upon tenant defaults or early lease terminations.
We have investments in commercial and industrial properties, which may include manufacturing facilities and special-use single tenant properties. These types of properties are relatively illiquid compared to other types of real estate and financial assets. This illiquidity will limit our ability to quickly change our portfolio in response to changes in economic or other conditions. With these properties, if the current lease is terminated or not renewed or, in the case of a mortgage loan, if we take such property in foreclosure, we may be required to renovate the property or to make rent concessions in order to lease the property to another tenant or sell the property. In addition, in the event we are forced to sell the property, we may have difficulty selling it to a party other than the tenant or borrower due to the special purpose for which the property may have been designed. These and other limitations may affect our ability to sell or re-lease properties and adversely affect returns to our stockholders.
A high concentration of our properties in a particular geographic area, or that have tenants in a similar industry, would magnify the effects of downturns in that geographic area or industry.
In the event that we have a concentration of properties in any particular geographic area, any adverse situation that disproportionately affects that geographic area would have a magnified adverse effect on our portfolio. Similarly, if our tenants are concentrated in a certain industry or industries, any adverse effect to that industry generally would have a disproportionately adverse effect on our portfolio. As of December 31, 2015, approximately 15.5% and 13.7% of our total rental income, based on the 12-month period subsequent to December 31, 2015, was concentrated in the states of California and Texas, respectively. Additionally, as of December 31, 2015, approximately 26.7%, 23.1%, and 19.6% of our total rental income, based on the 12-month period subsequent to December 31, 2015, was concentrated in the manufacturing, finance and insurance, and information industries, respectively.
If a sale-leaseback transaction is recharacterized in a tenant’s bankruptcy proceeding, our financial condition could be adversely affected.
We may enter into sale-leaseback transactions, whereby we would purchase a property and then lease the same property back to the person from whom we purchased it. In the event of the bankruptcy of a tenant, a transaction structured as a sale-leaseback may be recharacterized as either a financing or a joint venture, either of which outcomes could adversely affect our business. If the sale-leaseback were recharacterized as a financing, we might not be considered the owner of the property, and as a result would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms, and prevented from foreclosing our lien on the property. If the sale-leaseback were recharacterized as a joint venture, our lessee and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property. Either of these outcomes could adversely affect our cash flow and the amount available for distributions to our stockholders.
General Risks Related to Investments in Real Estate
Our operating results will be affected by economic and regulatory changes that have an adverse impact on the real estate market in general, and we cannot assure our stockholders that we will be profitable or that we will realize growth in the value of our real estate properties.
Our operating results will be subject to risks generally incident to the ownership of real estate, including:
changes in general economic or local conditions;
changes in supply of or demand for similar or competing properties in an area;
changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive;
changes in tax, real estate, environmental and zoning laws;
changes in property tax assessments and insurance costs; and

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increases in interest rates and tight debt and equity supply.
These and other reasons may prevent us from being profitable or from realizing growth or maintaining the value of our real estate properties.
We may obtain only limited warranties when we purchase a property.
The seller of a property will often sell such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. Also, certain sellers of real estate are single purpose entities without significant other assets. The purchase of properties with limited warranties or from undercapitalized sellers increases the risk that we may lose some or all of our invested capital in the property as well as the loss of rental income from that property.
Our inability to sell a property when we desire to do so could adversely impact our ability to pay cash distributions to our stockholders.
The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Real estate generally cannot be sold quickly. Also, the tax laws applicable to REITs require that we hold our properties for investment, rather than for sale in the ordinary course of business, which may cause us to forgo or defer sales of properties that otherwise would be in our best interest. Therefore, we may not be able to dispose of properties promptly, or on favorable terms, in response to economic or other market conditions, and this may adversely impact our ability to make distributions to our stockholders.
In addition, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure our stockholders that we will have funds available to correct such defects or to make such improvements.
In acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These provisions would also restrict our ability to sell a property.
We may not be able to sell our properties at a price equal to, or greater than, the price for which we purchased such properties, which may lead to a decrease in the value of our assets.
We may be purchasing our properties at a time when cap rates are at historically low levels and purchase prices are high. Therefore, the value of our properties may not increase over time, which may restrict our ability to sell our properties, or in the event we are able to sell such property, may lead to a sale price less than the price that we paid to purchase the properties.
We may acquire or finance properties with lock-out provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties.
Lock-out provisions are provisions that generally prohibit repayment of a loan balance for a certain number of years following the origination date of a loan. Such provisions are typically provided for by the Code or the terms of the agreement underlying a loan. Lock-out provisions could materially restrict us from selling or otherwise disposing of or refinancing properties. These provisions would affect our ability to turn our investments into cash and thus affect cash available for distribution to our stockholders. Lock-out provisions may prohibit us from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties.
Lock-out provisions could impair our ability to take actions during the lock-out period that would otherwise be in our stockholders’ best interests and, therefore, may have an adverse impact on the value of the shares, relative to the value that would result if the lock-out provisions did not exist. In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in our stockholders’ best interests.
Adverse economic conditions may negatively affect our returns and profitability.
The following market and economic challenges may adversely affect our operating results:
poor economic times may result in customer defaults under leases or bankruptcy;
re-leasing may require reduced rental rates under the new leases; and
increased insurance premiums, resulting in part from the increased risk of terrorism and natural disasters, may reduce funds available for distribution.

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We are susceptible to the effects of adverse macro-economic events that can result in higher unemployment, shrinking demand for products, large-scale business failures and tight credit markets. Because our portfolio consists of single-tenant commercial and industrial properties, we are subject to risks inherent in investments in a single tenant properties in which we rely on the payment of rent from an individual tenant, and our results of operations are sensitive to changes in overall economic conditions that impact the tenant's business and on-going cash flow that can cause the tenant to cease making rental payments. A continuation of, or slow recovery from, ongoing adverse domestic and foreign economic conditions, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, could continue to negatively impact a tenant's business resulting in insufficient cash flow to continue as a going-concern and ultimately the vacating of the occupied property. Such circumstances will have a direct impact on our cash flow from operations and cause us to incur costs, such as on-going maintenance during vacancy and leasing costs, that could have an impact to continue the payment of distributions to our shareholders.
Since we cannot predict when real estate markets may recover, the value of the properties we acquire may decline if market conditions persist or worsen. Further, the results of operations for a property in any one period may not be indicative of results in future periods, and the long-term performance of such property generally may not be comparable to, and cash flows may not be as predictable as, other properties owned by third parties in the same or similar industry.
If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits.
Material losses may occur in excess of insurance proceeds with respect to any property, as insurance may not be sufficient to fund the losses. However, there are types of losses, generally of a catastrophic nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. In addition, we may decide not to obtain any or adequate earthquake or similar catastrophic insurance coverage because the premiums are too high even in instances where it may otherwise be available. Insurance risks associated with potential terrorism acts could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases have begun to insist that commercial property owners purchase specific coverage against terrorism as a condition for providing mortgage loans. It is uncertain whether such insurance policies will be available, or available at reasonable cost, which could inhibit our ability to finance or refinance our potential properties. In these instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure our stockholders that will have adequate coverage for such losses. The Terrorism Risk Insurance Act of 2002 is designed for a sharing of terrorism losses between insurance companies and the federal government. We cannot be certain how this act will impact us or what additional cost to us, if any, could result. If such an event damaged or destroyed one or more of our properties, we could lose both our invested capital and anticipated profits from such property.
Delays in the acquisition, development and construction of properties may have adverse effects on our results of operations and returns to our stockholders.
Delays we encounter in the selection, acquisition and development of real properties could adversely affect our stockholders’ returns. Investments in unimproved real property, properties that are in need of redevelopment, or properties that are under development or construction will be subject to the uncertainties associated with the development and construction of real property, including those related to re-zoning land for development, environmental concerns of governmental entities and/or community groups and our builders’ ability to build in conformity with plans, specifications, budgets and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control.
Where properties are acquired prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and lease available space. Therefore, our stockholders could suffer delays in the receipt of cash distributions attributable to those particular real properties. We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. These and other factors can result in increased costs of a project or loss of our investment. We also must rely on rental income and expense projections and estimates of the fair market value of a property upon completion of construction when agreeing upon a purchase price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and the return on our investment could suffer.
Costs of complying with governmental laws and regulations, including those relating to environmental matters, may adversely affect our income and the cash available for distribution.
All real property we acquire, and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health, safety and fire. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination

23


associated with disposals. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. This liability could be substantial. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such property as collateral for future borrowings.
Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties. Any material expenditures, fines, or damages we must pay will reduce our ability to make distributions to our stockholders and may reduce the value of our stockholders’ investment.
Further, we may not obtain an independent third party environmental assessment for every property we acquire. In addition, we cannot assure our stockholders that any such assessment that we do obtain will reveal all environmental liabilities or that a prior owner of a property did not create a material environmental condition not known to us. We cannot predict what other environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted, or what environmental conditions may be found to exist in the future. We cannot assure our stockholders that our business, assets, results of operations, liquidity or financial condition will not be adversely affected by these laws, which may adversely affect cash available for distribution, and the amount of distributions to our stockholders.
Our costs associated with complying with the Americans with Disabilities Act may affect cash available for distribution.
Our properties will be subject to the Americans with Disabilities Act of 1990, or ADA. Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The ADA’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. We will attempt to acquire properties that comply with the ADA or place the burden on the seller or other third party to ensure compliance with the ADA. However, we cannot assure our stockholders that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for ADA compliance may affect cash available for distribution and the amount of distributions to our stockholders.
If we sell properties by providing financing to purchasers, defaults by the purchasers would adversely affect our cash flows.
In some instances we may sell our properties by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk that the purchaser may default, which could negatively impact our cash distributions to stockholders. Even in the absence of a purchaser default, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years.
We will be subject to risks associated with the co-owners in our co-ownership arrangements that otherwise may not be present in other real estate investments.
We may enter into joint ventures or other co-ownership arrangements with respect to a portion of the properties we acquire. Ownership of co-ownership interests involves risks generally not otherwise present with an investment in real estate such as the following:
the risk that a co-owner may at any time have economic or business interests or goals that are or become inconsistent with our business interests or goals;
the risk that a co-owner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives;
the possibility that an individual co-owner might become insolvent or bankrupt, or otherwise default under the applicable mortgage loan financing documents, which may constitute an event of default under all of the applicable mortgage loan financing documents or allow the bankruptcy court to reject the tenants-in-common agreement or management agreement entered into by the co-owner owning interests in the property;
the possibility that a co-owner might not have adequate liquid assets to make cash advances that may be required in order to fund operations, maintenance and other expenses related to the property, which could result in the loss

24


of current or prospective tenants and may otherwise adversely affect the operation and maintenance of the property, and could cause a default under the mortgage loan financing documents applicable to the property and may result in late charges, penalties and interest, and may lead to the exercise of foreclosure and other remedies by the lender;
the risk that a co-owner could breach agreements related to the property, which may cause a default under, or result in personal liability for, the applicable mortgage loan financing documents, violate applicable securities laws and otherwise adversely affect the property and the co-ownership arrangement; or
the risk that a default by any co-owner would constitute a default under the applicable mortgage loan financing documents that could result in a foreclosure and the loss of all or a substantial portion of the investment made by the co-owner.
Any of the above might subject a property to liabilities in excess of those contemplated and thus reduce the amount available for distribution to our stockholders.
In the event that our interests become adverse to those of the other co-owners, we may not have the contractual right to purchase the co-ownership interests from the other co-owners. Even if we are given the opportunity to purchase such co-ownership interests in the future, we cannot guarantee that we will have sufficient funds available at the time to purchase co-ownership interests from the co-owners.
We might want to sell our co-ownership interests in a given property at a time when the other co-owners in such property do not desire to sell their interests. Therefore, we may not be able to sell our interest in a property at the time we would like to sell. In addition, we anticipate that it will be much more difficult to find a willing buyer for our co-ownership interests in a property than it would be to find a buyer for a property we owned outright.
Risks Associated with Debt Financing
If we breach covenants under our unsecured credit agreement with KeyBank, National Association ("KeyBank") and other syndication partners, or our loan agreements with certain other lenders, we could be held in default under such loans, which could accelerate our repayment date and materially adversely affect the value of our stockholders’ investment in us.
We entered into an unsecured credit facility with KeyBank and a syndicate of lenders partners under which we were provided with a $1.14 billion senior unsecured credit facility consisting of a $500.0 million senior unsecured revolver and a $640.0 million senior unsecured term loan.
The credit facility requires that we must maintain a pool of real properties, which is subject to the following requirements: (i) no less than 30 unencumbered asset pool properties at all times; (ii) no greater than 15% of the unencumbered asset pool value may be contributed by any single unencumbered asset pool property; (iii) no greater than 15% of the aggregate unencumbered asset pool value may be contributed by unencumbered asset pool properties subject to ground leases; (iv) no greater than 15% of the aggregate unencumbered asset pool value may be contributed by unencumbered asset pool properties that are under development; (v) a minimum weighted average occupancy of all unencumbered asset pool properties be no less than 90%; (vi) minimum weighted average remaining lease term for all unencumbered properties shall be no less than five years; and (vii) other limitations as determined by KeyBank upon further diligence of the unencumbered asset pool properties. Upon the occurrence of certain events described further in the KeyBank credit facility agreement, KeyBank may require the borrower to grant a first perfected mortgage/deed of trust lien on each of the unencumbered asset pool properties.
The credit facility includes a number of financial covenant requirements, including, but not limited to, a maximum consolidated leverage ratio (60% or, for a maximum of two consecutive quarters following a material acquisition, 65%), a minimum fixed charge ratio (1.5 to 1), a maximum secured debt ratio (40%), a maximum secured recourse debt ratio (5%), a maximum unhedged variable rate debt (30%), and minimum tangible net worth of at least approximately $1.2 billion plus 75% of the net proceeds of any common or preferred share issuance after the effective date and 75% of the amount of units of limited partnership interest in our Operating Partnership issued in connection with the contribution of properties, a maximum payout ratio of 95% of distribution to core funds from operations, minimum unsecured interest coverage ratio (2 to 1).
If we were to default under the KeyBank credit facility agreement, the lenders could accelerate the date for our repayment of the loan, and could sue to enforce the terms of the loan. In addition, upon the occurrence of certain events described further in the KeyBank credit facility agreement, the lenders may have the ability to place a first mortgage on certain of the properties in the unencumbered asset pool, and could ultimately foreclose on such properties. Such foreclosure could result in a material loss for us and would adversely affect the value of our stockholders’ investment in us.
We have broad authority to incur debt, and high debt levels could hinder our ability to make distributions and could decrease the value of our stockholders’ investment.
Although, technically, our board may approve unlimited levels of debt, our charter generally limits us to incurring debt no greater than 300% of our net assets before deducting depreciation or other non-cash reserves (equivalent to 75% leverage),

25


unless any excess borrowing is approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report, along with a justification for such excess borrowing. High debt levels would cause us to incur higher interest charges, would result in higher debt service payments, and could be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of our stockholders’ investment.
We have incurred, and intend to continue to incur, mortgage indebtedness and other borrowings, which may increase our business risks.
We have placed, and intend to continue to place, permanent financing on our properties or obtain a credit facility or other similar financing arrangement in order to acquire properties. We may also decide to later further leverage our properties. We may incur mortgage debt and pledge all or some of our real properties as security for that debt to obtain funds to acquire real properties. We may borrow if we need funds to pay a desired distribution rate to our stockholders. We may also borrow if we deem it necessary or advisable to assure that we maintain our qualification as a REIT for federal income tax purposes. If there is a shortfall between the cash flow from our properties and the cash flow needed to service mortgage debt, then the amount available for distribution to our stockholders may be reduced.
If we are unable to make our debt payments when required, a lender could foreclose on the property or properties securing such debt, which could reduce the amount of distributions we pay to our stockholders and decrease the value of our stockholders’ investment.
We may have a significant amount of acquisition indebtedness secured by first priority mortgages on our properties. In addition, some of our properties contain, and any future acquisitions we make may contain, mortgage financing. If we are unable to make our debt payments when required, a lender could foreclose on the property or properties securing such debt. In any such event, we could lose some or all of our investment in these properties, which would reduce the amount of distributions we pay to our stockholders and decrease the value of our stockholders’ investment.
Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.
When providing financing, a lender could impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage or replace our Advisor. These or other limitations may adversely affect our flexibility and limit our ability to make distributions to our stockholders.
Increases in interest rates would increase the amount of our debt payments and adversely affect our ability to make distributions to you.
We currently have outstanding debt payments which are indexed to variable interest rates. We may also incur additional debt or preferred equity in the future which rely on variable interest rates. Increases in these variable interest rates in the future would increase our interest costs, which would likely reduce our cash flows and our ability to make distributions to you. In addition, if we need to make payments on instruments which contain variable interest during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times that may not permit realization of the maximum return on such investments.
Disruptions in the credit markets and real estate markets could have a material adverse effect on our results of operations, financial condition, and ability to pay distributions to our stockholders.
Future disruptions in domestic and international financial markets may severely impact the amount of credit available to us and may contribute to rising costs associated with obtaining or maintaining such credit. In such an instance, we may not be able to obtain new debt financing, or maintain our existing debt financing, on terms and conditions we find to be ideal. If disruptions in the credit markets occur and are ongoing, our ability to borrow monies to finance the purchase of, or other activities related to, real estate assets may be negatively impacted. In addition, if we pay fees to lock in a favorable interest rate, falling interest rates or other factors could require us to forfeit these fees. All of these events could have a material adverse effect on our results of operations, financial condition and ability to pay distributions.
In addition to volatility in the credit markets, the real estate market is subject to fluctuation and can be impacted by factors such as general economic conditions, supply and demand, availability of financing and interest rates. To the extent we purchase real estate in an unstable market, we are subject to the risk that if the real estate market ceases to attract the same level of capital investment in the future that it attracts at the time of our purchases, or the number of companies seeking to acquire properties decreases, the value of our investments may not appreciate or may decrease significantly below the amount we pay for these investments.
Federal Income Tax Risks

26


Failure to qualify as a REIT would adversely affect our operations and our ability to make distributions, as we would incur additional tax liabilities.
We believe we operate in a manner that allows us to qualify as a REIT for U.S. federal income tax purposes under the Code. Qualification as a REIT involves highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. Our qualification as a REIT will depend upon our ability to meet, through investments, actual operating results, distributions and satisfaction of specific stockholder rules, the various tests imposed by the Code.
If we fail to qualify as a REIT for any taxable year, we will be subject to federal income tax and any applicable alternative minimum tax on our taxable income at regular corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the distributions paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.
To qualify as a REIT, and to avoid the payment of federal income and excise taxes and maintain our REIT status, we may be forced to borrow funds, use proceeds from the issuance of securities, or sell assets to pay distributions, which may result in our distributing amounts that may otherwise be used for our operations.
To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our real estate investment trust taxable income, determined without regard to the deduction for distributions paid and by excluding net capital gains. We will be subject to federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income, and (3) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on acquisitions of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities or sell assets in order to distribute enough of our taxable income to maintain our REIT status and to avoid the payment of federal income and excise taxes. These methods of obtaining funding could affect future distributions by increasing operating costs and decreasing available cash. In addition, such distributions may constitute a return of capital.
If our Operating Partnership fails to maintain its status as a partnership for federal income tax purposes, its income would be subject to taxation and our REIT status would be terminated.
If the IRS were to successfully challenge the status of our Operating Partnership as a partnership, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that our Operating Partnership could make to us. This would also result in our losing REIT status and becoming subject to a corporate level tax on our own income. This would substantially reduce our cash available to pay distributions and the return on our stockholders’ investment. In addition, if any of the entities through which our Operating Partnership owns its properties, in whole or in part, loses its characterization as a partnership for federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to our Operating Partnership. Such a recharacterization of our Operating Partnership or an underlying property owner could also threaten our ability to maintain REIT status.
Our stockholders may have tax liability on distributions they elect to reinvest in our common stock.
If stockholders participate in our distribution reinvestment plan, they will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in common stock to the extent the amount reinvested was not a tax-free return of capital. As a result, unless stockholders are a tax-exempt entity, they may have to use funds from other sources to pay their tax liability on the value of the common stock received.
In certain circumstances, we may be subject to federal and state income taxes as a REIT, which would reduce our cash available for distribution to our stockholders.
Even if we qualify and maintain our status as a REIT, we may be subject to federal income taxes or state taxes. For example, net income from a “prohibited transaction” will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain income we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. We may also be subject to state and local taxes on our income or property, either directly or at the level of the Operating Partnership or at the level of the other companies through which we indirectly own our assets. Any federal or state taxes we pay will reduce our cash available for distribution to our stockholders.
We may be required to pay some taxes due to actions of our taxable REIT subsidiary which would reduce our cash available for distribution to our stockholders.

27


Any net taxable income earned directly by our taxable REIT subsidiaries, or through entities that are disregarded for federal income tax purposes, which are wholly-owned by our taxable REIT subsidiaries, will be subject to federal and possibly state corporate income tax. We filed an election to treat Griffin Capital Essential Asset TRS, Inc. as a taxable REIT subsidiary, and we may elect to treat other subsidiaries as taxable REIT subsidiaries in the future. In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct certain interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by a taxable REIT subsidiary if the economic arrangements between the REIT, the REIT’s customers, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income because not all states and localities follow the federal income tax treatment of REITs. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to our stockholders.
Distributions to tax-exempt investors may be classified as unrelated business taxable income.
Neither ordinary nor capital gain distributions with respect to our common stock nor gain from the sale of common stock should generally constitute unrelated business taxable income (UBTI) to a tax-exempt investor. However, there are certain exceptions to this rule. In particular:
part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as UBTI if shares of our common stock are predominately held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT share ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as UBTI;
part of the income and gain recognized by a tax exempt investor with respect to our common stock would constitute UBTI if the investor incurs debt in order to acquire the common stock; and
part or all of the income or gain recognized with respect to our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) or (c)(20) of the Code may be treated as UBTI.
Complying with the REIT requirements may cause us to forgo otherwise attractive opportunities.
To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of shares of our common stock. We may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to liquidate otherwise attractive investments in order to comply with the REIT tests. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
Legislative or regulatory action could adversely affect investors.
On January 3, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, extending the existing 15% qualified dividend rate for 2013 and subsequent taxable years for those individuals with incomes below certain thresholds. For those with income above such thresholds, the qualified dividend rate is 20%. These tax rates are generally not applicable to distributions paid by a REIT, unless such distributions represent earnings on which the REIT itself has been taxed. As a result, distributions (other than capital gain distributions) we pay to individual investors generally will be subject to the tax rates that are otherwise applicable to ordinary income for federal income tax purposes, which currently are as high as 39.6%. This disparity in tax treatment may make an investment in our shares comparatively less attractive to individual investors than an investment in the shares of non-REIT corporations, and could have an adverse effect on the value of our common stock. Stockholders are urged to consult with their own tax advisor with respect to the impact of recent legislation on their investment in our common stock and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our common stock.
Foreign purchasers of our common stock may be subject to the Foreign Investment in Real Property Tax Act (“FIRPTA”) upon the sale of their shares.
A foreign person disposing of a U.S. real property interest, including shares of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to a tax, known as FIRPTA tax, on the gain recognized on the disposition. Such FIRPTA tax does not apply, however, to the disposition of stock in a REIT if the REIT is “domestically controlled.” A REIT is “domestically controlled” if less than 50% of the REIT’s stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence.

28


We cannot assure our stockholders that we will qualify as a “domestically controlled” REIT. If we were to fail to so qualify, gain realized by foreign investors on a sale of our shares would be subject to FIRPTA tax, unless our shares were traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 5% of the value of our outstanding common stock.
Employee Retirement Income Security Act of 1974 (“ERISA”) Risks
There are special considerations that apply to employee benefit plans, IRAs or other tax-favored benefit accounts investing in our shares which could cause an investment in our shares to be a prohibited transaction which could result in additional tax consequences.
ERISA and the Code impose certain restrictions on (i) employee benefit plans (as defined in Section 3(3) of ERISA), (ii) plans described in Code Section 4975(e)(1), including IRAs and Keogh plans, (iii) any entities whose underlying assets include plan assets by reason of a plan’s investment in such entities, and (iv) persons who have certain specified relationships to such plans, i.e., parties-in-interest under ERISA and disqualified persons under the Code. If stockholders are investing the assets of such a plan or account in our common stock, they should satisfy themselves that, among other things:
their investment is consistent with their fiduciary obligations under ERISA, the Code, or other applicable law;
their investment is made in accordance with the documents and instruments governing their IRA, plan or other account, including any applicable investment policy;
their investment satisfies the prudence and diversification requirements of ERISA or other applicable law;
their investment will not impair the liquidity of the IRA, plan or other account;
their investment will not produce UBTI for the IRA, plan or other account;
they will be able to value the assets of the plan annually in accordance with the requirements of ERISA or other applicable law, to the extent applicable; and
their investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or constitute a violation of analogous provisions under other applicable law, to the extent applicable.
Persons investing the assets of employee benefit plans, IRAs, and other tax-favored benefit accounts should consider ERISA and related risks of investing in our shares.
ERISA and Code Section 4975 prohibit certain transactions that involve a “party-in-interest” (under ERISA) or a “disqualified person” (under the Code) and any of the following: (i) employee benefit plans (as defined in Section 3(3) of ERISA), (ii) plans described in Code Section 4975(e)(1), including individual retirement accounts and Keogh plans, (iii) any entities whose underlying assets include plan assets by reason of a plan’s investment in such entities, and (iv) persons who have certain specified relationships to such plans, i.e., parties-in-interest under ERISA and disqualified persons under the Code. For example, based on the reasoning of the U.S. Supreme Court in John Hancock Life Ins. Co. v. Harris Trust and Savings Bank, 510 U.S. 86 (1993), an insurance company’s general account may be deemed to include assets of plans investing in the general account (e.g., through the purchase of an annuity contract), and the insurance company might be treated as a party-in-interest or disqualified person with respect to a plan by virtue of such investment. Consequently, the fiduciary of a plan or trustee or custodian of an account contemplating an investment in our shares should consider whether we, any other person associated with the issuance of the shares, or any of their affiliates is or might become a “party-in-interest” or “disqualified person” with respect to the IRA, plan or other account and, if so, whether an exception from such prohibited transaction rules is applicable.
In addition, the Department of Labor (DOL) plan asset regulations as modified by ERISA Section 3(42) provide that, subject to certain exceptions, the assets of an entity in which an IRA, plan or other account holds an equity interest may be treated as assets of an investing IRA, plan or other account, in which event the underlying assets of such entity (and transactions involving such assets) would be subject to the prohibited transaction provisions. Furthermore, if an employee benefit plan invests in our shares and we have significant participation by benefit plan investors (as defined in the DOL plan asset regulations), the standards of prudence and other provisions of ERISA could extend to us with respect to our investments and the trustee or other fiduciary of such plan may be deemed to have improperly delegated fiduciary responsibilities to us in violation of ERISA. We intend to take such steps as may be necessary to qualify us for one or more of the exceptions available, and thereby prevent our assets from being treated as assets of any investing IRA, plan or other account.

ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not Applicable.

29


ITEM 2.
PROPERTIES
As of December 31, 2015, we owned a fee simple interest in 74 properties, as shown in the table below, encompassing approximately 18.6 million rentable square feet (dollar amounts shown in thousands) and an 80% interest in an unconsolidated joint venture, as discussed in footnote 6 below:
Property
 
Location
 
Tenant/Major Lessee
 
Acquisition
Date
 
Purchase
Price
 
Approx.
Square
Feet
 
% Leased by Major Lessee(1)
 
% Leased
 
Property Type
 
Year of
Lease
Expiration (for Major Lessee)
 

Annualized
Net Rent (2) (Unaudited)
Renfro
 
Clinton, SC
 
Renfro Corp
 
6/18/2009
 
$
21,700

 
566,500

 
100%
 
100%
 
Manufacturing/
Distribution
 
2021
 
$
2,078

Plainfield
 
Plainfield, IL
 
Chicago Bridge & Iron Company (Delaware)
 
6/18/2009
 
32,660

 
176,000

 
100%
 
100%
 
 Office/Laboratory
 
2022
 
2,681

Emporia Partners
 
Emporia, KS
 
Hopkins Enterprises, Inc.
 
8/27/2010
 
8,360

 
320,800

 
100%
 
100%
 
Manufacturing/
Distribution
 
2020
 
949

ITT
 
Los Angeles, CA
 
ITT Educational Services, Inc.
 
9/23/2010
 
7,800

 
35,800

 
100%
 
100%
 
 Office
 
2022
 
573

Quad/Graphics
 
Loveland, CO
 
World Color (USA), LLC
 
12/30/2010
 
11,850

 
169,800

 
100%
 
100%
 
Printing Facility/
Office
 
2022
 
1,216

AT&T
 
Redmond, WA
 
AT&T Services, Inc.
 
1/31/2012
 
40,000

 
155,800

 
100%
 
100%
 
 Office/
Data Center
 
2019
 
3,311

Westinghouse
 
Cranberry Township, PA
 
Westinghouse Electric Company, LLC
 
3/22/2012
 
36,200

 
118,000

 
100%
 
100%
 
 Engineering Facility
 
2025
 
3,005

TransDigm
 
Whippany, NJ
 
Whippany Actuation Systems, LLC
 
5/31/2012
 
13,000

 
114,300

 
100%
 
100%
 
 Assembly/
Manufacturing
 
2018
 
1,189

Travelers
 
Greenwood Village, CO
 
Travelers Indemnity
 
6/29/2012
 
16,100

 
131,000

 
100%
 
100%
 
 Office
 
2024
 
1,428

Zeller Plastik
 
Libertyville, IL
 
Zeller Plastik USA, Inc.
 
11/8/2012
 
15,600

 
193,700

 
100%
 
100%
 
 Manufacturing
 
2022
 
1,339

Northrop Grumman
 
Beavercreek (Dayton), OH
 
Northrop Grumman Systems Corp.
 
11/13/2012
 
17,000

 
99,200

 
100%
 
100%
 
 Office
 
2019
 
1,510

Health Net
 
Rancho Cordova, CA
 
Health Net of California, Inc.
 
12/18/2012
 
22,650

 
145,900

 
100%
 
100%
 
 Office
 
2022
 
2,219

Comcast
 
Greenwood Village, CO
 
Comcast Cable Holdings, LLC
 
1/11/2013
 
27,000

 
157,300

 
100%
 
100%
 
 Office
 
2021
 
2,416

Boeing
 
Renton, WA
 
The Boeing Company
 
2/15/2013
 
12,000

 
70,100

 
100%
 
100%
 
 Office
 
2017
 
1,046

Schlumberger
 
Houston, TX
 
Schlumberger Technology Corporation
 
5/1/2013
 
48,750

 
149,700

 
100%
 
100%
 
 Office
 
2024
 
3,163

UTC
 
Charlotte, NC
 
United Technologies Corporation ("UTC")
 
5/3/2013
 
39,188

 
198,900

 
100%
 
100%
 
 Office
 
2025
 
2,677

Avnet
 
Chandler, AZ
 
Avnet, Inc.
 
5/29/2013
 
32,462

 
231,400

 
100%
 
100%
 
 Research & Development/Flex Facility
 
2028
 
2,376


30


Property
 
Location
 
Tenant/Major Lessee
 
Acquisition
Date
 
Purchase
Price
 
Approx.
Square
Feet
 
% Leased by Major Lessee(1)
 
% Leased
 
Property Type
 
Year of
Lease
Expiration (for Major Lessee)
 

Annualized
Net Rent (2) (Unaudited)
Cigna
 
Phoenix, AZ
 
Connecticut General Life Insurance Company
 
6/20/2013
 
54,500

 
232,600

 
100%
 
100%
 
 Office
 
2023
 
3,788

Nokia
 
Arlington Heights, IL
 
Nokia Solutions & Networks
 
8/13/2013
 
29,540

 
214,200

 
100%
 
100%
 
 Office
 
2025
 
2,292

Verizon
 
Warren, NJ
 
Cellco Partnership d/b/a Verizon Wireless
 
10/3/2013
 
40,000

 
210,500

 
100%
 
100%
 
 Office
 
2020
 
3,544

Fox Head
 
Irvine, CA
 
Fox Head, Inc.
 
10/29/2013
 
27,250

 
81,600

 
100%
 
100%
 
 Office
 
2027
 
1,898

Coca-Cola Refreshments
 
Atlanta, GA
 
Coca-Cola Refreshments USA
 
11/5/2013
 
56,700

 
315,900

 
98%
 
100%
 
 Office
 
2018
 
4,996

Atlanta Wildwood
 
Atlanta, GA
 
Hyundai Capital USA/BlueLinx
 
11/5/2013
 
28,000

 
250,000

 
60%
 
100%
 
 Office
 
2019
 
3,306

General Electric (3)
 
Atlanta, GA
 
General Electric Company
 
11/5/2013
 
61,000

 
265,100

 
100%
 
100%
 
 Office
 
2025
 
4,434

Community Insurance
 
Mason, OH
 
Community Insurance Company
 
11/5/2013
 
23,500

 
223,500

 
100%
 
100%
 
 Office
 
2019
 
2,523

Anthem
 
Mason, OH
 
Anthem Prescription Management
 
11/5/2013
 
9,500

 
78,200

 
100%
 
100%
 
 Office
 
2019
 
939

JPMorgan Chase
 
Westerville, OH
 
JPMorgan Chase
 
11/5/2013
 
44,500

 
388,700

 
100%
 
100%
 
 Office
 
2025
 
3,209

IBM
 
Dublin, OH
 
IBM
 
11/5/2013
 
37,300

 
322,700

 
88%
 
100%
 
 Office
 
2020
 
4,263

Aetna
 
Arlington, TX
 
Aetna Life Insurance Company
 
11/5/2013
 
16,000

 
139,400

 
87%
 
98%
 
 Office
 
2020
 
1,501

CHRISTUS Health
 
Irving, TX
 
CHRISTUS Health
 
11/5/2013
 
46,350

 
253,300

 
98%
 
100%
 
 Office
 
2024
 
3,470

Roush Industries
 
Allen Park, MI
 
Roush Industries
 
11/5/2013
 
12,250

 
169,200

 
100%
 
100%
 
 Office
 
2020
 
1,377

Wells Fargo
 
Milwaukee, WI
 
Molina Healthcare of Wisconsin, Inc.
 
11/5/2013
 
26,000

 
229,600

 
54%
 
67%
 
 Office
 
2022
 
438

One Century Place
 
Nashville, TN
 
Willis North America
 
11/5/2013
 
70,000

 
538,800

 
33%
 
99%
 
 Office
 
2026
 
6,730

Shire Pharmaceuticals
 
Wayne, PA
 
Shire Pharmaceuticals, Inc.
 
11/5/2013
 
21,500

 
114,100

 
100%
 
100%
 
 Office
 
2017
 
2,366

Comcast (Northpointe Corporate Center I)
 
Lynwood, WA
 
Comcast Corporation
 
11/5/2013
 
19,825

 
87,400

 
100%
 
100%
 
 Office
 
2017
 
1,838

Northpointe Corporate Center II
 
Lynwood, WA
 
Intermec Technologies Corporation
 
11/5/2013
 
7,175

 
70,400

 
100%
 
100%
 
 Office
 
2024
 
1,136

United HealthCare
 
St. Louis, MO
 
United HealthCare Services
 
11/5/2013
 
28,000

 
188,500

 
100%
 
100%
 
 Office
 
2018
 
2,866


31


Property
 
Location
 
Tenant/Major Lessee
 
Acquisition
Date
 
Purchase
Price
 
Approx.
Square
Feet
 
% Leased by Major Lessee(1)
 
% Leased
 
Property Type
 
Year of
Lease
Expiration (for Major Lessee)
 

Annualized
Net Rent (2) (Unaudited)
Farmers (3)
 
Kansas City, KS
 
Farmers Insurance Exchange
 
12/27/2013
 
19,100

 
102,000

 
100%
 
100%
 
 Office
 
2024
 
1,454

Caterpillar
 
Joliet, IL
 
Caterpillar, Inc.
 
1/7/2014
 
57,000

 
1,380,100

 
100%
 
100%
 
Industrial
 
2018
 
6,119

DigitalGlobe
 
Westminster, CO
 
DigitalGlobe, Inc.
 
1/14/2014
 
92,000

 
430,000

 
100%
 
100%
 
 Office
 
2030
 
6,420

Waste Management (4)
 
Phoenix, AZ
 
Waste Management of AZ
 
1/16/2014
 
22,825

 
131,800

 
100%
 
100%
 
 Office
 
2023
 
1,829

BT Infonet
 
El Segundo, CA
 
Infonet Services Corporation
 
2/27/2014
 
52,669

 
157,000

 
100%
 
100%
 
 Office
 
2021
 
4,275

Wyndham Worldwide
 
Parsippany, NJ
 
Wyndham Worldwide Operations, Inc.
 
4/23/2014
 
96,600

 
249,400

 
100%
 
100%
 
 Office
 
2029
 
6,472

Ace Hardware
 
Oak Brook, IL
 
Ace Hardware Corporate HQ
 
4/24/2014
 
37,000

 
206,000

 
100%
 
100%
 
 Office
 
2024
 
2,833

Equifax I
 
St. Louis, MO
 
Equifax, Inc.
 
5/20/2014
 
14,200

 
94,000

 
100%
 
100%
 
 Office
 
2023
 
1,175

American Express
 
Phoenix, AZ
 
American Express Travel Related Services Co.
 
5/22/2014
 
51,000

 
337,400

 
100%
 
100%
 
 Office
 
2019
 
3,865

SoftBank
 
San Carlos, CA
 
SoftBank Regional HQ
 
5/28/2014
 
90,100

 
207,900

 
50%
 
100%
 
 Office
 
2020
 
6,869

Vanguard
 
Charlotte, NC
 
The Vanguard Group, Inc.
 
6/19/2014
 
33,200

 
224,600

 
100%
 
100%
 
 Office
 
2024
 
2,483

Parallon
 
Largo (Tampa Bay), FL
 
Parallon Business Performance Group
 
6/25/2014
 
17,235

 
83,200

 
100%
 
100%
 
 Office
 
2025
 
1,216

Level 3 (5)
 
Lone Tree, CO
 
Level 3 Communications, Inc.
 
8/1/2014
 
43,000

 
166,700

 
100%
 
100%
 
 Office
 
2024
 
2,985

Equifax II
 
Earth City, MO
 
Equifax, Inc.
 
10/1/2014
 
13,916

 
99,300

 
100%
 
100%
 
 Office
 
2024
 
1,110

Mason I
 
Mason, OH
 
Community Insurance Company
 
11/7/2014
 
22,500

 
213,000

 
100%
 
100%
 
 Office
 
2026
 
1,573

Wells Fargo
 
Charlotte, NC
 
Wells Fargo Bank, N.A.
 
12/15/2014
 
41,486

 
155,600

 
100%
 
100%
 
 Office
 
2025
 
2,703

GE Aviation
 
West Chester, OH
 
General Electric Company
 
2/19/2015
 
66,000

 
409,800

 
100%
 
100%
 
 Office
 
2020
 
4,928

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

 
225,500

 
100%
 
100%
 
 Office
 
2026
 
4,912

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

 
94,400

 
100%
 
100%
 
 Office
 
2021
 
1,481

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

 
71,100

 
98%
 
98%
 
 Office
 
2018
 
1,296

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

 
200,600

 
84%
 
85%
 
 Office
 
2019
 
4,413


32


Property
 
Location
 
Tenant/Major Lessee
 
Acquisition
Date
 
Purchase
Price
 
Approx.
Square
Feet
 
% Leased by Major Lessee(1)
 
% Leased
 
Property Type
 
Year of
Lease
Expiration (for Major Lessee)
 

Annualized
Net Rent (2) (Unaudited)
Denver
 
Denver, CO
 
Jackson National Life Insurance Company
 
6/10/2015
 
35,000

 
182,900

 
97%
 
97%
 
 Office
 
2027
 
3,861

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

 
164,600

 
100%
 
100%
 
 Office
 
2022
 
2,288

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

 
96,400

 
100%
 
100%
 
 Office
 
2023
 
1,878

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

 
119,600

 
100%
 
100%
 
 Office
 
2026
 
1,293

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

 
284,200

 
90%
 
97%
 
 Office
 
2017
 
4,314

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

 
242,400

 
77%
 
100%
 
 Office
 
2022
 
5,663

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

 
144,000

 
89%
 
100%
 
 Office
 
2018
 
2,781

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

 
584,800

 
86%
 
90%
 
 Office
 
2023
 
7,137

Herndon
 
Herndon, VA
 
Time Warner Cable, Inc.
 
6/10/2015
 
87,300

 
268,200

 
100%
 
100%
 
 Office
 
2019
 
7,028

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

 
171,900

 
55%
 
100%
 
 Office
 
2027
 
2,771

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

 
459,800

 
100%
 
100%
 
 Office
 
2035
 
13,335

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

 
1,501,400

 
100%
 
100%
 
Industrial
 
2030
 
6,438

Highway 94
 
Jefferson City, MO
 
ABB, Inc.
 
11/6/2015
 
31,940

 
660,000

 
100%
 
100%
 
Industrial
 
2024
 
2,310

DynCorp
 
Fort Worth, TX
 
DynCorp International, LLC
 
12/11/2015
 
16,650

 
119,000

 
100%
 
100%
 
Office
 
2018
 
1,526

Mercedes-Benz
 
Fort Worth, TX
 
Mercedes-Benz Financial Services USA LLC
 
12/11/2015
 
29,000

 
164,300

 
100%
 
100%
 
Office
 
2018
 
2,902

Samsonite
 
Jacksonville, FL
 
Samsonite, LLC
 
12/11/2015
 
48,000

 
817,700

 
100%
 
100%
 
Industrial
 
2024
 
3,816

Total real estate portfolio
 
 
 
 
 
 
 
$
2,955,581

 
18,628,500

 
 
 
 
 
 
 
 
 
$
229,842

Investment in unconsolidated joint
venture (6)
 
Ashburn, VA
 
A social media company and a financial services company
 
9/9/2014
 
148,400

 
132,300

 
73%
 
100%
 
Data Center
 
2020
 
14,242

Total
 
 
 
 
 
 
 
$
3,103,981

 
18,760,800

 
 
 
 
 
 
 
 
 
$
244,084


(1)
The portfolio is approximately 99.5% occupied and leased.

33


(2)
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 December 31, 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.
(3)
In connection with the acquisition of the General Electric and Farmers properties, we were assigned and assumed a leasehold estate and the rights to a payment in lieu of taxes agreement (the "PILOT Program") with the municipalities which own the underlying leased fee estate and subsequently leased the ground to us. The ground lease arrangements were put in place to provide real estate tax abatements, which is facilitated through the issuance of a municipal bond. Payments on the bonds, which are owned by us as lessee, are funded solely from the payments on the ground leases. The bonds can only be transferred to any successor to us, or any affiliate, as a lessee under the lease, including but not limited to any purchaser of our leasehold interest. Upon termination of the lease, we have the obligation to purchase the land for a nominal amount. The bonds, ground lease obligations, and purchase options were measured at fair value at acquisition in accordance with ASC 805, and due to their inseparability, are presented as a component of land on the consolidated balance sheets.
(4)
The land associated with the property is subject to a ground lease with the State of Arizona expiring on December 31, 2095.
(5)
In October 2014, Level 3 Communications, Inc. announced its acquisition of tw telecom holdings, inc. The property name has been updated to represent the surviving company, Level 3, as noted above.
(6)
We acquired an 80% ownership interest in a joint venture with affiliates of Digital Realty Trust, L.P. for an initial investment of $68.4 million. The table above reflects the impact of our 80% ownership interest in the acquisition value, and net rental revenue, on our portfolio. See Note 4, Investments, to the consolidated financial statements.

Revenue Concentration
No lessee or property, based on annualized net rent for the 12-month period subsequent to December 31, 2015, pursuant to the respective in-place leases, was greater than 6% as of December 31, 2015.
The percentage of annualized net rent for the 12-month period subsequent to December 31, 2015, by state, based on the respective in-place leases, is as follows (dollars in thousands):  
State
 
Annualized
Net Rent
(unaudited)
 
Number of
Properties
 
Percentage of
Annualized
Net Rent
California
 
$
35,608

 
7

 
15.5
%
Texas
 
31,524

 
10

 
13.7
%
Ohio
 
21,232

 
8

 
9.2
%
Illinois
 
20,811

 
8

 
9.1
%
Georgia
 
19,875

 
4

 
8.6
%
Colorado
 
18,326

 
6

 
8.0
%
Arizona
 
11,858

 
4

 
5.2
%
All others (1)
 
70,608

 
27

 
30.7
%
Total
 
$
229,842

 
74

 
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 December 31, 2015, by industry, based on the respective in-place leases, is as follows (dollars in thousands):

34


Industry (1)
 
Annualized
Net Rent
(unaudited)
 
Number of
Lessees
 
Percentage of
Annualized
Net Rent
Manufacturing
 
$
61,344

 
26

 
26.7
%
Finance & Insurance
 
53,155

 
27

 
23.1
%
Information (2)
 
45,162

 
11

 
19.6
%
Professional, Scientific and Technical Services (3)
 
26,455

 
8

 
11.5
%
Retail Trade
 
12,636

 
5

 
5.5
%
All others (4)
 
31,090

 
18

 
13.6
%
Total
 
$
229,842

 
95

 
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 accounts for less than 5% of total annualized net rent on an individual basis.
The tenant lease expirations, by year, based on annualized net rent for the 12-month period subsequent to December 31, 2015 are as follows (dollars in thousands):
Year of Lease Expiration
 
Annualized
Net Rent
(unaudited)
 
Number of
Lessees
 
Approx. Square Feet
 
Percentage of
Annualized
Net Rent
2016
 
$
903

 
3

 
91,700

 
0.4
%
2017
 
9,642

 
6

 
560,900

 
4.2
%
2018
 
24,017

 
11

 
2,507,800

 
10.4
%
2019
 
27,187

 
9

 
1,556,900

 
11.8
%
2020
 
19,503

 
10

 
1,668,000

 
8.5
%
2021
 
11,196

 
7

 
1,106,500

 
4.9
%
2022
 
15,513

 
9

 
1,315,300

 
6.8
%
2023
 
17,641

 
7

 
1,278,200

 
7.7
%
2024
 
27,022

 
12

 
2,980,700

 
11.8
%
2025
 
20,313

 
8

 
1,479,700

 
8.8
%
2026
 
14,299

 
5

 
851,000

 
6.2
%
2027
 
7,565

 
3

 
359,800

 
3.3
%
2028
 
2,376

 
1

 
231,400

 
1.0
%
2029
 
6,472

 
1

 
249,400

 
2.8
%
2030
 
12,858

 
2

 
1,931,400

 
5.6
%
2035
 
13,335

 
1

 
459,800

 
5.8
%
Total
 
$
229,842

 
95

 
18,628,500

 
100.0
%

Acquisition Indebtedness
For a discussion of our acquisitions and indebtedness, see Note 3, Real Estate, and Note 5, Debt, to the consolidated financial statements.

35


ITEM 3.
LEGAL PROCEEDINGS
(a)
From time to time, we may become subject to legal proceedings, claims and litigation arising in the ordinary course of our business. We are not a party to any material legal proceedings, nor are we aware of any pending or threatened litigation that would have a material adverse effect on our business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.
(b)
None.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
As of March 4, 2016, we had approximately $1.4 billion in shares of common stock outstanding, including $118.9 million in shares issued pursuant to our distribution reinvestment plan, held by a total of 39,947 stockholders of record. There is no established trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder, or at all. Pursuant to the terms of our charter, certain restrictions are imposed on the ownership and transfer of shares.
Unless and until our shares are listed on a national securities exchange, it is not expected that a public market for our shares will develop. To assist fiduciaries of Plans (as defined below) subject to the annual reporting requirements of ERISA and Account (as defined below) trustees or custodians to prepare reports relating to an investment in our shares, we intend to provide reports in annual determinations of the current value of our net assets per outstanding share to those fiduciaries (including Account trustees and custodians) who identify themselves to us and request the reports.
For purposes of the preceding paragraphs, “Plans” include tax-qualified pension, stock bonus or profit-sharing plans, employee benefit plans described in Section 3(3) of ERISA, and annuities described in Section 403(a) or (b) of the Code, and “Accounts” include an individual retirement account or annuity described in Sections 408 or 408A of the Code (also known as IRAs), an Archer MSA described in Section 220(d) of the Code, a health savings account described in Section 223(d) of the Code, and a Coverdell education savings account described in Section 530 of the Code. We are currently selling shares of our common stock to the public pursuant to the DRP Offerings at a price of $10.40 per share. Our board of directors established this share price following its receipt of a third-party report from an advisor to the board of directors that contained a range of potential values of our common stock, which report was received in conjunction with determining the NAV as of September 30, 2015.
In accordance with applicable FINRA rules, we are required to provide the estimated value of our shares in our annual report each year. On October 22, 2015, our board of directors approved an estimated value per share of our common stock of $10.40 per share, based on the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding on a fully diluted basis (the "NAV"), calculated as of September 30, 2015. The current share price does not represent a liquidation value of our assets and liabilities or the amount at which our shares of common stock would trade on a national securities exchange.

Determination of Estimated Value Per Share
On October 22, 2015, our board of directors, at the recommendation of our nominating and corporate governance committee of our board comprised solely of independent directors, approved an estimated value per share of our common stock of $10.40 based on the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding on a fully diluted basis (the "NAV"), calculated as of September 30, 2015. We are providing this estimated value per share to assist broker dealers in connection with their obligations under applicable Financial Industry Regulatory Authority ("FINRA") rules with respect to customer account statements. This valuation was performed in accordance with the provisions of Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the IPA in April 2013 ("IPA Valuation Guidelines"), in addition to guidance from the SEC. 
Our nominating and corporate governance committee is responsible for the oversight of the valuation process, including the review and approval of the valuation process and methodology used to determine our estimated value per share, the consistency of the valuation and appraisal methodologies with real estate industry standards and practices, and the reasonableness of the assumptions used in the valuations and appraisals. The estimated value per share was determined after consultation with the Advisor and Robert A. Stanger & Co, Inc. ("Stanger"), an independent third-party valuation firm. The

36


engagement of Stanger was approved by our nominating and corporate governance committee. Stanger prepared an appraisal report (the "Appraisal Report"), summarizing key inputs and assumptions, on 68 of the 70 properties in our portfolio (including an ownership interest in a joint venture which owns a data center facility in Ashburn, Virginia), in addition to one joint venture development in Patterson, California that is scheduled to be wholly acquired upon construction completion, and an office asset in Nashville, Tennessee, which we own a partial interest through a membership interest in a Delaware Statutory Trust (the "Appraised Properties"), as of June 30, 2015. Stanger also prepared a net asset value report (the "NAV Report") which estimates the net asset value per share of our common stock as of September 30, 2015. The NAV Report relied upon the Appraisal Report for the Appraised Properties, the acquisition price on three additional properties located in Westchester, Ohio; Houston, Texas; and Glendale, California which were all acquired within nine months of January 1, 2015, Stanger's estimated value of our mortgage loans and other debt, Stanger's value opinion with respect to our unconsolidated entity interests, Stanger's estimate of the Advisor's subordinated share of net proceeds due upon liquidation of our portfolio, and the Advisor's estimate of the value of our other assets and liabilities, to calculate an estimated net asset value per share of our common stock.
Upon our board of directors receipt and review of the Appraisal Report and the NAV Report (the "Reports"), the recommendation of the nominating and corporate governance committee, and the recommendation of the Advisor, our board of directors approved $10.40 as the estimated value per share of our common stock as of September 30, 2015, which determinations are ultimately and solely the responsibility of our board of directors.
The table below sets forth the calculation of our estimated value per share as of September 30, 2015. Certain amounts are reflected net of non-controlling interests, as applicable (dollars in thousands, except share and per share data):
 
Estimated Value Per Share as of September 30, 2015
 
Gross
 
Per Share
ASSETS:
 
 
 
Rental Properties, net
$
3,193,895

 
$
17.77

Cash and Cash Equivalents
28,223

 
0.16

Restricted Cash
41,476

 
0.23

Investment in Unconsolidated Entities
72,982

 
0.41

Other Assets
16,135

 
0.09

Total Assets
3,352,711

 
18.66

LIABILITIES:
 
 
 
Mortgage Payable
$
(328,487
)
 
$
(1.83
)
Line of Credit
(640,000
)
 
(3.56
)
KeyBank Term Loan
(353,225
)
 
(1.97
)
Total Debt
(1,321,712
)
 
(7.36
)
Restricted Reserves
(10,568
)
 
(0.06
)
Due to Affiliates
(2,951
)
 
(0.02
)
Distributions Payable
(6,275
)
 
(0.03
)
Accounts payable and Other Liabilities
(76,558
)
 
(0.43
)
Total Liabilities
(1,418,064
)
 
(7.89
)
 
 
 
 
Preferred Equity Subject to Redemption
(63,631
)
 
(0.35
)
Stockholders' Equity
1,871,016

 
10.41

Less: Promote
(2,527
)
 
(0.01
)
Stockholders' Equity, Net of Promote
$
1,868,489

 
$
10.40

 
 
 
 
Fully Diluted Shares Outstanding (1)
179,690,000

 
179,690,000

(1)
Approximate number of shares outstanding on a fully diluted basis.
The table below sets forth the calculation of our prior estimated value per share as of December 31, 2012, as conducted by another independent third-party valuation firm. Stanger is not responsible for the determination of the estimated value per share as of December 31, 2012 (dollars in thousands, except share and per share data):

37


 
 
Prior Estimated Value Per Share as of December 31, 2012
Gross Real Estate Asset Value
 

$362,800

Current Assets, net
 
3,031

Mortgage Debt
 
(199,809)

Net Asset Value
 
166,022

Fully Diluted Shares Outstanding as of 12/31/2012
 
17,358,507

Net Asset Value Per Share Approved by our board of directors (1)
 

$9.56

(1)
The estimated value range of our real estate assets and range of estimated value per share included a low end, mid-point, and high end. Our board of directors utilized the low end of the estimated value per share range to finalize their conclusion of the primary offering price. For more information related to the December 31, 2012 estimated value per share and the assumptions and methodologies used, see our Current Report on Form 8-K filed with the SEC on February 15, 2013.
Methodology and Key Assumptions
In determining an estimated value per share, our board of directors considered the Reports provided by Stanger and information provided by the Advisor. Our goal in calculating an estimated value per share is to arrive at a value that is reasonable and supportable using what our board of directors deems to be appropriate valuation methodologies and assumptions. 
FINRA's current rules provide no guidance on the methodology an issuer must use to determine its estimated value per share. As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated value per share, and these differences could be significant. The estimated value per share is not audited and does not represent the fair value of our assets less our liabilities according to GAAP, nor does it represent a liquidation value of our assets and liabilities or the amount our shares of common stock would trade at on a national securities exchange. The estimated value per share does not reflect a discount for the fact that we are externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. The estimated value per share also does not take into account estimated disposition costs and fees for real estate properties that are not held for sale.
Independent Valuation Firm
Stanger was selected by the nominating and corporate governance committee to appraise the 68 Appraised Properties (including an ownership interest in a joint venture which owns a data center facility in Ashburn, Virginia), in addition to one joint venture development in Patterson, California that is scheduled to be wholly acquired upon construction completion and an office asset in Nashville, Tennessee which we own a partial interest through a membership interest in a Delaware Statutory Trust. Stanger is engaged in the business of appraising commercial real estate properties and is not affiliated with us or our Advisor. The compensation we paid to Stanger was based on the scope of work and not on the appraised values of our real estate properties. The appraisals were performed in accordance with the Code of Ethics and the Uniform Standards of Professional Appraisal Practice, or USPAP, the real estate appraisal industry standards created by The Appraisal Foundation. The Appraisal Report was reviewed, approved, and signed by an individual with the professional designation of MAI licensed in the state where each real property is located. The use of the reports is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. In preparing its Reports, Stanger did not, and was not requested to, solicit third-party indications of interest for our common stock in connection with possible purchases thereof or the acquisition of all or any part of our business.
Stanger collected reasonably available material information that it deemed relevant in appraising our real estate properties. Stanger relied in part on property-level information provided by the Advisor, including (i) property historical and projected operating revenues and expenses; (ii) property lease agreements and/or lease abstracts; and (iii) information regarding recent or planned capital expenditures.
In conducting their investigation and analyses, Stanger took into account customary and accepted financial and commercial procedures and considerations as they deemed relevant. Although Stanger reviewed information supplied or otherwise made available by us or our Advisor for reasonableness, they assumed and relied upon the accuracy and completeness of all such information and of all information supplied or otherwise made available to them by any other party and did not independently verify any such information. Stanger has assumed that any operating or financial forecasts and other information and data provided to or otherwise reviewed by or discussed with Stanger were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of our management, the Board, and/or the Advisor. Stanger relied on us to advise them promptly if any information previously provided became inaccurate or was required to be updated during the period of their review. 

38


In performing its analyses, Stanger made numerous other assumptions as of various points in time with respect to industry performance, general business, economic, and regulatory conditions, and other matters, many of which are beyond their control and our control. Stanger also made assumptions with respect to certain factual matters. For example, unless specifically informed to the contrary, Stanger assumed that we had clear and marketable title to each real estate property appraised, that no title defects exist, that any improvements were made in accordance with law, that no hazardous materials are present or were present previously, that no significant deed restrictions exist, and that no changes to zoning ordinances or regulations governing use, density, or shape are pending or being considered. Furthermore, Stanger's analyses, opinions, and conclusions were necessarily based upon market, economic, financial, and other circumstances and conditions existing as of or prior to the date of the Appraisal Report, and any material change in such circumstances and conditions may affect Stanger's analyses and conclusions. Stanger's Appraisal Report contains other assumptions, qualifications, and limitations that qualify the analyses, opinions, and conclusions set forth therein. Furthermore, the prices at which our real estate properties may actually be sold could differ from Stanger's analyses.
Stanger is actively engaged in the business of appraising commercial real estate properties similar to those owned by us in connection with public security offerings, private placements, business combinations, and similar transactions. We do not believe that there are any material conflicts of interest between Stanger, on the one hand, and us, our Advisor, and our affiliates, on the other hand. The nominating and corporate governance committee elected to engage Stanger to deliver their Reports to assist in the net asset value calculation due to its extensive knowledge of our portfolio. Stanger received usual and customary compensation for its efforts to deliver their Reports to us. In addition, we agreed to indemnify Stanger against certain liabilities arising out of this engagement. In the two years prior to the date of this filing, Stanger (i) was engaged by us to provide a fairness opinion in connection with our merger with SOR and the corresponding exchange ratio; and (ii) performed a valuation involving one of our prospective acquisitions. Stanger received usual and customary fees in connection with those services. Stanger may from time to time in the future perform other services us, so long as such other services do not adversely affect the independence of Stanger as certified in the applicable Appraisal Report.
Although Stanger considered any comments received from us or the Advisor relating to their Reports, the final appraised values of our real estate properties were determined by Stanger. The Reports are addressed solely to the nominating and corporate governance committee to assist it in calculating and recommending to our board of directors an estimated value per share of our common stock. The Reports are not addressed to the public, may not be relied upon by any other person to establish an estimated value per share of our common stock, and do not constitute a recommendation to any person to purchase or sell any shares of the our common stock.
The foregoing is a summary of the standard assumptions, qualifications, and limitations that generally apply to the Reports. The Reports, including the analysis, opinions, and conclusions set forth in such reports, are qualified by the assumptions, qualifications, and limitations set forth in the respective reports.
Real Estate Valuation 
As described above, we engaged Stanger to provide an appraisal of the Appraised Properties consisting of 68 of the 70 properties in our portfolio (including an ownership interest in a joint venture which owns a data center facility in Ashburn, Virginia), in addition to one joint venture development in Patterson, California that was scheduled to be wholly acquired upon construction completion and an office asset in Nashville, Tennessee which we own a partial interest through a membership interest in a Delaware Statutory Trust, as of June 30, 2015. In preparing the Appraisal Report, Stanger, among other things:
performed a site visit of each Appraised Property;
interviewed our officers or the Advisor's personnel to obtain information relating to the physical condition of each Appraised Property, including known environmental conditions, status of ongoing or planned property additions and reconfigurations, and other factors for such leased properties;
reviewed lease agreements for those properties and discussed with us or the Advisor certain lease provisions and factors on each property; and
reviewed the acquisition criteria and parameters used by real estate investors for properties similar to the subject properties, including a search of real estate data sources and publications concerning real estate buyer's criteria, discussions with sources deemed appropriate, and a review of transaction data for similar properties.
Stanger employed the income approach to estimate the value of the Appraised Properties, which involves an economic analysis of the property based on its potential to provide future net annual income. As part of the valuation, a discounted cash flow analysis was used to determine the value of our interest in the portfolio, by valuing the subject interest in each Appraised Property in the portfolio based upon the leases that encumber such property. The indicated value by the discounted cash flow approach represents the amount an investor would probably pay for the expectation of receiving the net cash flow from the property during the subject lease term and the proceeds from the ultimate sale of the property.

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Stanger prepared the Appraisal Report, summarizing key inputs and assumptions, for each of the Appraised Properties it appraised using financial information provided by us and our Advisor. From such review, Stanger selected the appropriate cash flow discount rate, residual discount rate, and terminal capitalization rate. As for those properties consolidated on our financials, and for which we do not own 100% of the ownership interest, the property value was adjusted to reflect our ownership interest in such property after consideration of the distribution priorities associated with such property.
Three additional properties located in Westchester, Ohio; Houston, Texas; and Glendale, California which were all acquired within nine months of January 1, 2015 were included in the NAV Report at their respective acquisition prices.
As of September 30, 2015, we owned 71 real estate assets (including an ownership interest in a joint venture which owns a data center facility in Ashburn, Virginia), in addition to one joint venture development in Patterson, California that was scheduled to be wholly acquired upon construction completion and one membership interest in a Delaware Statutory Trust which owns an office asset in Nashville, Tennessee. The total acquisition cost of these properties at our respective ownership interest, including the joint venture development and the office asset owned through a membership interest in a Delaware Statutory Trust was approximately $3.02 billion, excluding acquisition fees and expenses. In addition, through September 30, 2015, we had invested $26.8 million in capital improvements on these real estate assets since inception. As of September 30, 2015, the total value of the Appraised Properties at our respective ownership interest, as provided by Stanger, assuming the expected buyout of the joint venture development and the acquisition price of the three real estate assets acquired during 2015 was approximately $3.35 billion. This represents an approximately 10.0% increase in the total value of the real estate assets over the aggregate basis. The following summarizes the key assumptions that were used in the discounted cash flow models used to arrive at the appraised value of the Appraised Properties:
 
 
 
 
Weighted Average
 
 
 
Range
 
Terminal Capitalization Rate
6.25
%
8.5
%
 
6.97%
Cash Flow Discount Rate
4.75
%
9.5
%
 
6.64%
Residual Discount Rate
6.5
%
8.75
%
 
7.44%
Income and Expense Growth
3%
 
3%
While we believe that Stanger's assumptions and inputs are reasonable, a change in these assumptions and inputs would significantly impact the calculation of the appraised value of the Appraised Properties and thus, the estimated value per share. The table below illustrates the impact on the estimated value per share if the terminal capitalization rates or discount rates were adjusted by 25 basis points or 5.0%, and assuming all other factors remain unchanged:
 
Estimated Value Per Share due to:
 
Increase 25 Basis
 
Decrease 25 Basis
 
Increase
 
Decrease
 
Points
 
Points
 
5.0%
 
5.0%
Terminal Capitalization Rate
$10.09
 
$10.71
 
$9.98
 
$10.84
Cash Flow Discount Rate
$10.31
 
$10.49
 
$10.28
 
$10.52
Residual Discount Rate
$10.18
 
$10.62
 
$10.07
 
$10.73
Loans
Values for mortgage loans, the line of credit, and term loan (the "Loans") were estimated by Stanger using a discounted cash flow analysis, which used inputs based on the remaining loan terms and estimated current market interest rates for mortgage loans with similar characteristics, including remaining loan term, loan-to-value ratios, debt-service-coverage ratios, prepayment terms, and collateral property attributes. The current market interest rate was generally determined based on market rates for available comparable debt. The estimated current market interest rates for the loans ranged from 1.64% to 6.70%.
As of September 30, 2015, Stanger's estimate of fair value of our consolidated Loans and ownership interest in unconsolidated Loans was $1.3 billion and $87.3 million, respectively. The weighted-average discount rate applied to the future estimated debt payments, excluding the line of credit and term loan, was approximately 4.35% and including the line of credit and term loan was approximately 2.49%.
While we believe that Stanger's assumptions and inputs are reasonable, a change in these assumptions and inputs would significantly impact the calculation of the estimated value of our loans and thus, the estimated value per share. The table below illustrates the impact on the estimated value per share if the market interest rate were adjusted by 25 basis points or 5.0%, and assuming all other factors remain unchanged:


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Estimated Value Per Share due to:
Decrease 25 Basis Points
 
Increase 25 Basis Points
 
Decrease 5.0%
 
Increase 5.0%
 
 
 
$10.37
 
$10.43
 
$10.37
 
$10.42
Unconsolidated Entities
In those situations where our assets and liabilities are held in unconsolidated entities, Stanger valued those interests by:
utilizing the value of the properties that are owned by the unconsolidated entities based upon its appraisal;
adding the other tangible assets held by the unconsolidated entities;
deducting the tangible liabilities of the unconsolidated entities, including any mortgage debt encumbering the unconsolidated entities properties after considering mark-to-market adjustments on such mortgage debt based on the debt information provided by us; and
taking the resulting unconsolidated entities equity from the above steps and processing such equity through the unconsolidated entities agreement as it pertains to capital distribution allocations, to determine the amount of equity attributable to us.
Other Assets and Liabilities
To derive our estimated value per share, Stanger added the other tangible assets and liabilities, including our redeemable preferred units from a draft of our September 30, 2015 balance sheet, to its estimated value of the real estate assets, mortgage loans, and the unconsolidated entities.
The carrying value of a majority of our other assets and liabilities are considered to equal their fair value due to their short maturities or liquid nature. Certain balances, such as straight-line rent receivables, lease intangible assets and liabilities, deferred financing costs, unamortized lease commissions, and unamortized lease incentives, have been eliminated for the purpose of the valuation due to the fact that the value of those balances were already considered in the valuation of the respective investments.
Different parties using different assumptions and estimates could derive a different estimated value per share, and these differences could be significant. The value of our shares will fluctuate over time in response to developments related to individual assets in our portfolio and the management of those assets and in response to the real estate and finance markets.
Advisor Promote
The estimated value per share was calculated net of the Advisor's subordinated share of net proceeds in the event of a liquidation of the portfolio, which we advised Stanger was equal to:
5% if stockholders are paid return of capital plus between 6% and 8% annual cumulative, non-compounded return;
10% if stockholders are paid return of capital plus between 8% and 10% annual cumulative, non-compounded return; and
15% if stockholders are paid return of capital plus a 10% or more annual cumulative, non-compounded return.
Limitations of Estimated Value Per Share
The various factors considered by our board of directors in determining the estimated value per share was based on a number of assumptions and estimates that may not be accurate or complete. As mentioned above, we are providing this estimated value per share to assist broker-dealers that participated in our public offerings in meeting their customer account statement reporting obligations. As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated value per share. The estimated value per share is not audited and does not represent the fair value of our assets or liabilities according to GAAP.
Accordingly, with respect to the estimated value per share, we can give no assurance that:
a stockholder would be able to resell his or her shares at this estimated value;
a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation of our assets and settlement of our liabilities or a sale of our business;
our shares of common stock would trade at the estimated value per share on a national securities exchange;

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an independent third-party appraiser or other third-party valuation firm would agree with our estimated value per share; or
the methodology used to estimate our estimated value per share would be acceptable to FINRA or for compliance with ERISA reporting requirements.
 Similarly, the amount a stockholder may receive upon repurchase of his or her shares, if he or she participates in our SRP, may be greater than or less than the amount a stockholder paid for the shares, regardless of any increase in the underlying value of any of our assets. 
In addition, the estimated value per share is based on the estimated value of our assets less the estimated value of our liabilities divided by the number of shares outstanding on an adjusted fully diluted basis, calculated as of September 30, 2015. The estimated value per share was based upon 179,693,496 shares of equity interest outstanding as of September 30, 2015, which was comprised of (i) 174,750,370 outstanding shares of our common stock, plus (ii) 4,939,793 outstanding units of limited partnership interest in our Operating Partnership, which units are exchangeable on a one-for-one basis into shares of common stock, plus (iii) 3,333 shares of unvested restricted common stock issued to our independent directors which shares vest ratably over time.
In addition, the estimated value per share considered by our board of directors as of October 22, 2015 does not reflect the actual or estimated portfolio liquidation value range or potential "enterprise value" range our business or our real estate portfolio. For example, it does not include a premium for: