HGR Liquidating Trust - FORM 10-Q - November 14, 2016

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EX-32.1 - EXHIBIT 32.1 - HGR Liquidating Trusthgr09302016exhibit321.htm
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EX-31.1 - EXHIBIT 31.1 - HGR Liquidating Trusthgr09302016exhibit311.htm

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-Q

(Mark One)
 
☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
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: 000-53964
 

 Hines Global REIT, Inc.
(Exact name of registrant as specified in its charter)
Maryland
26-3999995
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
2800 Post Oak Boulevard
 
Suite 5000
 
Houston, Texas
77056-6118
(Address of principal executive offices)
(Zip code)

(888) 220-6121
(Registrant’s telephone number, including area code)
 
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 ☑   No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑   No ☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐
Accelerated Filer  ☐
 
 
Non-accelerated Filer ☑ (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 ☑
 
 
As of November 14, 2016, approximately 277.1 million shares of the registrant’s common stock were outstanding.

 


TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
 
 
Item 1.
Condensed Consolidated Financial Statements (Unaudited):
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
PART II – OTHER INFORMATION
 
 
Item 1. 
Item 1A. 
Item 2.
Item 3. 
Item 4. 
Item 5. 
Item 6.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

HINES GLOBAL REIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
September 30, 2016
 
December 31, 2015
 
(In thousands, except per share amounts)
ASSETS
 
 
 
Investment property, net
$
3,212,803

 
$
3,267,877

Investment in unconsolidated entities
24

 
2,006

Cash and cash equivalents
119,373

 
136,627

Restricted cash
21,057

 
19,764

Derivative instruments
23

 
675

Tenant and other receivables, net
115,772

 
94,890

Intangible lease assets, net
556,236

 
672,784

Deferred leasing costs, net
122,600

 
104,308

Deferred financing costs, net
2,692

 
3,384

Real estate loans receivable, net
32,991

 
55,280

Other assets
15,719

 
15,351

Total assets
$
4,199,290

 
$
4,372,946

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued expenses
$
109,873

 
$
101,981

Due to affiliates
14,284

 
14,469

Intangible lease liabilities, net
86,649

 
95,696

Other liabilities
39,524

 
48,583

Distributions payable
20,393

 
19,837

Notes payable, net
2,483,424

 
2,545,656

Total liabilities
2,754,147

 
2,826,222

 
 
 
 
Commitments and contingencies (Note 12)
—

 
—

 
 
 
 
Equity:
 
 
 
Stockholders’ equity:
 
 
 
Preferred shares, $.001 par value; 500,000 preferred shares authorized, none issued or outstanding as of September 30, 2016 and December 31, 2015
—

 
—

Common stock, $.001 par value; 1,500,000 shares authorized, 276,372 and 274,482 issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
276

 
274

Additional paid-in capital
2,497,454

 
2,476,744

Accumulated distributions in excess of earnings
(926,668
)
 
(815,127
)
Accumulated other comprehensive income (loss)
(171,114
)
 
(163,096
)
Total stockholders’ equity
1,399,948

 
1,498,795

Noncontrolling interests
45,195

 
47,929

Total equity
1,445,143

 
1,546,724

Total liabilities and equity
$
4,199,290

 
$
4,372,946


See notes to the condensed consolidated financial statements.

1

HINES GLOBAL REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three and Nine Months Ended September 30, 2016 and 2015
(UNAUDITED)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per share amounts)
Revenues:
 

 
 

 
 
 
 
Rental revenue
$
111,993

 
$
110,253

 
$
332,965

 
$
325,947

Other revenue
9,861

 
9,280

 
29,421

 
26,406

Total revenues
121,854

 
119,533

 
362,386

 
352,353

Expenses:
 

 
 

 
 

 
 

Property operating expenses
22,844

 
22,672

 
68,467

 
67,795

Real property taxes
13,030

 
12,501

 
37,729

 
35,609

Property management fees
2,498

 
2,520

 
7,238

 
7,613

Depreciation and amortization
44,116

 
48,027

 
133,819

 
139,148

Acquisition related expenses
91

 
(175
)
 
263

 
8,332

Asset management and acquisition fees
9,204

 
9,025

 
27,473

 
35,542

General and administrative expenses
2,859

 
2,037

 
8,775

 
6,429

Total expenses
94,642

 
96,607

 
283,764

 
300,468

Income (loss) before other income (expenses) and benefit (provision) for income taxes
27,212

 
22,926

 
78,622

 
51,885

Other income (expenses):
 

 
 

 
 

 
 

Gain (loss) on derivative instruments
(29
)
 
(59
)
 
(708
)
 
586

Equity in earnings (losses) of unconsolidated entity
(73
)
 
—

 
7,528

 
—

Gain (loss) on sale of real estate investments
—

 
55

 
—

 
(1,073
)
Foreign currency gains (losses)
3,282

 
(1,485
)
 
(3,798
)
 
(5,538
)
Interest expense
(16,135
)
 
(17,794
)
 
(48,727
)
 
(54,759
)
Other income (expenses)
143

 
80

 
78

 
345

Income (loss) before benefit (provision) for income taxes
14,400

 
3,723

 
32,995

 
(8,554
)
Benefit (provision) for income taxes
(2,032
)
 
(1,570
)
 
(5,004
)
 
(3,559
)
Net income (loss)
12,368

 
2,153

 
27,991

 
(12,113
)
Net (income) loss attributable to noncontrolling interests
(2,160
)
 
(1,086
)
 
(5,091
)
 
(4,358
)
Net income (loss) attributable to common stockholders
$
10,208

 
$
1,067

 
$
22,900

 
$
(16,471
)
Basic and diluted income (loss) per common share
$
0.04

 
$
—

 
$
0.08

 
$
(0.06
)
Distributions declared per common share
$
0.16

 
$
0.16

 
$
0.49

 
$
0.49

Weighted average number of common shares outstanding
276,067

 
273,201

 
275,539

 
272,293

Net comprehensive income (loss):
 

 
 

 
 

 
 

Net income (loss)
$
12,368

 
$
2,153

 
$
27,991

 
$
(12,113
)
Other comprehensive income (loss):
 

 
 

 
 

 
 

Foreign currency translation adjustment
2,026

 
(28,837
)
 
(10,904
)
 
(44,817
)
Net comprehensive income (loss)
14,394

 
(26,684
)
 
17,087

 
(56,930
)
Net comprehensive (income) loss attributable to noncontrolling interests
(1,507
)
 
(230
)
 
(2,205
)
 
(3,748
)
Net comprehensive income (loss) attributable to common stockholders
$
12,887

 
$
(26,914
)
 
$
14,882

 
$
(60,678
)

See notes to the condensed consolidated financial statements.

2

HINES GLOBAL REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Nine Months Ended September 30, 2016 and 2015
(UNAUDITED)
(In thousands)
 
Common Shares
 
Amount
 
Additional Paid-in Capital
 
Accumulated Distributions in Excess of Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders’ Equity
 
Noncontrolling Interests
Balance as of
January 1, 2016
274,482

 
$
274

 
$
2,476,744

 
$
(815,127
)
 
$
(163,096
)
 
$
1,498,795

 
$
47,929

Issuance of common shares
7,043

 
7

 
70,741

 
—

 
—

 
70,748

 
—

Distributions declared
—

 
—

 
—

 
(134,441
)
 
—

 
(134,441
)
 
(1,875
)
Distributions on Convertible Preferred Equity Certificates (CPEC)
—

 
—

 
—

 
—

 
—

 
—

 
(3,064
)
Redemption of common shares
(5,153
)
 
(5
)
 
(49,997
)
 
—

 
—

 
(50,002
)
 
—

Issuer costs
—

 
—

 
(34
)
 
—

 
—

 
(34
)
 
—

Net income (loss)
—

 
—

 
—

 
22,900

 
—

 
22,900

 
5,091

Foreign currency translation adjustment
—

 
—

 
—

 
—

 
(8,018
)
 
(8,018
)
 
(2,886
)
Balance as of
September 30, 2016
276,372

 
$
276

 
$
2,497,454

 
$
(926,668
)
 
$
(171,114
)
 
$
1,399,948

 
$
45,195

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Shares
 
Amount
 
Additional Paid-in Capital
 
Accumulated Distributions in Excess of Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders’ Equity
 
Noncontrolling Interests
Balance as of
January 1, 2015
270,657

 
$
271

 
$
2,440,089

 
$
(627,203
)
 
$
(123,769
)
 
$
1,689,388

 
$
46,709

Issuance of common shares
7,354

 
7

 
70,347

 
—

 
—

 
70,354

 
—

Contribution from noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
953

Distributions declared
—

 
—

 
—

 
(132,372
)
 
—

 
(132,372
)
 
(533
)
Distributions on CPECs
—

 
—

 
—

 
—

 
—

 
—

 
(2,761
)
Redemption of common shares
(4,498
)
 
(4
)
 
(41,494
)
 
—

 
—

 
(41,498
)
 
—

Issuer costs
—

 
—

 
(53
)
 
—

 
—

 
(53
)
 
—

Net income (loss)
—

 
—

 
—

 
(16,471
)
 
—

 
(16,471
)
 
4,358

Foreign currency translation adjustment
—

 
—

 
—

 
—

 
(45,317
)
 
(45,317
)
 
(610
)
Foreign currency translation adjustment reclassified into earnings
—

 
—

 
—

 
—

 
1,110

 
1,110

 
—

Balance as of
September 30, 2015
273,513

 
$
274

 
$
2,468,889

 
$
(776,046
)
 
$
(167,976
)
 
$
1,525,141

 
$
48,116


See notes to the condensed consolidated financial statements.

3

HINES GLOBAL REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2016 and 2015
(UNAUDITED)
 
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
(In thousands)
Net income (loss)
$
27,991

 
$
(12,113
)
Adjustments to reconcile net income (loss) to net cash from operating activities:
 
 
 
Depreciation and amortization
148,573

 
151,616

Equity in (earnings) losses of unconsolidated entity
(7,528
)
 
—

Distributions from unconsolidated entities
7,528

 
—

Foreign currency (gains) losses
3,798

 
5,538

(Gain) loss on the sale of real estate investments
—

 
1,073

(Gain) loss on derivative instruments
708

 
(586
)
Changes in assets and liabilities:
 
 
 
Change in other assets
(833
)
 
(3,416
)
Change in tenant and other receivables
(26,908
)
 
(21,550
)
Change in deferred leasing costs
(29,861
)
 
(31,769
)
Change in accounts payable and accrued expenses
8,132

 
9,903

Change in other liabilities
(6,745
)
 
(3,429
)
Change in due to affiliates
(1,615
)
 
(1,338
)
Net cash from operating activities
123,240

 
93,929

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Investments in acquired properties and lease intangibles
—

 
(431,169
)
Capital expenditures at operating properties and developments
(13,017
)
 
(8,512
)
Distributions from unconsolidated entity in excess of equity in earnings
1,982

 
721

Investments in real estate loans receivable
(5,949
)
 
(10,255
)
Proceeds from collection of real estate loans receivable
28,767

 
17,591

Change in restricted cash
(1,446
)
 
(1,674
)
Net cash (used in) from investing activities
10,337

 
(433,298
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Contribution from noncontrolling interest
—

 
953

Redemption of common shares
(50,628
)
 
(42,994
)
Payments of issuer costs
(38
)
 
(46
)
Distributions paid to stockholders and noncontrolling interests
(67,444
)
 
(64,034
)
Proceeds from notes payable
109,000

 
1,337,672

Payments on related party notes payable
—

 
(17,017
)
Payments on notes payable
(139,431
)
 
(876,546
)
Change in security deposit liability
116

 
635

Deferred financing costs paid
(339
)
 
(7,648
)
Payments related to interest rate contracts
(55
)
 
(2,340
)
Net cash (used in) from financing activities
(148,819
)
 
328,635

Effect of exchange rate changes on cash
(2,012
)
 
(5,814
)
Net change in cash and cash equivalents
(17,254
)
 
(16,548
)
Cash and cash equivalents, beginning of period
136,627

 
143,609

Cash and cash equivalents, end of period
$
119,373

 
$
127,061


See notes to the condensed consolidated financial statements.

4

HINES GLOBAL REIT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended September 30, 2016 and 2015

1.  ORGANIZATION

The accompanying interim unaudited condensed consolidated financial information has been prepared according to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted according to such rules and regulations. For further information, refer to the financial statements and footnotes for the year ended December 31, 2015 included in Hines Global REIT, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015. In the opinion of management, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly and in conformity with GAAP the financial position of Hines Global REIT, Inc. as of September 30, 2016, the results of operations for the three and nine months ended September 30, 2016 and 2015 and cash flows for the nine months ended September 30, 2016 and 2015 have been included.  The results of operations for such interim periods are not necessarily indicative of the results for the full year.

Hines Global REIT, Inc. (the “Company”), was formed as a Maryland corporation on December 10, 2008 under the General Corporation Law of the state of Maryland for the purpose of engaging in the business of investing in and owning commercial real estate properties and other real estate investments. The Company conducts most of its operations through Hines Global REIT Properties, LP (the “Operating Partnership”) and subsidiaries of the Operating Partnership. The Company operates in a manner to qualify as a real estate investment trust (“REIT”) for federal income tax purposes. The business of the Company is managed by Hines Global REIT Advisors LP (the “Advisor”), an affiliate of Hines Interests Limited Partnership (“Hines”), pursuant to the Advisory Agreement between the Company, the Advisor and the Operating Partnership (the “Advisory Agreement”).

The Company raised the equity capital for its real estate investments through two public offerings from August 5, 2009 through April 11, 2014. The Company continues to offer up to $500.0 million of shares of its common stock under its distribution reinvestment plan, pursuant to an offering which commenced on April 24, 2014 (the “DRP Offering”). The Company has raised gross offering proceeds of approximately $3.0 billion through its public offerings, including the DRP Offering, all of which have been invested in the Company’s real estate portfolio.

In March 2015, the Company completed its investment of the proceeds raised through its public offerings. As of September 30, 2016, the Company owned interests in 42 real estate investments, consisting of the following types of investments:

•
Domestic office investments (11 investments)
•
Domestic other investments (9 investments)
•
International office investments (10 investments)
•
International other investments (12 investments)

Discussed below are additional details related to the Company’s investments in real estate-related debt as of September 30, 2016. Each of these investments is included in the Company’s domestic other investments segment. All other investments are operating real estate investments.

•
Flagship Capital JV — 97% interest in a joint venture with Flagship Capital GP, which was formed to provide real estate loans. The joint venture has two loans receivable, totaling $15.1 million, outstanding as of September 30, 2016. The Company is not affiliated with Flagship Capital GP. See Note 5 — Real Estate Loans Receivable for additional information regarding these loans receivable.

•
The Rim Loan Receivable — the Company committed to provide construction financing to the developer of additional retail parcels at The Rim, an outdoor retail center located in San Antonio, Texas. In April 2015, the Company completed the acquisition of the first of these additional parcels, consisting of 259,316 square feet. In December 2015, the Company completed the acquisition of an additional parcel, consisting of 28,901 square feet. The total amount of the commitment, as amended in April and December 2015, is $20.8 million. As of September 30, 2016, the Company had outstanding loans of $17.9 million to the developer. The Company is not affiliated with the developer of the project.



5

Consolidated VIEs

The WaterWall Place JV, Aviva Coral Gables JV, and Flagship Capital JV were each determined to be variable interest entities (“VIE”) in which the Company is the primary beneficiary and the Company has consolidated these joint ventures accordingly. A summary of the assets and liabilities of these consolidated VIEs, as well as the maximum loss exposure of the Company from these consolidated VIEs, is as follows (in thousands):

 
September 30, 2016
 
December 31, 2015
Maximum risk of loss (1)
$
32,041

 
$
52,394

Assets held by VIEs
$
138,007

 
$
171,172

Assets held as collateral for debt
$
138,007

 
$
171,172

Liabilities held by VIEs
$
92,408

 
$
106,656


(1)
Represents the Company's contributions, net of distributions, made to the consolidated VIEs.

Restrictions on the use of a VIE’s assets are significant because they serve as collateral for such VIE’s debt, and the Company is generally required to obtain its partners’ approval in accordance with the respective joint venture agreements for any major transactions. Transactions with these joint ventures on the Company’s consolidated financial statements primarily relate to (i) contributions for the funding of loans receivable or distributions related to the receipt of proceeds from the collection of loans receivable at the Flagship JV or (ii) operating distributions received from the WaterWall Place JV and the Aviva Coral Gables JV, respectively. The Company and its partners are subject to the provisions of the joint venture agreements for the VIEs, which include provisions for when additional contributions may be required. During the nine months ended September 30, 2016, the Company received distributions of $20.4 million, net of capital contributions of $0.1 million in accordance with the Company’s respective joint venture agreements. During the nine months ended September 30, 2015, the Company made capital contributions of $6.0 million, net of received distributions of $11.5 million in accordance with the Company’s respective joint venture agreements. This activity is eliminated in consolidation of the VIEs, but increases, or decreases in the case of distributions received, the Company’s maximum risk of loss.

Unconsolidated VIEs

The Rim Loan Receivable

In February 2014, the Company completed the acquisition of The Rim, an outdoor retail center located in San Antonio, Texas. In August 2014, the Company entered into a loan agreement with Central Rim LLC (the “Rim Borrower”), as amended in April 2015 and December 2015, to provide $20.8 million of construction financing at The Rim. In April 2015, the Company completed the acquisition of an additional 259,316 square feet of retail space at The Rim. In December 2015, the Company completed the acquisition of an additional parcel, consisting of 28,901 square feet. Following the completion of the development of each parcel, the Company will have certain rights or obligations to purchase each parcel. As a result of these purchase rights or obligations, and due to the fact that the Rim Borrower lacks the obligation to absorb losses upon the achievement of certain metrics, the Company has determined that the entity that owns these parcels is considered to be a VIE. Additionally, the Rim Borrower was determined to be the primary beneficiary of this VIE since it is the party most directly responsible for the success of the entity. As of September 30, 2016, the Company had loans of $17.9 million outstanding to the developer. The Company's maximum exposure to loss is the amount borrowed under the facility agreement, plus any unpaid interest. The most significant source of the Company's exposure to the VIE is the variability related to the Rim Borrower's credit risk and its ability to repay the amounts funded.

The @1377 Equity Method Investment

The Company formed a joint venture with an affiliate of Hines in 2011 related to the construction of @1377, a multi-family development project in Atlanta, Georgia. The Company provided a preferred equity investment in the partnership of $3.6 million during 2012, representing a 51.7% ownership in the project and a $3.2 million mezzanine loan commitment plus accrued interest made by the Company. In addition, the partnership obtained a $23.3 million secured loan from Cadence Bank, N.A., which is solely guaranteed by the Company’s joint venture partner (the “JV Partner”). The Company has concluded that @1377 qualifies as a VIE. The JV Partner was the manager of the project, which allowed the JV Partner to direct the activities of the VIE that most significantly impact the VIE’s financial performance. Based upon the loan guarantees and the JV Partner’s ability to direct the activities that significantly impact the economic performance of the VIE, the Company determined that it was not the primary beneficiary of this VIE and determined to account for its preferred equity investment in the project as an equity method investment. Other than the initial capital contributions provided by the Company, the Company did not provide any additional subordinated financial support.


6

The construction of @1377 was completed in March 2014 and in June 2016, the partnership sold @1377 for $51.0 million, excluding transaction costs and closing prorations. As a result of the sale of the property, the Company’s equity in earnings of the partnership included a gain of $7.5 million and the Company received distributions of $8.7 million as well as $4.0 million related to the repayment of its mezzanine loan.
 
The table below presents the activity of the Company's unconsolidated entities as of and for the periods presented (in thousands):

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Investment in Unconsolidated Entities
 
2016
 
2015
 
2016
 
2015
Beginning balance
 
$
225

 
$
2,113

 
$
2,006

 
$
2,873

Equity in earnings
 
(73
)
 
176

 
7,528

 
291

Distributions
 
(128
)
 
(150
)
 
(9,510
)
 
(1,025
)
Ending balance
 
$
24

 
$
2,139

 
$
24

 
$
2,139


The table below summarizes the Company’s maximum loss exposure related to its unconsolidated VIEs as of September 30, 2016 and December 31, 2015, (in thousands) which is equal to the carrying value of its investment in the unconsolidated VIEs included in the balance sheet line item “Investment in unconsolidated entities” and the Company’s outstanding loan receivable balances of $17.9 million and $16.6 million as of September 30, 2016 and December 31, 2015, respectively, held by the VIEs which is included in the balance sheet line item “Real estate loans receivable” in the condensed consolidated balance sheets.

 Period
 
Investment in Unconsolidated VIEs (1)
 
Maximum Risk of Loss (2)
September 30, 2016
 
$
24

 
$
17,884

December 31, 2015
 
$
2,006

 
$
18,619


(1)
Represents the Company’s contributions, net of distributions, made to its VIEs, as well as the equity in earnings on the investments.

(2)
Maximum Risk of Loss is equal to the amount outstanding under the loan plus the Company’s contributions, net of distributions, made to the VIEs as of the date indicated, as well as the equity in earnings on the investments. See Note 5 — Real Estate Loans Receivable for additional information regarding the loan.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Described below are certain of the Company’s significant accounting policies. The disclosures regarding several of the policies have been condensed or omitted in accordance with interim reporting regulations specified by Form 10-Q. Please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for a complete listing of all of its significant accounting policies.

Basis of Presentation

The condensed consolidated financial statements of the Company included in this Quarterly Report on Form 10-Q include the accounts of Hines Global REIT, Inc., the Operating Partnership and the Operating Partnership’s wholly-owned subsidiaries as well as the related amounts of noncontrolling interests. All intercompany balances and transactions have been eliminated in consolidation. As a result of the adoption of Accounting Standards Update (“ASU”) 2015-02, the Company has determined that the Operating Partnership is considered a VIE. However, the Company meets the disclosure exemption criteria under ASU 2015-02, as the Company is the primary beneficiary of the VIE and the Company’s partnership interest is considered a majority voting interest.

The Company has retroactively changed, for all prior periods presented, its classification of distributions in its consolidated balance sheets and statements of equity by reflecting such distributions as charges against “accumulated distributions in excess of earnings.”  This presentation change had no impact on the total equity balances in any of the periods presented.


7

Tenant and Other Receivables

Tenant and other receivables are shown at cost in the condensed consolidated balance sheets, net of allowance for doubtful accounts of $2.0 million and $1.7 million at September 30, 2016 and December 31, 2015, respectively.

Deferred Financing Costs

Deferred financing costs consist of direct costs incurred in obtaining debt financing (see Note 6 — Debt Financing).  These fees are presented as a reduction to the related debt liability for permanent mortgages and as an asset for revolving credit arrangements.  In total, deferred financing costs (net of amortization) were $12.2 million and $15.6 million as of September 30, 2016 and December 31, 2015, respectively.  These costs are amortized into interest expense on a straight-line basis, which approximates the effective interest method, over the terms of the obligations. For the three months ended September 30, 2016 and 2015, $1.2 million and $1.7 million, respectively, were amortized into interest expense in the accompanying condensed consolidated statement of operations. For the nine months ended September 30, 2016 and 2015, $3.8 million and $4.7 million, respectively, were amortized into interest expense in the accompanying condensed consolidated statement of operations.

Other Assets

Other assets included the following (in thousands):
 
 
September 30, 2016
 
December 31, 2015
Deferred costs
 
$
250

 
$
1,000

Prepaid expenses
 
3,589

 
3,401

Deferred tax assets
 
11,542

 
10,501

Other
 
338

 
449

Other assets
 
$
15,719

 
$
15,351


Revenue Recognition
 
Rental payments are generally paid by the tenants prior to the beginning of each month or quarter to which they relate. As of September 30, 2016 and December 31, 2015, respectively, the Company recorded liabilities of $29.3 million and $33.4 million related to prepaid rental payments, which were included in other liabilities in the accompanying condensed consolidated balance sheets. The Company recognizes rental revenue on a straight-line basis over the life of the lease, including rent holidays, if any. Straight-line rent receivable was $88.3 million and $72.2 million as of September 30, 2016 and December 31, 2015, respectively. Straight-line rent receivable consists of the difference between the tenants’ rents calculated on a straight-line basis from the date of acquisition or lease commencement over the remaining terms of the related leases and the tenants’ actual rents due under the lease agreements and is included in tenant and other receivables in the accompanying consolidated balance sheets. Revenues associated with operating expense recoveries are recognized in the period in which the expenses are incurred based upon the tenant lease provisions. Revenues relating to lease termination fees are recognized on a straight-line basis amortized from the time that a tenant’s right to occupy the leased space is modified through the end of the revised lease term.

Recent Accounting Pronouncements

In September 2015, the Financial Accounting Standards Board (“FASB”) issued new guidance that eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively.  Pursuant to the new guidance, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment.  This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and early adoption was permitted.  The adoption of this new guidance did not have a material impact on the Company’s financial statements.

In June 2016, the FASB issued new guidance that requires the impairment of financial instruments to be based on expected credit losses. These amendments are effective for fiscal years and interim periods within those years, beginning after December 15, 2019 and early adoption is permitted for years and interim periods within those years beginning after December 15, 2018. The Company is currently assessing the impact the adoption of this guidance will have on its financial statements.

In August 2016, the FASB issued amendments to the Accounting Standards Codification to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows.  The amendments in the ASU are effective for public entities for annual and interim periods in fiscal years beginning after December 15, 2017 and for all other entities for annual

8

periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019 and early adoption is permitted.  The Company does not believe the adoption of this guidance will have a material impact on its financial statements.


3. INVESTMENT PROPERTY
 
Investment property consisted of the following amounts as of September 30, 2016 and December 31, 2015 (in thousands):

 
September 30, 2016
 
December 31, 2015
Buildings and improvements
$
2,765,200

 
$
2,776,740

Less: accumulated depreciation
(249,457
)
 
(200,311
)
Buildings and improvements, net
2,515,743

 
2,576,429

Land
697,060

 
691,448

Investment property, net
$
3,212,803

 
$
3,267,877


As of September 30, 2016, the cost basis and accumulated amortization related to lease intangibles were as follows (in thousands):

 
Lease Intangibles
 
 
 
Out-of-Market
Lease Assets
 
Out-of-Market
Lease Liabilities
 
In-Place Leases
 
 
Cost
$
839,763

 
$
103,405

 
$
(121,712
)
Less: accumulated amortization
(336,981
)
 
(49,951
)
 
35,063

Net
$
502,782

 
$
53,454

 
$
(86,649
)

As of December 31, 2015, the cost basis and accumulated amortization related to lease intangibles were as follows (in thousands):

 
Lease Intangibles
 
 
 
Out-of-Market
Lease Assets
 
Out-of-Market
Lease Liabilities
 
In-Place Leases
 
 
Cost
$
894,110

 
$
108,660

 
$
(123,124
)
Less: accumulated amortization
(286,903
)
 
(43,083
)
 
27,428

Net
$
607,207

 
$
65,577

 
$
(95,696
)

Amortization expense of in-place leases was $25.5 million and $29.6 million for the three months ended September 30, 2016 and 2015, respectively. Net amortization of out-of-market leases resulted in a decrease to rental revenue of $0.8 million and $0.5 million for the three months ended September 30, 2016 and 2015, respectively.

Amortization expense of in-place leases was $78.2 million and $86.1 million for the nine months ended September 30, 2016 and 2015, respectively. Net amortization of out-of-market leases resulted in a decrease to rental revenue of $2.4 million and $2.8 million for the nine months ended September 30, 2016 and 2015, respectively.


9

Anticipated amortization of in-place leases and out-of-market leases, net, for the period from October 1, 2016 through December 31, 2016 and for each of the years ending December 31, 2017 through December 31, 2020 are as follows (in thousands):

 
In-Place
Leases
 
Out-of-Market
Leases, Net
October 1, 2016 through December 31, 2016
$
22,848

 
$
549

2017
74,935

 
(423
)
2018
58,404

 
(2,437
)
2019
46,288

 
(3,707
)
2020
37,366

 
(3,268
)

Leases
 
The Company has entered into non-cancelable lease agreements with tenants for space. As of September 30, 2016, the approximate fixed future minimum rentals for the period from October 1, 2016 through December 31, 2016, for each of the years ending December 31, 2017 through December 31, 2020 and for the period thereafter are as follows (in thousands):

 
Fixed Future Minimum Rentals
October 1, 2016 through December 31, 2016
$
82,024

2017
327,413

2018
278,394

2019
253,222

2020
227,989

Thereafter
1,357,063

Total
$
2,526,105


Pursuant to the lease agreements with certain tenants in one of its buildings, a wholly-owned subsidiary of the Company receives fees for the provision of various telecommunication-related services and the use of certain related facilities. The fixed future minimum rentals expected to be received for such services for the period from October 1, 2016 through December 31, 2016, for each of the years ended December 31, 2017 through 2020 and for the period thereafter are $1.0 million, $3.8 million, $3.6 million, $1.6 million, $1.2 million and $3.2 million, respectively.

During the nine months ended September 30, 2016 and 2015, the Company did not earn more than 10% of its total rental revenue from any individual tenant.

4. RECENT ACQUISITIONS OF REAL ESTATE

The Company did not make any property acquisitions during the nine months ended September 30, 2016. The amounts recognized for major assets acquired as of the acquisition date were determined by allocating the purchase price of each property acquired in 2015 as follows (in thousands):
Property Name
 
Acquisition
Date
 
Building and
Improvements (1)
 
Land (1)
 
In-place
Lease
Intangibles (1)
 
Out-of-
Market Lease
Intangibles, Net (1)
 
Total (1)
Simon Hegele Logistics (2)
 
01/7/2015 &
06/03/2014
 
$
56,428

 
$
13,245

 
$
9,154

 
$
41

 
$
78,868

The Summit
 
03/04/2015
 
$
217,974

 
$
68,090

 
$
45,360

 
$
(14,920
)
 
$
316,504

Harder Logistics Portfolio (3)
 
12/03/2015 & 04/01/2015
 
$
89,368

 
$
16,362

 
$
15,413

 
$
5,392

 
$
126,535

The Rim (4)
 
12/30/2015, 04/30/2015 &
02/13/2014
 
$
135,616

 
$
85,240

 
$
55,620

 
$
(28,690
)
 
$
247,786


(1)
For acquisitions denominated in a foreign currency, amounts have been translated to U.S. dollars at a rate based on the exchange rate in effect on the acquisition date.

10


(2)
In June 2014, the Company acquired the Simon Hegele Logistics facility in Forchheim, Germany. In January 2015, the Company acquired the second phase of the facility.

(3)
In April 2015, the Company acquired two logistics buildings in the Harder Logistics Portfolio located in Nuremberg and Karlsdorf, Germany. In December 2015, the Company acquired the second phase of the portfolio, which consisted of one logistics building located in Duisburg, Germany.

(4)
In February 2014, the Company acquired The Rim retail center in San Antonio, Texas. In April 2015 and December 2015, the Company acquired the second and third phases of the center, respectively.

The weighted average amortization period for the intangible assets and liabilities acquired in connection with the 2015 acquisitions, as of the date of the respective acquisition, was as follows (in years):
 
 
In-Place Leases
 
Above-Market Lease Assets
 
Below-Market Lease Liabilities
2015 Acquisitions:
 
 
 
 
 
 
Simon Hegele Logistics (2nd Phase)
 
11.3
 
—
 
—
The Summit
 
5.1
 
3.0
 
5.6
Harder Logistics Portfolio
 
10.0
 
5.7
 
—
The Rim (2nd Phase)
 
11.3
 
9.8
 
6.0
The Rim (3rd Phase)
 
7.8
 
8.5
 
6.5
Harder Logistics Portfolio
(2nd Phase)
 
13.9
 
15.0
 
—

The table below includes the amounts of revenue and net income (loss) of the acquisitions completed during the nine months ended September 30, 2015, which are included in the Company’s condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2015 (in thousands):
 
 
For the Three Months Ended
 
For the Nine Months Ended
2015 Acquisitions
 
September 30, 2015
 
September 30, 2015
Simon Hegele Logistics (1)
Revenue
$
1,350

 
$
4,014

 
Net income (loss)
$
118

 
$
(13
)
The Summit
Revenue
$
6,664

 
$
15,357

 
Net income (loss)
$
315

 
$
330

Harder Logistics Portfolio
Revenue
$
1,170

 
$
2,301

 
Net income (loss)
$
282

 
$
(6,457
)
The Rim (2)
Revenue
$
6,114

 
$
17,102

 
Net income (loss)
$
(139
)
 
$
1,519


(1)
Includes the total revenue and net income of the Simon Hegele Logistics facility, including the first phase of the facility acquired in June 2014, which is 100% leased to a single tenant. The second phase of the facility was acquired in January 2015 and includes 236,661 square feet of net rentable area, which represents 38.9% of the net rentable area of the total Simon Hegele Logistics facility.

(2)
Includes the total revenue and net income of The Rim retail center, which includes the first phase of the retail center acquired in February 2014. The second phase of the retail center was acquired in April 2015 and includes 259,316 square feet of net rentable area, which represents 27.8% of the net rentable area of the total Rim retail center.


11

The following unaudited consolidated information is presented to give effect to the 2015 acquisitions through September 30, 2015 as if the acquisitions occurred on January 1, 2014. This information excludes activity that is non-recurring and not representative of the Company’s future activity, primarily acquisition fees and expenses of $(0.2) million and $0.3 million for the three months ended September 30, 2015 and 2014, and $17.2 million and $35.1 million for the nine months ended September 30, 2015 and 2014, respectively. The information below is not necessarily indicative of what the actual results of operations would have been had the Company completed these transactions on January 1, 2014, nor does it purport to represent the Company’s future operations (amounts in thousands, except per share amounts):
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
Pro Forma 2015
 
Pro Forma 2014
 
Pro Forma 2015
 
Pro Forma 2014
Revenues
$
119,533

 
$
125,557

 
$
357,998

 
$
363,971

Net income (loss)
$
1,790

 
$
4,317

 
$
5,469

 
$
(6,854
)
Basic and diluted income (loss) per common share
$
—

 
$
0.01

 
$
—

 
$
(0.04
)

5. REAL ESTATE LOANS RECEIVABLE

Real estate loans receivable included the following at September 30, 2016 and December 31, 2015 (in thousands):

Property
 
Original Funding Date
 
Maturity Date
 
Interest Rate
 
Total Loan
Commitment
 
Balance as of
September 30, 2016
 
Balance as of
December 31, 2015
Flagship Capital JV
 
 
 
 
 
 
 
 
 
 
 
 
Falls of Kirkwood (1)
 
10/18/2013
 
8/15/2016
 
N/A
 
$
6,300

 
$
—

 
$
4,964

Precinct Villages (2)
 
3/18/2014
 
9/30/2016
 
N/A
 
2,595

 
—

 
1,793

Randall’s
 
7/28/2014
 
7/28/2017
 
6.25%
 
10,939

 
8,833

 
8,747

Finesilver
 
7/31/2014
 
7/31/2017
 
6.45%
 
7,233

 
6,260

 
5,684

Dymaxion Apartments (2)
 
12/15/2014
 
12/15/2016
 
N/A
 
8,500

 
—

 
8,288

Marbach Park Apartments(2)
 
12/15/2014
 
12/15/2016
 
N/A
 
9,500

 
—

 
9,319

 
 
 
 
 
 
6.33%
 
$
45,067

 
$
15,093

 
$
38,795

(Origination) / Exit fees
 
 
 
 
 
 
 
 
 
38

 
(128
)
Total Flagship Capital JV
 
 
 
 
 
 
 
$
15,131

 
$
38,667

Other Loans Receivable
 
 
 
 
 
 
 
 
 
 
 
 
@1377 (3)
 
6/29/2012
 
7/1/2016
 
10.00%
 
$
3,962

 
$
—

 
$
3,962

The Rim (4)
 
9/8/2014
 
10/7/2016
 
8.50%
 
$
20,750

 
$
17,860

 
$
12,651

Total Real Estate Loans Receivable
 
 
 
 
 
 
 
$
32,991

 
$
55,280


(1)
In June 2016, the borrower repaid the outstanding principal balance of the loan.

(2)
In September 2016, each of the borrowers repaid the outstanding principal balances of each of these loans.

(3)
In June 2016, the borrower repaid the outstanding principal balance of the loan upon the sale of the property. See Note 1 — Organization for additional information concerning the sale of @1377.

(4)
In September 2016, the maturity date of this loan was extended to October 7, 2016. In October 2016, the maturity date of this loan was extended to November 15, 2016.




12

6. DEBT FINANCING
 
As of September 30, 2016 and December 31, 2015, the Company had approximately $2.5 billion and $2.6 billion of principal outstanding, respectively, with a weighted average years to maturity of 2.6 years and 3.3 years, respectively, and a weighted average interest rate of 2.3% and 2.3%, respectively. The following table describes the Company’s debt outstanding at September 30, 2016 and December 31, 2015 (in thousands, except percentages):
Description
 
Origination or Assumption Date
 
Maturity Date
 
Interest Rate Description
 
Interest Rate as of September 30, 2016
 
Principal Outstanding at September 30, 2016
 
Principal Outstanding at December 31, 2015
Secured Mortgage Debt
 
 
 
 
 
 
 
 
 
 
 
 
Brindleyplace Project
 
7/1/2010
 
10/7/2016
(1) 
Variable
 
2.11
%
 
$
157,006

 
$
179,197

Southpark
 
10/19/2010
 
12/6/2016
 
Fixed
 
5.67
%
 
18,000

 
18,000

Fifty South Sixth
 
11/4/2010
 
11/3/2018
 
Variable
 
2.12
%
 
125,000

 
125,000

Flagship Capital JV
 
7/2/2014
 
7/2/2019
 
Variable, subject to floor of 4.25%
 
4.25
%
 
512

 
14,943

100 Brookes
 
7/13/2012
 
7/31/2017
 
Variable
 
4.09
%
 
32,998

 
31,546

Poland Logistics Portfolio
 
8/2/2012
 
6/28/2019
 
Variable, subject to interest rate cap
 
2.00
%
 
68,106

 
67,601

Minneapolis Retail Center
 
8/2/2012
 
8/10/2019
 
Fixed
 
3.50
%
 
65,500

 
65,500

825 Ann
 
11/16/2012
 
11/20/2018
 
Variable, subject to interest rate cap
 
2.32
%
 
61,861

 
59,139

Mercedes Benz Bank
 
2/7/2013
 
12/31/2019
 
Variable, subject to interest rate cap
 
1.28
%
 
37,454

 
36,719

465 Victoria
 
2/28/2013
 
12/2/2018
 
Variable, subject to interest rate cap
 
2.97
%
 
40,619

 
38,831

New City
 
3/28/2013
 
3/18/2018
 
Variable, subject to interest rate cap
 
2.30
%
 
78,344

 
83,978

One Westferry Circus
 
5/9/2013
 
5/5/2020
 
Fixed
 
3.30
%
 
62,251

 
71,050

The Campus at Playa Vista
 
5/14/2013
 
12/1/2018
 
Variable
 
1.93
%
 
150,000

 
150,000

Perspective Défense
 
6/21/2013
 
7/25/2019
 
Variable, subject to interest rate cap
 
2.20
%
 
78,477

 
76,342

Fiege Mega Centre
 
10/18/2013
 
10/31/2018
 
Variable, subject to interest rate cap
 
1.40
%
 
25,588

 
25,135

55 M Street
 
12/9/2013
 
12/9/2017
 
Variable
 
1.98
%
 
72,000

 
72,000

25 Cabot Square
 
3/26/2014
 
3/26/2020
 
Fixed
 
3.50
%
 
160,491

 
183,175

Simon Hegele Logistics
 
4/28/2014
 
6/15/2019
 
Fixed
 
1.90
%
 
39,725

 
38,940

818 Bourke
 
10/31/2014
 
10/31/2019
 
Variable, subject to interest rate cap
 
2.37
%
 
66,988

 
64,952

The Summit
 
3/4/2015
 
4/1/2022
 
Variable
 
2.08
%
 
170,000

 
170,000

Harder Logistics Portfolio
 
4/1/2015
 
2/28/2021
 
Variable, subject to interest rate cap
 
0.95
%
 
77,348

 
76,106

Other Notes Payable
 
 
 
 
 
 
 
 

 
 
 
 
JPMorgan Chase Revolving Credit Facility - Revolving Loan
 
4/13/2012
 
6/29/2019
 
Variable, subject to interest rate cap
 
2.13
%
(2) 
322,000

 
327,000

JPMorgan Chase Revolving Credit Facility - Term Loan
 
5/22/2013
 
6/29/2019
 
Variable, subject to interest rate cap
 
2.08
%
 
495,000

 
495,000

WaterWall Place Construction Loan
 
6/29/2012
 
5/8/2018
 
Variable
 
2.13
%
(2) 
44,897

 
44,897

Aviva Coral Gables JV Construction Loan
 
5/10/2013
 
5/10/2017
 
Variable, subject to interest rate cap
 
2.52
%
(2) 
42,693

 
42,693

Total Principal Outstanding
 
 
 
 
 
 
 
$
2,492,858

 
$
2,557,744

Unamortized Premium/ (Discount)
 
 
 
 
 
 
 
 
 
25

 
105

Unamortized Deferred Financing Fees
 
 
 
 
 
 
 
 
 
$
(9,459
)
 
$
(12,193
)
Notes Payable
 
 
 
 
 
 
 
$
2,483,424

 
$
2,545,656


(1)
In October 2016, the Company exercised the three-month extension option, resulting in a new maturity date of January 7, 2017.

(2)
Represents the weighted average interest rate as of September 30, 2016.


13

The variable-rate debt has interest rates ranging from LIBOR, EURIBOR or the BBSY screen rate plus 0.65% to 2.50% per annum. As of September 30, 2016, $930.7 million of the Company’s variable-rate debt was capped at strike rates ranging from 1.5% to 4.0%. Additionally, as of December 31, 2015, $982.3 million of our variable rate debt was capped at strike rates ranging from 1.3% to 4.5%.

JPMorgan Chase Revolving Credit Facility

For the period from January 2016 through September 2016, the Company borrowed approximately $109.0 million and made payments of approximately $114.0 million under its revolving credit facility with JPMorgan Chase Bank, National Association (the “Revolving Credit Facility”). From October 1, 2016 through November 14, 2016, the Company borrowed an additional $20.0 million under the Revolving Credit Facility. The borrowings resulted in an outstanding principal balance of $837.0 million on the Revolving Credit Facility as of November 14, 2016.

Financial Covenants

The Company's mortgage agreements and other loan documents for the debt described in the table above contain customary events of default, with corresponding grace periods, including payment defaults, cross-defaults to other agreements and bankruptcy-related defaults, and customary covenants, including limitations on liens and indebtedness and maintenance of certain financial ratios. In addition, the Company has executed customary recourse carve-out guarantees of certain obligations under its mortgage agreements and the other loan documents. The Company is not aware of any instances of noncompliance with financial covenants on any of its loans as of September 30, 2016.

Principal Payments on Debt
 
The Company is required to make the following principal payments on its outstanding notes payable for the period from October 1, 2016 through December 31, 2016, for each of the years ending December 31, 2017 through December 31, 2020 and for the period thereafter (in thousands):

 
Payments due by Year
 
October 1, 2016 through December 31, 2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
Principal payments
$
177,481


$
155,686

 
$
528,376

 
$
1,165,067

 
$
223,925

 
$
242,323



14

7.  DISTRIBUTIONS

The Company has declared distributions for the months of January 2015 through November 2016 at an amount equal to $0.0017808 per share, per day. The table below outlines the Company’s total distributions declared to stockholders and noncontrolling interests for each of the quarters ended during 2016 and 2015, including the breakout between the distributions declared in cash and those reinvested pursuant to the Company’s distribution reinvestment plan (in thousands). The Company declares distributions to the Company’s stockholders as of daily record dates and aggregates and pays such distributions monthly.
 
 
Stockholders
 
Noncontrolling Interests
Distributions for the three months ended
 
Cash Distributions
 
Distributions Reinvested
 
Total Declared
 
Total Declared
2016
 
 
 
 
 
 
 
 
September 30, 2016
 
$
21,617

 
$
23,611

 
$
45,228

 
$
2,671

June 30, 2016
 
21,232

 
23,402

 
44,634

 
1,281

March 31, 2016
 
21,128

 
23,451

 
44,579

 
987

Total
 
$
63,977

 
$
70,464

 
$
134,441

 
$
4,939

2015
 

 
 
 
 
 
 
December 31, 2015
 
$
21,226

 
$
23,695

 
$
44,921

 
$
927

September 30, 2015
 
21,110

 
23,648

 
44,758

 
835

June 30, 2015
 
20,770

 
23,372

 
44,142

 
1,643

March 31, 2015
 
20,375

 
23,097

 
43,472

 
816

Total
 
$
83,481

 
$
93,812

 
$
177,293

 
$
4,221


8.  RELATED PARTY TRANSACTIONS

The table below outlines fees and expense reimbursements incurred that are payable to Hines and its affiliates for the periods indicated below (in thousands):
 
Incurred
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Unpaid as of
Type and Recipient
2016
 
2015
 
2016
 
2015
 
September 30, 2016
 
December 31, 2015
Issuer Costs- the Advisor
$
8

 
$
12

 
$
34

 
$
53

 
$
—

 
$
—

Acquisition Fee (1)- the Advisor and affiliates of Hines
$
—

 
$
—

 
$
—

 
$
8,854

 
—

 
—

Asset Management Fee- the Advisor and affiliates of Hines
$
9,204

 
$
9,025

 
$
27,473

 
$
26,688

 
8,985

 
8,493

Disposition Fee- the Advisor
$
—

 
$
—

 
$
264

 
$
—

 
—

 
309

Other (2) 
$
1,508

 
$
1,430

 
$
4,137

 
$
4,152

 
947

 
1,574

Property Management Fee- Hines
$
1,983

 
$
1,848

 
$
5,699

 
$
5,464

 
—

 
(12
)
Development/Construction Management Fee- Hines
$
190

 
$
33

 
$
549

 
$
120

 
195

 
27

Leasing Fee- Hines
$
431

 
$
337

 
$
3,593

 
$
1,461

 
3,629

 
3,417

Expense Reimbursement- Hines (with respect to management and operations of the Company’s properties)
$
2,894

 
$
2,786

 
$
8,816

 
$
8,325

 
528

 
661

Due to Affiliates
 
 
 
 
 
 
 
 
$
14,284

 
$
14,469


(1)
Effective as of April 1, 2015 the Company, the Operating Partnership and the Advisor amended the Advisory Agreement in order to reduce the acquisition fees paid to the Advisor from 2.25% to 0.50%.
 
(2)
Includes amounts the Advisor paid on behalf of the Company such as general and administrative expenses and acquisition-related expenses.  These amounts are generally reimbursed to the Advisor during the month following the period in which they are incurred.


15

@1377

In June 2012, the Company entered into a $3.2 million mezzanine loan commitment plus accrued interest to provide construction financing for @1377, which was developed by an affiliate of Hines. In June 2016, @1377 was sold and the Company received $4.0 million related to the repayment in full of the mezzanine loan. See Note 1 — Organization for additional information concerning @1377.

9.  FAIR VALUE MEASUREMENTS

Financial Instruments Fair Value Disclosures
 
As of September 30, 2016, the Company estimated that the fair value of its notes payable, which had a book value of $2.5 billion, was $2.5 billion. As of December 31, 2015, the Company estimated that the fair value of its notes payable, which had a book value of $2.6 billion, was $2.6 billion. Management has utilized market information as available or present value techniques to estimate the amounts required to be disclosed. Although the Company has determined the majority of the inputs used to value its notes payable fall within Level 2 of the fair value hierarchy, the credit quality adjustments associated with its fair value of notes payable utilize Level 3 inputs. However, as of September 30, 2016, the Company has assessed the significance of the impact of the credit quality adjustments on the overall valuations of its fair market value of notes payable and has determined that they are not significant. As a result, the Company has determined these financial instruments utilize Level 2 inputs. Since such amounts are estimates that are based on limited available market information for similar transactions, there can be no assurance that the disclosed values could be realized.

As of September 30, 2016, the Company estimated that the book values of its real estate loans receivable approximate their fair values. Although the Company has determined the majority of the inputs used to value its real estate notes receivable fall within Level 2 of the fair value hierarchy, the credit quality adjustments associated with its fair value of real estate notes receivable utilize Level 3 inputs. However, as of September 30, 2016, the Company has assessed the significance of the impact of the credit quality adjustments on the overall valuations of its fair market value of real estate notes receivable and has determined that they are not significant. As a result, the Company has determined these financial instruments utilize Level 2 inputs. Since such amounts are estimates that are based on limited available market information for similar transactions, there can be no assurance that the disclosed values could be realized.

Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, restricted cash, distributions receivable, tenant and other receivables, accounts payable and accrued expenses, other liabilities, due to affiliates and distributions payable.  The carrying value of these items reasonably approximates their fair value based on their highly-liquid nature and/or short-term maturities. Due to the short-term nature of these instruments, Level 1 and Level 2 inputs are utilized to estimate the fair value of these financial instruments.

Financial Instruments Measured on a Nonrecurring Basis

Certain long-lived assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments (i.e., impairments) in certain circumstances. The inputs associated with the valuation of long-lived assets are generally included in Level 3 of the fair value hierarchy.  As of September 30, 2016 and September 30, 2015, there were no events that have occurred which indicated that fair value adjustments of the Company’s long-lived assets were necessary.

10. REPORTABLE SEGMENTS

The Company’s investments in real estate are geographically diversified and management evaluates the operating performance of each at an individual investment level and considers each investment to be an operating segment. The Company has aggregated all of its operating segments into four reportable segments based on the location of the segment and the underlying asset class. Management has aggregated the Company's investments that are not office properties in “other” based on the geographic location of the investment, due to the Company's ownership of interests in various different types of investments that do not stand alone as their own reportable segment. The Company’s reporting segments consist of the following, based on the Company’s investments as of September 30, 2016:

•
Domestic office investments (11 investments)
•
Domestic other investments (9 investments)
•
International office investments (10 investments)
•
International other investments (12 investments)


16

The tables below provide additional information related to each of the Company’s segments, geographic location and a reconciliation to the Company’s net loss, as applicable. “Corporate-Level Accounts” includes amounts incurred by the corporate-level entities which are not allocated to any of the reportable segments (all amounts other than percentages are in thousands).

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Total Revenue
 
 
 
 
 
 
 
Domestic office investments
$
44,121

 
$
43,772

 
$
132,898

 
$
125,797

Domestic other investments
31,328

 
30,412

 
93,313

 
87,463

International office investments
30,463

 
28,164

 
85,375

 
86,907

International other investments
15,942

 
17,185

 
50,800

 
52,186

Total Revenue
$
121,854

 
$
119,533

 
$
362,386

 
$
352,353


For the three and nine months ended September 30, 2016 and 2015 the Company’s total revenue was attributable to the following countries:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Total Revenue
 
 
 
 
 
 
 
United States
61
%
 
63
%
 
63
%
 
60
%
United Kingdom
14
%
 
16
%
 
15
%
 
17
%
Australia
7
%
 
7
%
 
6
%
 
7
%
Poland
5
%
 
5
%
 
5
%
 
6
%
Germany
5
%
 
4
%
 
5
%
 
4
%
France
5
%
 
3
%
 
4
%
 
3
%
Russia
3
%
 
2
%
 
2
%
 
3
%

For the three and nine months ended September 30, 2016 and 2015, the Company’s property revenues in excess of expenses by segment was as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Property revenues in excess of expenses (1)
 
 
 
 
 
 
 
Domestic office investments
$
28,022

 
$
27,597

 
$
85,895

 
$
79,598

Domestic other investments
19,926

 
19,462

 
59,899

 
56,311

International office investments
24,199

 
22,383

 
67,077

 
68,108

International other investments
11,335

 
12,398

 
36,081

 
37,319

Property revenues in excess of expenses
$
83,482

 
$
81,840

 
$
248,952

 
$
241,336


(1)
Revenues less property operating expenses, real property taxes and property management fees.


17

As of September 30, 2016 and December 31, 2015, the Company’s total assets by segment was as follows (in thousands):
 
September 30, 2016
 
December 31, 2015
Total Assets
 
 
 
Domestic office investments
$
1,472,681

 
$
1,503,926

Domestic other investments
1,022,732

 
1,082,241

International office investments
1,049,179

 
1,090,483

International other investments
619,596

 
650,168

Corporate-level accounts
35,102

 
46,128

Total Assets
$
4,199,290

 
$
4,372,946


As of September 30, 2016 and December 31, 2015, the Company’s total assets were attributable to the following countries:
 
September 30, 2016
 
December 31, 2015
Total Assets
 
 
 
United States
59
%
 
60
%
United Kingdom
15
%
 
16
%
Australia
8
%
 
7
%
Poland
6
%
 
6
%
Germany
7
%
 
7
%
France
3
%
 
3
%
Russia
2
%
 
1
%

For the three and nine months ended September 30, 2016 and 2015, the reconciliation of the Company’s total property revenues in excess of expenses to the Company’s net income (loss) is as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Reconciliation to net income (loss)
 
 
 
 
 
 
 
Total property revenues in excess of expenses
$
83,482

 
$
81,840

 
$
248,952

 
$
241,336

Depreciation and amortization
(44,116
)
 
(48,027
)
 
(133,819
)
 
(139,148
)
Acquisition related expenses
(91
)
 
175

 
(263
)
 
(8,332
)
Asset management and acquisition fees
(9,204
)
 
(9,025
)
 
(27,473
)
 
(35,542
)
General and administrative expenses
(2,859
)
 
(2,037
)
 
(8,775
)
 
(6,429
)
Gain (loss) on derivatives
(29
)
 
(59
)
 
(708
)
 
586

Equity in earnings (losses) of unconsolidated entity
(73
)
 
—

 
7,528

 
—

Gain (loss) on sale of real estate investments
—

 
55

 
—

 
(1,073
)
Foreign currency gains (losses)
3,282

 
(1,485
)
 
(3,798
)
 
(5,538
)
Interest expense
(16,135
)
 
(17,794
)
 
(48,727
)
 
(54,759
)
Other income (expenses)
143

 
80

 
78

 
345

Benefit (provision) for income taxes
(2,032
)
 
(1,570
)
 
(5,004
)
 
(3,559
)
Net income (loss)
$
12,368

 
$
2,153

 
$
27,991

 
$
(12,113
)


18

11. SUPPLEMENTAL CASH FLOW DISCLOSURES

Supplemental cash flow disclosures for the nine months ended September 30, 2016 and 2015 (in thousands):
 
Nine Months Ended September 30,
 
2016
 
2015
Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for interest
$
45,551

 
$
48,728

Cash paid for taxes
$
7,248

 
$
4,929

Supplemental Schedule of Non-Cash Activities
 
 
 
Distributions declared and unpaid
$
20,393

 
$
18,775

Distributions reinvested
$
70,748

 
$
70,355

Shares tendered for redemption
$
4,620

 
$
4,009

Non-cash net liabilities acquired
$
—

 
$
9,682

Accrued capital additions
$
3,639

 
$
429


12. COMMITMENTS AND CONTINGENCIES

In November 2013, Dorsey & Whitney LLP signed a lease renewal for its space in 50 South Sixth located in Minneapolis, Minnesota. In connection with this renewal, the Company committed to fund $20.8 million of tenant improvements and leasing commissions related to its space, to be paid in future periods. As of September 30, 2016, $9.4 million of the Company’s commitment remained unfunded and is recorded in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

In May 2016, Stinson Leonard Street LLP signed a new lease for its space in 50 South Sixth located in Minneapolis, Minnesota. In connection with this lease, the Company committed to fund $12.2 million of tenant improvements and leasing commissions related to its space, to be paid in future periods. As of September 30, 2016, $11.1 million of the Company’s commitment remained unfunded and is recorded in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

The Company may be subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on the Company’s condensed consolidated financial statements.


*****



19

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in Item 1 in this Quarterly Report on Form 10-Q.  The following discussion should also be read in conjunction with our audited consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2015.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as amended. Such statements include statements concerning future financial performance and distributions, future debt and financing levels, acquisitions and investment objectives, payments to Hines Global REIT Advisors Limited Partnership (the “Advisor”), and its affiliates and other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto as well as all other statements that are not historical statements. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.

The forward-looking statements included in this Quarterly Report on Form 10-Q are based on our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, the availability of future financing and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Any of the assumptions underlying forward-looking statements could prove to be inaccurate. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, pay distributions to our shareholders and maintain the value of any real estate investments and real estate-related investments in which we may hold an interest in the future, may be significantly hindered.


20

The following are some of the risks and uncertainties, which could cause actual results to differ materially from those presented in certain forward-looking statements:
 
 
—
Whether we will have the opportunity to invest debt proceeds and proceeds from the sale of assets to acquire properties or other investments or whether such proceeds will be needed to redeem shares or for other purposes, and if proceeds are available for investment, our ability to make such investments in a timely manner and at appropriate amounts that provide acceptable returns;
 
 
—
Competition for tenants and real estate investment opportunities, including competition with affiliates of Hines Interests Limited Partnership (“Hines”);
 
 
—
Our reliance on our Advisor, Hines and affiliates of Hines for our day-to-day operations and the selection of real estate investments, and our Advisor’s ability to attract and retain high-quality personnel who can provide service at a level acceptable to us;
 
 
—
Risks associated with conflicts of interests that result from our relationship with our Advisor and Hines, as well as conflicts of interests certain of our officers and directors face relating to the positions they hold with other entities;
 
 
—
The potential need to fund tenant improvements, lease-up costs or other capital expenditures, as well as increases in property operating expenses and costs of compliance with environmental matters or discovery of previously undetected environmentally hazardous or other undetected adverse conditions at our properties;
 
 
—
The availability and timing of distributions we may pay is uncertain and cannot be assured;
 
 
—
Our distributions have been paid using cash flows from financing activities, including proceeds from our public offerings, proceeds from debt financings and cash from the waiver of fees, and some or all of the distributions we pay in the future may be paid from similar sources or sources such as cash advances by our Advisor or cash resulting from a deferral or waiver of fees. When we pay distributions from certain sources other than our cash flow from operations, we will have less funds available for the acquisition of properties, and your overall return may be reduced;
 
 
—
Risks associated with debt and our ability to secure financing;
 
 
—
Risks associated with adverse changes in general economic or local market conditions, including terrorist attacks and other acts of violence, which may affect the markets in which we and our tenants operate;
 
 
—
Catastrophic events, such as hurricanes, earthquakes, tornadoes and terrorist attacks; and our ability to secure adequate insurance at reasonable and appropriate rates;
 
 
—
The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions and make additional investments;
 
 
—
Changes in governmental, tax, real estate and zoning laws and regulations and the related costs of compliance and increases in our administrative operating expenses, including expenses associated with operating as a public company;
 
 
—
International investment risks, including the burden of complying with a wide variety of foreign laws and the uncertainty of such laws, the tax treatment of transaction structures, political and economic instability, foreign currency fluctuations, and inflation and governmental measures to curb inflation may adversely affect our operations and our ability to make distributions;
 
 
—
The lack of liquidity associated with our assets; and
 
 
—
Our ability to continue to qualify as a real estate investment trust (“REIT”) for federal income tax purposes.
 
 
—

Risks related to the result of the non-binding referendum of June 23, 2016 in which a majority of voters voted in favor of the United Kingdom's exit from the European Union (the "Brexit" vote), including, but not limited to the decline of revenue derived from, and the market value of, properties located in the United Kingdom and continental Europe.
 
 
—

Our ability to refinance or sell properties located in the United Kingdom and continental Europe may be impacted by the economic and political uncertainty following the "Brexit" vote.

These risks are more fully discussed in, and all forward-looking statements should be read in light of, all of the factors discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015.


21

You are cautioned not to place undue reliance on any forward-looking statements included in this Quarterly Report on Form 10-Q. All forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and the risk that actual results will differ materially from the expectations expressed in this Quarterly Report on Form 10-Q may increase with the passage of time. In light of the significant uncertainties inherent in the forward-looking statements included in this Quarterly Report on Form 10-Q, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report on Form 10-Q will be achieved. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. Each forward-looking statement speaks only as of the date of the particular statement, and we do not undertake to update any forward-looking statement.


22

Executive Summary

Hines Global REIT, Inc. (“Hines Global” and, together with its consolidated subsidiaries, “we”, “us” or the “Company”) was incorporated under the Maryland General Corporation Law on December 10, 2008, primarily for the purpose of investing in a diversified portfolio of quality commercial real estate properties and other real estate investments located throughout the United States and internationally. Hines Global raised the equity capital for its real estate investments through two public offerings from August 2009 through April 2014. Hines Global continues to offer up to $500.0 million of shares of its common stock under its distribution reinvestment plan, pursuant to an offering which commenced on April 24, 2014 (the “DRP Offering”). Hines Global has raised approximately $3.0 billion through its public offerings, including the DRP Offering. Hines Global engaged Hines Securities, Inc. (the “Dealer Manager”), an affiliate of Hines, to serve as the dealer manager for its public offerings.

Although we expect to continue to make select investments from time to time, we have substantially completed our investment phase and have accomplished one of our primary investment objectives of investing in a real estate portfolio that is diversified by asset type, geographic area, lease expirations and tenant industries. As of September 30, 2016, we owned interests in 42 real estate investments which contain, in the aggregate, 16.7 million square feet of leasable space. Our portfolio includes the following investments:

•
Domestic office investments (11 investments)
•
Domestic other investments (9 investments)
•
International office investments (10 investments)
•
International other investments (12 investments)

Our portfolio is comprised of approximately 63% domestic and 37% international investments (based on our pro rata share of the estimated value of each of the investments) and consists of a variety of real estate asset classes. Our current investment types encompass approximately 62% office, 17% retail, 9% mixed-use, 9% industrial and 3% multi-family (based on our effective interests of the estimated value of each of the investments). We believe that this diversification is directly in-line with our investment strategies of maintaining a well-diversified real estate portfolio and providing additional diversification across currencies.

As previously disclosed, we commenced the process of evaluating various strategic alternatives to execute a liquidity event (e.g. a sale of our assets, our sale or merger, a listing of our shares on a national securities exchange, a tender offer for our shares, or another similar transaction). That process is ongoing, and we are continuing to evaluate strategic alternatives. There is no set timetable for the execution of such an event, and there is no assurance that any such event will occur.

The following table provides additional information regarding each of the properties in which we owned an interest as of September 30, 2016.
Property
 
Location
 
Investment Type
 
Date Acquired/ Net Purchase Price (in millions) (2)
 
Estimated Going-in Capitalization Rate (3)
 
Leasable Square Feet
 
Percent Leased (1)
Domestic Office Investments
 
 
 
 
 
 
 
 
 
 
 
Hock Plaza
 
Durham, North Carolina
 
Office
 
9/2010; $97.9
 
7.2%
 
327,160

 
99
%
 
Fifty South Sixth
 
Minneapolis, Minnesota
 
Office
 
11/2010; $185.0
 
7.4%
 
698,606

 
96
%
 
250 Royall
 
Canton, Massachusetts
 
Office
 
9/2011; $57.0
 
9.1%
 
185,171

 
100
%
 
Campus at Marlborough
 
Marlborough, Massachusetts
 
Office
 
10/2011; $103.0
 
8.0%
 
532,246

 
87
%
 
9320 Excelsior
 
Hopkins, Minnesota
 
Office
 
12/2011; $69.5
 
6.2%
 
254,915

 
100
%
 
550 Terry Francois
 
San Francisco, California
 
Office
 
8/2012; $180.0
 
8.2%
 
289,373

 
100
%
 
Riverside Center
 
Boston, Massachusetts
 
Office
 
3/2013; $197.1
 
5.7%
 
509,702

 
97
%
 
The Campus at Playa Vista
 
Los Angeles, California
 
Office
 
5/2013; $216.6
 
5.7%
 
324,955

 
99
%
 
2300 Main
 
Irvine, California
 
Office
 
8/2013; $39.5
 
6.4%
 
132,064

 
100
%
 
55 M Street
 
Washington, D.C.
 
Office
 
12/2013; $140.9
 
4.8%
 
267,915

 
98
%
 
The Summit
 
Bellevue, Washington
 
Office
 
3/2015; $316.5
 
5.6%
 
518,888

 
96
%
 
Total for Domestic Office Investments
 
 
 
 
 
 
 
4,040,995

 
96
%
 

23

Property
 
Location
 
Investment Type
 
Date Acquired/ Net Purchase Price (in millions) (2)
 
Estimated Going-in Capitalization Rate (3)
 
Leasable Square Feet
 
Percent Leased (1)
Domestic Other Investments (4)
 
 
 
 
 
 
 
 

 
 

 
Southpark
 
Austin, Texas
 
Industrial
 
10/2010; $31.2
 
8.5%
 
372,125

 
100
%
 
Komo Plaza
 
Seattle, Washington
 
Mixed-Use
 
12/2011; $160.0
 
7.9%
 
293,727

 
91
%
 
Minneapolis Retail Center
 
Minneapolis, Minnesota
 
Retail
 
8/2012 & 12/2012; $130.6
 
6.5%
 
386,714

 
99
%
 
The Markets at Town Center

Jacksonville, Florida

Retail

7/2013; $135.0

5.9%

317,477


100
%
 
The Avenue at Murfreesboro

Nashville, Tennessee

Retail

8/2013; $163.0

6.4%

762,762


91
%
 
The Rim
 
San Antonio, Texas
 
Retail
 
2/2014, 4/2015 & 12/2015: $247.8
 
5.9%
 
931,122

 
99
%
 
WaterWall Place
 
Houston, Texas
 
Multi-family
 
7/2014; $64.5
 
7.8% (5)
 
316,299

 
91
%
 
Aviva Coral Gables
 
Miami, Florida
 
Multi-family
 
4/2015; $62.0
 
7.4% (5)
 
248,504

 
97
%
 
Total for Domestic Other Investments
 
 
 
 
 
 
 
3,628,730

 
96
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
International Office Investments
 
 
 
 
 
 
 
 
 
 
 
Gogolevsky 11
 
Moscow, Russia
 
Office
 
8/2011; $96.1
 
8.9%
 
94,354

 
88
%
 
100 Brookes St.
 
Brisbane, Australia
 
Office
 
7/2012; $67.6
 
10.5%
 
105,637

 
100
%
 
Mercedes Benz Bank
 
Stuttgart, Germany
 
Office
 
2/2013; $70.2
 
8.8%
 
255,927

 
100
%
 
465 Victoria
 
Sydney, Australia
 
Office
 
2/2013; $90.8
 
8.0%
 
171,657

 
98
%
 
One Westferry Circus
 
London, England
 
Office
 
2/2013; $124.6
 
7.4%
 
221,019

 
100
%
 
New City
 
Warsaw, Poland
 
Office
 
3/2013; $163.5
 
7.1%
 
484,182

 
85
%
 
825 Ann
 
Brisbane, Australia
 
Office
 
4/2013; $128.2
 
8.0%
 
206,505

 
97
%
 
Perspective Défense
 
Paris, France
 
Office
 
6/2013; $165.8
 
8.5%
 
289,663

 
47
%
 
25 Cabot Square
 
London, England
 
Office
 
3/2014; $371.7
 
6.7%
 
455,687

 
100
%
 
818 Bourke
 
Melbourne, Australia
 
Office
 
10/2014; $135.6
 
7.1%
 
259,589

 
96
%
 
Total for International Office Properties
 
 
 
 
 
 
 
2,544,220

 
90
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
International Other Investments
 
 
 
 
 
 
 
 
 
 
 
Brindleyplace Project
 
Birmingham, England
 
Mixed-Use
 
7/2010; $282.5
 
7.0%
 
567,478

 
97
%
 
FM Logistic
 
Moscow, Russia
 
Industrial
 
4/2011; $70.8
 
11.2%
 
748,578

 
100
%
 
Poland Logistics Portfolio (6)
 
Poland
 
Industrial
 
3/2012 & 10/2012; $157.2
 
8.1%
 
2,364,264

 
88
%
 
Fiege Mega Centre
 
Erfurt, Germany
 
Industrial
 
10/2013; $53.6
 
7.7%
 
952,540

 
100
%
 
Simon Hegele Logistics
 
Forchheim, Germany
 
Industrial
 
6/2014 & 1/2015; $78.9
 
7.5%
 
608,006

 
100
%
 
Harder Logistics Portfolio (7)
 
Germany
 
Industrial
 
4/2015 & 12/2015; $126.5
 
7.3%
 
1,287,065

 
93
%
 
Total for International Other Investments
 
 
 
 
 
 
 
6,527,931

 
94
%
 
Total for All Investments
 
 
 
 
 
 
 
16,741,875

 
94
%
(8) 

(1)
Represents the percentage leased based on the effective ownership of the Operating Partnership in the properties listed. On September 30, 2016, the Company owned a 99.99% interest in the Operating Partnership as its sole general partner. Affiliates of Hines owned the remaining 0.01% interest in the Operating Partnership. We own a 60% interest in the Brindleyplace Project.

(2)
For acquisitions denominated in a foreign currency, amounts have been translated to U.S. dollars at a rate based on the exchange rate in effect on the acquisition date.

(3)
The estimated going-in capitalization rate is determined as of the date of acquisition by dividing the projected property revenues in excess of expenses for the first fiscal year following the date of acquisition by the net purchase price (excluding closing costs and taxes). Property revenues in excess of expenses includes all projected operating revenues (rental income, tenant reimbursements, parking and any other property-related income) less all projected operating expenses (property operating and maintenance expenses, property taxes, insurance and property management fees).

24


The projected property revenues in excess of expenses includes assumptions which may not be indicative of the actual future performance of the property, and the actual economic performance of each property for our period of ownership may differ materially from the amounts used in calculating the estimated going-in capitalization rate. These include assumptions, with respect to each property, that in-place tenants will continue to perform under their lease agreements during the 12 months following our acquisition of the property.  In addition, with respect to the Brindleyplace Project, Hock Plaza, Southpark, Fifty South Sixth, Komo Plaza, the Poland Logistics Portfolio, the Minneapolis Retail Center, 465 Victoria, One Westferry Circus, Riverside Center, 825 Ann, the Campus at Playa Vista, The Markets at Town Center, the Avenue at Murfreesboro, 55 M Street, 818 Bourke and The Summit, the projected property revenues in excess of expenses include assumptions concerning estimates of timing and rental rates related to re-leasing vacant space.

(4)
The Domestic Other Investments presented in the table excludes the Flagship Capital JV. This investment is described in more detail below under “Other Real Estate Investments.”

(5)
Construction has been completed for these multi-family development properties. The estimated going-in capitalization rate is based on the projected revenues in excess of expenses once the property’s operations have stabilized divided by the construction cost of the property. The projected property revenues in excess of expenses includes assumptions which may not be indicative of the actual future performance of the property, and the actual economic performance of the property for our period of ownership may differ materially from the amounts used in calculating the estimated going-in capitalization rate. These include assumptions concerning estimates of timing and rental rates related to leasing vacant space and assumptions that in-place tenants will continue to perform under their lease agreements during the 12 months following stabilization of the property.

(6)
The Poland Logistics Portfolio is comprised of five industrial parks located in Warsaw, Wroclaw and Upper Silesia, Poland.

(7)
The Harder Logistics Portfolio is comprised of three logistic buildings located in Nuremberg, Karlsdorf and Duisburg, Germany.

(8)
This amount represents the percentage leased assuming we own a 100% interest in each of these properties. The percentage leased based on our effective ownership interest in each property is 94%.

Other Real Estate Investments

•
Flagship Capital JV — 97% interest in a joint venture with Flagship Capital GP, which was formed to provide real estate loans. The joint venture has two loans receivable, totaling $15.1 million, outstanding as of September 30, 2016. Flagship Capital GP owns the remaining 3% interest in the joint venture. We are not affiliated with Flagship Capital GP.

•
The Rim Loan Receivable — We have committed to provide construction financing to the developer of additional retail parcels at The Rim, an outdoor retail center located in San Antonio, Texas. In April 2015, we completed the acquisition of the first of these additional parcels, consisting of 259,316 square feet. In December 2015, we completed the acquisition of an additional parcel, consisting of 28,901 square feet. The total amount of the commitment, as amended in April and December 2015, is $20.8 million. As of September 30, 2016, we had outstanding loans of $17.9 million to the developer. We are not affiliated with the developer of the project.

Critical Accounting Policies

Each of our critical accounting policies involves the use of estimates that require management to make assumptions that are subjective in nature. Management relies on its experience, collects historical and current market data, and analyzes these assumptions in order to arrive at what it believes to be reasonable estimates. In addition, application of these accounting policies involves the exercise of judgments regarding assumptions as to future uncertainties. Actual results could materially differ from these estimates. A disclosure of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2015 in Management’s Discussion and Analysis of Financial Condition and Results of Operations. There have been no changes to our critical accounting policies during 2016.


25

Financial Condition, Liquidity and Capital Resources
 
To date, our most significant demands for funds have been related to the purchase of real estate properties and other real estate-related investments. Specifically, we funded $5.1 billion of real estate investments using $3.0 billion of proceeds from our public offerings, including the DRP offerings, and debt proceeds. We invested all of the proceeds raised through our public offerings by the end of 2015. As a result, any subsequent real estate investments will be funded using proceeds from the dispositions of other real estate investments and debt proceeds. Other significant demands for funds include the payment of operating expenses, distributions and debt service. Generally, we expect to meet these operating cash needs using cash flows from operating activities.

We have not generated sufficient cash flow from operations to fully fund distributions paid. Therefore some or all of our distributions may continue to be paid from other sources, such as proceeds from our debt financings, proceeds from our distribution reinvestment plan, proceeds from the sales of assets, cash advances by our Advisor, and cash resulting from a waiver or deferral of fees. We have not placed a cap on the amount of our distributions that may be paid from any of these other sources.

We believe that the proper use of leverage can enhance returns on real estate investments. As of September 30, 2016, our portfolio was 45% leveraged, based on the values of our real estate investments. At that time, we had $2.5 billion of principal outstanding under our various loan agreements with a weighted average interest rate of 2.3%, including the effects of related interest rate swaps. Approximately $250.7 million of our loans are maturing during the next year. We generally expect to refinance these loans, but we may repay them using our revolving credit facility with JPMorgan Chase Bank, N.A. (the “Revolving Credit Facility”) or other available cash for strategic purposes or if we are unable to refinance them at satisfactory terms.

The discussions below provide additional details regarding our cash flows.

Cash Flows from Operating Activities

Our real estate properties generate cash flow in the form of rental revenues, which are used to pay direct leasing costs, property-level operating expenses and interest payments. Property-level operating expenses consist primarily of salaries and wages of property management personnel, utilities, cleaning, insurance, security and building maintenance costs, property management and leasing fees, and property taxes. Additionally, we incur general and administrative expenses, acquisition fees and expenses and asset management fees. 

Net cash provided by operating activities for the nine months ended September 30, 2016 was $123.2 million compared to $93.9 million for the nine months ended September 30, 2015. Net cash provided by operating activities was reduced by the payment of acquisition fees and acquisition-related expenses totaling $0.7 million during the nine months ended September 30, 2016 and $19.8 million during the nine months ended September 30, 2015. Under accounting principles generally accepted in the United States of America (“GAAP”), acquisition fees and acquisition-related expenses are expensed and therefore reduce cash flows from operating activities. However, we funded these expenses with proceeds from our public offerings or other equity capital. Excluding the effect of these fees and expenses, operating cash flows increased by $10.2 million primarily due to our acquisitions of The Summit, the Harder Logistics Portfolio, and additional phases of The Rim, the Aviva Coral Gables development project being fully operational during the nine months ended September 30, 2016, and distributions from the sale of @1377, by our unconsolidated joint venture. This increase was partially offset by our disposition of 17600 Gillette in December 2015 as well as declines in foreign currency exchange rates against the U.S. dollar for the nine months ended September 30, 2016.

26

Cash Flows from Investing Activities

Net cash used in investing activities primarily relates to payments made for the acquisition of our real estate investments including payments for pending acquisitions and capital expenditures at our properties. Net cash from investing activities primarily relates to collections of our real estate loans receivable. Net cash used in investing activities decreased $443.6 million for the nine months ended September 30, 2016 compared to the same period in 2015, primarily due to less acquisition activity. The factors that contributed to the change between the two periods are summarized below.

2016

•
We paid $13.0 million in capital expenditures at our operating properties.
•
We made real estate loans of $5.9 million and received proceeds from the collection of real estate loans receivable of $28.8 million.
•
We received distributions in excess of equity of earnings from our unconsolidated entity of $2.0 million, resulting from the sale of @1377.
•
We had an increase in restricted cash of $1.4 million primarily related to escrows required by several of our outstanding mortgage loans.

2015

•
We had cash outflows of $431.2 million related to our acquisition of four real estate investments.
•
We paid $3.6 million in capital expenditures at our operating properties and paid $4.9 million in capital expenditures at our multi-family development projects in Houston, Texas and Miami, Florida.
•
We made real estate loans of $10.3 million and received proceeds from the collection of real estate loans receivable of $17.6 million.
•
We had an increase in restricted cash of $1.7 million primarily related to escrows required by several of our outstanding mortgage loans.

Cash Flows from Financing Activities

Public Offerings

As described previously, we ceased offering primary shares pursuant to our public offerings in April 2014. During the nine months ended September 30, 2016 and 2015, respectively, we redeemed $50.6 million and $43.0 million in shares of our common stock through our share redemption program.

Distributions

We have declared distributions for the months of January 2015 through November 2016 at an amount equal to $0.0017808 per share, per day. Distributions are paid monthly on the first business day following the completion of each month to which they relate. All distributions were or will be paid in cash or reinvested in shares of our common stock for those participating in our distribution reinvestment plan. Distributions paid to stockholders (including those reinvested in stock) during the three months ended September 30, 2016 and 2015 were $45.2 million and $44.7 million, respectively. Distributions paid to stockholders (including those reinvested in stock) during the nine months ended September 30, 2016 and 2015 were $134.8 million and $132.7 million, respectively.

Our cash flows from operations have been and may continue to be insufficient to fully fund distributions paid to stockholders. We funded 12% and 33% of total distributions for the nine months ended September 30, 2016 and 2015, respectively, with cash flows from financing activities, which may include proceeds from our public offerings and proceeds from our debt financings. Also, during the nine months ended September 30, 2016 and 2015, respectively, we paid $0.7 million and $19.8 million in acquisition fees and expenses. Under GAAP, acquisition fees and acquisition-related expenses are expensed and therefore reduce cash flows from operating activities. However, we funded these expenses with proceeds from our public offerings or other equity capital. See “— Results of Operations — Funds from Operations and Modified Funds from Operations” for additional information regarding our performance.





27

The table below contains additional information regarding distributions to our stockholders and noncontrolling interest holders as well as the sources of distribution payments (all amounts are in thousands):

 
 
Stockholders
 
Noncontrolling Interests
 
Sources
Distributions for the Three Months Ended
 
Cash Distributions
 
Distributions Reinvested
 
Total Declared
 
Total Declared
 
Cash Flows From Operating Activities
 
Cash Flows From Financing Activities
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2016
 
$
21,617

 
$
23,611

 
$
45,228

 
$
2,671

 
$
46,501

 
97
%
 
$
1,398

 
3
%
June 30, 2016
 
21,232

 
23,402

 
44,634

 
1,281

 
45,915

 
100
%
 
—

 
—
%
March 31, 2016
 
21,128

 
23,451

 
44,579

 
987

 
30,824

 
68
%
 
14,742

 
32
%
Total
 
$
63,977

 
$
70,464

 
$
134,441

 
$
4,939

 
$
123,240

 
88
%
 
$
16,140

 
12
%
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
$
21,226

 
$
23,695

 
$
44,921

 
$
927

 
$
24,469

 
53
%
 
$
21,379

 
47
%
September 30, 2015
 
21,110

 
23,648

 
44,758

 
835

 
45,593

 
100
%
 
—

 
—
%
June 30, 2015
 
20,770

 
23,372

 
44,142

 
1,643

 
24,131

 
53
%
 
21,654

 
47
%
March 31, 2015
 
20,375

 
23,097

 
43,472

 
816

 
20,712

 
47
%
 
23,576

 
53
%
Total
 
$
83,481

 
$
93,812

 
$
177,293

 
$
4,221

 
$
114,905

 
63
%
 
$
66,609

 
37
%

Debt Financings

We utilize permanent mortgage financing to leverage returns on our real estate investments and use borrowings under our Revolving Credit Facility to provide funding for near-term investment or working capital needs. As mentioned previously, our portfolio was 45% leveraged as of September 30, 2016 (based on the values of our real estate investments) with a weighted average interest rate of 2.3%.

Below is additional information regarding our loan activities for the nine months ended September 30, 2016 and 2015. See Note 6 — Debt Financing for additional information regarding our outstanding debt:

2016

•
We borrowed approximately $109.0 million and made payments of $114.0 million under our Revolving Credit Facility.
•
The Flagship JV made payments of $14.4 million on its revolving credit facility.
•
We made payments of $7.3 million related to our loan secured by New City, including a one-time payment of $5.8 million in July 2016.
•
We made payments of $3.7 million on our remaining outstanding mortgage loans.

2015

•
We entered into $221.6 million of mortgage financing, related to the acquisition of operating properties with an aggregate net purchase price of $463.4 million. Additionally, our multi-family development projects borrowed $5.1 million to fund construction costs.
•
We borrowed approximately $1.1 billion and made payments of $824.7 million under our Revolving Credit Facility.
•
We also made payments totaling $51.9 million on our remaining outstanding mortgage loans.
•
We made payments of $7.6 million for financing costs related to our loans and $2.3 million related to two $250 million interest rate cap corridor agreements as economic hedges against the variability of future interest rates on our Revolving Credit Facility.


28

Results of Operations

Same-store Analysis

The following table presents the property-level revenues in excess of expenses for the three months ended September 30, 2016, as compared to the same period in 2015, by reportable segment. Same-store properties for the three months ended September 30, 2016 include 41 properties that were 95% and 96% leased as of September 30, 2016 and September 30, 2015, respectively. All amounts are in thousands, except for percentages:
 
Three Months Ended September 30,
 
Change
 
2016
 
2015
 
$
 
%
Property revenues in excess of expenses (1)
 
 
 
 
 
 
 
Same-store properties
 
 
 
 


 


Domestic office investments
$
28,016

 
$
27,066

 
$
950

 
4
 %
Domestic other investments
19,908

 
19,185

 
723

 
4
 %
International office investments
24,198

 
23,333

 
865

 
4
 %
International other investments
10,375

 
11,453

 
(1,078
)
 
(9
)%
Total same-store properties
82,497

 
81,037

 
1,460

 
2
 %
Recent acquisitions
960

 
(9
)
 
969

 
(10,767
)%
Disposed properties (2)
25

 
812

 
(787
)
 
(97
)%
Total property revenues in excess of expenses
$
83,482

 
$
81,840

 
$
1,642

 
2
 %
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
Depreciation and amortization
$
44,116

 
$
48,027

 
$
(3,911
)
 
(8
)%
Interest expense
$
16,135

 
$
17,794

 
$
(1,659
)
 
(9
)%
Income tax provision (benefit)
$
2,032

 
$
1,570

 
$
462

 
29
 %

(1)
Property revenues in excess of expenses include total revenues less property operating expenses, real property taxes, and property management fees.

(2)
Includes the property revenues in excess of expenses for 17600 Gillette, which was sold in December 2015.


29

In total, property revenues in excess of expenses of our same-store properties increased by 2% for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015. Set forth below is a description of the significant variances in our property revenues in excess of expenses at our same-store properties:

•
Domestic Office Investments
◦
Revenues in excess of expenses of 50 South Sixth increased $1.0 million primarily due to the payment of termination fees by a tenant at the building.
•
Domestic Other Investments
◦
Revenues in excess of expenses of The Rim increased $1.0 million resulting from an additional retail parcel added in December 2015.
•
International office investments:
◦
Revenues in excess of expenses of Perspective Défense increased due to the payment of $2.2 million of termination fees by a tenant at the building.
◦
Declines in foreign currency exchange rates against the U.S. dollar continue to cause declines in the operating results of our international properties. Specifically, the British pound declined 15% against the U.S. dollar during the three months ended September 30, 2016 compared with the same period in 2015. See “Item 3. Quantitative and Qualitative Disclosures About Market Risk” for additional information regarding our exposure to foreign currency exchange rates.
◦
Revenues in excess of expenses of New City decreased $0.6 million primarily due to vacancies at the building during the three months ended September 30, 2016. New City was 85% leased for the three months ended September 30, 2016, as compared to 96% leased as of September 30, 2015.
•
International other investments:
◦
Declining foreign currency exchange rates against the U.S. dollar continue to cause declines in the operating results of our international properties, as described above.
The decrease in depreciation and amortization and interest expense in the table above is due to declining foreign currency exchange rates, as described above.

The following table presents the property-level revenues in excess of expenses for the nine months ended September 30, 2016, as compared to the same period in 2015, by reportable segment. Same-store properties for the nine months ended September 30, 2016 include 37 properties that were 94% and 96% leased as of September 30, 2016 and September 30, 2015, respectively (amounts in thousands, except for percentages):
 
Nine Months Ended September 30,
 
Change
 
2016
 
2015
 
$
 
%
Property revenues in excess of expenses (1)
 
 
 
 
 
 
 
Same-store properties
 
 
 
 
 
 
 
Domestic office investments
$
69,309

 
$
66,258

 
$
3,051

 
5
 %
Domestic other investments
56,509

 
54,633

 
1,876

 
3
 %
International office investments
67,043

 
71,162

 
(4,119
)
 
(6
)%
International other investments
29,170

 
32,233

 
(3,063
)
 
(10
)%
Total same-store properties
222,031

 
224,286

 
(2,255
)
 
(1
)%
Recent acquisitions
26,713

 
14,964

 
11,749

 
79
 %
Disposed properties (2)
208

 
2,086

 
(1,878
)
 
(90
)%
Total property revenues in excess of expenses
$
248,952

 
$
241,336

 
$
7,616

 
3
 %
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
Depreciation and amortization
$
133,819

 
$
139,148

 
$
(5,329
)
 
(4
)%
Interest expense
$
48,727

 
$
54,759

 
$
(6,032
)
 
(11
)%
Income tax provision (benefit)
$
5,004

 
$
3,559

 
$
1,445

 
41
 %


30

(1)
Property revenues in excess of expenses include total revenues less property operating expenses, real property taxes, and property management fees.

(2)
Includes the property revenues in excess of expenses for 17600 Gillette, which was sold in December 2015.

In total, property revenues in excess of expenses of our same-store properties decreased by 1% for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015. Set forth below is a description of the significant variances in our property revenues in excess of expenses at our same-store properties:

•
Domestic office investments:
◦
Revenues in excess of expenses of 50 South Sixth increased $1.4 million primarily due to the payment of termination fees by a tenant at the building.
◦
Revenues in excess of expenses of 55 M Street and 550 Terry Francois increased primarily due to an increase in leasing activity.
•
Domestic Other Investments
◦
Revenues in excess of expenses of The Rim increased $2.8 million resulting from additional retail parcels being added in April and December 2015, respectively.
◦
Revenues in excess of expenses of Flagship decreased $1.1 million due to the repayment of four loans during the nine months ended September 30, 2016.
•
International office investments:
◦
Declines in foreign currency exchange rates against the U.S. dollar continue to cause declines in the operating results of our international properties. Specifically, the British pound declined 9% against the U.S. dollar during the nine months ended September 30, 2016 compared with the same period in 2015. See “Item 3. Quantitative and Qualitative Disclosures About Market Risk” for additional information regarding our exposure to foreign currency exchange rates.
◦
Revenues in excess of expenses of Perspective Défense increased due to the payment of $2.2 million of termination fees by a tenant at the building.
◦
Revenues in excess of expenses of 818 Bourke decreased $2.2 million primarily due to vacancies at the building for the first six months of 2016. 818 Bourke was 79% leased for the majority of the six months ended June 30, 2016. In late June 2016, a new lease was signed at 818 Bourke.
◦
Revenues in excess of expenses of New City decreased $1.9 million primarily due to vacancies at the building for the nine months ended September 30, 2016. New City was 85% leased at September 30, 2016, compared to 96% leased at September 30, 2015.
•
International other investments:
◦
Declining foreign currency exchange rates against the U.S. dollar continue to cause declines in the operating results of our international properties, as described above.
The decrease in depreciation and amortization and interest expense in the table above is due to declining foreign currency exchange rates as described above.



31

Other Expenses

The tables below provide detail relating to our asset management and acquisition fees, acquisition-related expenses, and general and administrative expenses for the three and nine months ended September 30, 2016 and 2015.  All amounts in thousands, except percentages:

 
Three Months Ended September 30,
 
Change
 
2016
 
2015
 
$
 
%
Acquisition fees
$
—

 
$
—

 
$
—

 
—
 %
Asset management fees
9,204

 
9,025

 
179

 
2
 %
Asset management and acquisition fees
$
9,204

 
$
9,025

 
$
179

 
2
 %
 
 
 
 
 
 
 
 
Acquisition-related expenses
$
91

 
$
(175
)
 
$
266

 
(152
)%
General and administrative expenses
$
2,859

 
$
2,037

 
$
822

 
40
 %

The changes identified in the table above are primarily due to the following:

•
The increase in our general and administrative costs is primarily due to an increase in legal expenses, consulting expenses, and other miscellaneous expenses of $1.0 million incurred related to our consideration of strategic alternatives for a potential liquidity event.

 
Nine Months Ended September 30,
 
Change
 
2016
 
2015
 
$
 
%
Acquisition fees
$
—

 
$
8,854

 
$
(8,854
)
 
(100
)%
Asset management fees
27,473

 
26,688

 
785

 
3
 %
Asset management and acquisition fees
$
27,473

 
$
35,542

 
$
(8,069
)
 
(23
)%
 
 
 
 
 
 
 
 
Acquisition-related expenses
$
263

 
$
8,332

 
$
(8,069
)
 
(97
)%
General and administrative expenses
$
8,775

 
$
6,429

 
$
2,346

 
36
 %

The changes identified in the table above are primarily due to the following:

•
The decrease in acquisition fees and acquisition-related expenses is due to there being no acquisition activity for the nine months ended September 30, 2016.
•
Asset management fees were higher for the nine months ended September 30, 2016 compared to the same period in 2015, primarily due to our acquisition of additional real estate investments in 2015.
•
The increase in our general and administrative costs is primarily due to an increase in legal expenses, consulting expenses, and other miscellaneous expenses of $2.5 million incurred related to our consideration of strategic alternatives for a potential liquidity event.

Foreign Currency Gains (Losses)

Our international real estate investments use functional currencies other than the U.S. dollar. The financial statements for these subsidiaries are translated into U.S. dollars for reporting purposes. Assets and liabilities are translated at the exchange rate in effect as of the balance sheet date while income statement amounts are translated using the average exchange rate for the period and significant nonrecurring transactions using the rate on the transaction date. Gains or losses resulting from translation are included in accumulated other comprehensive income (loss) within stockholders’ equity. By contrast, gains and losses related to transactions denominated in currencies other than an entity’s functional currency are recorded in foreign currency gains (losses) on the consolidated statement of operations. An exception is made where an intercompany loan or advance is deemed to be of a long-term investment nature, in which instance foreign currency transaction gains or losses are included in accumulated other comprehensive income (loss) within stockholders’ equity.


32

During the three and nine months ended September 30, 2016 and 2015, these gain/losses were primarily related to the effect of remeasuring our borrowings denominated in currencies other than our functional currencies and the changes to the related exchange rates between the date of the borrowing and the end of each period.

Funds from Operations and Modified Funds from Operations
 
Funds from Operations (“FFO”) is a non-GAAP financial performance measure defined by the National Association of Real Estate Investment Trusts (“NAREIT”) widely recognized by investors and analysts as one measure of operating performance of a real estate company. FFO excludes items such as real estate depreciation and amortization. Depreciation and amortization, as applied in accordance with GAAP, implicitly assumes that the value of real estate assets diminishes predictably over time and also assumes that such assets are adequately maintained and renovated as required in order to maintain their value. Since real estate values have historically risen or fallen with market conditions such as occupancy rates, rental rates, inflation, interest rates, the business cycle, unemployment and consumer spending, it is management’s view, and we believe the view of many industry investors and analysts, that the presentation of operating results for real estate companies using historical cost accounting alone is insufficient. In addition, FFO excludes gains and losses from the sale of real estate and impairment charges related to depreciable real estate assets and in-substance real estate equity investments, which we believe provides management and investors with a helpful additional measure of the historical performance of our real estate portfolio, as it allows for comparisons, year to year, that reflect the impact on operations from trends in items such as occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs. A property will be evaluated for impairment if events or circumstances indicate that the carrying amount may not be recoverable (i.e. the carrying amount exceeds the total estimated undiscounted future cash flows from the property). Undiscounted future cash flows are based on anticipated operating performance, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows. While impairment charges are excluded from the calculation of FFO as described above, stockholders are cautioned that due to the limited term of our operations, it could be difficult to recover any impairment charges.

In addition to FFO, management uses Modified Funds from Operations (“MFFO”), as defined by the Investment Program Association (the “IPA”), as a non-GAAP supplemental financial performance measure to evaluate our operating performance. The IPA has recommended the use of MFFO as a supplemental measure for publicly registered, non-listed REITs to enhance the assessment of the operating performance of a non-listed REIT. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be useful as a measure of the long-term operating performance of our investments or as a comparative measure to other publicly registered, non-listed REITs if we do not continue to operate with a limited life and targeted exit strategy, as currently intended and described herein. MFFO includes funds generated by the operations of our real estate investments and funds used in our corporate-level operations. MFFO is based on FFO, but includes certain additional adjustments which we believe are appropriate. Such items include reversing the effects of straight-line rent revenue recognition, fair value adjustments to derivative instruments that do not qualify for hedge accounting treatment and certain other items as described below. Some of these adjustments are necessary to address changes in the accounting and reporting rules under GAAP such as the accounting for acquisition-related expenses from a capitalization/depreciation model to an expensed-as-incurred model that were put into effect in 2009 and other changes to GAAP rules for real estate subsequent to the establishment of NAREIT’s definition of FFO. These changes in the accounting and reporting rules under GAAP affected all industries, and as a result of these changes, acquisition fees and expenses are typically accounted for as operating expenses under GAAP. Management believes these fees and expenses do not affect our overall long-term operating performance. These changes also have prompted a significant increase in the magnitude of non-cash and non-operating items included in FFO, as defined. Such items include amortization of out-of-market lease intangible assets and liabilities and certain tenant incentives.

Other adjustments included in MFFO are necessary to address issues that are common to publicly registered, non-listed REITs. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operations. While other start-up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs like us are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases.

The purchase of properties, and the corresponding expenses associated with that process, including acquisition fees and expenses, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to our stockholders. MFFO excludes acquisition fees payable to our Advisor and acquisition expenses. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us, and therefore such funds will not be available to distribute to our stockholders. All paid and accrued acquisition fees and expenses with respect to the acquisition of a property negatively impact our operating performance during the period in which the property is acquired and will have negative effects on returns to our stockholders, the potential for future distributions, and future cash flows, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, the related acquisition fees and expenses and other costs related to such property. In addition, now that all offering proceeds from our public offerings have been invested, if we acquire a property, there will not be any offering proceeds to pay the

33

corresponding acquisition-related costs. Accordingly, unless our Advisor determines to waive the payment of any then-outstanding acquisition-related costs otherwise payable to the Advisor, such costs will be paid from additional debt, operational earnings or cash flow, net proceeds from the sale of properties, or ancillary cash flows. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. Since MFFO excludes acquisition fees and expenses, MFFO would only be comparable to the operations of non-listed REITs that have completed their acquisition activity and have other similar operating characteristics.

Management uses MFFO to evaluate the financial performance of our investment portfolio, including the impact of potential future investments. In addition, management uses MFFO to evaluate and establish our distribution policy and the sustainability thereof. Further, we believe MFFO is one of several measures that may be useful to investors in evaluating the potential performance of our portfolio following the conclusion of the acquisition phase, as it excludes acquisition fees and expenses, as described herein.

MFFO is useful in assisting management and investors in assessing the sustainability (that is, the capacity to continue to be maintained) of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. MFFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining MFFO.

FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. In addition, FFO and MFFO should not be considered as alternatives to net income (loss) or income (loss) from continuing operations as an indication of our performance or as alternatives to cash flows from operating activities as an indication of our liquidity, but rather should be reviewed in conjunction with these and other GAAP measurements. Further, FFO and MFFO are not intended to be used as liquidity measures indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. Please see the limitations listed below associated with the use of MFFO:

•
As we are approaching the end of the acquisition phase of our life cycle, acquisition costs and other adjustments that are increases to MFFO are, and may continue to be, a significant use of cash and dilutive to the value of an investment in our shares.

•
MFFO excludes acquisition fees payable to our Advisor and acquisition expenses. Although these amounts reduce net income, we generally have funded such costs with proceeds from our public offerings and acquisition-related indebtedness (and, solely with respect to acquisition-related costs incurred in connection with our acquisition of the Brindleyplace Project in July 2010, equity capital contributions from our joint venture partner) and do not consider these fees and expenses in the evaluation of our operating performance and determining MFFO.

•
We use interest rate swap contracts and interest rate caps as economic hedges against the variability of interest rates on variable-rate loans. Although we expect to hold these instruments to maturity, if we were to settle these instruments currently, it would have an impact on our operating performance.  Additionally, these derivative instruments are measured at fair value on a quarterly basis in accordance with GAAP.  MFFO excludes gains (losses) related to changes in these estimated values of our derivative instruments because such adjustments may not be reflective of ongoing operations and may reflect unrealized impacts on our operating performance.

•
We use foreign currency forward contracts as economic hedges against the variability of foreign exchange rates on certain international investments. These derivative instruments are typically short-term and are frequently settled at amounts that result in additional amounts paid or received. However, such gains (losses) are excluded from MFFO since they are not considered to be operational in nature.  Additionally, these derivative instruments are measured at fair value on a quarterly basis in accordance with GAAP.  MFFO excludes gains (losses) related to changes in these estimated values of our derivative instruments because such adjustments may not be reflective of ongoing operations or may reflect unrealized impacts on our operating performance.

•
We utilize the definition of FFO as set forth by NAREIT and the definition of MFFO as set forth by the IPA. Our FFO and MFFO as presented may not be comparable to amounts calculated by other REITs, if they use different approaches.

•
Our business is subject to volatility in the real estate markets and general economic conditions, and adverse changes in those conditions could have a material adverse impact on our business, results of operations and MFFO. Accordingly, the predictive nature of MFFO is uncertain and past performance may not be indicative of future results.

Neither the United States Securities and Exchange Commission (the “SEC”), NAREIT nor any regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or a regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

34

 
The following section presents our calculation of FFO and MFFO attributable to common stockholders and provides additional information related to our operations (in thousands, except per share amounts) for the three and nine months ended September 30, 2016 and 2015 and the period from inception (December 10, 2008) through September 30, 2016. As we have recently completed the acquisition phase of our life cycle, FFO and MFFO are not useful in comparing operations for the two periods presented below.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Period from Inception (December 10, 2008) through September 30, 2016
 
2016
 
2015
 
2016
 
2015
 
Net income (loss)
$
12,368

 
$
2,153

 
$
27,991

 
$
(12,113
)
 
$
(176,011
)
 Depreciation and amortization (1)
44,116

 
48,027

 
133,819

 
139,148

 
808,791

 Loss (gain) on sale of investment property (2)
—

 
(55
)
 
—

 
1,073

 
(78,715
)
 Gain on sale of property from unconsolidated subsidiary
—

 
—

 
(7,196
)
 
—

 
(7,196
)
 Adjustments for noncontrolling interests (3)
(1,485
)
 
(1,865
)
 
(4,836
)
 
(5,238
)
 
(27,791
)
Funds from Operations attributable to common stockholders
54,999

 
48,260

 
149,778

 
122,870

 
519,078

Loss (gain) on derivative instruments (4)
29

 
59

 
708

 
(586
)
 
(4,760
)
Loss (gain) on foreign currency (5)
(4,364
)
 
943

 
1,439

 
4,519

 
38,997

Other components of revenues and expenses (6)
(1,420
)
 
(3,484
)
 
(8,683
)
 
(11,474
)
 
(49,189
)
Acquisition fees and expenses (7)
91

 
(180
)
 
263

 
17,176

 
222,722

Adjustments for noncontrolling interests (3)
659

 
943

 
2,097

 
2,637

 
5,366

Modified Funds From Operations attributable to common stockholders
$
49,994

 
$
46,541

 
$
145,602

 
$
135,142

 
$
732,214

Basic and diluted income (loss) per common share
$
0.04

 
$
—

 
$
0.08

 
$
(0.06
)
 
$
(1.29
)
Funds From Operations attributable to common stockholders per common share
$
0.20

 
$
0.18

 
$
0.54

 
$
0.45

 
$
3.55

Modified Funds From Operations attributable to common stockholders per common share
$
0.18

 
$
0.17

 
$
0.53

 
$
0.50

 
$
5.01

Weighted average shares outstanding
276,067

 
273,201

 
275,539

 
272,293

 
146,182


Notes to the table:

(1)
Represents the depreciation and amortization of various real estate assets.  Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, we believe that such depreciation and amortization may be of limited relevance in evaluating current operating performance and, as such, these items are excluded from our determination of FFO.

(2)
Represents the loss (gain) on disposition of certain real estate investments that were sold in 2014 and 2015. Although this loss (gain) is included in the calculation of net income (loss), we have excluded it from FFO because we believe doing so appropriately presents the operating performance of our real estate investments on a comparative basis.

(3)
Includes income attributable to noncontrolling interests and all adjustments to eliminate the noncontrolling interests’ share of the adjustments to convert our net loss to FFO and MFFO.

(4)
Represents components of net loss related to the estimated changes in the values of our interest rate contract derivatives and foreign currency forwards. We have excluded these changes in value from our evaluation of our operating performance and MFFO because such adjustments may not be reflective of our ongoing performance and may reflect unrealized impacts on our operating performance.

(5)
Represents components of net loss primarily resulting from the remeasurement of loans denominated in currencies other than our functional currencies. We have excluded these changes in value from our evaluation of our operating performance and MFFO because such adjustments may not be reflective of our ongoing performance and may reflect unrealized impacts on our operating performance.


35

(6)
Includes the following components of revenues and expenses that we do not consider in evaluating our operating performance and determining MFFO for the three and nine months ended September 30, 2016 and 2015 (in thousands):

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Period from Inception (December 10, 2008) through September 30, 2016
 
2016
 
2015
 
2016
 
2015
 
Straight-line rent adjustment (a)
$
(5,524
)
 
$
(5,719
)
 
$
(19,788
)
 
$
(19,338
)
 
$
(99,099
)
Amortization of lease incentives (b)
3,298

 
1,816

 
8,785

 
5,000

 
22,995

Amortization of out-of-market leases (b)
822

 
497

 
2,388

 
2,831

 
24,229

Other
(16
)
 
(78
)
 
(68
)
 
33

 
2,686

 
$
(1,420
)
 
$
(3,484
)
 
$
(8,683
)
 
$
(11,474
)
 
$
(49,189
)

(a)
Represents the adjustments to rental revenue as required by GAAP to recognize minimum lease payments on a straight-line basis over the respective lease terms.  We have excluded these adjustments from our evaluation of our operating performance and in determining MFFO because we believe that the rent that is billable during the current period is a more relevant measure of our operating performance for such period.

(b)
Represents the amortization of lease incentives and out-of-market leases.

(7)
Represents acquisition expenses and acquisition fees paid to our Advisor that are expensed in our condensed consolidated statements of operations. We fund such costs with proceeds from our offering, and therefore do not consider these expenses in evaluating our operating performance and determining MFFO.

As noted previously, our cash flows from operations have been and may continue to be insufficient to fully fund distributions paid. Therefore, some or all of our distributions may continue to be paid from other sources, such as cash advances by the Advisor, cash resulting from a waiver or deferral of fees, borrowings and/or proceeds from the DRP Offering. We have not placed a cap on the amount of our distributions that may be paid from any of these sources.

From inception through September 30, 2016, we declared distributions to our stockholders totaling $737.7 million, compared to total aggregate FFO of $519.1 million and cash flows from operating activities of $467.2 million. For the three months ended September 30, 2015, we declared distributions to our stockholders totaling $44.8 million, compared to total aggregate FFO of $48.3 million. For the three months ended September 30, 2016, we declared distributions to our stockholders totaling $45.2 million, compared to total aggregate FFO of $55.0 million. For the nine months ended September 30, 2015, we declared distributions to our stockholders totaling $132.4 million, compared to total aggregate FFO of $122.9 million. For the nine months ended September 30, 2016, we declared distributions to our stockholders totaling $134.4 million, compared to total aggregate FFO of $149.8 million. During our offering and investment stages, we incur acquisition fees and expenses in connection with our real estate investments, which are recorded as reductions to net income (loss) and FFO. From inception through September 30, 2016, we incurred acquisition fees and expenses totaling $222.7 million.

Related-Party Transactions and Agreements

We have entered into agreements with the Advisor, Dealer Manager and Hines or its affiliates, whereby we pay certain fees and reimbursements to these entities during the various phases of our organization and operation. During the organization and offering stage, these include payments to our Dealer Manager for selling commissions and the dealer manager fee and payments to our Advisor for reimbursement of issuer costs. During the acquisition and operational stages, these include payments for certain services related to acquisitions, financing and management of our investments and operations provided to us by our Advisor and Hines and its affiliates pursuant to various agreements we have entered into or anticipate entering into with these entities. See Note 8 — Related Party Transactions in this Quarterly Report on Form 10-Q and in our Annual Report of Form 10-K for the year ended December 31, 2015 for additional information concerning our related-party transactions.

The @1377 partnership agreement provided that, subject to the achievement of certain return thresholds, Hines would receive certain incentive distributions.  In connection with the sale of @1377, Hines received total distributions of $15.7 million from the @1377 partnership in June 2016, which included a return of capital, preferred return distributions, and incentive distributions based on the achievement of the return thresholds set forth in the @1377 partnership agreement.  The total distributions received by Hines represented 58% of the total distributions from the @1377 partnership.


36

Off-Balance Sheet Arrangements
 
As of September 30, 2016 and December 31, 2015, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.


37

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market-sensitive instruments. In pursuing our business plan, we believe that interest rate risk, foreign currency risk and real estate valuation risk are the primary market risks to which we are exposed.

Interest Rate Risk

We are exposed to the effects of interest rate changes primarily as a result of debt used to maintain liquidity and fund expansion of our real estate investment portfolio and operations. One of our interest rate risk management objectives is to limit the impact of interest rate changes on cash flows. To achieve this objective, we may borrow at fixed rates or fix the variable rates of interest on variable interest rate borrowings through the use of interest rate swaps and caps. We have and may continue to enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes. We are exposed to credit risk of the counterparty to these contracts in the event of non-performance under the terms of the derivative contracts.  In the event of non-performance by the counterparty, if we were not able to replace these contracts, we would be subject to the variability of interest rates on the total amount of debt outstanding under the mortgage.

At September 30, 2016, we had fixed-rate debt of $346.0 million and variable-rate debt of $2.1 billion. If interest rates were to increase by 1% and all other variables were held constant, we would incur $21.5 million in additional annual interest expense associated with our variable-rate debt. Additionally, we hedged approximately $0.9 billion of our variable-rate debt using interest rate caps, which limit our exposure to rising interest rates. As of September 30, 2016, the variable interest rates did not exceed their capped interest rates.

Foreign Currency Risk

We currently have real estate investments located in countries outside of the U.S. that are subject to the effects of exchange rate movements between the foreign currency of each real estate investment and the U.S. dollar, which may affect future costs and cash flows as well as amounts translated into U.S. dollars for inclusion in our condensed consolidated financial statements. Generally, we have entered into mortgage loans denominated in foreign currencies for these investments, which provide natural hedges with regard to changes in exchange rates between the foreign currencies and U.S. dollar and reduces our exposure to exchange rate differences. Additionally, we are typically a net receiver of these foreign currencies, and, as a result, our foreign operations benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar. The table below identifies the effect that a 10% immediate, unfavorable change in the exchange rates would have on our equity in these international real estate investments and their net income for the most recently completed period, by foreign currency (in thousands)(1)(2):

 
Reduction in Book Value as of September 30, 2016
 
Reduction in Net Income (Loss) for the Nine Months Ended September 30, 2016
AUD
$10,273
 
$355
EUR
$10,586
 
$28
GBP
$24,371
 
$422
RUB
$5,617
 
$342

(1)
Our real estate assets in Moscow, Russia were purchased in U.S. dollars and we expect that when we dispose of these assets, the sale transactions will also be denominated in U.S. dollars. Accordingly, we do not expect to have economic exposure to the Ruble upon disposition. However, changes in the exchange rate between the Ruble and the U.S. dollar could result in realized losses recorded in our consolidated statement of operations at the time of sale.

(2)
Our real estate assets in Warsaw, Wroclaw and Upper Silesia, Poland were purchased in Euros and we expect that when we dispose of these assets, the sale transactions will also be denominated in Euros. Accordingly, we do not expect to have Polish zloty exposure upon disposition.


38

Item 4.  Controls and Procedures

Disclosure Controls and Procedures
 
In accordance with Rules 13a-15 and 15d-15 promulgated under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2016, to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Change in Internal Controls

No change occurred in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended September 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

39

PART II- OTHER INFORMATION

Item 1.   Legal Proceedings
 
From time to time in the ordinary course of business, the Company or its subsidiaries may become subject to legal proceedings, claims or disputes. As of November 14, 2016, neither the Company nor any of its subsidiaries was a party to any material pending legal proceedings.

Item 1A.  Risk Factors

We are subject to a number of risks and uncertainties, which are discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015. There have been no material changes from the risk factors set forth under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, except for the item described below.

The United Kingdom’s non-binding referendum of June 23, 2016 to exit the European Union could adversely affect market rental rates and commercial real estate values in the United Kingdom and Europe.

On June 23, 2016, the United Kingdom held a non-binding referendum in which a majority of voters voted in favor of the United Kingdom’s exit from the European Union. Negotiations to determine the terms of the United Kingdom’s relationship with the European Union after the exit, including, among other things, the terms of trade between the United Kingdom and the European Union are expected to commence. The effects of the exit will depend on any agreements the United Kingdom makes to retain access to European Union markets either during a transitional period or more permanently. The Brexit vote may:

•
adversely affect European and worldwide economic and market conditions;
•
adversely affect commercial property market rental rates in the United Kingdom and continental Europe;
•
adversely affect commercial property market values in the United Kingdom and continental Europe;
•
adversely affect the availability of financing for commercial properties in the United Kingdom and continental Europe, which could reduce the price for which we are able to sell properties we have acquired in such geographic locations; and
•
create further instability in global financial and foreign exchange markets, including volatility in the value of the sterling and euro.

Each of these effects may occur regardless of whether the United Kingdom departs from the European Union because the capital and credit markets are subject to volatility and disruption. A decline in economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our portfolio, which could, among other things, adversely affect our business and financial condition.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
 
During the three months ended September 30, 2016, we did not sell or issue any equity securities that were not registered under the Securities Act of 1933, as amended.


40

All eligible requests for redemption that were received for the three months ended September 30, 2016 were redeemed and the redemptions were funded with proceeds from our distribution reinvestment plan. The following table lists shares we redeemed under our share redemption program during the period covered by this report.

Period
 
Total Number of Shares Redeemed
 
Average Price Paid per Share
 
Total Number of Shares Redeemed as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet be Redeemed Under the Plans or Programs (1)
July 1, 2016 to July 31, 2016
 
618,622

 
$
9.87

 
618,622

 
134,476

August 1, 2016 to August 31, 2016
 
505,585

 
$
9.90

 
505,585

 
271,704

September 1, 2016 to September 30, 2016
 
442,992

 
$
9.98

 
442,992

 
333,571

Total
 
1,567,199

 
$
9.92

 
1,567,199

 
 

(1)
This amount represents the number of shares available for redemption on September 30, 2016. Our share redemption program was first announced at the commencement of our initial public offering in February 2009. Our share redemption program does not have a fixed expiration date, but it is subject to significant restrictions and limitations and our board of directors may terminate, suspend or amend the program without stockholder approval. We may redeem shares on a monthly basis if the shares were held for at least one year and meet certain other conditions. Any such redemptions will be limited to the amount required to redeem 5% of the shares outstanding as of the same date in the prior calendar year, and unless our board of directors determines otherwise, redemptions will be further limited to the amount of proceeds received from our distribution reinvestment plan in the month prior to the month in which the redemption request was received. Per the terms of our share redemption program, we may waive the one-year holding requirement and limitations described above for share redemption requests made in connection with the death or disability of a stockholder.

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

Not applicable.

Item 6.   Exhibits
 
The exhibits required by this item are set forth on the Exhibit Index attached hereto.

41

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
HINES GLOBAL REIT, INC.
 
 
 
 
 
November 14, 2016
 
By: 
/s/ Sherri W. Schugart
 
 
 
 
 
Sherri W. Schugart
 
 
 
 
President and Chief Executive Officer 
 
 
 
 
 
 
November 14, 2016
 
By:  
/s/ Ryan T. Sims 
 
 
 
 
 
Ryan T. Sims 
 
 
 
 
Chief Financial Officer and Secretary
 


42

INDEX TO EXHIBITS
 

Exhibit
No.
 
Description
3.1

 
Articles of Amendment and Restatement of Hines Global REIT, Inc. (filed as Exhibit 3.1 to Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11 (File No. 333-156742), as amended and supplemented (the “First Registration Statement”) on August 3, 2009 and incorporated by reference herein)
3.2

 
Bylaws of Hines Global REIT, Inc. (filed as Exhibit 3.2 to Pre-Effective Amendment No. 1 to the First Registration Statement on March 18, 2009 and incorporated by reference herein)
3.3

 
Amendment No. 1 to Bylaws of Hines Global REIT, Inc. (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K on September 21, 2015 and incorporated by reference herein).
4.1

 
Hines Global REIT, Inc. Distribution Reinvestment Plan (included as Appendix A to the Prospectus contained in the Registrant’s Registration Statement on Form S-3 (File No. 333-195478) filed on April 24, 2014 and incorporated by reference herein)
31.1

*
Certification
31.2

*
Certification
32.1

*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC herewith and shall not be deemed to be “filed.”
101

*
The following materials from Hines Global REIT, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, filed on November 14, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements.
 
 
 
*

 
Filed herewith

43

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