HINES GLOBAL INCOME TRUST, INC. - FORM 10-Q - August 14, 2017

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EX-32.1 - EXHIBIT 32.1 - HINES GLOBAL INCOME TRUST, INC.hgrii06302017exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - HINES GLOBAL INCOME TRUST, INC.hgrii06302017exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - HINES GLOBAL INCOME TRUST, INC.hgrii06302017exhibit311.htm
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
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: 000-55599
 

Hines Global REIT II, Inc.
(Exact name of registrant as specified in its charter)
Maryland
80-0947092
(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 x   No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x   No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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 x
Emerging growth company x 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨   No x


As of August 7, 2017, approximately 19,667,134 shares of the registrant’s Class A common stock, 18,897,719 shares of the registrant’s Class T common stock and 22,709 shares of the registrant’s Class I 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 II, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
June 30, 2017
 
December 31, 2016
 
(in thousands, except per share amounts)
ASSETS
 
 
 
Investment property, net
$
502,687

 
$
283,875

Cash and cash equivalents
20,376

 
98,137

Restricted cash
3,363

 
1,576

Derivative instruments
102

 
—

Tenant and other receivables
6,550

 
4,803

Intangible lease assets, net
100,128

 
76,070

Deferred leasing costs, net
766

 
314

Other assets
1,103

 
5,570

Total assets
$
635,075

 
$
470,345

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued expenses
$
13,177

 
$
7,549

Due to affiliates
14,294

 
12,141

Intangible lease liabilities, net
15,297

 
2,421

Other liabilities
4,995

 
3,041

Distributions payable
1,648

 
1,195

Note payable to affiliate
—

 
56,000

Notes payable, net
322,804

 
197,815

Total liabilities
$
372,215

 
$
280,162

 
 
 
 
Commitments and contingencies (Note 12)
—

 
—

 
 
 
 
Equity:
 
 
 
Stockholders’ equity:
 
 
 
Preferred shares, $0.001 par value per share; 500,000 preferred shares authorized, none issued or outstanding as of June 30, 2017 and December 31, 2016
—

 
—

Class A common stock, $0.001 par value per share; 375,000 authorized; 19,273 and 16,469 issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
19

 
16

Class T common stock, $0.001 par value per share; 375,000 authorized; 17,297 and 10,074 issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
17

 
10

Class I common stock, $0.001 par value per share; 375,000 authorized; 13 issued and outstanding as of June 30, 2017 and none issued and outstanding as of December 31, 2016
—

 
—

Class J common stock, $0.001 par value per share; 375,000 authorized, none issued or outstanding as of June 30, 2017 and December 31, 2016, respectively
—

 
—

Additional paid-in capital
312,710

 
224,134

Accumulated distributions in excess of earnings
(51,281
)
 
(31,222
)
Accumulated other comprehensive income (loss)
1,395

 
(2,755
)
Total stockholders’ equity
262,860

 
190,183

Noncontrolling interests
—

 
—

Total equity
262,860

 
190,183

Total liabilities and equity
$
635,075

 
$
470,345

See notes to the condensed consolidated financial statements.

1

HINES GLOBAL REIT II, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three and Six Months Ended June 30, 2017 and 2016
(UNAUDITED)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(in thousands, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Rental revenue
$
14,496

 
$
3,712

 
$
28,082

 
$
7,039

Other revenue
248

 
153

 
447

 
244

Total revenues
14,744

 
3,865

 
28,529

 
7,283

Expenses:
 

 
 

 
 
 
 
Property operating expenses
2,271

 
759

 
4,254

 
1,320

Real property taxes
2,971

 
149

 
5,091

 
274

Property management fees
253

 
67

 
478

 
121

Depreciation and amortization
7,611

 
2,360

 
14,905

 
4,311

Acquisition related expenses
230

 
357

 
2,091

 
440

Asset management and acquisition fees
1,221

 
—

 
7,656

 
1,336

General and administrative expenses
517

 
465

 
1,279

 
973

Total expenses
15,074

 
4,157

 
35,754

 
8,775

Income (loss) before other income (expenses)
(330
)
 
(292
)
 
(7,225
)
 
(1,492
)
Other income (expenses):
 
 
 
 
 
 
 
Gain (loss) on derivative instruments
(27
)
 
(1
)
 
(74
)
 
(4
)
Foreign currency gains (losses)
234

 
(89
)
 
295

 
49

Interest expense
(2,314
)
 
(428
)
 
(4,592
)
 
(786
)
Interest income
4

 
30

 
13

 
41

Benefit (provision) for income taxes
325

 
—

 
229

 
—

Net income (loss)
(2,108
)
 
(780
)
 
(11,354
)
 
(2,192
)
Net (income) loss attributable to noncontrolling interests
(3
)
 
(3
)
 
(6
)
 
(6
)
Net income (loss) attributable to common stockholders
$
(2,111
)
 
$
(783
)
 
$
(11,360
)
 
$
(2,198
)
Basic and diluted income (loss) per common share
$
(0.06
)

$
(0.05
)

$
(0.36
)

$
(0.15
)
Weighted average number of common shares outstanding
34,582

 
16,014

 
31,985

 
14,277

Cash distributions declared per Class A share
$
0.15

 
$
0.14

 
$
0.29

 
$
0.29

Cash distributions declared per Class T share
$
0.13

 
$
0.12

 
$
0.25

 
$
0.24

Cash distributions declared per Class I share
$
0.10

 
$
—

 
$
0.10

 
$
—

 
 
 
 
 
 
 
 
Comprehensive income (loss):
 
 
 
 
 
 
 
Net income (loss)
$
(2,108
)
 
$
(780
)
 
$
(11,354
)
 
$
(2,192
)
Other comprehensive income (loss):


 


 


 


Foreign currency translation adjustment
3,732

 
(912
)
 
4,150

 
715

Comprehensive income (loss)
$
1,624

 
$
(1,692
)
 
$
(7,204
)
 
$
(1,477
)
Comprehensive (income) loss attributable to noncontrolling interests
(3
)
 
(3
)
 
(6
)
 
(6
)
Comprehensive income (loss) attributable to common stockholders
$
1,621

 
$
(1,695
)
 
$
(7,210
)
 
$
(1,483
)

See notes to the condensed consolidated financial statements.

2

HINES GLOBAL REIT II, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Six Months Ended June 30, 2017 and 2016
(UNAUDITED)
(In thousands)
Hines Global REIT II, Inc. Stockholders
 
Common Shares
 
Additional Paid-in Capital
 
Accumulated Distributions in Excess of Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders’ Equity
 
Noncontrolling Interests
 
Shares
 
Amount
 
 
 
 
 
Balance as of January 1, 2017
26,542

 
$
26

 
$
224,134

 
$
(31,222
)
 
$
(2,755
)
 
$
190,183

 
$
—

Issuance of common shares
10,166

 
10

 
100,128

 
—

 
—

 
100,138

 
—

Distributions declared
—

 
—

 
—

 
(8,699
)
 
—

 
(8,699
)
 
(6
)
Redemption of common shares
(125
)
 
—

 
(1,198
)
 
—

 
—

 
(1,198
)
 
—

Selling commissions, dealer manager fees and distribution and stockholder servicing fees
—

 
—

 
(7,968
)
 
—

 
—

 
(7,968
)
 
—

Issuer costs
—

 
—

 
(2,386
)
 
—

 
—

 
(2,386
)
 
—

Net income (loss)
—

 
—

 
—

 
(11,360
)
 
—

 
(11,360
)
 
6

Foreign currency translation adjustment
—

 
—

 
—

 
—

 
4,150

 
4,150

 
—

Balance as of June 30, 2017
36,583

 
$
36

 
$
312,710

 
$
(51,281
)
 
$
1,395

 
$
262,860

 
$
—


Hines Global REIT II, Inc. Stockholders
 
Common Shares
Additional Paid-in Capital
 
Accumulated Distributions in Excess of Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders’ Equity
 
Noncontrolling Interests
 
Shares
 
Amount
 
 
 
 
 
Balance as of January 1, 2016
11,061

 
$
11

 
$
91,577

 
$
(9,757
)
 
$
(1,392
)
 
$
80,439

 
$
—

Issuance of common shares
6,756

 
7

 
65,791

 
—

 
—

 
65,798

 
—

Distributions declared
—

 
—

 
—

 
(3,993
)
 
—

 
(3,993
)
 
(6
)
Redemption of Common Shares
(24
)
 
—

 
(234
)
 
—

 
—

 
(234
)
 
—

Selling commissions, dealer manager fees and distribution and stockholder servicing fees
—

 
—

 
(6,460
)
 
—

 
—

 
(6,460
)
 
—

Issuer costs
—

 
—

 
(1,475
)
 
—

 
—

 
(1,475
)
 
—

Net income (loss)
—

 
—

 
—

 
(2,198
)
 
—

 
(2,198
)
 
6

Foreign currency translation adjustment
—

 
—

 
—

 
—

 
715

 
715

 
—

Balance as of June 30, 2016
17,793

 
$
18

 
$
149,199

 
$
(15,948
)
 
$
(677
)
 
$
132,592

 
$
—


See notes to the condensed consolidated financial statements.

3

HINES GLOBAL REIT II, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2017 and 2016
(UNAUDITED)
 
2017
 
2016
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
(11,354
)
 
$
(2,192
)
Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:
 
 
 
Depreciation and amortization
14,609

 
4,204

Foreign currency (gains) losses
(295
)
 
(49
)
(Gain) loss on derivative instruments
74

 
4

Changes in assets and liabilities:
 
 
 
Change in other assets
(493
)
 
134

Change in tenant and other receivables
(2,675
)
 
(143
)
Change in deferred leasing costs
(476
)
 
—

Change in accounts payable and accrued expenses
5,016

 
296

Change in other liabilities
503

 
1

Change in due to affiliates
(1,128
)
 
42

Net cash from (used in) operating activities
3,781

 
2,297

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Investments in acquired properties and lease intangibles
(131,758
)
 
(56,518
)
Capital expenditures at operating properties
(420
)
 
(53
)
Deposits on investment property
—

 
(5,780
)
Net cash used in investing activities
(132,178
)
 
(62,351
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of common stock
96,882

 
66,023

Redemption of common shares
(1,196
)
 
(234
)
Payment of issuer costs
(2,319
)
 
(2,837
)
Reimbursement of issuer costs
—

 
4,050

Payment of selling commissions, dealer manager fees and distribution and stockholder servicing fees
(4,798
)
 
(4,944
)
Distributions paid to stockholders and noncontrolling interests
(3,866
)
 
(1,826
)
Proceeds from notes payable
24,386

 
34,300

Payments on notes payable
(819
)
 
—

Proceeds from related party note payable
7,000

 
3,000

Payments on related party note payable
(63,000
)
 
(3,000
)
Change in security deposit liability
(18
)
 
20

Deferred financing costs paid
(405
)
 
(253
)
Payments related to interest rate contracts
(169
)
 
—

Net cash from financing activities
51,678

 
94,299

Effect of exchange rate changes on cash, restricted cash and cash equivalents
745

 
72

Net change in cash, restricted cash and cash equivalents
(75,974
)
 
34,317

Cash, restricted cash and cash equivalents, beginning of period
99,713

 
18,789

Cash, restricted cash and cash equivalents, end of period
$
23,739

 
$
53,106


See notes to the condensed consolidated financial statements.

4

HINES GLOBAL REIT II, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2017 and 2016

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”). In the opinion of management, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly and in conformity with accounting principles generally accepted in the United States of America (“GAAP”) the financial position of Hines Global REIT II, Inc. as of June 30, 2017 and December 31, 2016, the results of operations for the three and six months ended June 30, 2017 and 2016 and cash flows for the six months ended June 30, 2017 and 2016 have been included.  The results of operations for such interim periods are not necessarily indicative of the results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with 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, 2016 included in Hines Global REIT II, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016.

Hines Global REIT II, Inc. (the “Company”), was formed as a Maryland corporation on July 31, 2013 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 substantially all of its operations through Hines Global REIT II Properties, LP (the “Operating Partnership”). Beginning with its taxable year ended December 31, 2015, the Company has operated and intends to continue to operate 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 II 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 (defined below).

On August 20, 2014, the Company commenced an offering of up to $2.5 billion of its common stock (the “Offering”) in any combination of Class A shares (“Class A Shares”) and Class T shares (“Class T Shares”) of the Company’s common stock. The Company amended its Offering, effective April 28, 2017, such that it is now offering up to $2.5 billion in shares of its common stock in any combination of Class A Shares, Class T Shares and Class I shares (“Class I Shares”) of the Company’s common stock. The Company engaged Hines Securities, Inc. (the “Dealer Manager”), an affiliate of the Advisor, to serve as the dealer manager for the Offering and market its shares. As of August 7, 2017, the Company had received gross offering proceeds of $379.8 million from the sale of 38.8 million shares. See Note 7 — Stockholders’ Equity for additional information regarding the Company’s Offering.

The Company intends to invest the net proceeds from the Offering in a diversified portfolio of quality commercial real estate properties and other real estate investments throughout the United States and internationally. As of June 30, 2017, the Company owned direct investments in seven properties totaling 2.6 million square feet that were 97% leased. See the table in “Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary” for additional information regarding each of the properties in which the Company owned an interest as of June 30, 2017.

2. SUMMARY OF 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 II, Inc. and the Operating Partnership (over which the Company exercises financial and operating control). All intercompany balances and transactions have been eliminated in consolidation.

Tenant and Other Receivables

As of June 30, 2017 and December 31, 2016, in addition to the straight-line rent receivable discussed below, tenant and other receivables consisted of a receivable from the Company’s transfer agent related to offering proceeds not yet received of $0.5 million and $1.6 million, respectively.

5

Deferred Financing Costs

Deferred financing costs consist of direct costs incurred in obtaining debt financing. These costs are presented as a direct reduction from the related debt liability for permanent mortgages and presented as an asset for revolving credit arrangements. In total, deferred financing costs had a carrying value of $1.4 million and $1.0 million as of June 30, 2017 and December 31, 2016, 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.

Other Assets

Other assets included the following (in thousands):
 
 
June 30, 2017
 
December 31, 2016
Deposits on investment property (1)
 
$
—

 
$
5,000

Prepaid insurance
 
155

 
219

Prepaid property taxes
 
—

 
74

Deferred tax assets
 
641

 
—

Other
 
307

 
277

Other assets
 
$
1,103

 
$
5,570


(1)
As of December 31, 2016, this amount consisted of a $5.0 million earnest money deposit in connection with the acquisition of Rookwood in January 2017. See Note 3 — Investment Property for additional information regarding the acquisition of Rookwood.

Revenue Recognition

The Company recognizes rental revenue on a straight-line basis over the life of the lease including rent holidays, if any. Straight-line rent receivables were $3.3 million and $2.5 million as of June 30, 2017 and December 31, 2016, 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.

Other revenues consist primarily of parking revenue, insurance proceeds, administrative fees, and tenant reimbursements related to utilities, insurance, and other operating expenses. Parking revenue represents amounts generated from contractual and transient parking and is recognized in accordance with contractual terms or as services are rendered. Other revenues relating to tenant reimbursements are recognized in the period that the expense is incurred.

Reclassifications

In connection with recent amendments to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification”) regarding the presentation of restricted cash in the statements of cash flows that the Company adopted as of December 31, 2016, the Company reclassified $24,000 of restricted cash on the statement of cash flows from investing activities to the cash and cash equivalent balances as of June 30, 2016 to be consistent with the presentation of cash and cash equivalent balances as of June 30, 2017.

Recent Accounting Pronouncements

In May 2014, the FASB, issued Accounting Standards Update (“ASU”) 2014-09 to provide guidance on recognizing revenue from contracts with customers. This ASU’s core objective is for an entity to recognize revenue based on the consideration it expects to receive in exchange for goods or services. The amendments also replace prior guidance regarding the recognition of revenue from sales of real estate, except for revenue from sales that are part of a sale-leaseback transaction. The Company has not had any sales or partial sales of real estate since its inception. Subsequent to ASU 2014-09, the FASB has issued multiple ASUs clarifying multiple aspects of the new revenue recognition standard, which include the deferral of the effective date by one year, and additional guidance for partial sales of non-financial assets. These amendments are effective for

6

fiscal years, and interim periods within those years, beginning after December 15, 2017, with retrospective or modified retrospective adoption.

Expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that are subject to this pronouncement. The Company is currently evaluating each of its revenue streams to identify differences in the timing, measurement or presentation of revenue recognition under the new standard, and has elected the modified retrospective method of adoption. Rental income from leasing arrangements is specifically excluded from ASU 2014-09, and will be evaluated by the Company in its adoption of the lease accounting standard, ASU 2016-02 (described below). Once ASU 2016-02 goes into effect, the new revenue standard, ASU 2014-09, may apply to executory costs and other components of revenue due under leases that are deemed to be non-lease components (such as common area maintenance and provision of utilities), even when the revenue for such activities is not separately stipulated in the lease. In that case, the revenue from these items previously recognized on a straight-line basis under current lease guidance would be recognized under the new revenue guidance as the related services are delivered. As a result, while the total revenue recognized over time would not differ under the new guidance, the recognition pattern would be different.

In February 2016, the FASB issued ASU 2016-02 which will require companies that lease assets to recognize on the balance sheet the right-of-use assets and related lease liabilities. The accounting by companies that own the assets leased by the lessee (the lessor) will remain largely unchanged from current GAAP. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The guidance is effective for public entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impact that the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements relating to its lessor leases and other lessee leases, if any. The Company has currently identified certain areas the Company believes may be impacted by the adoption of ASU 2016-02, which include:

•
The bifurcation of lease arrangements in which contractual amounts due are on a gross basis and the amount under contract is not allocated between rental and expense reimbursements, such as real estate taxes and insurance. This process would be based on the underlying fair values of these items.

•
The Company has a ground lease agreement in which the Company is the lessee for land underneath Bishop’s Square that the Company currently accounts for as an operating lease. Upon adoption of ASU 2016-02, the Company will record any rights and obligations under this lease as an asset and liability at fair value in the Company’s consolidated balance sheets.

•
Determination of costs to be capitalized associated with leases. ASU 2016-02 will limit the capitalization associated with certain costs to costs that are a direct result of obtaining a lease.

In October 2016, the FASB issued ASU 2016-16 which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The ASU is intended to reduce the complexity of ASC 740 and the diversity in practice related to the tax consequences of certain types of intra-entity asset transfers. ASU 2016-16 will be effective for annual periods beginning after December 31, 2017. The Company plans to adopt ASU 2016-16 beginning January 1, 2018 and expects to record deferred tax assets and related valuation allowances upon adoption related to its subsidiaries in Ireland.

In January 2017, the FASB issued ASU 2017-01 to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company expects that most of its real estate transactions completed after the Company’s adoption of this guidance will be accounted for using the asset acquisition guidance and, accordingly, acquisition fees and expenses related to those acquisitions will be capitalized. The amendments to the Codification will be effective for public entities for annual and interim periods in fiscal years beginning after December 15, 2017 and early adoption is permitted with prospective application. The Company expects to adopt ASU 2017-01 beginning January 1, 2018.


7

3. INVESTMENT PROPERTY

Investment property consisted of the following amounts as of June 30, 2017 and December 31, 2016 (in thousands):

 
June 30, 2017
 
December 31, 2016
Buildings and improvements (1)
$
429,509

 
$
256,452

Less: accumulated depreciation
(11,931
)
 
(6,337
)
Buildings and improvements, net
417,578

 
250,115

Land
85,109

 
33,760

Investment property, net
$
502,687

 
$
283,875


(1)
Included in buildings and improvements is approximately $0.5 million and $0.3 million of construction-in-progress related to a planned expansion at Bishop’s Square as of June 30, 2017 and December 31, 2016, respectively.

In January 2017, the Company acquired Rookwood, two contiguous shopping centers located in Cincinnati, Ohio. The net purchase price was $193.7 million, exclusive of transaction costs and working capital reserves. Rookwood consists of 590,501 square feet that is, in the aggregate, 96% leased. See Note 4 — Recent Acquisitions of Real Estate for additional information on Rookwood.

In March 2017, the Company acquired the Montrose Student Residences, a Class-A student housing asset located in Dublin, Ireland. The net purchase price for the Montrose Student Residences was €37.7 million (approximately $40.6 million assuming a rate of $1.08 per EUR as of the acquisition date), exclusive of transaction costs and working capital reserves. The Montrose Student Residences consists of 210 beds and is 100% leased. See Note 4 — Recent Acquisitions of Real Estate for additional information on the Montrose Student Residences.

As of June 30, 2017, the cost basis and accumulated amortization related to lease intangibles are as follows (in thousands):

 
Lease Intangibles
 
In-Place Leases
 
Out-of-Market
Lease Assets
 
Out-of-Market
Lease Liabilities
 
 
 
Cost
$
114,956

 
$
4,704

 
$
(17,233
)
Less: accumulated amortization
(18,639
)
 
(893
)
 
1,936

Net
$
96,317

 
$
3,811

 
$
(15,297
)

As of December 31, 2016, the cost basis and accumulated amortization related to lease intangibles were as follows (in thousands):

 
Lease Intangibles
 
In-Place Leases
 
Out-of-Market
Lease Assets
 
Out-of-Market
Lease Liabilities
 
 
 
Cost
$
84,473

 
$
3,230

 
$
(3,224
)
Less: accumulated amortization
(11,238
)
 
(395
)
 
803

Net
$
73,235

 
$
2,835

 
$
(2,421
)

Amortization expense of in-place leases was $4.8 million and $1.5 million for the three months ended June 30, 2017 and 2016, respectively. Net amortization of out-of-market leases resulted in an increase to rental revenue of $0.3 million and $93,000 for the three months ended June 30, 2017 and 2016, respectively.

Amortization expense of in-place leases was $9.5 million and $2.7 million for the six months ended June 30, 2017 and 2016, respectively. Net amortization of out-of-market leases resulted in an increase to rental revenue of $0.6 million and $185,000 for the six months ended June 30, 2017 and 2016, respectively.


8

Anticipated amortization of the Company’s in-place leases and out-of-market leases, net for the period from July 1, 2017 through December 31, 2017 and for each of the years ending December 31, 2018 through December 31, 2021 are as follows (in thousands):

 
In-Place Lease
 
Out-of-Market
Leases, Net
July 1, 2017 through December 31, 2017
$
8,232

 
$
(486
)
2018
13,962

 
(912
)
2019
11,032

 
(939
)
2020
7,783

 
(1,225
)
2021
5,448

 
(1,051
)

Leases

The Company has entered into non-cancelable lease agreements with tenants for space.  As of June 30, 2017, the approximate fixed future minimum rentals for the period from July 1, 2017 through December 31, 2017, for each of the years ending December 31, 2018 through 2021 and thereafter related to the Company’s commercial properties are as follows (in thousands):

 
Fixed Future Minimum Rentals
July 1, 2017 through December 31, 2017
$
19,763

2018
37,956

2019
33,221

2020
25,956

2021
21,276

Thereafter
92,658

Total
$
230,830


During the six months ended June 30, 2017, the Company did not earn more than 10% of its revenue from any individual tenant.

Of the Company’s total rental revenue for the six months ended June 30, 2016, approximately 34% was earned from the Commissioner of Public Works in Ireland, a state agency of Ireland, whose lease expires in 2028, 17% was earned from Acushnet, a tenant in the manufacturing industry, whose lease expires in 2019, and approximately 12% was earned from International Financial Data Services, an investor record-keeping and transfer agency provider, whose lease expires in 2024.


9

4. RECENT ACQUISITIONS OF REAL ESTATE

The amounts recognized for major assets acquired as of the acquisition date were determined by allocating the purchase price of each property acquired in 2017 and 2016 as follows (in thousands):
Property Name
 
Acquisition
Date
 
Building and
Improvements 
 
Land
 
In-place
Lease
Intangibles
 
Out-of-
Market Lease
Intangibles, Net
 
Discount (premium) on assumed mortgage loan
 
Total
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rookwood
 
1/6/2017
 
$
132,466

 
$
45,320

 
$
27,477

 
$
(12,275
)
 
$
740

 
$
193,728

Montrose Student Residences (1)
 
3/24/2017
 
$
33,705

 
$
5,691

 
$
1,282

(2) 
$
(56
)
 
$
—

 
$
40,622

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domain Apartments
 
1/29/2016
 
$
50,790

 
$
5,690

 
$
1,640

 
$
—

 
$
—

 
$
58,120

Cottonwood Corporate Center
 
7/5/2016
 
$
98,758

 
$
13,600

 
$
26,550

 
$
290

 
$
—

 
$
139,198

Goodyear Crossing II
 
8/18/2016
 
$
41,620

 
$
7,270

 
$
5,280

 
$
2,030

 
$
—

 
$
56,200


(1)
For the Montrose Student Residences, which was denominated in Euros, amounts have been translated at an exchange rate based on the rate in effect on the acquisition date.

(2)
Includes $0.6 million related to the retail areas of the Montrose Student Residences that have average lease terms between two years and 19 years.

The purchase price allocations for the Company’s 2017 and 2016 acquisitions, with the exception of the Domain Apartments and Cottonwood Corporate Center, are preliminary and subject to change until the Company finalizes the allocations, which will be no later than twelve months from the acquisition dates.

The weighted average amortization period for the intangible assets and liabilities acquired in connection with the 2017 and 2016 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
2017 Acquisitions:
 
 
 
 
 
 
Rookwood
 
8.3
 
16.9
 
13.7
Montrose Student Residences(1)
 
6.5
 
—
 
18.9
 
 
 
 
 
 
 
2016 Acquisitions:
 
 
 
 
 
 
Domain Apartments
 
0.6
 
—
 
—
Cottonwood Corporate Center
 
4.5
 
8.2
 
4.7
Goodyear Crossing II
 
3.1
 
3.1
 
—

(1)
The residential portion of the Montrose Student Residences has a weighted average in-place lease period of 0.2 years and there was no below-market lease liability assigned to the residential portion of the Montrose Student Residences.


10

The table below includes the amounts of revenue and net income (loss) of the acquisitions completed during the six months ended June 30, 2017, which are included in the Company’s condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2017 (in thousands):
 
 
 
 
For the Three Months Ended
 
For the Six Months Ended
2017 Acquisitions
 
 
 
June 30, 2017
 
June 30, 2017
Rookwood
 
Revenue
 
$
4,866

 
$
9,647

 
 
Net income (loss)
 
$
(1,057
)
 
$
(6,704
)
Montrose Student Residences
 
Revenue
 
$
759

 
$
832

 
 
Net income (loss)
 
$
(174
)
 
$
(2,421
)

The following unaudited consolidated information is presented to give effect to the Company’s 2017 acquisitions as if the acquisitions had occurred on January 1, 2016. The pro forma net income (loss) was adjusted to exclude acquisition-related fees and expenses of $7.1 million for the six months ended June 30, 2017. There were no acquisition-related fees and expenses excluded for the three months ended June 30, 2017. For the six months ended June 30, 2016, the pro forma net loss was adjusted to include acquisition-related fees and expenses of $7.1 million relating to the 2017 acquisitions, as if these fees and expenses had been incurred as of January 1, 2016. There were no acquisition-related fees and expenses included for the three months ended June 30, 2016.

The information below is not necessarily indicative of what the actual results of operations would have been had the Company completed this acquisition on January 1, 2016, nor does it purport to represent the Company’s future operations (in thousands):
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 30,
 
June 30,
 
 
Pro Forma 2017
 
Pro Forma 2016
 
Pro Forma 2017
 
Pro Forma 2016
Revenues
 
$
14,744

 
$
3,865

 
$
29,492

 
$
18,725

Net income (loss) attributable to stockholders
 
$
(2,160
)
 
$
(2,004
)
 
$
(5,258
)
 
$
(14,224
)

The table below includes the amounts of revenue and net income (loss) of the acquisition completed during the six months ended June 30, 2016, which are included in the Company’s condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2016 (in thousands):
 
 
 
 
For the Three Months Ended
 
For the Six Months Ended
2016 Acquisitions
 
 
 
June 30, 2016
 
June 30, 2016
Domain Apartments
 
Revenue
 
$
1,160

 
$
1,934

 
 
Net income (loss)
 
$
(658
)
 
$
(1,333
)

The following unaudited consolidated information is presented to give effect to the Company’s acquisition completed during the six months ended June 30, 2016 as if the acquisition had occurred on January 1, 2015. The pro forma net income (loss) was adjusted to exclude acquisition-related fees and expenses of $0.4 million and $1.7 million for the three and six months ended June 30, 2016, respectively. For the six months ended June 30, 2015, the pro forma net loss was adjusted to include acquisition-related fees and expenses of $1.9 million, relating to this 2016 acquisition, as if these fees and expenses had been incurred as of January 1, 2015. For the three months ended June 30, 2015, $0.1 million of acquisition-related fees and expenses were included.

11


The information below is not necessarily indicative of what the actual results of operations would have been had the Company completed this acquisition on January 1, 2015, nor does it purport to represent the Company’s future operations (in thousands):
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 30,
 
June 30,
 
 
Pro Forma 2016
 
Pro Forma 2015
 
Pro Forma 2016
 
Pro Forma 2015
Revenues
 
$
3,865

 
$
3,838

 
$
7,635

 
$
6,227

Net income (loss) attributable to stockholders
 
$
(426
)
 
$
(966
)
 
$
(639
)
 
$
(8,752
)

5. DEBT FINANCING

As of June 30, 2017 and December 31, 2016, the Company had approximately $324.8 million and $254.8 million of debt outstanding, with a weighted average years to maturity of 4.2 years and 4.3 years, and a weighted average interest rate of 2.57% and 2.37%, respectively. The following table provides additional information regarding the Company’s debt outstanding at June 30, 2017 and December 31, 2016 (in thousands):
Description
 
Origination or Assumption Date
 
Maturity Date
 
Maximum Capacity in Functional Currency
 
Interest Rate Description
 
Interest Rate as of June 30, 2017
 
Principal Outstanding at June 30, 2017
 
Principal Outstanding at December 31, 2016
Secured Mortgage Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bishop's Square
 
3/3/2015
 
3/2/2022
 
€
55,200

 
Euribor + 1.30% (1)
 
1.30%
 
$
63,055

 
$
58,048

Domain Apartments
 
1/29/2016
 
1/29/2020
 
$
34,300

 
Libor + 1.60%
 
2.82%
 
34,300

 
34,300

Cottonwood Corporate Center
 
7/5/2016
 
8/1/2023
 
$
78,000

 
Fixed
 
2.98%
 
76,642

 
77,461

Goodyear Crossing II
 
8/18/2016
 
8/18/2021
 
$
29,000

 
Libor + 2.00%
 
3.05%
 
29,000

 
29,000

Rookwood Commons
 
1/6/2017
 
7/1/2020
 
$
67,000

 
Fixed
 
3.13%
 
67,000

 
—

Rookwood Pavilion
 
1/6/2017
 
7/1/2020
 
$
29,000

 
Fixed
 
2.87%
 
29,000

 
—

Montrose Student Residences
 
3/24/2017
 
3/23/2022
 
€
22,605

 
Euribor + 1.85% (2)
 
1.85%
 
25,822

 
—

Notes Payable
 
 
 
 
 
 
 
 
 
$
324,819

 
$
198,809

Affiliate Note Payable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Facility with Hines
 
12/15/2014
 
12/15/2017
(3) 
$
75,000

 
Variable
 
2.80%
 
—

 
56,000

Total Note Payable to Affiliate
 
 
 
 
 
 
 
 
 
$
—

 
$
56,000

Total Principal Outstanding
 
 
 
 
 
 
 
 
 
$
324,819

 
$
254,809

Unamortized discount(4)
 
 
 
 
 
 
 
 
 
(634
)
 
—

Unamortized financing fees
 
 
 
 
 
 
 
 
 
(1,381
)
 
(994
)
Total
 
 
 
 
 
 
 
 
 
$
322,804

 
$
253,815


(1)
The Company entered into a 2.0% Euribor interest rate cap agreement at the loan origination date as an economic hedge against the variability of future interest rates on this borrowing.

(2)
On the loan origination date, the Company entered into a 1.25% Euribor interest rate cap agreement for €17.0 million (approximately $19.4 million assuming a rate of $1.14 per EUR as of June 30, 2017) as an economic hedge against the variability of future interest rates on this borrowing.

(3)
Each advance under the credit facility with Hines (the “Hines Credit Facility”) must be repaid within six months, subject to one six-month extension at the option of the Company and subject to the satisfaction of certain conditions. Notwithstanding that each advance under the Hines Credit Facility matures six months after it is made, the Company is required to repay each advance under the Hines Credit Facility with proceeds from its public offering as such proceeds are raised, unless the Company, through the Operating Partnership, enters into a revolving credit facility (the “OP Facility”), at which point the Company may use such proceeds from its public offering to repay the OP Facility, if any, prior to repaying any advances under its credit facility with Hines. The Hines Credit Facility also permits voluntary prepayment of principal and accrued interest.

(4)
The Company assumed notes payable in connection with its acquisition of Rookwood, which were recorded at the estimated fair value as of the date of acquisition. The difference between the fair value at acquisition and the principal outstanding is amortized over the term of the related notes.


12

Rookwood

In connection with the acquisition of Rookwood, the Company entered into two loan assumption and modification agreements, with Nationwide Life Insurance Company (“Nationwide”), and with CLP-SPF Rookwood Commons, LLC and CLP-SPF Rookwood Pavilion, LLC. Pursuant to the loans, the Company assumed two secured mortgage facilities with a combined original principal amount of $96.0 million.

Interest accrued on the unpaid principal balance of the Rookwood Commons and Rookwood Pavilion secured mortgage facilities is due and payable on the first day of each month commencing in February 2017. The Rookwood Commons and Rookwood Pavilion secured mortgage facilities have fixed interest rates of 3.13% and 2.87%, respectively, and mature on July 1, 2020. Each secured mortgage facility may be prepaid in full, subject to certain conditions, including but not limited to providing 30 days’ advance written notice to Nationwide.

Montrose Student Residences

In connection with the acquisition of the Montrose Student Residences, the Company entered into a secured facility agreement (the “Montrose Facility”) with Wells Fargo Bank, National Association London Branch, for €22.6 million (approximately $24.4 million assuming a rate of $1.08 per EUR as of the date of the agreement). Commencing on May 1, 2017, interest payments are due and payable each quarter and repayment of principal is due upon the maturity of the Montrose Facility on March 23, 2022. The Montrose Facility has a floating interest rate of EURIBOR plus 1.85% through September 2019. Commencing in October 2019, the Montrose Facility will have a floating interest rate of EURIBOR plus 1.85% or 2%, depending upon certain debt yield metrics. The Montrose Facility may be prepaid in full, or in part, subject to a prepayment fee if it is prepaid during the first two years. In addition, pursuant to the terms of the Montrose Facility, the Company entered into a €17.0 million (approximately $19.4 million assuming a rate of $1.14 per EUR as of June 30, 2017) five-year interest rate cap agreement, which effectively caps the EURIBOR interest rate on the Montrose Facility to 1.25%, to limit exposure to interest rate fluctuations.

Hines Credit Facility

For the period from January 2017 through June 2017, the Company made draws of $7.0 million and payments of $63.0 million under the Hines Credit Facility. As a result, the Company had no outstanding balance under the Hines Credit Facility as of June 30, 2017. Additionally, from July 1, 2017 through August 14, 2017, the Company had no additional borrowings and made no additional payments under the Hines Credit Facility, which resulted in the Company continuing to have no outstanding balance under the Hines Credit Facility as of August 14, 2017.

Financial Covenants

The Company’s loan documents for the debt described in the table above contain customary events of default, with corresponding grace periods, including payment defaults, bankruptcy-related defaults, and customary covenants, including limitations on liens and indebtedness and maintenance of certain financial ratios. The Company is not aware of any instances of noncompliance with financial covenants as of June 30, 2017.

Principal Payments on Debt

The Company is required to make the following principal payments on its outstanding notes payable for the period from July 1, 2017 through December 31, 2017, for each of the years ending December 31, 2018 through December 31, 2021 and for the period thereafter (in thousands).

 
Payments Due by Year
 
July 1, 2017 through December 31, 2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
Principal payments
$
831

 
$
1,700

 
$
1,751

 
$
132,104

 
$
30,859

 
$
157,574



13

6. DERIVATIVE INSTRUMENTS

The Company entered into interest rate cap agreements in connection with the Bishop’s Square Facility and the Montrose Facility. The interest rate cap agreements were entered into as an economic hedge against the variability of future interest rates on its variable interest rate borrowings.  The Company’s interest rate cap contracts have economically limited the interest rate on the loan to which they relate.  The Company has not designated this derivative as a hedge for accounting purposes. The Company has not entered into a master netting arrangement with its third-party counterparty and does not offset on its condensed consolidated balance sheets the fair value amount recorded for its derivative instrument. See Note 9 — Fair Value Measurements for additional information regarding the fair value of the Company’s interest rate contracts.

The table below provides additional information regarding the Company’s interest rate contracts (in thousands, except percentages).
Interest Rate Contracts
 
 
 
 
 
 
 
 
Type
 
Effective Date
 
Expiration Date
 
Notional Amount (1)
 
Interest Rate Received
 
Pay Rate /Strike Rate
Interest rate cap
 
March 3, 2015
 
April 25, 2018
 
$
63,055

 
EURIBOR
 
2.00
%
Interest rate cap
 
March 24, 2017
 
March 23, 2022
 
$
19,366

 
EURIBOR
 
1.25
%

(1)
For notional amounts denominated in a foreign currency, amounts have been translated at a rate based on the rate in effect on June 30, 2017.

7. STOCKHOLDERS’ EQUITY

Class I Shares of Common Stock

On April 26, 2017, the Company’s board of directors authorized and approved a reclassification of the Company’s common stock in order to add two additional classes of common shares, Class I Shares of the Company’s common stock, $0.001 par value per share and Class J shares of the Company’s common stock, $0.001 par value per share (the “Class J Shares”). The Company amended its charter on April 27, 2017 to effect this reclassification. The Class A Shares, Class T Shares, Class I Shares and Class J Shares have the same voting rights and rights upon liquidation, although distributions are expected to differ due to the distribution and stockholder servicing fees payable with respect to Class T Shares and Class I Shares, which will reduce distributions. The Company amended its Offering, effective April 28, 2017, such that the Company is offering up to $2.5 billion in shares of its common stock in any combination of Class A Shares, Class T Shares and Class I Shares. The Company is not offering Class J Shares pursuant to the Offering.

Common Stock

The tables below provide information regarding the issuances and redemptions of each class of the Company’s common stock during the six months ended June 30, 2017 and 2016 (in thousands):
 
Class A
 
Class T
 
Class I
 
Class J
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
Balance as of January 1, 2017
16,468

 
$
16

 
10,074

 
$
10

 
—

 
$
—

 
—

 
$
—

 
26,542

 
$
26

Issuance of common shares
2,921

 
3

 
7,232

 
7

 
13

 
—

 
—

 
—

 
10,166

 
10

Redemption of common shares
(116
)
 
—

 
(9
)
 
—

 
—

 
—

 
—

 
—

 
(125
)
 
—

Balance as of June 30, 2017
19,273

 
$
19

 
17,297

 
$
17

 
13

 
$
—

 
—

 
$
—

 
36,583

 
$
36


 
Class A
 
Class T
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
Balance as of January 1, 2016
10,274

 
$
10

 
787

 
$
1

 
11,061

 
$
11

Issuance of common shares
3,712

 
4

 
3,044

 
3

 
6,756

 
7

Redemption of Common Shares
(24
)
 
—

 
—

 
—

 
(24
)
 
—

Balance as of June 30, 2016
13,962


$
14


3,831


$
4


17,793


$
18



14

Distributions

With the authorization of its board of directors, the Company declares distributions daily. All distributions were or will be paid in cash or reinvested in shares of the Company’s common stock for those participating in the Company’s distribution reinvestment plan and have been or will be paid or issued, respectively, on the first business day following the completion of the month to which they relate. Distributions reinvested pursuant to the distribution reinvestment plan were or will be reinvested in shares of the same class as the shares on which the distributions are being made. Some or all of the cash distributions may be paid from sources other than cash flows from operations.

The tables below outline the distribution rates declared per share, per day for Class A Shares, Class T Shares and Class I Shares.
Class A Shares
 
Class T Shares
 
Class I Shares
Period Declared
 
Distribution Rate Per Share, Per Day
 
Period Declared
 
Distribution Rate Per Share, Per Day(1)
 
Period Declared
 
Distribution Rate Per Share, Per Day(1)
4/1/2017 - 8/31/2017
 
$
0.001653699

 
4/1/2017 - 8/31/2017
 
$
0.001653699

 
5/1/2017 - 8/31/2017
 
$
0.001653699

5/1/2016 - 3/31/2017
 
$
0.001594766

 
5/1/2016 - 3/31/2017
 
$
0.001594766

 
N/A
 
N/A
10/1/2014 - 4/30/2016
 
$
0.001575342

 
8/24/2015 - 4/30/2016
 
$
0.001575342

 
N/A
 
N/A

(1)
Class T Shares and Class I Shares are subject to an ongoing distribution and stockholder servicing fee payable to the Dealer Manager of 1.0% and 0.25% per annum of the gross offering price per share (or, if the Company is no longer offering primary shares, the then-current NAV per share, if any has been disclosed), respectively. The distribution rate is the rate prior to deduction of the distribution and stockholder servicing fees payable with respect to Class T Shares and Class I Shares. The actual per share, per day distribution rate for Class T Shares and Class I Shares will vary based on the total amount of distribution and stockholder servicing fees payable for that particular period.

The following table outlines the Company’s total distributions declared to stockholders for each of the quarters ended during 2017 and 2016, including the breakout between the distributions declared in cash and those reinvested pursuant to the Company’s distribution reinvestment plan (in thousands).

 
 
Stockholders
Distributions for the Three Months Ended
 
Cash Distributions
 
Distributions Reinvested
 
Total Declared
2017









June 30, 2017(1)

$
2,225


$
2,565


$
4,790

March 31, 2017(2)

1,833


2,076


3,909

Total

$
4,058


$
4,641


$
8,699

2016
 
 
 
 
 
 
December 31, 2016
 
$
1,608

 
$
1,744

 
$
3,352

September 30, 2016
 
1,340

 
1,427

 
2,767

June 30, 2016
 
1,107

 
1,128

 
2,235

March 31, 2016
 
871

 
887

 
1,758

Total
 
$
4,926

 
$
5,186

 
$
10,112


(1)
Includes $1.5 million of distributions that were declared on March 23, 2017 with respect to daily record dates for each day during the month of April 2017, which were paid in cash or reinvested in shares on May 1, 2017.

(2)
Includes distributions declared as of daily record dates for the three months ended March 31, 2017, but excludes $1.5 million of distributions that were declared on March 23, 2017 with respect to daily record dates for each day during the month of April 2017. These April 2017 distributions were paid in cash or reinvested in shares on May 1, 2017.


15

8. RELATED PARTY TRANSACTIONS

The table below outlines fees and expense reimbursements incurred that are payable by the Company to Hines and its affiliates for the periods indicated below (in thousands):

 
 
Incurred
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Unpaid as of
Type and Recipient
 
2017
 
2016
 
2017
 
2016
 
June 30, 2017
 
December 31, 2016
Selling Commissions- Dealer Manager
 
$
1,388

 
$
1,427

 
$
3,035

 
$
2,761

 
$
21

 
$
54

Dealer Manager Fee- Dealer Manager
 
557

 
1,022

 
1,260

 
1,837

 
5

 
2

Distribution & Stockholder Servicing Fee- Dealer Manager
 
1,615

 
1,862

 
3,673

 
1,862

 
7,836

 
4,636

Issuer Costs- the Advisor
 
1,260

 
874

 
2,386

 
1,475

 
4,851

 
4,785

Acquisition Fee- the Advisor and affiliates of Hines
 
—

 
—

 
5,273

 
1,308

 
38

 
1,265

Asset Management Fee- the Advisor and affiliates of Hines (1)
 
1,221

 
—

 
2,383

 
—

 
1,302

 
941

Other- the Advisor (2)
 
216

 
194

 
493

 
364

 
165

 
295

Interest expense- Hines (3)
 
107

 
—

 
388

 
2

 
—

 
37

Property Management Fee- Hines
 
193

 
12

 
381

 
24

 
(15
)
 
(19
)
Leasing Fee - Hines
 
10

 
—

 
18

 
—

 
—

 
—

Expense Reimbursement- Hines (with respect to management and operations of the Company's properties)
 
311

 
86

 
671

 
171

 
91

 
145

Total
 
$
6,878

 
$
5,477

 
$
19,961

 
$
9,804

 
$
14,294

 
$
12,141


(1)
The Advisor did not waive any asset management fees payable to it during the three and six months ended June 30, 2017 and waived all of the $0.4 million and $0.7 million in asset management fees payable to it during the three and six months ended June 30, 2016, respectively.
(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.
(3)
Includes amounts paid related to the Hines Credit Facility.

9.  FAIR VALUE MEASUREMENTS

Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability, such as interest rates and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.


16

As of June 30, 2017, the Company estimated that the fair value of its notes payable, excluding deferred financing costs, which had a book value of $324.8 million, was $321.3 million. As of December 31, 2016, the Company estimated that the fair value of its notes payable, excluding deferred financing costs, which had a book value of $254.8 million, was $251.0 million. Management has utilized available market information such as interest rate and spread assumptions of notes payable with similar terms and remaining maturities, to estimate the amounts required to be disclosed. Although the Company has determined that 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, the Company has assessed the significance of the impact of the credit quality adjustments on the overall valuations of the fair market value of its notes payable and has determined they are not significant. Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, restricted cash, 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 inputs are utilized to estimate the fair value of the cash and cash equivalents and restricted cash and Level 2 inputs are utilized to estimate the fair value of the remaining financial instruments.

10. REPORTABLE SEGMENTS

As described previously, the Company intends to invest the net proceeds from the Offering in a diversified portfolio of quality commercial real estate properties and other real estate investments throughout the United States and internationally. The Company’s current business consists of owning, operating, acquiring, developing, investing in, and disposing of real estate assets. All of the Company’s consolidated revenues and property operating expenses as of June 30, 2017 are from the Company’s seven consolidated real estate properties owned as of that date. As a result, the Company’s operating segments have been classified into six reportable segments: domestic office investments, domestic multi-family investments, domestic retail investments, domestic other investments, international office investments, and international multi-family investments.

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

 
Three Months Ended June 30,

Six Months Ended June 30,
 
2017

2016

2017

2016
Total Revenue




 

 
Domestic office investments
$
3,806

 
$
—

 
$
7,596

 
$
—

Domestic multi-family investments
1,178

 
1,160


2,341

 
1,934

Domestic retail investments
4,866

 
—

 
9,647

 
—

Domestic other investments
1,911

 
601

 
3,822

 
1,208

International office investments
2,224


2,104


4,291


4,141

International multi-family investments
759


—


832


—

Total Revenue
$
14,744


$
3,865


$
28,529


$
7,283


For the three and six months ended June 30, 2017 and 2016, the Company’s total revenue was attributable to the following countries:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Total Revenue
 
 
 
 
 
 
 
United States
80
%
 
46
%
 
82
%
 
43
%
Ireland
20
%
 
54
%
 
18
%
 
57
%


17

For the three and six months ended June 30, 2017 and 2016, the Company’s property revenues in excess of expenses by segment were as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Property revenues in excess of expenses (1)
 
 
 
 
 
 
 
Domestic office investments
$
2,584

 
$
—

 
$
5,172

 
$
—

Domestic multi-family investments
764

 
697

 
1,509

 
1,227

Domestic retail investments
2,136

 
—

 
5,106

 
—

Domestic other investments
1,477

 
460

 
2,946

 
908

International office investments
1,771

 
1,733

 
3,394

 
3,433

International multi-family investments
517

 
—

 
579

 
—

Property revenues in excess of expenses
$
9,249

 
$
2,890

 
$
18,706

 
$
5,568


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

As of June 30, 2017 and December 31, 2016, the Company’s total assets by segment were as follows (in thousands):
 
June 30, 2017
 
December 31, 2016
Total Assets
 
 
 
Domestic office investments
$
134,483

 
$
137,407

Domestic multi-family investments
54,202

 
55,201

Domestic retail investments
205,580

 
—

Domestic other investments
76,134

 
78,182

International office investments
108,422

 
99,002

International multi-family investments
45,095

 
—

Corporate-level accounts
11,159

 
100,553

Total Assets
$
635,075

 
$
470,345


As of June 30, 2017 and December 31, 2016, the Company’s total assets were attributable to the following countries:
 
June 30, 2017
 
December 31, 2016
Total Assets
 
 
 
United States
76
%
 
79
%
Ireland
24
%
 
21
%


18

For the three and six months ended June 30, 2017 and 2016 the Company’s reconciliation of the Company’s property revenues in excess of expenses to the Company’s net income (loss) is as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Reconciliation to property revenue in excess of expenses
 
 
 
 
 
 
 
Net income (loss)
$
(2,108
)
 
$
(780
)
 
$
(11,354
)
 
$
(2,192
)
Depreciation and amortization
7,611

 
2,360

 
14,905

 
4,311

Acquisition related expenses
230

 
357

 
2,091

 
440

Asset management and acquisition fees
1,221

 
—

 
7,656

 
1,336

General and administrative expenses
517

 
465

 
1,279

 
973

(Gain) loss on derivative instruments
27

 
1

 
74

 
4

Foreign currency (gains) losses
(234
)
 
89