Griffin Capital Essential Asset REIT II Reports Second Quarter of 2017 Results

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- Reports Substantial Revenue and Net Income Growth -

EL SEGUNDO, Calif., Aug. 22, 2017 (GLOBE NEWSWIRE) — Griffin Capital Essential Asset REIT II, Inc. (the “REIT”) announced its operating results for the second quarter of 2017.

Michael Escalante, President of the REIT commented, “Our delivery of increased top and bottom line financial results for the second quarter validates our ongoing approach for combining highly selective acquisition activities with disciplined portfolio management skills. By continuing to acquire top quality commercial real estate assets leased predominantly under long-term agreements with well-established corporate tenants, we’re adding additional layers of value creation potential for our shareholders. Our second quarter results underscore the strong tailwind we’re enjoying as we move forward under market and economic conditions that favor our REIT’s strategy. We look forward to continuing to position the REIT for delivering enhanced shareholder value through current income and long-term capital appreciation events.”

As of June 30, 2017, our portfolio consisted of 27 properties (35 buildings) encompassing approximately 7.3 million square feet of space in 17 states.

Highlights and Accomplishments for the Second Quarter of 2017:

  • The total capitalization(1) of our portfolio was approximately $1.2 billion.
  • Our weighted average remaining lease term was approximately 10.9 years with average annual rent increases of approximately 2.4%.
  • Our portfolio is 100% leased and occupied(2).
  • Approximately 79.7% of our portfolio’s net rental revenue(3) was generated by properties leased to tenants and/or guarantors with investment grade credit ratings or whose non-guarantor parent companies have investment grade credit ratings(4).
  • Net income attributable to common stockholders was approximately $3.4 million or $0.04 per basic and diluted share for the quarter ended June 30, 2017 compared to $2.8 million loss or ($0.06) per basic and diluted share for the same period in 2016.
  • Total revenue for the quarter ended June 30, 2017 was approximately $26.5 million, representing year-over-year growth of 99% from the same period in 2016.
  • Modified funds from operations, or MFFO, as defined by the Investment Program Association (IPA), was approximately $10.2 million for the quarter, representing year-over-year growth of approximately 150% for the same period in 2016. Funds from operations, or FFO, was approximately $14.3 million and $3.2 million for the quarters ended June 30, 2017 and 2016, respectively. Please see financial reconciliation tables and notes at the end of this release for more information regarding MFFO and FFO.
  • Our Adjusted EBITDA, as defined per our credit facility agreement, was approximately $15.5 million for the quarter with a fixed charge and interest coverage ratio of 4.43 each. Please see financial reconciliation tables and notes at the end of this release for more information regarding Adjusted EBITDA and related ratios.
  • During the second quarter of 2017, we acquired one property located in Carmel, Indiana for approximately $28.6 million. This property is leased on an absolute-net basis and in its entirety to Midcontinent Independent System Operator, Inc.
  • As of June 30, 2017, our debt to total real estate acquisition value was 42.3%.

About Griffin Capital Essential Asset REIT II

Griffin Capital Essential Asset REIT II, Inc. is a publicly registered non-traded REIT focused on acquiring a portfolio consisting primarily of single tenant business essential properties throughout the United States, diversified by corporate credit, physical geography, product type, and lease duration. As of June 30, 2017, Griffin Capital Essential Asset REIT II, Inc. has acquired 35 office and industrial buildings totaling approximately 7.3 million rentable square feet and asset acquisition value of approximately $1.1 billion. Griffin Capital Essential Asset REIT II, Inc. is one of several REITs sponsored or co-sponsored by Griffin Capital Company, LLC.

About Griffin Capital Company, LLC

Griffin Capital is a leading alternative investment asset manager with approximately $9.5 billion* in assets under management. Founded in 1995, the privately-held firm is led by a seasoned team of senior executives with more than two decades of investment and real estate experience and who collectively have executed more than 650 transactions valued at over $22 billion. Additional information is available at

*As of June 30, 2017.

This press release may contain certain 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. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. These risks, uncertainties and contingencies include, but are not limited to: uncertainties relating to changes in general economic and real estate conditions; uncertainties relating to the implementation of our real estate investment strategy; uncertainties relating to financing availability and capital proceeds; uncertainties relating to the closing of property acquisitions; uncertainties related to the timing and availability of distributions; and other risk factors as outlined in the REIT’s annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the Securities and Exchange Commission. This is neither an offer nor a solicitation to purchase securities.


Total capitalization includes the outstanding debt balance, plus total equity raised in our public offering, net of redemptions.

2 There is no guarantee that our properties will remain 100% leased.

3 Net rent is based on (a) the contractual base rental payments assuming the lease requires the tenant to reimburse us for certain operating expenses or the property is self-managed by the tenant and the tenant is responsible for all, or substantially all, of the operating expenses; or (b) contractual rent payments less certain operating expenses that are our responsibility for the 12-month period subsequent to June 30, 2017 and includes assumptions that may not be indicative of the actual future performance of a property, including the assumption that the tenant will perform its obligations under its lease agreement during the next 12 months.

4 Of the 79.7% investment grade tenant ratings, 69.1% is from Nationally Recognized Statistical Rating Organization (NRSRO) credit rating, with the remaining 10.6% being from non-NRSRO, but having a rating that is equivalent to a NRSRO investment grade rating. Bloomberg’s default risk rating is one example of a non-NRSRO rating.

(in thousands, except share amounts)
June 30,

December 31, 2016
Cash and cash equivalents $ 43,647 $ 49,340
Restricted cash 14,457 14,221
Real estate:
Land 122,482 117,569
Building and improvements 815,345 787,999
Tenant origination and absorption cost 240,364 227,407
Construction in progress 42 80
Total real estate 1,178,233 1,133,055
Less: accumulated depreciation and amortization (61,429 ) (39,955 )
Total real estate, net 1,116,804 1,093,100
Intangible assets, net 3,481 3,528
Real estate acquisition deposits 250
Deferred rent 14,153 5,424
Other assets, net 13,571 18,612
Total assets $ 1,206,113 $ 1,184,475
Revolving Credit Facility $ 345,044 $ 330,272
AIG Loan 126,243 126,200
Total debt 471,287 456,472
Restricted reserves 35,550 55,797
Accrued expenses and other liabilities 19,593 21,527
Distributions payable 1,600 1,494
Due to affiliates 21,795 22,481
Below market leases, net 53,849 55,319
Total liabilities 603,674 613,090
Commitments and contingencies (Note 11)
Common stock subject to redemption 25,250 16,930
Stockholders’ equity:
Preferred Stock, $0.001 par value, 200,000,000 shares authorized; no shares outstanding, as of June 30, 2017 and December 31, 2016
Common Stock, $0.001 par value, 700,000,000 shares authorized; 75,986,325 and 70,939,647 Class A, Class T and Class I shares outstanding, in aggregate as of June 30, 2017 and December 31, 2016, respectively 76 71
Additional paid-in capital 654,011 615,653
Cumulative distributions (60,589 ) (38,406 )
Accumulated deficit (17,301 ) (23,788 )
Accumulated other comprehensive loss 911 841
Total stockholders’ equity 577,108 554,371
Noncontrolling interests 81 84
Total equity 577,189 554,455
Total liabilities and equity $ 1,206,113 $ 1,184,475

(in thousands, except share and per share amounts)
Three Months Ended June 30,

Six Months Ended June 30,

2016 2017 2016
Rental income $ 22,677 $ 11,024 $ 44,285 $ 21,298
Property expense recovery 3,869 2,306 8,233 4,534
Total revenue 26,546 13,330 52,518 25,832
Asset management fees to affiliates 2,795 1,362 5,541 2,632
Property management fees to affiliates 469 204 895 399
Property operating 1,411 791 3,084 1,553
Property tax 2,321 1,408 4,733 2,704
Acquisition fees and expenses to non-affiliates 402 496
Acquisition fees and expenses to affiliates 2,129 2,999
General and administrative 983 941 1,905 1,419
Corporate operating expenses to affiliates 522 431 1,113 991
Depreciation and amortization 10,951 5,985 21,474 11,611
Total expenses 19,452 13,653 38,745 24,804
Income (loss) before other income and (expenses) 7,094 (323 ) 13,773 1,028
Other income (expense):
Other income, net 140 164 1
Interest expense (3,869 ) (2,502 ) (7,448 ) (4,995 )
Net income (loss) 3,365 (2,825 ) 6,489 (3,966 )
Less: Net (income) loss attributable to noncontrolling interests (1 ) 1 (2 )

Net income (loss) attributable to common stockholders $ 3,364 $ (2,824 ) $ 6,487 $ (3,964 )
Net income (loss) attributable to common stockholders, basic and diluted $ 0.04 $ (0.06 ) $ 0.09 $ (0.10 )
Weighted average number of common shares outstanding, basic and diluted 75,658,033 45,754,640 75,109,702 39,603,306
Distributions declared per common share $ 0.14 $ 0.14 $ 0.28 $ 0.28


Funds from Operations and Modified Funds from Operations


Our management believes that 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, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient.

In order to provide a more complete understanding of the operating performance of a REIT, the National Association of Real Estate Investment Trusts (“NAREIT”) promulgated a measure known as funds from operations (“FFO”). FFO is defined as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property, adding back asset impairment write-downs, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships, joint ventures and preferred distributions. Because FFO calculations exclude such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. It should be noted, however, that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently than we do, making comparisons less meaningful.

The Investment Program Association (“IPA”) issued Practice Guideline 2010-01 (the “IPA MFFO Guideline”) on November 2, 2010, which extended financial measures to include modified funds from operations (“MFFO”). In computing MFFO, FFO is adjusted for certain non-operating cash items such as acquisition fees and expenses and certain non-cash items such as straight-line rent, amortization of in-place lease valuations, amortization of discounts and premiums on debt investments, nonrecurring impairments of real estate-related investments, mark-to-market adjustments included in net income (loss), and nonrecurring gains or losses included in net income (loss) from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.

Management is responsible for managing interest rate, hedge and foreign exchange risk. To achieve our objectives, we may borrow at fixed rates or variable rates. In order to mitigate our interest rate risk on certain financial instruments, if any, we may enter into interest rate cap agreements or other hedge instruments and in order to mitigate our risk to foreign currency exposure, if any, we may enter into foreign currency hedges. We view fair value adjustments of derivatives, impairment charges and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of on-going operations and are therefore typically adjusted for when assessing operating performance.

We adopted the IPA MFFO Guideline as management believes that MFFO is a beneficial indicator of our on-going portfolio performance and ability to sustain our current distribution level. More specifically, MFFO isolates the financial results of the REIT’s operations. MFFO, however, is not considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings. Further, since the measure is based on historical financial information, MFFO for the period presented may not be indicative of future results or our future ability to pay our dividends. By providing FFO and MFFO, we present information that assists investors in aligning their analysis with management’s analysis of long-term operating activities. MFFO also allows for a comparison of the performance of our portfolio with other REITs that are not currently engaging in acquisitions, as well as a comparison of our performance with that of other non-traded REITs, as MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes. As explained below, management’s evaluation of our operating performance excludes items considered in the calculation of MFFO based on the following economic considerations:

Revenues in excess of cash received, net. Most of our leases provide for periodic minimum rent payment increases throughout the term of the lease. In accordance with GAAP, these contractual periodic minimum rent payment increases during the term of a lease are recorded to rental revenue on a straight-line basis in order to reconcile the difference between accrual and cash basis accounting. As straight-line rent is a GAAP non-cash adjustment and is included in historical earnings, FFO is adjusted for the effect of straight-line rent to arrive at MFFO as a means of determining operating results of our portfolio. In addition, when applicable, in conjunction with certain acquisitions, we may enter into a master escrow or lease agreement with a seller, whereby the seller is obligated to pay us rent pertaining to certain spaces impacted by existing rental abatements. In accordance with GAAP, these proceeds are recorded as an adjustment to the allocation of real estate assets at the time of acquisition, and, accordingly, are not included in revenues, net income, or FFO. This application results in income recognition that can differ significantly from current contract terms. By adjusting for this item, we believe MFFO is reflective of the realized economic impact of our leases (including master agreements) that is useful in assessing the sustainability of our operating performance.

Amortization of in-place lease valuation. Acquired in-place leases are valued as above-market or below-market as of the date of acquisition based on the present value of the difference between (a) the contractual amounts to be paid pursuant to the in-place leases and (b) management’s estimate of fair market lease rates for the corresponding in-place leases over a period equal to the remaining non-cancelable term of the lease for above-market leases. The above-market and below-market lease values are capitalized as intangible lease assets or liabilities and amortized as an adjustment to rental income over the remaining terms of the respective leases. As amortization of in-place lease valuation is a non-cash adjustment and is included in historical earnings, FFO is adjusted for the effect of the amortization to arrive at MFFO as a means of determining operating results of our portfolio.

Acquisition-related costs. We were organized primarily with the purpose of acquiring or investing in income-producing real property in order to generate operational income and cash flow that will allow us to provide regular cash distributions to our stockholders. In the process, we incur non-reimbursable affiliated and non-affiliated acquisition-related costs, which in accordance with GAAP are capitalized and included as part of the relative fair value when the property acquisition meets the definition of asset acquisition or are expensed as incurred and are included in the determination of income (loss) from operations and net income (loss), for property acquisitions accounted for as a business combination. These costs have been funded with cash proceeds from our Primary Offering or included as a component of the amount borrowed to acquire such real estate. If we acquire a property after all offering proceeds from our Primary Offering have been invested, there will not be any offering proceeds to pay the corresponding acquisition-related costs. Accordingly, unless our Advisor determines to waive the payment of any then-outstanding acquisition-related costs otherwise payable to our 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. In evaluating the performance of our portfolio over time, management employs business models and analyses that differentiate the costs to acquire investments from the investments’ revenues and expenses. Acquisition-related costs may negatively affect our operating results, cash flows from operating activities and cash available to fund distributions during periods in which properties are acquired, as the proceeds to fund these costs would otherwise be invested in other real estate related assets. By excluding acquisition-related costs, MFFO may not provide an accurate indicator of our operating performance during periods in which acquisitions are made. However, it can provide an indication of our on-going ability to generate cash flow from operations and continue as a going concern after we cease to acquire properties on a frequent and regular basis, which can be compared to the MFFO of other non-listed REITs that have completed their acquisition activity and have similar operating characteristics to ours. Management believes that excluding these costs from MFFO provides investors with supplemental performance information that is consistent with the performance models and analysis used by management.

Gain or loss from the extinguishment of debt. We use debt as a partial source of capital to acquire properties in our portfolio. As a term of obtaining this debt, we will pay financing costs to the respective lender. Financing costs are presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and amortized into interest expense on a straight-line basis over the term of the debt. We consider the amortization expense to be a component of operations if the debt was used to acquire properties. From time to time, we may cancel certain debt obligations and replace these canceled debt obligations with new debt at more favorable terms to us. In doing so, we are required to write off the remaining capitalized financing costs associated with the canceled debt, which we consider to be a cost, or loss, on extinguishing such debt. Management believes that this loss is considered an event not associated with our operations, and therefore, deems this write off to be an exclusion from MFFO.

Unrealized gains (losses) on derivative instruments. These adjustments include unrealized gains (losses) from mark-to-market adjustments on interest rate swaps and losses due to hedge ineffectiveness. The change in fair value of interest rate swaps not designated as a hedge and the change in fair value of the ineffective portion of interest rate swaps are non-cash adjustments recognized directly in earnings and are included in interest expense. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the economic impact of our interest rate swap agreements.

For all of these reasons, we believe the non-GAAP measures of FFO and MFFO, in addition to income (loss) from operations, net income (loss) and cash flows from operating activities, as defined by GAAP, are helpful supplemental performance measures and useful to investors in evaluating the performance of our real estate portfolio. However, a material limitation associated with FFO and MFFO is that they are not indicative of our cash available to fund distributions since other uses of cash, such as capital expenditures at our properties and principal payments of debt, are not deducted when calculating FFO and MFFO. The use of MFFO as a measure of long-term operating performance on value is also limited if we do not continue to operate under our current business plan as noted above. MFFO is useful in assisting management and investors in assessing our on-going ability to generate cash flow from operations and continue as a going concern in future operating periods, and in particular, after the offering and acquisition stages are complete. However, FFO and MFFO are not useful measures in evaluating NAV because impairments are taken into account in determining NAV but not in determining FFO and MFFO. Therefore, FFO and MFFO should not be viewed as a more prominent measure of performance than income (loss) from operations, net income (loss) or to cash flows from operating activities and each should be reviewed in connection with GAAP measurements.

Neither the SEC, NAREIT, nor any other applicable regulatory body has opined on the acceptability of the adjustments contemplated to adjust FFO in order to calculate MFFO and its use as a non-GAAP performance measure. In the future, the SEC or NAREIT may decide to standardize the allowable exclusions across the REIT industry, and we may have to adjust the calculation and characterization of this non-GAAP measure.

Our calculation of FFO and MFFO is presented in the following table for the three and six months ended June 30, 2017 and 2016 (dollars in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Net income (loss) $ 3,365 $ (2,825 ) $ 6,489 $ (3,966 )
Depreciation of building and improvements 5,024 2,466 9,916 4,804
Amortization of leasing costs and intangibles 5,927 3,518 11,558 6,806
FFO $ 14,316 $ 3,159 $ 27,963 $ 7,644
Distributions to noncontrolling interests (2 ) (3 ) (5 ) (6 )
FFO, adjusted for noncontrolling interest distributions $ 14,314 $ 3,156 $ 27,958 $ 7,638
Reconciliation of FFO to MFFO:
Adjusted FFO $ 14,314 $ 3,156 $ 27,958 $ 7,638
Acquisition fees and expenses to non-affiliates 402 496
Acquisition fees and expenses to affiliates 2,129 2,999
Revenues in excess of cash received,net (4,556 ) (812 ) (8,729 ) (1,564 )
Amortization of (below) market rent, net (1,173 ) (879 ) (2,206 ) (1,685 )
Unrealized loss (gain) on derivatives 18 96 41
Cash received from Southern Company Master Lease Escrow Agreement 1,626 3,580
MFFO $ 10,229 $ 4,092 $ 20,644 $ 7,884

Adjusted EBITDA
(Unaudited, dollars in thousands)
Three Months Ended June 30, Six Months Ended June 30,
ADJUSTED EBITDA(1): 2017 2016 2017 2016
Net income/(loss) $ 3,365 $ (2,825 ) $ 6,489 $ (3,966 )
Depreciation and amortization 10,951 5,985 21,474 11,611
Interest expense 3,497 2,019 6,701 4,244
Unused commitment fee 79 195 160 369
(Gain)/loss on swap 18 96 41 -
Amortization – Deferred financing costs 275 192 546 382
Amortization – In-place lease (1,173 ) (879 ) (2,206 ) (1,685 )
Income taxes 94 56 175 77
Asset management fees 2,795 1,362 5,541 2,632
Property management fees 469 204 904 399
Acquisition fees and expenses - 2,531 - 3,495
Deferred rent (4,557 ) (812 ) (8,729 ) (1,564 )
15,813 8,124 31,096 15,994
Less: Capital reserves (334 ) (190 ) (655 ) (355 )
Adjusted EBITDA (per credit facility) $ 15,479 $ 7,934 $ 30,441 $ 15,639
Interest expense $ 3,497 $ 2,019 $ 6,701 $ 4,244
Interest Coverage Ratio(2) 4.43 3.93 4.54 3.68
Fixed Charge Coverage Ratio(3) 4.43 3.93 4.54 3.68

1Adjusted EBITDA, as defined in our credit facility agreement, is calculated as net income (loss) before interest, taxes, depreciation and amortization (EBITDA), plus acquisition fees and expenses, asset and property management fees, straight-line rents and in-place lease amortization for the period less certain reserves for capital expenditures.
2Fixed charge coverage is the ratio of principal amortization for the period plus interest expense as if the corresponding debt were in place at the beginning of the period plus preferred unit distributions as if in place at the beginning of the period over adjusted EBITDA.
3Interest coverage is the ratio of interest expense as if the corresponding debt was in place at the beginning of the period to adjusted EBITDA.
Media Contacts:Jennifer NahasGriffin Capital Company, LLCjnahas@griffincapital.comOffice Phone: 949-270-9332Joseph Kuo / Matthew Griffes Haven Tower Group or 424 652 6520 ext. 101 or ext. 103



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