Griffin Capital Essential Asset REIT Reports 2019 Second Quarter Results
El Segundo, Calif. (August 15, 2019) – Griffin Capital Essential Asset REIT, Inc. (the “REIT”) announced its results for the quarter ended June 30, 2019. The REIT reported a 20 percent increase in total revenue and a 16 percent increase in AFFO compared to the quarter ended June 30, 2018. Such performance was supported by the recently completed merger announced May 1, 2019, which created a $4.7 billion self-managed REIT and generated significant benefits for shareholders, including substantial cost savings, increased operating efficiencies, and immediate accretion to earnings and cash flows.
“The second quarter of 2019 is our first opportunity to demonstrate the financial benefits the REIT is experiencing as a result of the merger,” said Michael Escalante, Chief Executive Officer, of the REIT. “The REIT is now self-managed, resulting in a significant reduction in general and administrative expenses as it is no longer subject to asset management fees, performance fees, and other costs typically incurred by externally-managed REITs.”
Escalante also noted, “In addition to the merger transaction, the REIT’s strong results reflect the continued success of our asset management team in maximizing the value of the REIT’s properties, specifically the execution of almost one million square feet of new and renewed leases.”
During the quarter ended June 30, 2019, the REIT executed new and renewal leases totaling 462,545 and 431,712 square feet, respectively, which included the execution of a new 12-year lease with a Fortune 100 company.
As of June 30, 2019, the REIT’s portfolio1 consisted of 101 assets encompassing approximately 27.2 million rentable square feet of space in 25 states.
Highlights and Accomplishments in Second Quarter 2019 and Results as of June 30, 2019:
Merger Transaction
- On April 30, 2019, we announced the completion of the merger with the entity formerly known as Griffin Capital Essential Asset REIT, Inc. (“EA-1”). The merger created a $4.7 billion, self-managed REIT, and is generating significant benefits for shareholders, including substantial cost savings, increased operating efficiencies, and immediate accretion to earnings and cash flows.
Portfolio Overview
- The market capitalization of our portfolio as of June 30, 2019 was $4.7 billion2.
- Our weighted average remaining lease term was approximately 7.6 years with average annual rent increases of approximately 2.2%.
- Our portfolio was 96.3% leased.
- Approximately 64.9% of our portfolio’s net rental revenue3 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 ratings4. The ratio of debt to total real estate acquisition price and debt to total market capitalization as of June 30, 2019 was 45.9% and 41.4%, respectively1.
Financial Results
- Total revenue was $103.4 million for the quarter ended June 30, 2019 compared to $86.0 million for the quarter ended June 30, 2018.
- Net income attributable to common stockholders was $14.2 million, or $0.06 per basic and diluted share for the quarter ended June 30, 2019, compared to $7.5 million or $0.04 per basic and diluted share for the quarter ended June 30, 2018. The increase during the period was primarily due to the merger.
Non-GAAP Measures
- Adjusted funds from operations, or AFFO, was approximately $38.7 million for the quarter ended June 30, 2019, compared to approximately $33.3 million for the same period in 2018. Funds from operations, or FFO5, was approximately $49.6 million and $39.1 million for the quarters ended June 30, 2019 and 2018, respectively. Please see the financial reconciliation tables and notes at the end of this release for more information regarding AFFO and FFO.
- Our Adjusted EBITDA, as defined per our credit facility agreement, was approximately $78.4 million for the quarter ended June 30, 2019 with a fixed charge and interest coverage ratio of 3.5X and 4.3X, respectively. Please see the financial reconciliation tables and notes at the end of this release for more information regarding adjusted EBITDA and related ratios.
Leasing Activity
- During the quarter ended June 30, 2019, we executed new and renewal leases totaling 462,545 and 431,712 square feet, respectively, which included the execution of a new 12-year lease with a Fortune 100 e-commerce technology company for 269,000 square feet in Herndon, Virginia, a 12-year lease with American Specialty Health Incorporated for 164,333 square feet in Fort Worth, Texas and a 5-year extension with Bank of America, N.A. for 206,917 square feet in northern Los Angeles, California.
New Credit Facility
- As part of the merger, we entered into a second amended and restated credit agreement (“Second Amended and Restated Credit Agreement”) with a syndicate of lenders, under which KeyBank, National Association serves as administrative agent. Pursuant to the Second Amended and Restated Credit Agreement, we were provided with an upsized revolving credit facility with an initial commitment of $750 million, an existing $200 million term loan, a new five-year $400 million term loan and a new seven-year $150 million term loan, which commitments may be increased under certain circumstances up to a maximum total commitment of $2.0 billion. In addition, we entered into a guaranty agreement.
Subsequent Events
- On July 17, 2019, the Heritage Common X Ltd. joint venture sold the Heritage Trace Parkway property located in Fort Worth, Texas for approximately $64 million or a profit of approximately $16 million on a cost to build of $48 million. Our 45% joint venture interest is expected to generate after-tax proceeds of approximately $7.0 million net of closing costs and other closing credits. The carrying value of our joint venture interest on the closing date was approximately $3.3 million. Upon the sale of the joint venture, we recognized a gain of approximately $3.7 million resulting in a 2.1X equity multiple. As of June 30, 2019, we had an ownership interest of approximately 45% in the joint venture.
- On July 30, 2019, we sold the Lynnwood IV land parcel located in Lynnwood, Washington for total proceeds of $1.6 million, less closing costs and other closing credits. The carrying value of the land parcel was approximately $1.3 million. Upon the sale, we recognized a gain of approximately $0.3 million.
About Griffin Capital Essential Asset REIT
Griffin Capital Essential Asset REIT, Inc. is a self-managed, publicly registered, non-traded REIT with 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. Griffin Capital Essential Asset REIT, Inc.’s portfolio, as of June 30, 2019, consists of 101 office and industrial properties totaling 27.2 million rentable square feet, located in 25 states, representing total REIT capitalization of approximately $4.7 billion. Additional information is available at www.gcear.com.
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 (the “SEC”). This is neither an offer nor a solicitation to purchase securities.
1 Excludes the property information related to the acquisition of an 80% ownership interest in a joint venture with affiliates of Digital Realty Trust, L.P. and 45% ownership interest in the Heritage Common X joint venture property.
2 Total market capitalization includes the outstanding debt balance (excluding deferred financing costs and premium/discounts), plus preferred equity, plus total outstanding shares multiplied by the NAV. Total outstanding shares includes limited partnership units issued and shares issued pursuant to the DRP, net of redemptions. The increase in capitalization is a result of the Mergers on April 30, 2019. Prior period balance was restated due to change in methodology in calculating market capitalization.
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, 2019 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 Approximately 64.9% of our portfolio’s net rental revenue was generated by properties leased to tenants and/or guarantors with investment grade credit ratings or whose non-guarantor parent companies have investment grade ratings or what management believes are generally equivalent ratings. Of the 64.9% investment grade tenant ratings, 57.2% is from a Nationally Recognized Statistical Rating Organization (NRSRO) credit rating, with the remaining 7.7% being from a non-NRSRO, but having a rating that we believe is generally equivalent to an NRSRO investment grade rating. Bloomberg’s default risk rating is an example of a non-NRSRO rating.
5 FFO, as described by the National Association of Real Estate Investment Trusts (“NAREIT”), is adjusted for non-controlling interest and redeemable preferred distributions.
