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Peakstone Realty Trust - Quarter Report: 2020 September (Form 10-Q)

Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________

FORM 10-Q
____________________________________________________
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
☐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: 000-55605
_______________________________________________
Griffin Capital Essential Asset REIT, Inc.
(Exact name of Registrant as specified in its charter)
________________________________________________
Maryland46-4654479
(State or other jurisdiction of
incorporation or organization)		(IRS Employer
Identification No.)

1520 E. Grand Ave
El Segundo, California 90245
(Address of principal executive offices)
(310) 469-6100
(Registrant’s telephone number)
N/A
(Former name, former address and former fiscal year, if changed from last report.)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneNoneNone
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 every Interactive Data File required to be submitted 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 such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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☒Smaller reporting company ☐
Emerging growth company☐
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of November 4, 2020, there were 557,323 shares of Class T common stock, 1,802 shares of Class S common stock, 40,995 shares of Class D common stock, 1,898,261 shares of Class I common stock, 24,297,795 shares of Class A common stock, 47,323,442 shares of Class AA common stock, 919,876 shares of Class AAA common stock, and 155,290,144 shares of Class E common stock of Griffin Capital Essential Asset REIT, Inc. outstanding.


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Table of Contents
FORM 10-Q
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
TABLE OF CONTENTS
  Page No.
Item 1.Financial Statements:
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
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PART I. FINANCIAL INFORMATION
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Griffin Capital Essential Asset REIT, Inc., other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Such forward-looking statements may discuss, among other things, our future capital expenditures, distributions and acquisitions (including the amount and nature thereof), business strategies, the expansion and growth of our operations, our net sales, gross margin, operating expenses, operating income, net income, cash flow, financial condition, impairments, expenditures, capital structure, organizational structure, and other developments and trends of the real estate industry. Such statements are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, including without limitation changes in the political and economic climate, economic conditions and fiscal imbalances in the United States, and other major developments, including wars, natural disasters, epidemics and pandemics, including the outbreak of novel coronavirus (COVID-19), military actions, and terrorist attacks. The occurrence or severity of any such event or circumstance is difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations and provide distributions to stockholders, our ability to find suitable investment properties, and our ability to be in compliance with certain debt covenants, may be significantly hindered. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission (the "SEC"). We cannot guarantee the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws and regulations.
See the risk factors identified in Part II, Item 1A of this Form 10-Q and in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended  December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 as filed with the SEC for a discussion of some, although not all, of the risks and uncertainties that could cause actual results to differ materially from those presented in our forward-looking statements.
Explanatory Note Regarding Financial Information
In connection with the Mergers, GCEAR was the legal acquirer and EA-1 was the accounting acquirer for financial reporting purposes. Thus, the financial information set forth herein subsequent to the Mergers reflects results of the combined entity, and the financial information set forth herein prior to the Mergers reflects EA-1’s results. For this reason, period to period comparisons may not be meaningful. See Note 1, Organization, for defined terms.
Available Information

Our company website address is www.gcear.com. We use our website as a channel of distribution for important company information. Important information, including press releases and financial information regarding our company, is routinely posted on and accessible on the “News and Filings” subpage of our website, which is accessible by clicking on the tab labeled “News and Filings” on our website home page. In addition, we make available on the “SEC Filings” subpage of our website free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, ownership reports on Forms 3, 4 and 5 and any amendments to those reports as soon as practicable after we electronically file such reports with the SEC. Further, copies of our Code of Ethics and the charters for the Audit, Compensation, and Nominating and Corporate Governance Committees of our Board are also available on the “Corporate Governance” subpage of our website. Our electronically filed reports can also be obtained on the SEC’s internet site at http://www.sec.gov.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except units and share amounts)
September 30, 2020December 31, 2019
ASSETS
Cash and cash equivalents$181,732 $54,830 
Restricted cash35,831 58,430 
Real estate:
Land451,696 458,339 
Building and improvements3,114,726 3,043,527 
Tenant origination and absorption cost745,039 744,773 
Construction in progress16,167 31,794 
Total real estate4,327,628 4,278,433 
Less: accumulated depreciation and amortization(781,689)(668,104)
Total real estate, net3,545,939 3,610,329 
Investments in unconsolidated entities34 11,028 
Intangible assets, net10,651 12,780 
Deferred rent receivable 92,433 73,012 
Deferred leasing costs, net48,275 49,390 
Goodwill229,948 229,948 
Due from affiliates987 837 
Right of use asset40,286 41,347 
Other assets37,834 33,571 
Total assets$4,223,950 $4,175,502 
LIABILITIES AND EQUITY
Debt, net$2,174,352 $1,969,104 
Restricted reserves14,115 14,064 
Interest rate swap liability58,852 24,146 
Redemptions payable6,145 96,648 
Distributions payable9,095 15,530 
Due to affiliates5,155 10,883 
Intangible liabilities, net28,548 31,805 
Lease liability45,486 45,020 
Accrued expenses and other liabilities118,257 96,389 
Total liabilities2,460,005 2,303,589 
Commitments and contingencies (Note 13)
Perpetual convertible preferred shares125,000 125,000 
Common stock subject to redemption1,332 20,565 
Noncontrolling interests subject to redemption; 556,099 and 554,110 units as of September 30, 2020 and December 31, 2019, respectively4,569 4,831 
Stockholders’ equity:
Common stock, $0.001 par value; 800,000,000 shares authorized; 229,775,115 and 227,853,720 shares outstanding in the aggregate as of September 30, 2020 and December 31, 2019, respectively(1)
230 228 
Additional paid-in capital2,100,047 2,060,604 
Cumulative distributions(793,546)(715,792)
Accumulated earnings 148,743 153,312 
Accumulated other comprehensive loss(52,322)(21,875)
Total stockholders’ equity1,403,152 1,476,477 
Noncontrolling interests229,892 245,040 
Total equity1,633,044 1,721,517 
Total liabilities and equity$4,223,950 $4,175,502 
(1) See Note 9, Equity, for the number of shares outstanding of each class of common stock as of September 30, 2020.
See accompanying notes.
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except share and per share amounts)
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Revenue:
Rental income$100,002 $97,435 $301,157 $277,276 
Expenses:
Property operating expense14,265 14,717 42,158 39,091 
Property tax expense9,330 10,050 28,291 27,722 
Property management fees to non-affiliates1,032 822 2,780 2,620 
General and administrative expenses8,207 7,519 23,280 17,708 
Corporate operating expenses to affiliates625 729 1,875 1,453 
Impairment provision9,572 — 22,195 — 
Depreciation and amortization39,918 41,440 120,947 112,311 
Total expenses82,949 75,277 241,526 200,905 
Income before other income and (expenses)17,053 22,158 59,631 76,371 
Other income (expenses):
Interest expense(20,314)(19,560)(59,321)(53,642)
Other income (loss), net238 (1,850)3,292 (370)
(Loss) Gain from investment in unconsolidated entities(4,452)3,027 (6,523)1,919 
Management fee revenue from affiliates— — — 6,368 
Gain from disposition of assets— 8,441 4,268 8,441 
Net (loss) income (7,475)12,216 1,347 39,087 
Distributions to redeemable preferred shareholders(2,255)(2,047)(6,349)(6,141)
Net loss (income) attributable to noncontrolling interests1,166 (1,149)598 (4,226)
Net (loss) income attributable to controlling interest(8,564)9,020 (4,404)28,720 
Distributions to redeemable noncontrolling interests attributable to common stockholders(43)(81)(165)(240)
Net (loss) income attributable to common stockholders$(8,607)$8,939 $(4,569)$28,480 
Net (loss) income attributable to common stockholders per share, basic and diluted$(0.04)$0.04 $(0.02)$0.13 
Weighted average number of common shares outstanding, basic and diluted230,159,620 246,609,614 229,950,613 217,375,026 
Cash distributions declared per common share$0.09 $0.13 $0.32 $0.46 
See accompanying notes.
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net (loss) income $(7,475)$12,216 $1,347 $39,087 
Other comprehensive loss:
Equity in other comprehensive (loss) income of unconsolidated joint venture— (73)— (251)
Change in fair value of swap agreements2,498 (7,318)(34,612)(28,080)
Total comprehensive (loss) income (4,977)4,825 (33,265)10,756 
Distributions to redeemable preferred shareholders(2,255)(2,047)(6,349)(6,141)
Distributions to redeemable noncontrolling interests attributable to common stockholders(43)(81)(165)(240)
Comprehensive loss (income) attributable to noncontrolling interests867 (314)4,762 (494)
Comprehensive (loss) income attributable to common stockholders$(6,408)$2,383 $(35,017)$3,881 
See accompanying notes.



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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited; in thousands, except share data)
 Common StockAdditional
Paid-In
Capital		Cumulative
Distributions		Accumulated IncomeAccumulated Other Comprehensive LossTotal
Stockholders Equity		Non-
controlling
Interests		Total
Equity
SharesAmount
Balance as of December 31, 2018174,278,341 $174 $1,556,770 $(570,977)$128,525 $(2,409)$1,112,083 $232,203 $1,344,286 
Deferred equity compensation7,336 — 75 — — — 75 — 75 
Cash distributions to common stockholders— — — (21,803)— — (21,803)— (21,803)
Issuance of shares for distribution reinvestment plan695,872 1 6,672 (6,673)— — — — — 
Reclassification of common stock subject to redemption— — (6,673)— — — (6,673)— (6,673)
Distributions to noncontrolling interests— — — — — — — (4,585)(4,585)
Distributions to noncontrolling interests subject to redemption— — — — — — — (13)(13)
Offering costs— — (9)— — — (9)— (9)
Net income— — — — 5,333 — 5,333 1,197 6,530 
Other comprehensive loss— — — — — (6,729)(6,729)(1,408)(8,137)
Balance as of March 31, 2019174,981,549 $175 $1,556,835 $(599,453)$133,858 $(9,138)$1,082,277 $227,394 $1,309,671 
Deferred equity compensation349 — 648 — — — 648 — 648 
Cash distributions to common stockholders— — — (26,296)— — (26,296)— (26,296)
Issuance of shares for distribution reinvestment plan921,864 1 8,805 (8,806)— — — — — 
Repurchase of common stock(10,348,142)(10)(98,918)— — — (98,928)— (98,928)
Reclassification of common stock subject to redemption— — (19,175)— — — (19,175)— (19,175)
Issuance of limited partnership units— — — — — — — 25,000 25,000 
Issuance of stock dividend for noncontrolling interest— — — — — — — 269 269 
Issuance of stock dividends— — — (2,067)— — (2,067)— (2,067)
Mergers78,054,934 78 746,160 — — — 746,238 5,039 751,277 
Distributions to noncontrolling interests— — — — — — — (4,903)(4,903)
Distributions to noncontrolling interests subject to redemption— — — — — — — (11)(11)
Offering costs— — (181)— — — (181)— (181)
Net income— — — — 14,208 — 14,208 1,880 16,088 
Other comprehensive loss— — — — — (11,314)(11,314)(1,489)(12,803)
Balance as of June 30, 2019243,610,554 $244 $2,194,174 $(636,622)$148,066 $(20,452)$1,685,410 $253,179 $1,938,589 
Gross proceeds from issuance of common stock264,624 — 2,576 — — — 2,576 — 2,576 
Deferred equity compensation— — 950 — — — 950 — 950 
Cash distributions to common stockholders— — — (21,204)— — (21,204)— (21,204)
Issuance of shares for distribution reinvestment plan1,377,885 1 13,140 (12,899)— — 242 — 242 
Repurchase of common stock(10,524,436)(10)(100,351)— — — (100,361)— (100,361)
Reclassification of common stock subject to redemption— — 21,510 — — — 21,510 — 21,510 
Issuance of stock dividend for noncontrolling interest— — — — — — — 800 800 
Issuance of stock dividends653,995 1 6,219 (6,165)— — 55 — 55 
Distributions to noncontrolling interests— — — — — — — (5,108)(5,108)
Distributions to noncontrolling interests subject to redemption— — — — — — — (10)(10)
Offering costs— — (1,106)— — — (1,106)— (1,106)
Net income— — — — 8,939 — 8,939 1,149 10,088 
Other comprehensive loss— — — — — (6,556)(6,556)(835)(7,391)
Balance as of September 30, 2019235,382,622 $236 $2,137,112 $(676,890)$157,005 $(27,008)$1,590,455 $249,175 $1,839,630 
Common StockAdditional
Paid-In
Capital		Cumulative
Distributions		Accumulated IncomeAccumulated Other Comprehensive LossTotal
Stockholders Equity		Non-
controlling
Interests		Total
Equity
SharesAmount
Balance as of December 31, 2019227,853,720 $228 $2,060,604 $(715,792)$153,312 $(21,875)$1,476,477 $245,040 $1,721,517 
Gross proceeds from issuance of common stock433,328 — 4,141 — — — 4,141 — 4,141 
Deferred equity compensation17,836 — 984 — — — 984 — 984 
Cash distributions to common stockholders— — — (23,627)— — (23,627)— (23,627)
Issuance of shares for distribution reinvestment plan1,297,656 1 12,116 (7,962)— — 4,155 — 4,155 
Repurchase of common stock(548,312)— (5,110)— — — (5,110)— (5,110)
Reclass of common stock subject to redemption— — (85,180)— — — (85,180)— (85,180)
Issuance of stock dividend for noncontrolling interest— — — — — — — 802 802 
Issuance of stock dividends617,327 1 5,766 (5,748)— — 19 — 19 
Distributions to noncontrolling interest— — — — — — — (5,069)(5,069)
Distributions to noncontrolling interests subject to redemption— — — — — — — (11)(11)
Offering costs— — (604)— — — (604)— (604)
Net income— — — — 737 — 737 111 848 
Other comprehensive loss— — — — — (27,118)(27,118)(3,708)(30,826)
Balance as of March 31, 2020229,671,555 $230 $1,992,717 $(753,129)$154,049 $(48,993)$1,344,874 $237,165 $1,582,039 
Deferred equity compensation20,138 — 1,139 — — — 1,139 — 1,139 
Cash distributions to common stockholders— — — (20,087)— — (20,087)— (20,087)
Issuance of shares for distribution reinvestment plan(220)— (2)2 — — — — — 
Repurchase of common stock(301)— (3)— — — (3)— (3)
Reclass of noncontrolling interest subject to redemption— — — — — — — 253 253 
Repurchase of noncontrolling interest— — — — — — — (496)(496)
Reclass of common stock subject to redemption— — 105,745 — — — 105,745 — 105,745 
Issuance of stock dividend for noncontrolling interest— — — — — — — 266 266 
Issuance of stock dividends206,765 — 1,922 — — — 1,922 — 1,922 
Distributions to noncontrolling interest— — — — — — — (2,731)(2,731)
Distributions to noncontrolling interests subject to redemption— — — — — — — (6)(6)
Offering costs— — (26)— — — (26)— (26)
Net income— — — — 3,301 — 3,301 457 3,758 
Other comprehensive loss— — — — — (5,528)(5,528)(756)(6,284)
Balance as of June 30, 2020229,897,937 $230 $2,101,492 $(773,214)$157,350 $(54,521)$1,431,337 $234,152 $1,665,489 
Deferred equity compensation— — 992 — — — 992 — 992 
Cash distributions to common stockholders— — — (12,856)— — (12,856)— (12,856)
Issuance of shares for distribution reinvestment plan570,377 1 5,050 (7,476)— — (2,425)— (2,425)
Repurchase of common stock(693,199)(1)(6,144)— — — (6,145)— (6,145)
Reclass of noncontrolling interest subject to redemption— — — — — — — 10 10 
Repurchase of noncontrolling interest— — — — — — (641)(641)
Reclass of common stock subject to redemption— — (1,331)— — — (1,331)— (1,331)
Distributions to noncontrolling interest— — — — — — — (2,756)(2,756)
Distributions to noncontrolling interests subject to redemption— — — — — — — (6)(6)
Offering costs— — (12)— — — (12)— (12)
Net loss— — — — (8,607)— (8,607)(1,166)(9,773)
Other comprehensive income— — — — — 2,199 2,199 299 2,498 
Balance as of September 30, 2020229,775,115 $230 $2,100,047 $(793,546)$148,743 $(52,322)$1,403,152 $229,892 $1,633,044 
See accompanying notes.
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
Nine Months Ended September 30,
 20202019
Operating Activities:
Net income$1,347 $39,087 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of building and building improvements69,956 57,473 
Amortization of leasing costs and intangibles, including ground leasehold interests and leasing costs50,990 54,838 
Amortization of below market leases, net(1,765)(2,639)
Amortization of deferred financing costs and debt premium1,929 4,926 
Amortization of swap interest95 94 
Deferred rent(19,442)(9,655)
Deferred rent, ground lease1,548 1,129 
Termination fee revenue - receivable from tenant, net— (7,501)
Gain from sale of depreciable operating property(4,268)(8,441)
Gain on fair value of earn-out(2,581)— 
Loss (Income) from investment in unconsolidated entities2,071 (1,919)
Investment in unconsolidated entities valuation adjustment4,452 — 
Impairment provision22,195 — 
(Gain) Loss from investments(118)457 
Stock-based compensation3,116 1,673 
Performance distribution allocation (non-cash)— (2,604)
Change in operating assets and liabilities:
Deferred leasing costs and other assets(3,758)(5,380)
Restricted reserves382 (79)
Accrued expenses and other liabilities5,598 (8,943)
Due to affiliates, net(2,794)6,907 
Net cash provided by operating activities128,953 119,423 
Investing Activities:
Cash acquired in connection with the Mergers, net of acquisition costs— 25,321 
Acquisition of properties, net(16,584)(37,781)
Proceeds from disposition of properties23,480 46,784 
Restricted reserves159 2,030 
Payments for construction in progress(41,981)(29,447)
Real estate acquisition deposits1,047 — 
Distributions of capital from investment in unconsolidated entities8,530 13,189 
Contributions of capital for investment in unconsolidated entities(8,160)— 
Purchase of investments(950)(8,353)
Net cash (used in) provided by investing activities(34,459)11,743 
Financing Activities:
Proceeds from borrowings - KeyBank Loans — 627,000 
Proceeds from borrowings - Revolver Loan215,000 215,854 
Principal payoff of secured indebtedness - Unsecured Credit Facility - EA-1(25,000)(715,000)
Principal payoff of secured indebtedness - Revolver Loan— (44,439)
Principal amortization payments on secured indebtedness(5,341)(4,903)
Offering costs(490)(1,707)
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Nine Months Ended September 30,
20202019
Repurchase of common stock(101,761)(98,928)
Repurchase of noncontrolling interest(1,137)— 
Deferred financing costs(145)(5,737)
Issuance of common stock, net of discounts and underwriting costs4,699 2,789 
Distributions to noncontrolling interests(10,521)(12,506)
Distributions to preferred units subject to redemption(6,141)(6,141)
Distributions to common stockholders(59,354)(69,558)
Net cash provided by (used in) financing activities9,809 (113,276)
Net increase in cash, cash equivalents and restricted cash104,303 17,890 
Cash, cash equivalents and restricted cash at the beginning of the period113,260 64,285 
Cash, cash equivalents and restricted cash at the end of the period$217,563 $82,175 
Supplemental Disclosures of Cash Flow Information:
Supplemental Disclosures of Significant Non-Cash Transactions:
Decrease in fair value swap agreement$(34,612)$(28,080)
Distributions payable to common stockholders$6,638 $13,105 
Distributions payable to noncontrolling interests$913 $1,697 
Common stock issued pursuant to the distribution reinvestment plan$17,165 $28,378 
Issuance of limited partnership units$— $25,000 
Issuance of stock dividends$5,747 $6,165 
Common stock redemptions funded subsequent to period-end$(6,145)$(100,362)
Mortgage debt assumed in conjunction with the acquisition of real estate assets plus a premium of $109$18,884 $— 
Payable for construction in progress$6,902 $4,855 
Accrued tenant obligations$26,891 $— 
Net assets acquired in Merger in exchange for common shares$— $751,278 
Implied EA-1 common stock and operating partnership units issued in exchange for net assets acquired in Merger$— $751,278 
Operating lease right-of-use assets obtained in exchange for lease liabilities upon adoption of ASC 842 on January 1, 2019$— $25,521 

See accompanying notes.
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)

1. Organization
Griffin Capital Essential Asset REIT, Inc. (“GCEAR”) is a internally managed real estate investment trust ("REIT") organized primarily with the purpose of acquiring single tenant office and industrial net lease properties essential to the business operations of the tenant. GCEAR’s year-end date is December 31.
On December 14, 2018, GCEAR, Griffin Capital Essential Asset Operating Partnership II, L.P. (the “GCEAR II Operating Partnership”), GCEAR’s wholly-owned subsidiary Globe Merger Sub, LLC (“Merger Sub”), the entity formerly known as Griffin Capital Essential Asset REIT, Inc. (“EA-1”), and Griffin Capital Essential Asset Operating Partnership, L.P. (the “EA-1 Operating Partnership”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). On April 30, 2019, pursuant to the Merger Agreement, (i) EA-1 merged with and into Merger Sub, with Merger Sub surviving as GCEAR’s direct, wholly-owned subsidiary (the “Company Merger”) and (ii) the GCEAR II Operating Partnership merged with and into the EA-1 Operating Partnership (the “Partnership Merger” and, together with the Company Merger, the “Mergers”), with the EA-1 Operating Partnership (and now known as the “Current Operating Partnership”) surviving the Partnership Merger. In addition, on April 30, 2019, following the Mergers, Merger Sub merged into GCEAR. In connection with the Mergers, the Company converted EA-1’s Series A cumulative perpetual convertible preferred stock into GCEAR’s newly created Series A cumulative perpetual convertible preferred stock (the “Series A Preferred Shares”). Also on April 30, 2019, the Company converted each EA-1 Operating Partnership unit outstanding into 1.04807 Class E units in the Current Operating Partnership and each unit outstanding in the GCEAR II Operating Partnership converted into one unit of like class in the Current Operating Partnership (the “OP Units”). The Current Operating Partnership and Griffin Capital Real Estate Company, LLC ("GRECO") are the subsidiaries of the Company and are the entities through which the Company conducts its business.
In addition, on December 14, 2018, EA-1 and the EA-1 Operating Partnership entered into a series of transactions, agreements, and amendments to EA-1’s existing agreements and arrangements with EA-1’s former sponsor, Griffin Capital Company, LLC ("GCC"), and Griffin Capital, LLC (“GC LLC”), pursuant to which GCC and GC LLC contributed all of the membership interests of GRECO (including the GRECO employees) and certain assets related to the business of GRECO to the EA-1 Operating Partnership (the "Self-Administration Transaction"). As a result of the Self-Administration Transaction, EA-1 became self-managed and acquired the advisory, asset management and property management business of GRECO. In connection with the Mergers, many of the agreements and amendments entered into by EA-1 as part of the Self-Administration Transaction were assumed by GCEAR pursuant to the Mergers.
In connection with the Mergers, GCEAR was the legal acquirer and EA-1 was the accounting acquirer for financial reporting purposes. Thus, the financial information set forth herein subsequent to the Mergers reflects results of the combined entity, and the financial information set forth herein prior to the Mergers reflects EA-1’s results. For this reason, period to period comparisons may not be meaningful.
Unless the context requires otherwise, all references to the “Company,” “we,” “our,” and “us” herein mean EA-1 and one or more of EA-1’s subsidiaries for periods prior to the Mergers, and GCEAR and one or more of GCEAR’s subsidiaries, including GRECO and the Current Operating Partnership, for periods following the Mergers. Certain historical information of GCEAR is included for background purposes.
On September 20, 2017, GCEAR commenced a follow-on offering of up to $2.2 billion of shares (the “Follow-On Offering”), consisting of up to $2.0 billion of shares in GCEAR’s primary offering and $0.2 billion of shares pursuant to its distribution reinvestment plan ("DRP"). Since September 20, 2017, the Company had issued 12,250,750 shares of common stock for aggregate gross proceeds of approximately $116.4 million in these offerings. See Note 9, Equity, for the status of the Follow-On Offering and DRP.
The Current Operating Partnership owns, directly or indirectly, all of the properties that the Company has acquired. As of September 30, 2020, the Company owned approximately 87.8% of the OP Units of the Current Operating Partnership. As a result of the contribution of five properties to the Company and the Self-Administration Transaction, the former sponsor and certain of its affiliates owned approximately 10.6% of the limited partnership units of the Current Operating Partnership, including approximately 2.4 million units owned by the Company’s Executive Chairman and Chairman of the Board, Kevin A. Shields, as of September 30, 2020. The remaining approximately 1.6% OP Units are owned by unaffiliated third parties. The Current Operating Partnership may conduct certain activities through one or more of the Company’s taxable REIT subsidiaries, which are wholly-owned subsidiaries of the Current Operating Partnership.
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)

1. Organization (continued)
As of September 30, 2020, the Company had issued 283,769,972 shares (approximately $2.8 billion) of common stock since November 9, 2009 in various private offerings, public offerings, DRP offerings and mergers (includes EA-1 offerings and EA-1 merger with Signature Office REIT, Inc. and the Mergers). There were 229,775,115 shares of common stock outstanding as of September 30, 2020, including shares issued pursuant to the DRP, less shares redeemed pursuant to the share redemption program ("SRP") and self-tender offer. As of September 30, 2020 and December 31, 2019, the Company had issued approximately $310.8 million and $293.7 million in shares pursuant to the DRP, respectively. As of September 30, 2020, 151,178 shares subject to the Company's quarterly cap on aggregate redemptions were classified on the consolidated balance sheet as common stock subject to redemption.
2. Basis of Presentation and Summary of Significant Accounting Policies
There have been no significant changes to the Company’s accounting policies since the Company filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2019. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC.
The accompanying unaudited consolidated financial statements of the Company are prepared by management on the accrual basis of accounting and in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and in conjunction with rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited consolidated financial statements include accounts and related adjustments, which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim period. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. In addition, see the risk factors identified in Part II, Item 1A of this Form 10-Q and in the “Risk Factors” section of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
The consolidated financial statements of the Company include all accounts of the Company, the Current Operating Partnership, and its subsidiaries. Intercompany transactions are not shown on the consolidated statements. However, each property-owning entity is a wholly-owned subsidiary which is a special purpose entity ("SPE"), whose assets and credit are not available to satisfy the debts or obligations of any other entity, except to the extent required with respect to any co-borrower or guarantor under the same credit facility.
Use of Estimates
The preparation of the unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.
Per Share Data
The Company reports earnings per share for the period as (1) basic earnings per share computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period, and (2) diluted earnings per share computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding, including common stock equivalents. As of September 30, 2020 and December 31, 2019, there were no material common stock equivalents that would have a dilutive effect on earnings (loss) per share for common stockholders.
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
2. Basis of Presentation and Summary of Significant Accounting Policies (continued)
During the quarter ended September 30, 2020, the Company retroactively adjusted the number of common shares outstanding in accordance with ASC 260-10, Earnings Per Share ("ASC 260-10"). ASC 260-10 requires the computations of basic and diluted earnings per share to be adjusted retroactively for all periods presented to reflect the change in capital structure if the number of common shares outstanding increases as a result of a stock dividend or stock split or decreases as a result of a reverse stock split. If changes in common stock resulting from stock dividends, stock splits, or reverse stock splits occur after the close of the period but before the consolidated financial statements are issued or are available to be issued, the per share computations for those and any prior period consolidated financial statements presented shall be based on the new number of shares.
Segment Information
ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive information about a public entity’s reportable segments. The Company internally evaluates all of the properties and interests therein as one reportable segment.
Goodwill
Goodwill represents the excess of consideration paid over the fair value of underlying identifiable net assets of business acquired. The Company's goodwill has an indeterminate life and is not amortized, but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company takes a qualitative approach to consider whether an impairment of goodwill exists prior to quantitatively determining the fair value of the reporting unit in step one of the impairment test. The Company performs its annual assessment on October 1st.
Recently Issued Accounting Pronouncements
Changes to GAAP are established by the FASB in the form of ASUs to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. Other than the ASUs discussed below, the FASB has not recently issued any other ASUs that the Company expects to be applicable and have a material impact on the Company's financial statements.
Adoption of New Accounting Pronouncements
During the first quarter of 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
3. Real Estate
As of September 30, 2020, the Company’s real estate portfolio consisted of 99 properties in 25 states consisting substantially of office, warehouse, and manufacturing facilities and one land parcel held for future development with a combined acquisition value of approximately $4.2 billion, including the allocation of the purchase price to above- and below-market lease valuation.
Depreciation expense for buildings and improvements for the nine months ended September 30, 2020 was $70.0 million. Amortization expense for intangibles, including, but not limited to, tenant origination and absorption costs for the nine months ended September 30, 2020 was $51.0 million.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
3. Real Estate (continued)
2020 Acquisition
The purchase price and other acquisition items for the property acquired during the nine months ended September 30, 2020 are shown below:
PropertyLocationTenant/Major LesseeAcquisition DatePurchase Price Square FeetAcquisition Fees and Expenses Year of Lease Expiration
Pepsi Bottling Ventures North CarolinaPepsiCo2/5/2020$34,937526,320$3862032
Real Estate - Valuation and Purchase Price Allocation
The Company allocates the purchase price to the relative fair value of the tangible assets of a property by valuing the property as if it were vacant. This “as-if vacant” value is estimated using an income, or discounted cash flow, approach that relies upon Level 3 inputs, which are unobservable inputs based on the Company's review of the assumptions a market participant would use. These Level 3 inputs include discount rates, capitalization rates, market rents and comparable sales data for similar properties. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. In calculating the “as-if vacant” value for the acquisition completed during the nine months ended September 30, 2020, the Company used a discount rate of 6.25%.
In determining the fair value of intangible lease assets or liabilities, the Company also considers Level 3 inputs. Acquired above and below-market leases are valued based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases, if applicable. The estimated fair value of acquired in-place at-market tenant leases are the costs that would have been incurred to lease the property to the occupancy level of the property at the date of acquisition. Such estimates include the value associated with leasing commissions, legal and other costs, as well as the estimated period necessary to lease such property that would be incurred to lease the property to its occupancy level at the time of its acquisition. Acquisition costs associated with asset acquisitions are capitalized during the period they are incurred.
The following table summarizes the purchase price allocation of the property acquired during the nine months ended September 30, 2020:
PropertyLand BuildingImprovementsTenant origination and absorption costsIn-place lease valuation - (below) / marketDebt discount / (premium)
Total (1)
Pepsi Bottling Ventures $3,407$26,813$954$4,970$(712)$(109)$35,323
(1)The allocations noted above are based on a determination of the relative fair value of the total consideration provided and represent the amount paid including capitalized acquisition costs.
Intangibles
The Company allocated a portion of the acquired and contributed real estate asset value to in-place lease valuation, tenant origination and absorption cost, and other intangibles, net of the write-off of intangibles, as of September 30, 2020 and December 31, 2019:








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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
3. Real Estate (continued)
September 30, 2020December 31, 2019
In-place lease valuation (above market) $43,605 $44,012 
In-place lease valuation (above market) - accumulated amortization(35,024)(33,322)
In-place lease valuation (above market), net$8,581 $10,690 
Ground leasehold interest (below market)2,254 2,254 
Ground leasehold interest (below market) - accumulated amortization(184)(164)
Ground leasehold interest (below market), net2,070 2,090 
Intangible assets, net$10,651 $12,780 
In-place lease valuation (below market)$(68,334)$(67,622)
Land leasehold interest (above market)(3,073)(3,073)
In-place lease valuation & land leasehold interest - accumulated amortization42,859 38,890 
Intangible liabilities, net$(28,548)$(31,805)
Tenant origination and absorption cost $745,039 $744,773 
Tenant origination and absorption cost - accumulated amortization(399,005)(354,379)
Tenant origination and absorption cost, net$346,034 $390,394 
The following table sets forth the estimated annual amortization (income) expense for in-place lease valuation, net, tenant origination and absorption costs, ground leasehold improvements, and other leasing costs as of September 30, 2020 for the next five years:
YearIn-place lease valuation, netTenant origination and absorption costsGround leasehold interestOther leasing costs
Remaining 2020$(525)$14,870 $(73)$1,372 
2021$(2,118)$57,846 $(290)$6,057 
2022$(2,518)$54,744 $(290)$6,063 
2023$(2,465)$50,184 $(290)$5,934 
2024$(1,648)$38,006 $(291)$5,700 
2025$(1,186)$27,450 $(290)$5,580 
Sale of Property
On June 30, 2020, the Company sold the Bank of America II property located at 1800 Tapo Canyon in Simi Valley, California for total proceeds of $24.5 million, less closing costs and other closing credits. The carrying value of the property on the closing date was approximately $19.6 million. Upon the sale of the property, the Company recognized a gain of approximately $4.3 million.
Impairments
2200 Channahon Road, Houston Westway I and 2275 Cabot Drive
During the nine months ended September 30, 2020, the Company recorded an impairment provision of approximately $22.2 million as it was determined that the carrying value of the real estate would not be recoverable on three properties. This impairment resulted from changes in longer absorption periods, lower market rents and shorter anticipated hold periods. In determining the fair value of property, the Company considered Level 3 inputs. See Note 8, Fair Value Measurements, for details.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
3. Real Estate (continued)
Restricted Cash
In conjunction with the acquisition of certain assets, as required by certain lease provisions or certain lenders in conjunction with an acquisition or debt financing, or credits received by the seller of certain assets, the Company assumed or funded reserves for specific property improvements and deferred maintenance, re-leasing costs, and taxes and insurance, which are included on the consolidated balance sheets as restricted cash. Additionally, an ongoing replacement reserve is funded by certain tenants pursuant to each tenant’s respective lease as follows:
Balance as of
September 30, 2020December 31, 2019
Cash reserves$22,909 $48,129 
Restricted lockbox 12,922 10,301 
Total$35,831 $58,430 
4. Investments in Unconsolidated Entities
Heritage Commons X, LTD
In June 2018, the Company, through an SPE, wholly owned by the Current Operating Partnership, formed a joint venture (the "Heritage Commons X") for the construction and ownership of a four-story, Class "A" office building with a net rentable area of approximately 200,000 square feet located in Fort Worth, Texas (the "Heritage Commons Property"). The Heritage Commons Property was completed in April 2019 and is 100% leased to Mercedes-Benz Financial Services USA.
On July 17, 2019, Heritage Commons X sold the Heritage Commons Property.
Digital Realty Trust, Inc.
In September 2014, the Company, through an SPE, wholly owned by the Current Operating Partnership, acquired an 80% interest in a joint venture with an affiliate of Digital Realty Trust, Inc. ("Digital") for $68.4 million, which was funded with equity proceeds raised in the Company's public offerings. The gross acquisition value of the property was $187.5 million, plus closing costs, which was partially financed with debt of $102.0 million. The joint venture was created for purposes of directly or indirectly acquiring, owning, financing, operating and maintaining a data center facility located in Ashburn, Virginia (the "Property"). The Property is approximately 132,300 square feet and consists of certain data processing and communications equipment that is fully leased to a social media company and a financial services company with an average remaining lease term of approximately 3.5 years.
The interests discussed above are deemed to be variable interests in variable interest entities ("VIE") and based on an evaluation of the variable interests against the criteria for consolidation, the Company determined that it is not the primary beneficiary of the investments, as the Company does not have power to direct the activities of the entities that most significantly affect their performance. As such, the interest in the VIEs is recorded using the equity method of accounting in the accompanying consolidated financial statements. Under the equity method, the investments in the unconsolidated entities are stated at cost and adjusted for the Company’s share of net earnings or losses and reduced by distributions. Equity in earnings of real estate ventures is generally recognized based on the allocation of cash distributions upon liquidation of the investment at book value in accordance with the operating agreements. The Company's maximum exposure to losses associated with its unconsolidated investments is primarily limited to its carrying value in the investments.
In September 2014, the joint venture entered into a secured term loan (the "Loan") in the amount of approximately $102.0 million. The Loan had an original maturity date of September 9, 2019 and included two extension options of 12 additional months each beyond the original maturity date. On March 29, 2019, the joint venture executed the first 12-month loan extension. Based on the executed extension, the new loan maturity date was September 9, 2020. The extension did not change the loan amount, rate or other substantive terms. The Company had approximately $8.2 million in an outstanding letter of credit.


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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
4. Investments in Unconsolidated Entities (continued)
Since the joint venture could not execute a long term extension with the current tenant or sign a new lease, discussions with the lender did not result in a loan additional extension in 2020. As a result, on September 9, 2020, the lender provided a notice of default for non-payment of the unpaid balance of the Loan and exercised its right to draw on the stand-by letter of credit. The Company funded the $8.2 million stand-by letter of credit with cash.

In accordance with the terms of the Digital operating agreement, the Company holds a guaranteed minimum return such that the Digital managing member will pay an amount to the Company in order for the Company to receive a minimum 7% return on investment, subject to a cap on actual cash amounts distributed to the managing member. As part of the wind up of the joint venture, the Company has recorded a receivable from the Digital managing member of $4.1 million that it expects to receive in first quarter of 2021 and has written off its remaining investment in the venture. The Company is not exposed to any future funding obligations and there are no other future losses expected to arise from this investment.
As of September 30, 2020, the balance of the investments are shown below:
Digital RealtyHeritage
Commons X		Total
Balance as of December 31, 2019$10,584 $444 $11,028 
Net loss(165)— 

(165)
Distributions(8,120)(410)

(8,530)
Contributions8,160 — 8,160 
Valuation adjustment (1)
(4,452)— (4,452)
Impairment(1,907)— (1,907)
Clawback receivable reclass (2)
(4,100)— (4,100)
Balance as of September 30, 2020$— $34 $34 
(1) Amount represents a charge to arrive at the net realizable value as of September 30, 2020, which is included in the line item "(Loss) Gain from investment in unconsolidated entities" in the consolidated statement of operations.
(2) Amount represents a reclass of the clawback to other assets as disclosed above.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
5.    Debt
As of September 30, 2020 and December 31, 2019, the Company’s debt consisted of the following:
September 30, 2020December 31, 2019
Contractual Interest 
Rate (1)
Loan
Maturity
Effective Interest Rate (2)
HealthSpring Mortgage Loan$20,340 $20,723 4.18% April 2023 4.62%
Midland Mortgage Loan98,687 100,249 3.94%April 20234.12%
Emporia Partners Mortgage Loan 1,749 2,104 5.88%September 20235.97%
Samsonite Loan20,418 21,154 6.08%September 20235.10%
Highway 94 Loan14,922 15,610 3.75%August 20244.78%
Pepsi Bottling Ventures Loan18,677 — 3.69%October 20243.92%
AIG Loan II126,970 126,970 4.15%November 20254.93%
BOA Loan375,000 375,000 3.77%October 20273.91%
BOA/KeyBank Loan 250,000 250,000 4.32%May 20284.14%
AIG Loan104,352 105,762 4.96%February 20295.08%
Total Mortgage Debt 1,031,115 1,017,572 
Revolving Credit Facility (3)
401,500 211,500 LIBO Rate + 1.60% June 20231.88%
2023 Term Loan200,000 200,000 LIBO Rate + 1.55%June 20231.80%
2024 Term Loan400,000 400,000 LIBO Rate + 1.55%April 20241.79%
2026 Term Loan150,000 150,000 LIBO Rate + 1.85%April 20262.06%
Total Debt2,182,615 1,979,072 
Unamortized Deferred Financing Costs and Discounts, net(8,263)(9,968)
Total Debt, net$2,174,352 $1,969,104 
(1)Including the effect of the interest rate swap agreements with a total notional amount of $750.0 million, the weighted average interest rate as of September 30, 2020 was 3.56% for both the Company’s fixed-rate and variable-rate debt combined and 3.96% for the Company’s fixed-rate debt only.
(2)Reflects the effective interest rate as of September 30, 2020 and includes the effect of amortization of discounts/premiums and deferred financing costs.
(3)The LIBO rate as of September 1, 2020 (effective date) was 0.16%. The Revolving Credit Facility has an initial term of approximately two years, maturing on June 28, 2022, and may be extended for a one-year period if certain conditions are met and upon payment of an extension fee. See discussion below.
Second Amended and Restated Credit Agreement
On April 30, 2019, the Company, through the Current Operating Partnership, entered into that certain second amended and restated credit agreement (the "Second Amended and Restated Credit Agreement") related to a revolving credit facility (the "Revolving Credit Facility") and three term loans described below (the "Term Loans" and collectively with the Revolving Credit Facility, the "KeyBank Loans") with a syndicate of lenders, under which KeyBank National Association ("KeyBank") serves as administrative agent.
The KeyBank Loans have an interest rate calculated based on London Interbank Offered Rate (LIBOR) plus the applicable LIBOR margin, as provided in the Second Amended and Restated Credit Agreement, or the Base Rate plus the applicable base rate margin, as provided in the agreement. The applicable LIBOR margin and base rate margin are dependent on the consolidated leverage ratio of the Current Operating Partnership, the Company, and the Company's subsidiaries, as disclosed in the periodic compliance certificate provided to our administrative agent each quarter. If the Current Operating Partnership obtains an investment grade rating of its senior unsecured long term debt from Standard & Poor's Rating Services, Moody's Investors Service, Inc., or Fitch, Inc., the applicable LIBOR margin and base rate margin will be dependent on such rating.
The Second Amended and Restated Credit Agreement relating to the Revolving Credit Facility provides that the Current Operating Partnership must maintain a pool of unencumbered real properties (each a "Pool Property" and collectively the "Pool Properties") that meet certain requirements contained in the Second Amended and Restated Credit Agreement. The agreement sets forth certain covenants relating to the Pool Properties, including, without limitation, the following:
•there must be no less than 15 Pool Properties at any time;
•no greater than 15% of the aggregate pool value may be contributed by a single Pool Property or tenant;
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
5.    Debt (continued)
•no greater than 15% of the aggregate pool value may be contributed by Pool Properties subject to ground leases;
•no greater than 20% of the aggregate pool value may be contributed by Pool Properties which are under development or assets under renovation;
•the minimum aggregate leasing percentage of all Pool Properties must be no less than 90%; and
•other limitations as determined by KeyBank upon further due diligence of the Pool Properties.
Borrowing availability under the Second Amended and Restated Credit Agreement is limited to the lesser of (i) an unsecured leverage ratio of no greater than 60%, or (ii) an unsecured interest coverage ratio of no less than 2.00:1.00.
Guarantors of the KeyBank Loans include the Company, each special purpose entity that owns a Pool Property, and each of the Current Operating Partnership other subsidiaries which owns a direct or indirect equity interest in a special purpose entity that owns a Pool Property.
In addition to customary representations, warranties, covenants, and indemnities, the KeyBank Loans require the Current Operating Partnership to comply with the following at all times, which will be tested on a quarterly basis:
•a maximum consolidated leverage ratio of 60%, or, the ratio may increase to 65% for up to four consecutive quarters after a material acquisition;
•a minimum consolidated tangible net worth of 75% of the Company's consolidated tangible net worth at closing of the Revolving Credit Facility, or approximately $2.0 billion, plus 75% of net future equity issuances (including OP Units in the Current Operating Partnership), minus 75% of the amount of any payments used to redeem the Company's stock or the OP Units in the Current Operating Partnership, minus any amounts paid for the redemption or retirement of or any accrued return on the preferred equity issued under the preferred equity investment made in EA-1 in August 2018 by SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13 (H);
•upon consummation, if ever, of an initial public offering, a minimum consolidated tangible net worth of 75% of the Company's consolidated tangible net worth plus 75% of net future equity issuances (including OP Units in the Current Operating Partnership) should the Company publicly list its shares;
•a minimum consolidated fixed charge coverage ratio of not less than 1.50:1.00;
•a maximum total secured debt ratio of not greater than 40%, which ratio will increase by five percentage points for four quarters after closing of a material acquisition that is financed with secured debt;
•a minimum unsecured interest coverage ratio of 2.00:1.00;
•a maximum total secured recourse debt ratio, excluding recourse obligations associated with interest rate hedges, of 10% of our total asset value;
•aggregate maximum unhedged variable rate debt of not greater than 30% of the Company's total asset value; and
•a maximum payout ratio of not greater than 95% commencing for the quarter ended September 30, 2019.
Furthermore, the activities of the Current Operating Partnership, the Company, and the Company's subsidiaries must be focused principally on the acquisition, operation, and maintenance of income-producing office and industrial real estate properties. The Second Amended and Restated Credit Agreement contains certain restrictions with respect to the investment activities of the Current Operating Partnership, including, without limitation, the following: (i) unimproved land may not exceed 5% of total asset value; (ii) developments that are pre-leased assets under development may not exceed 20% of total asset value; (iii) investments in unconsolidated affiliates may not exceed 10% of total asset value; (iv) investments in mortgage notes receivable may not exceed 15% of total asset value; and (v) leased assets under renovation may not exceed 10% of total asset value. These investment limitations cannot exceed 25% in the aggregate, based on total asset value, as defined in the Second Amended and Restated Credit Agreement. See Note 15, Subsequent Events, for amendments to the Company's Second Amended and Restated Credit Agreement.
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
5.    Debt (continued)
Pepsi Bottling Ventures Mortgage Loan
On February 5, 2020, as part of the acquisition of the Pepsi Bottling Ventures ("PBV") property, the Company assumed a $18.9 million mortgage loan ("PBV Mortgage Loan") from State Farm Life Insurance Company, as participating holder of the note. The PBV Mortgage Loan matures on October 1, 2024, has a fixed interest rate of 3.69%, and requires monthly payments of principal and interest. The PBV Mortgage Loan is secured by a deed of trust on the PBV property.
Debt Covenant Compliance
Pursuant to the terms of the Company's mortgage loans and the KeyBank Loans, the Current Operating Partnership, in consolidation with the Company, is subject to certain loan compliance covenants. The Company was in compliance with all of its debt covenants as of September 30, 2020.

6. Interest Rate Contracts
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both business operations and economic conditions. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the values of which are determined by expected cash payments principally related to borrowings and interest rates. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company does not use derivatives for trading or speculative purposes.
Derivative Instruments
On July 9, 2015, the Company executed one interest rate swap agreement to hedge the variable cash flows associated with LIBOR. The interest rate swap was effective for the period from July 9, 2015 to July 1, 2020 with a notional amount of $425.0 million, which matured during the third quarter of 2020.
On August 31, 2018, the Company executed four interest rate swap agreements to hedge future variable cash flows associated with LIBOR. The forward-starting interest rate swaps with a total notional amount of $425.0 million became effective on July 1, 2020 and have a term of five years.
On March 10, 2020, the Company entered into three interest rate swap agreements to hedge variable cash flows associated with LIBOR. The swap agreements became effective on March 10, 2020, and have a term of approximately five years with notional amounts of $150.0 million, $100.0 million and $75.0 million.
The Company also has entered into interest rate swap agreements to hedge the variable cash flows associated with certain existing or forecasted LIBOR based variable-rate debt, including the Company's KeyBank Loans. The change in the fair value of derivatives designated and qualifying as cash flow hedges is initially recorded in accumulated other comprehensive income ("AOCI") and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt.
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
6. Interest Rate Contracts (continued)
The following table sets forth a summary of the interest rate swaps at September 30, 2020 and December 31, 2019:
Fair Value (1)
Current Notional Amounts
Derivative InstrumentEffective DateMaturity DateInterest Strike RateSeptember 30, 2020December 31, 2019September 30, 2020December 31, 2019
Liabilities:
Interest Rate Swap3/10/20207/1/20250.83%$(3,374)$— $150,000 $— 
Interest Rate Swap3/10/20207/1/20250.84%(2,300)— 100,000 — 
Interest Rate Swap3/10/20207/1/20250.86%(1,791)— 75,000 — 
Interest Rate Swap7/1/20207/1/20252.82%(15,064)(7,038)125,000 125,000 
Interest Rate Swap7/1/20207/1/20252.82%(12,074)(5,651)100,000 100,000 
Interest Rate Swap7/1/20207/1/20252.83%(12,084)(5,665)100,000 100,000 
Interest Rate Swap7/1/20207/1/20252.84%(12,165)(5,749)100,000 100,000 
Interest Rate Swap7/9/20157/1/20201.69%— (43)— 425,000 
Total$(58,852)$(24,146)$750,000 $850,000 
(1)The Company records all derivative instruments on a gross basis in the consolidated balance sheets, and accordingly, there are no offsetting amounts that net assets against liabilities. As of September 30, 2020, derivatives in a liability position are included in the line item "Interest rate swap liability" in the consolidated balance sheets at fair value.

The following table sets forth the impact of the interest rate swaps on the consolidated statements of operations for the periods presented:
Nine Months Ended September 30,
20202019
Interest Rate Swap in Cash Flow Hedging Relationship:
Amount recognized in AOCI on derivatives $(39,716)$(25,849)
Amount of loss (gain) reclassified from AOCI into earnings under “Interest expense” $5,104 $(2,231)
Total interest expense presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded$59,321 $53,642 
During the twelve months subsequent to September 30, 2020, the Company estimates that an additional $13.8 million of its income will be recognized from AOCI into earnings.
Certain agreements with the derivative counterparties contain a provision providing that if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender within a specified time period, then the Company could also be declared in default on its derivative obligations.
As of September 30, 2020 and December 31, 2019, the fair value of interest rate swaps that were in a net liability position, which excludes any adjustment for nonperformance risk related to these agreements, was approximately $58.9 million and $24.1 million, respectively. As of September 30, 2020 and December 31, 2019, the Company had not posted any collateral related to these agreements.
7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following as of September 30, 2020 and December 31, 2019:
September 30, 2020December 31, 2019
Accrued tenant improvements$26,891 $11,802 
Real estate taxes payable18,899 13,385 
Prepaid tenant rent17,429 20,510 
Interest payable10,011 12,264 
Deferred compensation8,687 9,209 
Property operating expense payable7,667 7,752 
Accrued CIP6,902 4,794 
Other liabilities21,771 16,673 
Total$118,257 $96,389 
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
8.    Fair Value Measurements
The Company is required to disclose fair value information about all financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicable to estimate fair value. The Company measures and discloses the estimated fair value of financial assets and liabilities utilizing a fair value hierarchy that distinguishes between data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. This hierarchy consists of three broad levels, as follows: (i) quoted prices in active markets for identical assets or liabilities, (ii) "significant other observable inputs," and (iii) "significant unobservable inputs." "Significant other observable inputs" can include quoted prices for similar assets or liabilities in active markets, as well as inputs that are observable for the asset or liability, such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. "Significant unobservable inputs" are typically based on an entity’s own assumptions, since there is little, if any, related market activity. In instances in which the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level of input that is 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. There were no transfers between the levels in the fair value hierarchy during the nine months ended September 30, 2020 and the year ended December 31, 2019.
The following table sets forth the assets and liabilities that the Company measures at fair value on a recurring basis by level within the fair value hierarchy as of September 30, 2020 and December 31, 2019:
Assets/(Liabilities)Total Fair ValueQuoted Prices in Active Markets for Identical Assets and Liabilities Significant Other Observable InputsSignificant Unobservable Inputs
September 30, 2020
Interest Rate Swap Liability$(58,852)$— $(58,852)$— 
Corporate Owned Life Insurance Asset$4,070 $— $4,070 $— 
Mutual Funds Asset$6,054 $6,054 $— $— 
Deferred Compensation Liability$(8,687)$— $(8,687)$— 
December 31, 2019
Interest Rate Swap Liability$(24,146)$— $(24,146)$— 
Earn-out Liability (due to affiliates)$(2,919)$— $— $(2,919)
Corporate Owned Life Insurance Asset$2,134 $— $2,134 $— 
Mutual Funds Asset$6,983 $6,983 $— $— 
Deferred Compensation Liability$(9,209)$— $(9,209)$— 

Real Estate
For the nine months ended September 30, 2020, the Company determined that three of the Company's properties were impaired based upon discounted cash flow analyses where the most significant inputs were the market rental rates, terminal capitalization rate and discount rate. The Company considered these inputs as Level 3 measurements within the fair value hierarchy. The following table is a summary of the quantitative information related to the non-recurring fair value measurement for the impairment of the Company's real estate properties as of September 30, 2020:
Range of Inputs or Inputs
Unobservable Inputs:2200 Channahon RoadHouston Westway I 2275 Cabot Drive
Market rent per square foot$2.00 to $3.00$15.00 to $17.00$11.00 to $12.00
Terminal capitalization rate9.75%7.75%9.00%
Discount rate14.00%9.00%10.25%




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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
8.    Fair Value Measurements (continued)
Financial Instruments Disclosed at Fair Value
Financial instruments as of September 30, 2020 and December 31, 2019 consisted of cash and cash equivalents, restricted cash, accounts receivable, accrued expenses and other liabilities, and mortgage payable and other borrowings, as defined in
Note 5, Debt. With the exception of the mortgage loans in the table below, the amounts of the financial instruments presented in
the consolidated financial statements substantially approximate their fair value as of September 30, 2020 and December 31, 2019. The fair value of the ten mortgage loans in the table below is estimated by discounting each loan’s principal balance over the remaining term of the mortgage using current borrowing rates available to the Company for debt instruments with similar terms and maturities. The Company determined that the mortgage debt valuation in its entirety is classified in Level 2 of the fair value hierarchy, as the fair value is based on current pricing for debt with similar terms as the in-place debt.
 September 30, 2020December 31, 2019
 Fair Value
Carrying Value (1)
Fair Value
Carrying Value (1)
BOA Loan$357,417 $375,000 $369,343 $375,000 
BOA/KeyBank Loan$263,840 $250,000 $264,101 $250,000 
AIG Loan II$120,651 $126,970 $122,258 $126,970 
AIG Loan$103,110 $104,352 $101,663 $105,762 
Midland Mortgage Loan$98,077 $98,687 $99,318 $100,249 
Samsonite Loan$21,418 $20,418 $22,103 $21,154 
HealthSpring Mortgage Loan$20,621 $20,340 $20,868 $20,723 
Pepsi Bottling Ventures Loan$19,054 $18,677 $— $— 
Highway 94 Loan$14,663 $14,922 $15,101 $15,610 
Emporia Partners Mortgage Loan$1,780 $1,749 $2,105 $2,104 
(1)The carrying values do not include the debt premium/(discount) or deferred financing costs as of September 30, 2020 and December 31, 2019. See Note 5, Debt, for details.
9.    Equity
Classes
Class T shares, Class S shares, Class D shares, Class I shares, Class A shares, Class AA shares, Class AAA shares and Class E shares vote together as a single class, and each share is entitled to one vote on each matter submitted to a vote at a meeting of the Company's stockholders; provided that with respect to any matter that would only have a material adverse effect on the rights of a particular class of common stock, only the holders of such affected class are entitled to vote.
As of September 30, 2020, there were 555,730 shares of Class T common stock, 1,800 shares of Class S common stock, 40,791 shares of Class D common stock, 1,894,561 shares of Class I common stock, 24,227,432 shares of Class A common stock, 47,184,766 shares of Class AA common stock, 917,756 shares of Class AAA common stock, and 154,952,279 shares of Class E common stock outstanding.
Common Equity
As of September 30, 2020, the Company had received aggregate gross offering proceeds of approximately $2.8 billion from the sale of shares in the private offering, the public offerings, and the DRP offerings, as discussed in Note 1, Organization. The Company also issued approximately 43,772,611 shares of its common stock upon the consummation of the merger of Signature Office REIT, Inc. in June 2015 and 174,981,547 Class E shares (in exchange for all outstanding shares of EA-1's common stock at the time of the Mergers) in April 2019 upon the consummation of the Mergers. As of September 30, 2020, there were 229,775,115 shares outstanding, including shares issued pursuant to the DRP, less shares redeemed pursuant to the SRP and the self-tender offer, which occurred in May 2019.
Termination of Follow-On Offering
On February 26, 2020, the Company’s Board approved the temporary suspension of the primary portion of the Company’s Follow-On Offering, effective February 27, 2020. The Follow-On Offering terminated with the expiration of the registration statement on Form S-11 (Registration No. 333-217223), as amended (the "Registration Statement"), on September 20, 2020.
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
9.    Equity (continued)
Amendment and Reinstatement of DRP and Partial Reinstatement of SRP
On July 16, 2020, the Board approved the (i) reinstatement of the DRP, effective July 27, 2020; (ii) amendment of the DRP to allow for the use of the most recently published NAV per share of the applicable share class available at the time of
reinvestment as the DRP purchase price for each share class; and (iii) partial reinstatement of the SRP, effective August 17, 2020, subject to the following limitations: (A) redemptions will be limited to those sought upon a stockholder's death,
qualifying disability, or determination of incompetence or incapacitation in accordance with the terms of the SRP, and (B) the quarterly cap on aggregate redemptions will be equal to the aggregate NAV, as of the last business day of the previous quarter, of the shares issued pursuant to the DRP during such quarter. Settlements of share redemptions will be made within the first three business days of the following quarter. Redemption activity during the quarter is listed below.
Distribution Reinvestment Plan (DRP)
The Company has adopted the DRP, which allows stockholders to have dividends and other distributions otherwise distributable to them invested in additional shares of common stock. No sales commissions or dealer manager fees will be paid on shares sold through the DRP, but the DRP shares will be charged the applicable distribution fee payable with respect to all shares of the applicable class. The purchase price per share under the DRP is equal to the net asset value ("NAV") per share applicable to the class of shares purchased, calculated using the most recently published NAV available at the time of reinvestment. The Company may amend or terminate the DRP for any reason at any time upon 10 days' prior written notice to stockholders, which may be provided through the Company's filings with the SEC.
As of September 30, 2020 and December 31, 2019, the Company had issued approximately $310.8 million and $293.7 million in shares pursuant to the DRP, respectively.
Share Redemption Program (SRP)
The Company has adopted the SRP that enables stockholders to sell their stock to the Company in limited circumstances. On August 8, 2019, the Company's Board amended and restated its SRP, effective as of September 12, 2019, in order to (i) clarify that only those stockholders who purchased their shares from us or received their shares from the Company (directly or indirectly) through one or more non-cash transactions (including transfers to trusts, family members, etc.) may participate in the SRP; (ii) allocate capacity within each class of common stock such that the Company may redeem up to 5% of the aggregate NAV of each class of common stock; (iii) treat all unsatisfied redemption requests (or portion thereof) as a request for redemption the following quarter unless otherwise withdrawn; and (iv) make certain other clarifying changes.
On November 7, 2019, Board amended and restated the SRP, effective as of December 12, 2019, in order to (i) provide for redemption sought upon a stockholder’s determination of incompetence or incapacitation; (ii) clarify the circumstances under which a determination of incompetence or incapacitation will entitle a stockholder to such redemption; and (iii) make certain other clarifying changes.
Under the SRP, the Company will redeem shares as of the last business day of each quarter. The redemption price will be equal to the NAV per share for the applicable class generally on the 13th day of the month prior to quarter end (which will be the most recently published NAV). Redemption requests must be received by 4:00 p.m. (Eastern time) on the second to last business day of the applicable quarter. Redemption requests exceeding the quarterly cap will be filled on a pro rata basis. With respect to any pro rata treatment, redemption requests following the death or qualifying disability of a stockholder will be considered first, as a group, followed by requests where pro rata redemption would result in a stockholder owning less than the minimum balance of $2,500 of shares of the Company's common stock, which will be redeemed in full to the extent there are available funds, with any remaining available funds allocated pro rata among all other redemption requests. All unsatisfied redemption requests must be resubmitted after the start of the next quarter, or upon the recommencement of the SRP, as applicable.
There are several restrictions under the SRP. Stockholders generally have to hold their shares for one year before submitting their shares for redemption under the program; however, the Company will waive the one-year holding period in the event of the death or qualifying disability of a stockholder. Shares issued pursuant to the DRP are not subject to the one-year holding period. In addition, the SRP generally imposes a quarterly cap on aggregate redemptions of the Company's shares equal to a value of up to 5% of the aggregate NAV of the outstanding shares as of the last business day of the previous quarter, subject to the further limitations as indicated in the August 8, 2019 amendments discussed above.
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
9.    Equity (continued)
As the value on the aggregate redemptions of the Company's shares is outside the Company's control, the 5% quarterly cap is considered to be temporary equity and is presented as the common stock subject to redemption on the accompanying consolidated balance sheets.
The following table summarizes share redemption (excluding the self-tender offer) activity during the three and nine months ended September 30, 2020 and 2019:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Shares of common stock redeemed693,199 10,589,361 1,241,812 10,589,361 
Weighted average price per share$8.86 $9.54 $9.07 $9.54 

Since July 31, 2014 and through September 30, 2020, the Company had redeemed 25,472,376 shares (excluding the self-tender offer) of common stock for approximately $240.0 million at a weighted average price per share of $9.42 pursuant to the SRP. Since July 31, 2014 and through December 31, 2019, the Company had honored all outstanding redemption requests. During the three months ended September 30, 2019, redemption requests for Class E shares exceeded the quarterly 5% per share class limitation by 2,872,488 shares or approximately $27.4 million. The Class E shares not redeemed during that quarter, or 25% of the shares submitted, were treated as redemption requests for the quarter ended December 31, 2019. All outstanding requests for the quarter ended September 30, 2019 and all new requests for the quarter ended December 31, 2019 were honored on January 2, 2020. Redemptions sought upon a stockholder's death, qualifying disability, or determination of incompetence or incapacitation in the first quarter of 2020 were honored in accordance with the terms of the SRP, and the SRP officially was suspended as of March 28, 2020 for regular redemptions and subsequent redemptions for death, qualifying disability, or determination of incompetence or incapacitation after those honored in the first quarter of 2020. During the three months ended September 30, 2020, the Company received redemption requests (including those due to death, disability or incapacitation) for 693,199 shares of common stock that were all redeemed during and subsequent to the current quarter.

Issuance of Restricted Stock Units to Executive Officers and Employees
On January 15, 2020, the Company issued 589,248 RSUs to Company employees, including officers, under the Griffin Capital Essential Asset REIT, Inc. Employee and Director Long-Term Incentive Plan (as amended, the "LTIP"). Each RSU represents a contingent right to receive one share of the Company’s Class E common stock when settled in accordance with the terms of the respective Restricted Stock Unit Award Agreement and will vest in equal, 25% installments on each of December 31, 2020, 2021, 2022, and 2023 provided that the employee continues to be employed by the Company on each such date, subject to certain accelerated vesting provisions as provided in the respective Restricted Stock Unit Award Agreement. The fair value of grants issued was approximately $5.5 million. A total of 3,209 shares were forfeited during the nine months ended September 30, 2020.
10.    Noncontrolling Interests
Noncontrolling interests represent limited partnership interests in the Current Operating Partnership in which the Company is the general partner. General partnership units and limited partnership units of the Current Operating Partnership were issued as part of the initial capitalization of the EA-1 Operating Partnership and GCEAR II Operating Partnership, in conjunction with members of management's contribution of certain assets, other contributions, and in connection with the Self-Administration Transaction as discussed in Note 1, Organization.
As of September 30, 2020, noncontrolling interests were approximately 12.20% of total shares and 12.01% of weighted average shares outstanding (both measures assuming OP Units were converted to common stock). The Company has evaluated the terms of the limited partnership interests in the Current Operating Partnership, and as a result, has classified limited partnership interests issued in the initial capitalization, in conjunction with the contributed assets and in connection with the Self-Administration Transaction, as noncontrolling interests, which are presented as a component of permanent equity, except as discussed below.
The Company evaluates individual noncontrolling interests for the ability to recognize the noncontrolling interest as permanent equity on the consolidated balance sheets at the time such interests are issued and on a continual basis. Any
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
10. Noncontrolling Interests (continued)
noncontrolling interest that fails to qualify as permanent equity has been reclassified as temporary equity and adjusted to the greater of (a) the carrying amount or (b) its redemption value as of the end of the period in which the determination is made.
As of September 30, 2020, the limited partners of the Current Operating Partnership owned approximately 31.8 million OP Units, which were issued to affiliated parties and unaffiliated third parties in exchange for certain properties, and in connection with the Self-Administration Transaction and other services. Approximately 20.4 million OP Units issued to affiliates have a mandatory hold period until December 2020 and have no voting rights until the units are converted to common shares. In addition, 0.2 million OP Units were issued to unaffiliated third parties unrelated to property contributions. To the extent the contributors should elect to redeem all or a portion of their Current Operating Partnership units, pursuant to the terms of the respective contribution agreement, such redemption shall be at a per unit value equivalent to the price at which the contributor acquired its OP Units in the respective transaction.
The limited partners of the Current Operating Partnership, other than those related to the Will Partners REIT, LLC ("Will Partners" property) contribution, will have the right to cause the general partner of the Current Operating Partnership, the Company, to redeem their OP Units for cash equal to the value of an equivalent number of shares, or, at the Company’s option, purchase their OP Units by issuing one share of the Company’s common stock for the original redemption value of each limited partnership unit redeemed. The Company has the control and ability to settle such requests in shares. These rights may not be exercised under certain circumstances which could cause the Company to lose its REIT election. There were 134,383 OP Units redeemed during the nine months ended September 30, 2020 and 6,000 units redeemed during the year ended December 31, 2019.
The following summarizes the activity for noncontrolling interests recorded as equity for the nine months ended September 30, 2020 and year ended December 31, 2019:
Nine Months Ended September 30, 2020Year Ended December 31, 2019
Beginning balance$245,040 $232,203 
Contributions/issuance of noncontrolling interests— 30,039 
Reclass of noncontrolling interest subject to redemption263 — 
Repurchase of noncontrolling interest(1,137)— 
Issuance of stock dividend for noncontrolling interest1,068 1,861 
Distributions to noncontrolling interests(10,556)(19,716)
Allocated distributions to noncontrolling interests subject to redemption(23)(42)
Net (loss) income(598)3,749 
Other comprehensive loss(4,165)(3,054)
Ending balance$229,892 $245,040 

Noncontrolling interests subject to redemption
Operating partnership units issued pursuant to the Will Partners property contribution are not included in permanent equity on the consolidated balance sheets. The partners holding these units can cause the general partner to redeem the units for the cash value, as defined in the Current Operating Partnership agreement. As the general partner does not control these redemptions, these units are presented on the consolidated balance sheets as noncontrolling interest subject to redemption at their redeemable value. The net income (loss) and distributions attributed to these limited partners is allocated proportionately between common stockholders and other noncontrolling interests that are not considered redeemable.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
11. Related Party Transactions
Summarized below are the related party costs incurred by the Company for the nine months ended September 30, 2020 and 2019, respectively, and any related amounts receivable and payable as of September 30, 2020 and December 31, 2019:
Incurred for the Nine Months EndedReceivable as of
September 30, September 30, December 31,
2020201920202019
Assets Assumed through the Self-Administration Transaction
Cash to be received from an affiliate related to deferred compensation and other payroll costs$— $658 $— $— 
Other fees
150 — 201 352 
Due from GCC
Reimbursable Expense Allocation16 — 5 4 
Payroll/Expense Allocation300 321 781 481 
Due from Affiliates
Payroll/Expense Allocation— 1,217 — — 
O&O Costs (including payroll allocated to O&O)— 157 — — 
Other Fees
— 6,375 — — 
Total$466 $8,728 $987 $837 

Incurred for the Nine Months EndedPayable as of
September 30, September 30,December 31,
2020201920202019
Expensed
Costs advanced by the advisor$1,546 $2,571 $1,120 $1,164 
Consulting fee - shared services 1,875 1,874 631 441 
Disposition fees — 641 — — 
Capitalized
Leasing commissions— 596 — — 
Acquisition fees
— 942 — — 
Assumed through Self- Administration Transaction/Mergers
Earn-out— — 338 2,919 
Stockholder Servicing Fee — 693 2,354 4,994 
Other fees— 20 — — 
Other
Distributions8,353 10,089 712 1,365 
Total$11,774 $17,426 $5,155 $10,883 
Dealer Manager Agreement
GCEAR entered into a dealer manager agreement and associated form of participating dealer agreement (the "Dealer Manager Agreement") with the dealer manager for the Follow-On Offering. The terms of the Dealer Manager Agreement are substantially similar to the terms of the dealer manager agreement from GCEAR's initial public offering ("IPO"), except as it relates to the share classes offered and the fees to be received by the dealer manager. The Follow-On Offering terminated on September 20, 2020. See Not 9, Equity.
Distribution Fees
Subject to the Financial Industry Regulatory Authority, Inc.'s limitations on underwriting compensation, under the Dealer Manager Agreement the Company will pay the dealer manager a distribution fee for ongoing services rendered to stockholders by participating broker-dealers or broker-dealers servicing investors’ accounts, referred to as servicing broker-dealers. The fee accrues daily, is paid monthly in arrears, and is calculated based on the average daily NAV for the applicable month (the “Average NAV”).
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
11. Related Party Transactions (continued)
Conflicts of Interest
Affiliated Dealer Manager
Since Griffin Capital Securities, LLC, the Company's dealer manager, is an affiliate of the Company's former sponsor, the Company does not have the benefit of an independent due diligence review and investigation of the type normally performed by an unaffiliated, independent underwriter in connection with the offering of securities. The Company's dealer manager is also serving as the dealer manager for Griffin-American Healthcare REIT III, Inc. ("GAHR III") and Griffin-American Healthcare REIT IV, Inc. ("GAHR IV"), each of which are publicly-registered, non-traded REITs, as wholesale marketing agent for Griffin Institutional Access Real Estate Fund (“GIA Real Estate Fund”) and Griffin Institutional Access Credit Fund ("GIA Credit Fund") both of which are non-diversified, closed-end management investment companies that are operated as interval funds under the 1940 Act, and as dealer manager or master placement agent for various private offerings.
Administrative Services Agreement
In connection with the Mergers, the Company assumed, as the successor of EA-1 and the EA-1 Operating Partnership, an Administrative Services Agreement (the "Administrative Services Agreement"), pursuant to which GCC and GC LLC continue to provide office space and certain operational and administrative services at cost to the Company's Current Operating Partnership, Griffin Capital Essential Asset TRS, Inc., and GRECO, which may include, without limitation, the shared information technology, human resources, legal, due diligence, marketing, customer service, events, operations, accounting and administrative support services set forth in the Administrative Services Agreement. The Company pays GCC a monthly amount based on the actual costs anticipated to be incurred by GCC for the provision of such office space and services until the Company elects to provide such space and/or services for itself or through another provider, which amount is initially $187,167 per month, based on an approved budget. Such costs are reconciled quarterly and a full review of the costs will be performed at least annually. In addition, the Company will directly pay or reimburse GCC for the actual cost of any reasonable third-party expenses incurred in connection with the provision of such services.
Certain Conflict Resolution Procedures
Every transaction that the Company enters into with affiliates is subject to an inherent conflict of interest. The Board may encounter conflicts of interest in enforcing the Company's rights against any affiliate in the event of a default by or disagreement with an affiliate or in invoking powers, rights or options pursuant to any agreement between the Company and affiliates. See the Company's Code of Ethics available at the "Corporate Governance" subpage of the Company's website at www.GCEAR.com for a detailed description of the Company's conflict resolution procedures.
12.    Operating Leases
Lessor
The Company leases commercial and industrial space to tenants primarily under non-cancelable operating leases that generally contain provisions for minimum base rents plus reimbursement for certain operating expenses. Total minimum lease payments are recognized in rental income on a straight-line basis over the term of the related lease and estimated reimbursements from tenants for real estate taxes, insurance, common area maintenance and other recoverable operating expenses are recognized in rental income in the period that the expenses are incurred.
The Company recognized $234.9 million and $212.8 million of lease income related to operating lease payments for the nine months ended September 30, 2020 and 2019, respectively.
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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)
12. Operating Leases (continued)
The Company's current leases have expirations ranging from 2020 to 2044. The following table sets forth the undiscounted cash flows for future minimum base rents to be received under operating leases as of September 30, 2020:
As of September 30, 2020
Remaining 2020$72,450 
2021303,943 
2022305,905 
2023292,005 
2024251,481 
Thereafter1,137,808 
Total$2,363,592 
The future minimum base rents in the table above excludes tenant reimbursements of operating expenses, amortization of adjustments for deferred rent receivables and the amortization of above/below-market lease intangibles.
Lessee
As of September 30, 2020, the Company leased three parcels of land located in Arizona under long-term ground leases with expiration dates of September 2102, December 2095, and September 2102 with no options to renew. The Company leases office space as part of conducting day-to-day business in Chicago. The Company's office space lease has a remaining lease term of approximately five years and no option to renew.
The Company incurred operating lease costs of approximately $0.9 million, and $0.7 million for the three months ended September 30, 2020 and 2019, respectively, which are included in "Property Operating Expense" in the accompanying consolidated statement of operations. Total cash paid for amounts included in the measurement of operating lease liabilities was $0.4 million and $0.3 million for three months ended September 30, 2020 and 2019, respectively.
The Company incurred operating lease costs of approximately $2.8 million, and $1.9 million for the nine months ended September 30, 2020 and 2019, respectively, which are included in "Property Operating Expense" in the accompanying consolidated statement of operations. Total cash paid for amounts included in the measurement of operating lease liabilities was $1.2 million and $0.8 million for the nine months ended September 30, 2020 and 2019, respectively.
The following table sets forth the weighted-average for the lease term and the discount rate as of September 30, 2020:
Lease Term and Discount RateAs of September 30, 2020
Weighted-average remaining lease term in years.80.3
Weighted-average discount rate (1)
4.98%
(1) Because the rate implicit in each of the Company's leases was not readily determinable, the Company used an incremental borrowing rate. In determining the Company's incremental borrowing rate for each lease, the Company considered recent rates on secured borrowings, observable risk-free interest rates and credit spreads correlating to the Company's creditworthiness, the impact of collateralization and the term of each of the Company's lease agreements.
Maturities of lease liabilities as of September 30, 2020 were as follows:
As of September 30, 2020
Remaining 2020$407 
20211,632 
20221,675 
20231,741 
20241,776 
Thereafter286,738 
Total undiscounted lease payments293,969 
Less: imputed interest(248,483)
Total lease liabilities$45,486 

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited; dollars in thousands unless otherwise noted and excluding per share amount)
13.    Commitments and Contingencies
Litigation
From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. The Company is not a party to any material legal proceedings, nor is the Company aware of any pending or threatened litigation that would have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.
14.    Declaration of Distributions
On March 30, 2020, the Board elected to change from a quarterly to a monthly declaration of distributions commencing in April 2020 in order to give the Board maximum flexibility due to the review of a prior potential strategic transaction and to monitor and evaluate the situation related to the financial impact of COVID-19 pandemic.  As noted elsewhere, the Company is continuing to closely monitor the impact of the COVID-19 pandemic and believes it is prudent to continue to employ a more conservative cash management strategy due to the current environment. In light of these considerations, on June 15, 2020, July 28, 2020, August 25, 2020 and September 29, 2020, the Board declared cash distributions in the amount of $0.000956284 per day ($0.35 per share annualized), subject to adjustments for class-specific expenses, per Class E share, Class T share, Class S share, Class D share, Class I share, Class A share, Class AA share and Class AAA share of common stock, for stockholders of such classes as of the close of each business day of the period from July 1, 2020 through July 31, 2020, from August 1, 2020 through August 31, 2020, from September 1, 2020 through September 30, 2020, and October 1, 2020 through October 31, 2020, respectively. The Company paid such distributions to each stockholder of record on August 3, 2020, September 1, 2020, October 1, 2020, and November 2, 2020, respectively.
15.    Subsequent Events
First Amendment to the Second Amended and Restated Credit Agreement
On October 1, 2020, the Company entered into the first amendment to the Second Amended and Restated Credit Agreement (the “First Amendment”) which eliminates the requirement to obtain approval of the majority lenders, as defined in the Second Amended and Restated Credit Agreement, to enter into any merger which will result in an increase in total asset value of the Company by 25% or more; allowing for greater flexibility in the acquisition of assets or portfolios of assets.
Cash Distributions
On October 19, 2020, the Board declared cash distributions for the month of November 2020 of $0.000956284 per day ($0.35 per share annualized), subject to adjustments for class-specific expenses, per Class E share, Class T share, Class S share, Class D share, Class I share, Class A share, Class AA share and Class AAA share of common stock, for stockholders of record at the close of each business day for the period commencing on November 1, 2020 and ending on November 30, 2020. The Company will pay such distributions to each stockholder of record at such time in December 2020 as determined by the Company’s Chief Executive Officer.
Agreement and Plan of Merger with Cole Office & Industrial REIT (CCIT II), Inc.
On October 29, 2020, the Company GRT (Cardinal REIT Merger Sub), LLC, a Maryland limited liability company and a wholly owned subsidiary of the Company ("Cardinal Merger Sub"), the Current Operating Partnership, GRT OP (Cardinal New GP Sub), LLC, a Delaware limited liability company and a wholly owned subsidiary of the Current Operating Partnership ("New GP Sub"), GRT OP (Cardinal LP Merger Sub), LLC, a Delaware limited liability company and a wholly owned subsidiary of the Current Operating Partnership ("LP Merger Sub"), GRT OP (Cardinal OP Merger Sub), LLC, a Delaware limited liability company and a subsidiary of LP Merger Sub and New GP Sub ("OP Merger Sub" and, together with the Company, Cardinal Merger Sub, the Current Operating Partnership, New GP Sub and LP Merger Sub, the "GCEAR Parties"), Cole Office & Industrial REIT (CCIT II), Inc., a Maryland corporation ("CCIT II"), Cole Corporate Income Operating Partnership II, LP, a Delaware limited partnership and a wholly owned subsidiary of CCIT II (the "CCIT II Operating Partnership"), and CRI CCIT II LLC, a Delaware limited liability company and a wholly owned subsidiary of CCIT II ("CCIT II LP" and, together with CCIT II and the CCIT II Operating Partnership, the "CCIT II Parties"), entered into an Agreement and Plan of Merger (the "CCIT II Merger Agreement").
The combined company (the "Combined Company") following the "CCIT II Mergers" (as such term is defined herein) will retain the name "Griffin Capital Essential Asset REIT, Inc." The Combined Company, as of October 29, 2020, would have a total asset value of approximately $5.8 billion, and would own 125 properties in 26 states, consisting of approximately
31 million square feet. On a pro forma basis, as of June 30, 2020, the Combined Company portfolio will be approximately 90% leased, on a weighted average basis, with a remaining weighted average lease term of 7.4 years, approximately 58% of the net rent will come from properties leased to tenants and/or guarantors who have, or whose non-guarantor parent companies have, investment grade or what management believes are generally equivalent ratings and no tenant will represent more than 3.3% of the 12-month forward net rents of the Combined Company, with the top ten tenants comprising, collectively, approximately 25% of the net rents of the Combined Company.
Prior to entering into the CCIT II Merger Agreement, CCIT II (a) terminated the Agreement and Plan of Merger, dated as of August 30, 2020, by and among CCIT II, CIM Real Estate Finance Trust, Inc. (“CMFT”), and Thor II Merger Sub, LLC, a wholly owned subsidiary of CMFT (as amended, the "CMFT Merger Agreement"), in accordance with Section 9.1(c)(ii) of the CMFT Merger Agreement, and (b) paid to CMFT the termination fee equal to $7.38 million in accordance with the CMFT Merger Agreement, and will pay to CMFT the amount of CMFT’s Expenses (as defined in the CMFT Merger Agreement), up to $3.69 million, required to be paid pursuant to the terms of the CMFT Merger Agreement (such amounts together, the “CMFT Termination Payment”).
Subject to the terms and conditions of the CCIT II Merger Agreement, at the Closing (as defined in the CCIT II Merger Agreement) (i) CCIT II will merge with and into Cardinal Merger Sub (the “REIT Merger”), with Cardinal Merger Sub being the surviving entity, (ii) OP Merger Sub will merge with and into CCIT II Operating Partnership (the “CCIT II Partnership Merger”), with the CCIT II Operating Partnership being the surviving entity and (iii) CCIT II LP will merge with and into LP Merger Sub (the “LP Merger” and, together with the REIT Merger and the CCIT II Partnership Merger, the “CCIT II Mergers”) with LP Merger Sub being the surviving entity.
At the effective time of the CCIT II Partnership Merger and subject to the terms and conditions of the CCIT II Merger Agreement, each issued and outstanding share of CCIT II’s Class A common stock, $0.01 par value per share (“CCIT II Class A Common Stock”), and Class T common stock, $0.01 par value per share (“CCIT II Class T Common Stock” and together with the CCIT II Class A Common Stock, "CCIT II Common Stock"), will be converted into the right to receive 1.392 shares of the Company's Class E common stock, $0.001 par value per share ("Class E Common Stock"), subject to the treatment of fractional shares in accordance with the CCIT II Merger Agreement (the "REIT Merger Consideration"). At the effective time of the REIT Merger and subject to the terms and conditions of the CCIT II Merger Agreement, each issued and outstanding share of CCIT II Class A Common Stock granted under CCIT II’s 2018 Equity Incentive Plan, whether vested or unvested, will be cancelled in exchange for an amount equal to the REIT Merger Consideration.
At the effective time of the CCIT II Partnership Merger and subject to the terms and conditions of the CCIT II Merger Agreement, (i) each issued and outstanding partnership unit of the CCIT II Operating Partnership (“CCIT II Operating Partnership Units”) held by CCIT II will be converted into the right to receive 1.392 shares of the Current Operating Partnership’s Class E units, subject to the treatment of fractional units in accordance with the CCIT II Merger Agreement, and CCIT II will be admitted as a limited partner of the Current Operating Partnership and (ii) each issued and outstanding CCIT II Operating Partnership Unit held by CCIT II LP will automatically be cancelled and cease to exist, and no consideration shall be paid, in connection with or as a consequence of the CCIT II Partnership Merger.
At the effective time of the LP Merger and subject to the terms and conditions of the CCIT II Merger Agreement, all of the issued and outstanding limited liability company interests in CCIT II LP will automatically be cancelled and cease to exist, and no consideration shall be paid, in connection with or as a consequence of the LP Merger.
For U.S. federal income tax purposes, it is intended that (i) the REIT Merger shall qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the CCIT II Merger Agreement is intended to be adopted as a “plan of reorganization” for purposes of Sections 354 and 361 of the Code and (ii) the CCIT II Partnership Merger and the LP Merger together shall be treated as a contribution by CCIT II of all of its assets, subject to all of its liabilities, to the Current Operating Partnership in exchange for partnership interests of the Current Operating Partnership pursuant to Section 721 of the Code.
The CCIT II Merger Agreement contains customary representations, warranties and covenants, including covenants relating to the conduct of the Company's and CCIT II's respective businesses during the period between the execution of the
CCIT II Merger Agreement and the completion of the CCIT II Mergers, subject to certain exceptions. The CCIT II Merger Agreement also contains a representation and warranty on behalf of CCIT II that, prior to entering into the CCIT II Merger Agreement, CCIT II terminated the CMFT Merger Agreement (and paid CMFT the CMFT Termination Payment) and entered into the CCIT II Merger Agreement in compliance with the terms of the CMFT Merger Agreement.
Pursuant to the terms of the CCIT II Merger Agreement, CCIT II and its subsidiaries and representatives may not solicit, provide information or enter into discussions concerning proposals relating to alternative business combination transactions, subject to certain limited exceptions set forth in the CCIT II Merger Agreement.
The CCIT II Merger Agreement also provides that prior to the Stockholder Approval (as defined herein), CCIT II's board of directors may, under specified circumstances, make an Adverse Recommendation Change (as defined in the CCIT II Merger Agreement), including withdrawing its recommendation of the REIT Merger, subject to complying with certain conditions set forth in the CCIT II Merger Agreement.
The CCIT II Merger Agreement may be terminated under certain circumstances, including but not limited to, by either the Company or CCIT II if the Mergers have not been consummated on or before 11:59 p.m. New York time on May 30, 2021 (the "Outside Date"), if a final and non-appealable order is entered permanently restraining or otherwise prohibiting the transactions contemplated by the CCIT II Merger Agreement, if the Stockholder Approval has not been obtained at the meeting of CCIT II’s stockholders to be called to consider the REIT Merger or upon a material uncured breach of the respective obligations, covenants or agreements by the other party that would cause the closing conditions in the CCIT II Merger Agreement not to be satisfied.
In addition, CCIT II may terminate the CCIT II Merger Agreement in order to enter into an "Alternative Acquisition Agreement" with respect to a "Superior Proposal" (each as defined in the CCIT II Merger Agreement) at any time prior to receipt by CCIT II of the Stockholder Approval pursuant to and subject to the terms and conditions of the CCIT II Merger Agreement.
The Company may terminate the CCIT II Merger Agreement, in certain limited circumstances, prior to the receipt of the Stockholder Approval, including upon (i) an Adverse Recommendation Change, (ii) a tender offer or exchange offer that is commenced which CCIT II's board of directors fails to recommend against or (iii) a breach by CCIT II, in any material respect, of its obligations under the no solicitation provisions set forth in the CCIT II Merger Agreement.
If the CCIT II Merger Agreement is terminated because the CCIT II Mergers were not consummated before the Outside Date or because the Stockholder Approval was not obtained, and (i) an "Acquisition Proposal" (as defined in the CCIT II Merger Agreement) has been publicly announced or otherwise communicated to CCIT II's stockholders prior to the Stockholders Meeting (as defined in the CCIT II Merger Agreement), and (ii) within 12 months after the date of such termination (A) CCIT II consummates or enters into an agreement (that is thereafter consummated) in respect of an Acquisition Proposal for 50% or more of CCIT II’s equity or assets or (B) the board of directors of CCIT II recommends or fails to recommend against an Acquisition Proposal structured as a tender or exchange offer for 50% or more of CCIT II’s equity and such Acquisition Proposal is actually consummated, then CCIT II must pay the Company a termination fee of $18.45 million and up to $3.69 million as reimbursement for the Company's Expenses (as defined in the CCIT II Merger Agreement).
If the CCIT II Merger Agreement is terminated in connection with CCIT II’s acceptance of a Superior Proposal or making an Adverse Recommendation Change, then CCIT II must pay to the Company a termination fee of $18.45 million and up to $3.69 million as reimbursement for the Company's Expenses.
If the CCIT II Merger Agreement is terminated because any breach of any representation or warranty or failure to perform or comply with any obligation, covenant or agreement on the part of any of the CCIT II Parties set forth in the CCIT II Merger Agreement has occurred that would cause any of the closing conditions not to be satisfied, then CCIT II must pay to the Company up to $3.69 million as reimbursement for the Company’s Expenses.
If the CCIT II Merger Agreement is terminated because any breach of any representation or warranty or failure to perform or comply with any obligation, covenant or agreement on the part of any of the GCEAR Parties set forth in the CCIT II Merger Agreement has occurred that would cause any of the closing conditions not to be satisfied, then the Company must pay to CCIT II (i) an amount equal to the CMFT Termination Payment and (ii) $3.69 million as reimbursement for CCIT II’s Expenses.
The obligation of each party to consummate the CCIT II Mergers is subject to a number of customary conditions, including receipt of the approval of the REIT Merger (and of an amendment to CCIT II’s charter that is required to consummate the REIT Merger) by holders of a majority of the outstanding shares of the CCIT II Common Stock entitled to vote thereon (the “Stockholder Approval”), delivery of certain documents and legal opinions, the truth and correctness of the representations and warranties of the parties (subject to the materiality standards contained in the CCIT II Merger Agreement), the effectiveness of the registration statement on Form S-4 to be filed by the Company to register the shares of the Class E Common Stock to be issued as consideration in the REIT Merger, and the absence of a CCIT II Material Adverse Effect or GCEAR Material Adverse Effect (as each term is defined in the CCIT II Merger Agreement).
The Company's obligation to consummate the CCIT II Mergers is not subject to a financing condition. Until the effective time of the REIT Merger, each of the Company and CCIT II are permitted to declare and pay distributions in an amount less than or equal to an annual rate of five percent of its net asset value as of June 30, 2020, ratably over the calendar year.
The CCIT II Merger Agreement provides that the Company's board of directors will take such action as necessary to cause three (3) Independent Directors (as defined in the charters of each of CCIT II and the Company) serving as members of the board of directors of CCIT II to be elected to the Company's board of directors effective as of the effective time of the REIT Merger to serve until the next annual meeting of stockholders of the Company. In connection with such next annual meeting of stockholders of the Company, the Nominating and Corporate Governance Committee of the Company will recommend to the Company's board of directors at least one (1) of such CCIT directors for election to the Company's board of directors at such annual meeting of stockholders.
The foregoing description of the CCIT II Merger Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the CCIT II Merger Agreement, which was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 2, 2020.
Termination Agreement
Concurrently with the entry into the CCIT II Merger Agreement, the Company, CCIT II and Cole Corporate Income Management II, LLC (the “CCIT II Advisor”) entered into a letter agreement (the “Termination Agreement”). Pursuant to the Termination Agreement, the Advisory Agreement, dated as of August 27, 2013, by and between CCIT II and the CCIT II Advisor (as amended, the “CCIT II Advisory Agreement”) will be terminated upon consummation of the CCIT II Mergers. Pursuant to the Termination Agreement, (i) upon consummation of the CCIT II Mergers or (ii) termination of the CCIT II Advisory Agreement, if such termination occurs prior to the earlier of the consummation of the CCIT II Mergers and June 30, 2021, for certain reasons other than a material breach of the CCIT II Advisory Agreement by the CCIT II Advisor, CCIT II will pay the CCIT II Advisor the “Subordinated Performance Fee” (as defined in the CCIT II Advisory Agreement) in an amount equal to $26,688,591 and the “Disposition Fee” (as defined in the CCIT II Advisory Agreement) in an amount equal to $1.75 million. The Termination Agreement also provides that the CCIT II Advisor will not terminate the CCIT II Advisory Agreement with effect prior to the earlier of the consummation of the CCIT II Mergers and June 30, 2021, other than in the event of material breach of the CCIT II Advisory Agreement by CCIT II. In the event that the CCIT II Merger Agreement is terminated in accordance with its terms, the Termination Agreement will be automatically terminated.
The foregoing description of the Termination Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the Termination Agreement, which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 2, 2020.
DRP Offering
As of November 4, 2020, the Company had issued 32,707,229 shares of the Company's common stock pursuant to the DRP offerings for approximately $315.8 million.    
COVID-19
Subsequent to September 30, 2020, the global and U.S. economies continue to be severely impacted by the COVID-19 pandemic. The consequences of the pandemic and its impact on the economy continue to evolve and the full extent of the impact is uncertain as of the date of this filing. The extent to which the COVID-19 pandemic impacts the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 pandemic and the actions taken to contain it or treat its impact. In recent months,
the Company continues to take certain affirmative steps which the Company believes helps to position the Company in a manner that will assist the Company in withstanding the current uncertainty relating to the COVID-19 pandemic, including the following:
•Proactively communicating with the Company's tenants and property managers to ensure lines of communication remain open related to operations and safety protocols prior to and related to decisions to return to work in accordance with various jurisdictional guidelines;
•Monitoring the near-term solvency and liquidity of the Company's tenants and the extent to which the COVID-19 pandemic may impact their business;
•Regularly communicating with KeyBank regarding availability under the Company's Revolving Credit Facility, which affords the Company with substantial current liquidity;
•Continuing to closely monitor the Company's cash flow projections and actively updating its projections based upon current information, as well as testing for future contingencies; and
•Continuing to evaluate a potential strategic transaction, as well as monitoring market opportunities that could enhance our long-term value and performance.
The Company is currently working with certain tenants that have requested rent relief due to the impact of the COVID-19 pandemic to determine appropriate lease concessions. To date, two lease concessions have been granted. On April 10, 2020, the FASB issued a Staff Q&A to respond to some frequently asked questions about accounting for lease concessions related to the effects of the outbreak of COVID-19 pandemic. Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance to those contracts. Entities may make the elections for any lessor-provided concessions related to the effects of the COVID-19 pandemic (e.g., deferrals of lease payments, cash payments made to the lessee, reduced future lease payments) as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. The Company will continue to evaluate the impact of lease concessions and the appropriate accounting for those concessions. See “Item 1A. Risk Factors” within “Part II - Other Information” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 for a discussion about risks that COVID-19 directly or indirectly may pose to the Company's business.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the Company’s consolidated financial statements and the notes thereto contained in Part I of this Quarterly Report on Form 10-Q, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations, Consolidated Financial Statements, and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. See also “Cautionary Note Regarding Forward Looking Statements” preceding Part I. As used herein, “we,” “us,” and “our” mean EA-1 and one or more of EA-1’s subsidiaries for periods prior to the Mergers, and GCEAR and one or more of GCEAR’s subsidiaries for periods following the Mergers.
In connection with the Mergers, we were the legal acquirer and EA-1 was the accounting acquirer for financial reporting purposes. Thus, the financial information set forth herein subsequent to the Mergers reflects results of the combined entity, and the financial information set forth herein prior to the Mergers reflects EA-1’s results. For this reason, period to period comparisons may not be meaningful.
Overview
We are a public, internally managed, non-traded REIT that invests primarily in business essential office and industrial properties significantly occupied by a single tenant, diversified by corporate credit, physical geography, product type and lease duration. As of September 30, 2020, we have 43 employees. The Current Operating Partnership and GRECO are our subsidiaries and are the entities through which we conduct our business. The Current Operating Partnership owns, directly or indirectly, all of the properties that we have acquired.
As of September 30, 2020, our real estate portfolio consisted of 99 properties in 25 states and 114 lessees consisting substantially of office, warehouse, and manufacturing facilities and two land parcels held for future development with a combined acquisition value of approximately $4.2 billion, including the allocation of the purchase price to above and below-market lease valuation. Our net rent for the 12-month period subsequent to September 30, 2020 was approximately $287.8 million with approximately 59.4% generated by properties leased to tenants and/or guarantors or entities whose non-guarantor parent companies have investment grade or what management believes are generally equivalent ratings. Our portfolio, based on square footage, is approximately 88.6% leased as of September 30, 2020, with a weighted average remaining lease term of 7.0 years, weighted average annual rent increases of approximately 2.1%, and a Consolidated Leverage Ratio of 52.1% as defined in our credit agreement.
COVID-19
We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact our tenants and business partners. While we did not incur significant disruptions during the three months ended September 30, 2020 from the COVID-19 pandemic, we are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the outbreak, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. The COVID-19 pandemic in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to volatility and negative pressure in financial markets. The global impact of the pandemic has been rapidly evolving and, as cases of COVID-19 have continued to be identified, many countries, including the United States, have reacted by instituting various levels of quarantines, business and school closures and travel restrictions. Certain states and cities, including those where we own properties and where our principal place of business is located, have instituted similar measures, including various levels of “shelter in place” rules, and restrictions on the types of business that may continue to operate at full capacity. We cannot predict when restrictions currently in place will be lifted to some extent or entirely. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which the Company and our tenants operate.
We cannot predict the impact that the COVID-19 pandemic will have on our tenants and other business partners; however, any material effect on these parties could adversely impact us. As of November 1, 2020, we received July-October rent payments from 100% of our portfolio. In addition, we have received a number of short-term rent relief inquiries from our tenants, most often in the form of rent deferral inquiries, or requests for further discussion from tenants. We believe some of these inquiries were opportunistic in nature and may not have been as a result of a direct financial need due to the outbreak. As of October 1, 2020, we granted two of these deferral requests that deferred three months of rent to be collected during 2021 without interest and represented less than 1.0% of total revenue for the nine months ended September 30, 2020. While there are no current active short-term rent relief inquiries, we are unable to predict the amount of future rent relief inquiries and the July-
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September collections and rent relief requests to-date may not be indicative of collections or requests in any future period. Additionally, not all tenant inquiries will ultimately result in lease concessions.
Our primary focus continues to be protecting the health and well-being of our employees and ensuring that there is limited operational disruption as a result of the COVID-19 pandemic. Some of the primary steps we have taken to accomplish these objectives were: (1) initially instituting elective telework arrangements and then following with mandatory telework arrangements with minor exceptions for certain “essential” business functions, (2) capital investment in technology solutions and hardware, as necessary, to allow for a fully remote workforce, (3) mandatory self-quarantines where necessary, (4) recommendations and FAQs to all employees regarding best practices to avoid infection, as well as steps to take in the event of an infection, (5) temporary prohibition of business travel, other than essential business travel approved by management, and (6) creation of an internal COVID-19 task force that meets weekly to discuss additional safety measures to ensure the safe return of our employees to the office, which plans will be finalized in accordance with applicable local guidelines, when such guidelines are established.
For further discussion regarding risks that COVID-19 directly or indirectly may pose to our business, refer to “Item 1A. Risk Factors” within “Part II - Other Information” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
NAV and NAV per Share Calculation
Our Board, including a majority of our independent directors, has adopted valuation procedures, as amended from time to time, that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV. As a public company, we are required to issue financial statements generally based on historical cost in accordance with GAAP as applicable to our financial statements. To calculate our NAV for the purpose of establishing a purchase and redemption price for our shares, we have adopted a model, as explained below, which adjusts the value of certain of our assets from historical cost to fair value. As a result, our NAV may differ from the amount reported as stockholder’s equity on the face of our financial statements prepared in accordance with GAAP. When the fair value of our assets and liabilities are calculated for the purposes of determining our NAV per share, the calculation is generally in accordance with GAAP principles set forth in ASC 820, Fair Value Measurements and Disclosures. However, our valuation procedures and our NAV are not subject to GAAP and will not be subject to independent audit. Our NAV may differ from equity reflected on our audited financial statements, even if we are required to adopt a fair value basis of accounting for GAAP financial statement purposes in the future. Furthermore, no rule or regulation requires that we calculate NAV in a certain way. Although we believe our NAV calculation methodologies are consistent with standard industry practices, there is no established guidance among public REITs, whether listed or not, for calculating NAV in order to establish a purchase and redemption price. As a result, other public REITs may use different methodologies or assumptions to determine NAV.
On February 26, 2020, our Board approved the temporary suspension of (i) the primary portion of our Follow-On Offering, effective February 27, 2020; (ii) our SRP, effective March 28, 2020; and (iii) our DRP, effective March 8, 2020. Redemptions sought upon a stockholder's death, qualifying disability, or determination of incompetence or incapacitation were honored in the first quarter of 2020 in accordance with the terms of the SRP. The Follow-On Offering terminated with the expiration of the Registration Statement on September 20, 2020. On July 16, 2020, our Board approved the (i) reinstatement of the DRP, effective July 27, 2020; (ii) amendment of the DRP to allow for the use of the most recently published NAV per share of the applicable share class available at the time of reinvestment as the DRP purchase price for each share class; and (iii) partial reinstatement of the SRP, effective August 17, 2020. After March 31, 2020, we (i) ceased publishing a daily updated estimate of our NAV per share; (ii) are continuing our internal procedures for calculating NAV per share; and (iii) will continue to publish updated estimates of our NAV per share on a quarterly basis. We published our updated September 30, 2020 NAV per share on October 20, 2020.
Prior to the suspension (and subsequent expiration) of our Follow-On Offering, we were offering to the public four classes of shares of our common stock, Class T shares, Class S shares, Class D shares and Class I shares with NAV-based pricing. The share classes had different selling commissions, dealer manager fees and ongoing distribution fees. Our NAV is calculated for each of these classes and our Class A shares, Class AA shares, Class AAA shares and Class E shares after the end of each business day that the New York Stock Exchange is open for unrestricted trading, by our NAV Accountant, ALPS Fund Services, Inc., a third-party firm approved by our Board, including a majority of our independent directors. Our Board, including a majority of our independent directors, may replace our NAV Accountant with another party, if it is deemed appropriate to do so. Our Board, including a majority of the independent directors, has adopted valuation procedures that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV.
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At the end of each such trading day, before taking into consideration accrued distributions or class-specific expense accruals, any change in the aggregate company NAV (whether an increase or decrease) is allocated among each class of shares based on each class’s relative percentage of the previous aggregate company NAV plus issuances of shares that were effective the previous trading day. Changes in the aggregate company NAV reflect factors including, but not limited to, unrealized/realized gains (losses) on the fair value of our real property portfolio and our management company, any applicable organization and offering costs and any expense reimbursements, real estate-related assets and liabilities, daily accruals for income and expenses, amortization of transaction costs, and distributions to investors. Changes in our aggregate company NAV also include material non-recurring events, such as capital expenditures and material property acquisitions and dispositions. On an ongoing basis, we will adjust the accruals to reflect actual operating results and the outstanding receivable, payable and other account balances resulting from the accumulation of daily accruals when such financial information is available.
Our most significant source of net income is property income. We accrue estimated income and expenses on a daily basis based on annual budgets as adjusted from time to time to reflect changes in the business throughout the year. For the first month following a property acquisition, we calculate and accrue portfolio income with respect to such property based on the performance of the property before the acquisition and the contractual arrangements in place at the time of the acquisition, as identified and reviewed through our due diligence and underwriting process in connection with the acquisition. For the purpose of calculating our NAV, all organization and offering costs reduce NAV as part of our estimated income and expense accrual. On a periodic basis, our income and expense accruals are adjusted based on information derived from actual operating results.
We will include the fair value of our liabilities as part of our NAV calculation. Our liabilities include, without limitation, property-level mortgages, interest rate swaps, accrued distributions, the fees payable to the dealer manager, accounts payable, accrued company-level operating expenses, any company or portfolio-level financing arrangements and other liabilities. Liabilities will be valued using widely accepted methodologies specific to each type of liability. Our mortgage debt and related derivatives, if any, will typically be valued at fair value in accordance with GAAP.
Following the calculation and allocation of changes in the aggregate company NAV as described above, NAV for each class is adjusted for accrued distributions and the accrued distribution fee, to determine the current day’s NAV. The purchase price of Class T and Class S shares is equal to the applicable NAV per share plus the applicable selling commission and/or dealer manager fee. Selling commissions and dealer manager fees have no effect on the NAV of any class.
NAV per share for each class is calculated by dividing such class’s NAV at the end of each trading day by the number of shares outstanding for that class on such day.
Under GAAP, we will accrue the full cost of the distribution fee as an offering cost for Class T, Class S, and Class D shares up to the 9.0% limit at the time such shares are sold. For purposes of NAV, we will recognize the distribution fee as a reduction of NAV on a daily basis as such fee is accrued. We intend to reduce the net amount of distributions paid to stockholders by the portion of the distribution fee accrued for such class of shares, so that the result is that although the obligation to pay future distribution fees is accrued on a daily basis and included in the NAV calculation, it is not expected to impact the NAV of the shares because of the adjustment to distributions.









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Set forth below are the components of our daily NAV as of September 30, 2020 and June 30, 2020, calculated in accordance with our valuation procedures (in thousands, except share and per share amounts):
September 30, 2020June 30, 2020
Real Estate Asset Fair Value$4,299,301 $4,295,142 
Investments in Unconsolidated Entities4,100 2,485 
Goodwill (Management Company Value)230,000 230,000 
Interest Rate Swap (Unrealized Loss)(62,478)(64,515)
Perpetual Convertible Preferred Stock(125,000)(125,000)
Other Assets, net158,843 151,250 
Total Debt at Fair Value(2,172,130)(2,171,440)
NAV$2,332,636 $2,317,922 
Total Shares and OP Units Outstanding262,064,167 261,628,173 
NAV per share$8.90 $8.86 
Our independent valuation firm utilized the discounted cash flow approach for 97 properties and the direct capitalization approach for one property in our portfolio with a weighted average of approximately 7.0 years remaining on their existing leases. The sales comparison approach was utilized for the Lynnwood land parcel. Since the Pepsi Bottling Ventures property was acquired in February 2020, we did not obtain a valuation for such property and used purchase price in calculating our NAV, in accordance with our valuation procedures. The overall capitalization rate for the one property utilizing the direct capitalization approach during the quarter was 5.25%. The following summarizes the range of cash flow discount rates and terminal capitalization rates for the 97 properties using the discounted cash flow approach:
RangeWeighted Average
Cash Flow Discount Rate (discounted cash flow approach)6.00%14.00%7.53%
Terminal Capitalization Rate (discounted cash flow approach)5.25%9.75%6.85%


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The following table sets forth the changes to the components of NAV for the Company and the reconciliation of NAV changes for each class of shares (in thousands, except share and per share amounts):
Share Classes
Class T Class S Class D Class I Class E
IPO (1)
OP UnitsTotal
NAV as of June 30, 2020 $4,971 $16 $364 $16,935 $1,374,817 $636,922 $283,897 $2,317,922 
Fund level changes to NAV
Unrealized gain on net assets71 — 5 240 19,492 9,028 4,015 32,851 
Unrealized gain (loss) on interest rate swaps4 — — 15 1,209 560 249 2,037 
Dividend accrual(36)— (3)(167)(13,647)(6,375)(2,806)(23,034)
Class specific changes to NAV
Stockholder servicing fees/distribution fees(13)— — — — (1,042)(8)(1,063)
NAV as of September 30, 2020 before share/unit sale/redemption activity$4,997 $16 $366 $17,023 $1,381,871 $639,093 $285,347 $2,328,713 
Unit sale/redemption activity- Dollars
Amount sold$15 $— $2 $33 $3,098 $1,912 $— $5,060 
Amount redeemed and to be paid— — — — — — (1,137)(1,137)
NAV as of September 30, 2020$5,012 $16 $368 $17,056 $1,384,969 $641,005 $284,210 $2,332,636 
Shares/units outstanding as of June 30, 2020554,114 1,802 40,583 1,890,912 154,897,501 72,269,981 31,973,282 261,628,175 
Shares/units sold1,618 — 206 3,735 348,466 216,335 — 570,360 
Shares/units redeemed— — — — — 15 (134,383)(134,368)
Shares/units outstanding as of September 30, 2020555,732 1,802 40,789 1,894,647 155,245,967 72,486,331 31,838,899 262,064,167 
NAV per share as of June 30, 2020$8.97 $8.97 $8.95 $8.96 $8.88 $8.81 
Change in NAV per share/unit0.05 0.04 0.05 0.04 0.04 0.03 
NAV per share as of September 30, 2020$9.02 $9.01 $9.00 $9.00 $8.92 $8.84 
(1) IPO shares include Class A, Class AA, and Class AAA shares.

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Revenue Concentration
No lessee or property, based on net rents for the 12-month period subsequent to September 30, 2020, pursuant to the respective in-place leases, was greater than 4.0% as of September 30, 2020.
The percentage of net rents for the 12-month period subsequent to September 30, 2020 by state, based on the respective in-place leases, is as follows (dollars in thousands):
State
Net Rent(1)
(unaudited)
Number of
Properties		Percentage of
Net Rent
Texas$33,570 11 11.7 %
California29,176 6 10.1 
Ohio25,603 11 8.9 
Arizona25,293 8 8.8 
Georgia25,107 5 8.7 
Illinois22,549 9 7.8 
New Jersey18,262 5 6.3 
Colorado14,343 5 5.0 
North Carolina13,235 6 4.6 
Florida10,666 4 3.7 
All Others (2)
70,030 29 24.4 
Total$287,834 99 100.0 %
(1)     Net rent is based on (a) the contractual base rental payments assuming the lease requires the tenant to reimburse us for certain operating expenses or the property is self-managed by the tenant and the tenant is responsible for all, or substantially all, of the operating expenses; or (b) contractual rent payments less certain operating expenses that are our responsibility for the 12-month period subsequent to September 30, 2020 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.
(2)     On an individual basis, All Others are 3.5% or less of total net rents.
The percentage of net rent for the 12-month period subsequent to September 30, 2020, by industry, based on the respective in-place leases, is as follows (dollars in thousands): 
Industry (1)
Net Rent
(unaudited)		Number of
Lessees		Percentage of
Net Rent
Capital Goods$39,525 19 13.7 %
Retailing28,447 8 9.9 
Health Care Equipment & Services27,278 10 9.5 
Insurance25,567 10 8.9 
Consumer Services22,322 9 7.8 
Telecommunication Services19,150 5 6.7 
Diversified Financials18,637 5 6.5 
Technology Hardware & Equipment16,317 6 5.7 
Consumer Durables & Apparel14,733 6 5.1 
Energy14,596 4 5.1 
All Others (2)
61,262 32 21.1 
Total$287,834 114 100.0 %
(1)     Industry classification based on the Global Industry Classification Standard.
(2)     On an individual basis, All Others are 4.1% or less of total net rents.
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The percentage of net rent for the 12-month period subsequent to September 30, 2020, for the top 10 tenants, based on the respective in-place leases, is as follows (dollars in thousands):
TenantNet Rent
(unaudited)		Percentage of
Net Rent
General Electric Company $10,123 3.5 %
Wood Group Mustang, Inc.$9,755 3.4 
Southern Company Services, Inc. $8,822 3.1 
McKesson Corporation$8,742 3.0 
LPL Holdings, Inc.$8,248 2.9 
State Farm$7,293 2.5 
Digital Globe, Inc.$7,217 2.5 
Restoration Hardware$7,073 2.5 
Wyndham Hotel Group, LLC$7,029 2.4 
SB U.S. LLC$6,614 2.3 
The tenant lease expirations by year based on net rent for the 12-month period subsequent to September 30, 2020 are as follows (dollars in thousands):
Year of Lease Expiration (1)
Net Rent
(unaudited)		Number of
Lessees		Approx. Square FeetPercentage of
Net Rent
Remaining 2020$— — — — %
20213,861 7 773,700 1.3 
202212,130 5 964,400 4.2 
202323,911 10 1,378,200 8.3 
202446,598 16 3,950,800 16.2 
202534,778 19 2,644,700 12.1 
>2026166,556 57 14,235,754 57.9 
Vacant— — 3,093,000 — 
Total$287,834 114 27,040,554 100.0 %

(1) Expirations that occur on the last day of the month are shown as expiring in the subsequent month.

Critical Accounting Policies and Estimates
We have established accounting policies which conform to GAAP in the United States as contained in the FASB ASC. The preparation of our consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. If our judgment or interpretation of the facts and circumstances relating to the various transactions had been different, it is possible that different estimates would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may use different estimates and assumptions that may impact the comparability of our financial condition and results of operations to those companies.
For further information about our critical accounting policies, refer to our consolidated financial statements and notes thereto for the year ended December 31, 2019 included in our Annual Report on Form 10-K filed with the SEC.
Recently Issued Accounting Pronouncements
See Note 2, Basis of Presentation and Summary of Significant Accounting Policies, to the consolidated financial statements.
Results of Operations
Overview
Our ability to re-lease space subject to expiring leases will impact our results of operations and is affected by economic and competitive conditions in our markets. Leases that comprise approximately 0.4% of our base rental revenue will expire during the period from October 1, 2020 to September 30, 2021. We assume, based upon internal renewal probability estimates, that some of our tenants will renew and others will vacate and the associated space will be re-let subject to market leasing assumptions. Using the aforementioned assumptions, we expect that the rental rates on the respective new leases may vary from the rates under existing leases expiring during the period from October 1, 2020 to September 30, 2021, thereby resulting in revenue that may differ from the current in-place rents.
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We are not aware of any other material trends or uncertainties, other than national economic conditions affecting real estate in general, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operations of properties other than those listed in Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2019, in Part II, Item 1A, Risk Factors of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and in Part II, Item 1A, Risk Factors included in this Form 10-Q.
Same Store Analysis
For the three months ended September 30, 2020, our "Same Store" portfolio consisted of 97 properties, encompassing approximately 26.4 million square feet, with an acquisition value of $4.1 billion and net rents of $282.9 million subsequent to September 30, 2020. Our "Same Store" portfolio includes properties which were held for a full period for all periods presented. The following table provides a comparative summary of the results of operations for the 72 properties for the three months ended September 30, 2020 and 2019 (dollars in thousands):
Three Months Ended September 30,Increase/(Decrease)Percentage
Change
20202019
Rental income$98,607 $93,594 $5,013 5 %
Property operating expense13,937 14,271 (334)(2)%
Property management fees to non-affiliates1,023 791 232 29 %
Property tax expense9,326 9,549 (223)(2)%
Depreciation and amortization39,144 39,316 (172)0 %
Interest expense3,566 3,657 (91)(2)%
Rental Income
The increase in rental income of approximately $5.0 million compared to the same period a year ago primarily is a result of (1) approximately $5.1 million increase in current quarter leasing activity and amendments to existing leases; and (2) approximately $4.7 million in termination income in the current year compared to the prior year; offset by (3) approximately $3.9 million in lease expirations; and (4) approximately $1.0 million in common area management reconciliations.
Property Management Fees to Non-Affiliates
The increase in property management fees to non-affiliates of approximately $0.2 million is a result of prior periods management fees paid during the quarter.
For the nine months ended September 30, 2020, our "Same Store" portfolio consisted of 72 properties, encompassing approximately 19.5 million square feet, with an acquisition value of $2.9 billion and net rents of $206.3 million subsequent to September 30, 2020. Our "Same Store" portfolio includes properties which were held for a full period for all periods presented. The following table provides a comparative summary of the results of operations for the 97 properties for the nine months ended September 30, 2020 and 2019 (dollars in thousands):
Nine Months Ended September 30,Increase/(Decrease)Percentage Change
20202019
Rental income$223,327 $228,229 $(4,902)(2)%
Property operating expense36,350 35,544 806 2 %
Property management fees to non-affiliates2,291 2,101 190 9 %
Property tax expense23,737 23,885 (148)(1)%
Depreciation and amortization78,405 80,570 (2,165)(3)%
Interest expense6,041 6,300 (259)(4)%

Rental Income
The decrease in rental income of approximately $4.9 million compared to the same period a year ago primarily is a result of (1) approximately $20.9 million in expiring and early terminated leases; and (2) approximately $0.4 million in common area management reconciliations; offset by (3) an approximately $13.8 million increase in current period leasing activity and amendments to existing tenant leases; and (4) an approximately $2.9 million increase in termination income in the current year.
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Property Management Fees to Non-Affiliates
The increase in property management fees to non-affiliates of approximately $0.2 million is a result of prior periods management fees paid during the quarter.
Depreciation and Amortization
The decrease in depreciation and amortization of approximately $2.2 million is primarily due to (1) approximately $6.6 million primarily as a result of early lease terminations/changes in useful life in the prior year and assets fully depreciated subsequent to September 30, 2019; offset by (2) $3.5 million in additions to fixed assets as the result of tenant improvements placed in service subsequent to September 30, 2019.
Portfolio Analysis
Comparison of the Three Months Ended September 30, 2020 and 2019
The following table provides summary information about our results of operations for the three months ended September 30, 2020 and 2019 (dollars in thousands):
 Three Months Ended September 30,Increase/(Decrease)Percentage
Change
 20202019
Rental income$100,002 $97,435 $2,567 3 %
Property operating expense14,265 14,717 (452)(3)%
Property tax expense9,330 10,050 (720)(7)%
Property management fees to non-affiliates1,032 822 210 26 %
General and administrative expenses8,207 7,519 688 9 %
Corporate operating expenses to affiliates625 729 (104)(14)%
Depreciation and amortization39,918 41,440 (1,522)(4)%
Impairment provision9,572 — 9,572 100 %
Interest expense20,314 19,560 754 4 %
(Loss) Gain from investment in unconsolidated entities(4,452)3,027 (7,479)(247)%
Gain from disposition of assets— 8,441 (8,441)(100)%

Rental Income
The increase in rental income of approximately $2.6 million compared to the same period a year ago is primarily the result of (1) approximately $5.1 million in current quarter leasing activity and amendments to existing tenant leases; (2) an approximately $4.7 million increase in termination income in the current year; and (3) approximately $1.3 million as a result of two properties acquired subsequent to June 30, 2019; offset by (4) approximately $3.7 million related to two properties sold subsequent to September 30, 2019; (5) approximately $3.6 million in expiring leases; and (6) approximately $0.9 million in common area management reconciliations.
Property Tax Expense
The decrease in property tax expense of approximately $0.7 million compared to the same period a year ago is primarily the result of properties sold subsequent to June 30, 2019.
Property Management Fees to Non-Affiliates
The increase in property management fees to non-affiliates of approximately $0.2 million is a result of prior periods management fees paid during the quarter.
General and Administrative Expenses
General and administrative expenses increased by approximately $0.7 million compared to the same period a year ago primarily due to (1) approximately $0.2 million in timing of hiring of employees; and (2) an approximately $0.3 million increase in transfer agent fees as a result of shareholder account activity compared to prior period.
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Corporate Operating Expenses to Affiliates
Corporate operating expenses to affiliates decreased by approximately $0.1 million primarily as the result of a reconciliation of the estimated shared services fee in the prior period.
Depreciation and Amortization
Depreciation and amortization decreased by approximately $1.5 million as a result of (1) approximately $4.1 million related to fully depreciated or sold assets subsequent to September 30, 2019; offset by (2) approximately $2.1 million related to fixed asset additions subsequent to June 30, 2019 and in the current year.
Impairment Provision
The increase in impairment provision of approximately $9.6 million compared to the same period a year ago is the result of an impairment provision recorded during the current year for the 2275 Cabot Drive property.
Interest Expense
The increase of approximately $0.8 million in interest expense as compared to the same period in the prior year is primarily the result of approximately (1) $4.0 million related to an increase in borrowing on our revolver of approximately $401.5 million as of September 30, 2020 compared to $171.5 million in the prior period; offset by (2) approximately $3.5 million as a result of lower interest rates.
Loss from Investment in Unconsolidated Entities
The increase of approximately $7.5 million in loss from investment in unconsolidated entities as compared to the same period in the prior year is primarily the result of the anticipated liquidation of our unconsolidated investment, as discussed in Note 4, Investments.
Gain from Disposition of Assets
The decrease in gain from disposition of assets of approximately $8.4 million compared to the same period a year ago is primarily the result of the sale of the 7601 Technology Way property during the third quarter of 2019.
Comparison of the Nine Months Ended September 30, 2020 and 2019
In connection with the Mergers, we were the legal acquirer and EA-1 was the accounting acquirer for financial reporting purposes. Thus, the financial information set forth herein subsequent to the Mergers reflects results of the combined entity, and the financial information set forth herein prior to the Mergers reflects EA-1’s results. For this reason, period to period comparisons may not be meaningful.
The following table provides summary information about our results of operations for the nine months ended September 30, 2020 and 2019 (dollars in thousands):
 Nine Months Ended September 30,Increase/(Decrease)Percentage
Change
 20202019
Rental income$301,157 $277,276 $23,881 9 %
Property operating expense42,158 39,091 3,067 8 %
Property tax expense28,291 27,722 569 2 %
Property management fees to non-affiliates2,780 2,620 160 6 %
General and administrative expenses23,280 17,708 5,572 31 %
Corporate operating expenses to affiliates1,875 1,453 422 29 %
Depreciation and amortization120,947 112,311 8,636 8 %
Impairment provision22,195 — 22,195 100 %
Interest expense59,321 53,642 5,679 11 %
(Loss) Gain from investment in unconsolidated entities(6,523)1,919 (8,442)(440)%
Gain from disposition of assets4,268 8,441 (4,173)(49)%
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Rental Income
The increase in rental income of approximately $23.9 million compared to the same period a year ago is primarily the result of an increase of (1) approximately $35.9 million as a result of the Mergers and two properties acquired subsequent to September 2019; (2) approximately $13.8 million in current period leasing activity and amendments to existing tenant leases; and (3) an approximately $2.9 million increase in termination income in the current period; offset by (4) approximately $16.2 million related to expiring leases; (5) approximately $7.8 million related to two properties sold subsequent to September 30, 2019; and (6) approximately $4.7 million in early terminated leases.
Property Operating Expense
The increase in property operating expense of approximately $3.1 million compared to the same period a year ago is primarily the result of (1) approximately $1.8 million related to two vacated properties that were tenant-managed; (2) approximately $0.8 million primarily related to one property acquired subsequent to June 30, 2019; and (3) approximately $0.6 million related to timing of repair and maintenance services performed; offset by (4) approximately $0.8 million related to two properties sold in 2019.
Property Management Fees to Non-Affiliates
The increase in property management fees to non-affiliates of approximately $0.2 million is a result of prior periods management fees paid during the quarter.
General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2020 increased by approximately $5.6 million compared to the same period a year ago primarily due to an increase of (1) approximately $2.5 million in payroll as a result of the Mergers (see Note 1, Organization, for details); (2) approximately $1.5 million in restricted stock unit expense as a result of RSUs issued in 2020; (3) an approximately $0.7 million increase in transfer agent fees as a result of additional shareholder accounts activity compared to prior period; and (4) approximately $0.4 million in professional fees, primarily audit and tax fees related to the Mergers.
Corporate Operating Expenses to Affiliates
Corporate operating expenses to affiliates for the nine months ended September 30, 2020 increased by approximately
$0.4 million mainly due to estimated amounts owed per the Administrative Services Agreement. See Note 11, Related Party Transactions, for details.
Depreciation and Amortization
Depreciation and amortization for the nine months ended September 30, 2020 increased by approximately $8.6 million as a result of approximately (1) $18.2 million related to the Mergers and properties acquired subsequent to June 30, 2019; and (2) an approximately $3.5 million increase as a result of fixed asset additions in the current year; offset by (3) approximately $9.7 million related to fully depreciated assets and three properties sold subsequent to June 30, 2019; and (4) approximately $4.2 million in amortization of the management contract intangible in the prior period.
Impairment Provision
The increase in impairment provision of approximately $22.2 million compared to the same period a year ago is the result of three impairment provisions recorded during the current year at the 2200 Channahon Road, Houston Westway I and 2275 Cabot Drive properties.
Interest Expense
The increase of approximately $5.7 million in interest expense as compared to the same period in the prior year is primarily the result of (1) approximately $2.3 million as a result of the assumption of the AIG Loan II and BofA/KeyBank Loans and write offs of deferred financing costs related to the Mergers, and (2) approximately $3.5 million related to an increase in borrowing on our revolver, the balance of which was $401.5 million as of September 30, 2020 compared to $171.5 million in the prior period.
Loss from Investment in Unconsolidated Entities
The increase of approximately $8.4 million in loss from investment in unconsolidated entities as compared to the same period in the prior year is primarily the result of an other-than-temporary impairment loss and the anticipated liquidation of our unconsolidated investment, as discussed in Note 4, Investments.
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Gain from Disposition of Assets
The decrease in gain from disposition of assets of approximately $4.2 million compared to the same period a year ago is primarily the result of the sale of the 7601 Technology Way property for total gain of approximately $8.1 million compared to the sale of the Bank of America II property for a total gain of $4.3 million.
Funds from Operations and Adjusted 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.
Management is responsible for managing interest rate, hedge and foreign exchange risks. 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 ongoing operations and are therefore typically adjusted for when assessing operating performance.
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.
Additionally, we use Adjusted Funds from Operations (“AFFO”) as a non-GAAP financial measure to evaluate our operating performance. AFFO excludes non-routine and certain non-cash items such as revenues in excess of cash received, amortization of stock-based compensation net, deferred rent, amortization of in-place lease valuation, acquisition-related costs, financed termination fee, net of payments received, gain or loss from the extinguishment of debt, unrealized gains (losses) on derivative instruments and dead deal costs. FFO and AFFO have been revised to include amounts available to both common stockholders and limits partners for all periods presented.
AFFO is a measure used among our peer group, which includes daily NAV REITs. We also believe that AFFO is a recognized measure of sustainable operating performance by the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies.
Management believes that AFFO is a beneficial indicator of our ongoing portfolio performance and ability to sustain our current distribution level. More specifically, AFFO isolates the financial results of our operations. AFFO, 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, AFFO for the period presented may not be indicative of future results or our future ability to pay our dividends. By providing FFO and AFFO, we present information that assists investors in aligning their analysis with management’s analysis of long-term operating activities.
For all of these reasons, we believe the non-GAAP measures of FFO and AFFO, 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 AFFO 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
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FFO and AFFO. The use of AFFO 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. AFFO is useful in assisting management and investors in assessing our ongoing 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 AFFO are not useful measures in evaluating NAV because impairments are taken into account in determining NAV but not in determining FFO and AFFO. Therefore, FFO and AFFO 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 AFFO 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.
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Our calculation of FFO and AFFO is presented in the following table for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands, except per share amounts):
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net income $(7,475)$12,216 $1,347 $39,087 
Adjustments:
Depreciation of building and improvements23,759 22,843 69,957 57,473 
Amortization of leasing costs and intangibles16,232 18,590 51,207 54,817 
Impairment provision9,572 — 22,195 — 
Equity interest of depreciation of building and improvements - unconsolidated entities— 712 1,438 2,076 
Equity interest of amortization of intangible assets - unconsolidated entities— 1,158 1,751 3,474 
Gain from disposition of assets— (8,441)(4,268)(8,441)
Equity interest of gain on sale - unconsolidated entities— (3,609)— (3,609)
Impairment on unconsolidated entities— — 1,906 — 
FFO42,088 43,469 145,533 144,877 
Distribution to redeemable preferred shareholders(2,255)(2,047)(6,349)(6,141)
FFO attributable to common stockholders and limited partners$39,833 $41,422 $139,184 $138,736 
Reconciliation of FFO to AFFO:
FFO attributable to common stockholders and limited partners$39,833 $41,422 $139,184 $138,736 
Adjustments:
Revenues in excess of cash received, net(7,001)(5,067)(19,441)(9,655)
Amortization of share-based compensation992 950 3,116 1,589 
Amortization of above/(below) market rent, net(525)(871)(1,765)(2,639)
Amortization of debt premium/(discount), net103 109 309 191 
Amortization of ground leasehold interests (73)7 (217)21 
Deferred rent - ground lease516 293 1,548 879 
Unrealized gains (loss) on investments(130)— (118)— 
Unconsolidated joint venture valuation adjustment4,452 — 4,452 — 
Non-cash lease termination income — — — (10,150)
Financed termination fee payments received1,500 1,500 4,500 3,008 
Company's share of revenues in excess of cash received (straight-line rents) - unconsolidated entity— 233 505 295 
Company's share of amortization of above market rent - unconsolidated entity— 924 1,419 2,772 
Performance fee adjustment — — — (2,604)
Implementation of lease accounting guidance— 2,052 — — 
Non-cash earn-out adjustment— — (2,581)— 
Dead deal costs — — 52 — 
AFFO available to common stockholders and limited partners$39,667 $41,552 $130,963 $122,443 
FFO per share, basic and diluted$0.15 $0.15 $0.53 $0.56 
AFFO per share, basic and diluted$0.15 $0.15 $0.50 $0.49 
Weighted-average common shares outstanding - basic EPS230,159,620 246,609,614 229,950,613 217,375,026 
Weighted-average OP Units31,905,390 31,973,867 31,946,600 30,603,488 
Weighted-average common shares and OP Units outstanding - basic FFO/AFFO262,065,010 278,583,481 261,897,213 247,978,514 
Liquidity and Capital Resources
Long-Term Liquidity and Capital Resources
On a long-term basis, our principal demands for funds will be for the payment of operating and capital expenses, including costs associated with re-leasing a property, distributions, including preferred equity distributions and redemptions, and for the payment of debt service on our outstanding indebtedness, including repayment of our Second Amended and Restated Credit Agreement, and property secured mortgage loans. Generally, cash needs for items, other than property acquisitions, will be met from funds from operations and our Revolving Credit Facility. After a purchase contract is executed
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that contains specific terms, the property will not be purchased until the successful completion of due diligence, which includes review of the title insurance commitment, an appraisal and an environmental analysis. In some instances, the proposed acquisition will require the negotiation of final binding agreements, which may include financing documents. During this period, we may decide to repay debt as allowed under the loan agreements or temporarily invest in certain investments that could yield lower returns than the properties. These lower returns may affect our ability to make distributions.
COVID-19
The COVID-19 pandemic continues to significantly adversely impact global commercial activity and has contributed to significant volatility in financial markets. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to our performance and financial results, such as the potential negative impact on occupancy at our properties, financing arrangements, increased costs of operations, changes in law and/or regulations, and uncertainty regarding government and regulatory policy.
While the long-term impact of the COVID-19 pandemic to our business is not yet known, our management believes we are well positioned from a liquidity perspective with $399.0 million of immediate liquidity as of September 30, 2020, consisting of $217.2 million undrawn on our Revolving Credit Facility and $181.7 million of cash on hand. In April 2020, we borrowed an additional $125.0 million from our Revolving Credit Facility for potential upcoming capital expenditure requirements and to provide us with a flexible conservative cash management position. See “Item 1A. Risk Factors” within “Part II - Other Information” of our March 31, 2020 quarterly report on Form 10-Q for a discussion about risks that COVID-19 directly or indirectly may pose to our business.
Follow-On Offering
On September 20, 2017, we commenced a Follow-On Offering of up to $2.2 billion of shares, consisting of up to $2.0 billion of shares in our primary offering and $0.2 billion of shares pursuant to our DRP. Pursuant to the Follow-On Offering, we offered to the public four new classes of shares of common stock: Class T shares, Class S shares, Class D shares, and Class I shares with NAV-based pricing. The share classes have different selling commissions, dealer manager fees, and ongoing distribution fees and eligibility requirements.
On February 26, 2020, our Board approved the temporary suspension of the primary portion of our Follow-On Offering, effective February 27, 2020. The Follow-On Offering terminated with the expiration of the Registration Statement on September 20, 2020.
Distribution Reinvestment Plan
On February 26, 2020, our Board approved the temporary suspension of our DRP, effective March 8, 2020.
On July 16, 2020, the Board approved the (i) reinstatement of the DRP, effective July 27, 2020; and (ii) amendment of the DRP to allow for the use of the most recently published NAV per share of the applicable share class available at the time of reinvestment as the DRP purchase price for each share class.
Share Redemption Program
On February 26, 2020, our Board approved the temporary suspension of our SRP, effective March 28, 2020. Redemptions sought upon a stockholder's death, qualifying disability, or determination of incompetence or incapacitation were honored in the first quarter of 2020 in accordance with the terms of the SRP, and the SRP was officially suspended as of March 28, 2020 for regular redemptions and subsequent redemptions for death, qualifying disability, or determination of incompetence or incapacitation after those honored in the first quarter of 2020.
On July 16, 2020, the Board approved the partial reinstatement of the SRP, effective August 17, 2020, subject to the following limitations: (A) redemptions will be limited to those sought upon a stockholder's death, qualifying disability, or determination of incompetence or incapacitation in accordance with the terms of the SRP, and (B) the quarterly cap on aggregate redemptions will be equal to the aggregate NAV, as of the last business day of the previous quarter, of the shares issued pursuant to the DRP during such quarter. Settlements of share redemptions will be made within the first three business days of the following quarter.


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Distribution Rate
On March 30, 2020, our Board limited the annualized distribution rate to $0.35/share, all-cash, subject to adjustments for class-specific expenses. This change commenced with distributions during the month of April 2020, and paid in early May 2020.
Second Amended and Restated Credit Agreement
On April 30, 2019, we, through the Current Operating Partnership, entered into that certain Second Amended and Restated Credit Agreement related to a Revolving Credit Facility and the Term Loans with a syndicate of lenders, under which KeyBank serves as administrative agent.
Pursuant to the Second Amended and Restated Credit Agreement, we were provided with a Revolving Credit Facility in an initial commitment amount of $750.0 million (the "Revolving Commitment"), a five-year term loan (the "2023 Term Loan") in an initial commitment amount of $200.0 million (the "2023 Term Commitment"), a five-year term loan (the "2024 Term Loan") in an initial commitment amount of $400.0 million (the "2024 Term Commitment"), and a seven-year term loan (the "2026 Term Loan") in an initial commitment amount of $150.0 million (the "2026 Term Commitment"), which commitments may be increased under certain circumstances up to a maximum total commitment of $2.0 billion. Any increase in the total commitment will be allocated to the Revolving Credit Facility and/or the Term Loans in such amounts as the Current Operating Partnership and KeyBank may determine. The KeyBank Loans are evidenced by promissory notes that are substantially similar related to each lender and the amount committed by such lender. Increases in the commitment amount must be made in amounts of not less than $25.0 million, and increases of $25.0 million in increments in excess thereof, provided that such increases do not exceed the maximum total commitment amount of $2.0 billion. The Current Operating Partnership may also reduce the amount of the Revolving Commitment in increments of $50.0 million, provided that at no time will the Revolving Credit Facility be less than $150.0 million, and such a reduction will preclude the Current Operating Partnership's ability to later increase the commitment amount. The Revolving Credit Facility may be prepaid and terminated, in whole or in part, at any time without fees or penalty.
The Revolving Credit Facility has an initial term of approximately three years, maturing on June 28, 2022. The Revolving Credit Facility may be extended for a one-year period if certain conditions are met and the Current Operating Partnership pays an extension fee. Payments under the Revolving Credit Facility are interest only and are due on the first day of each quarter. Amounts borrowed under the Revolving Credit Facility may be repaid and reborrowed, subject to the terms of the Second Amended and Restated Credit Agreement.
The 2023 Term Loan has an initial term of approximately four years, maturing on June 28, 2023. Payments under the 2023 Term Loan are interest only and are due on the first day of each quarter. Amounts borrowed under the 2023 Term Loan may not be repaid and reborrowed.
The 2024 Term Loan has an initial term of five years, maturing on April 30, 2024. Payments under the 2024 Term Loan are interest only and are due on the first day of each quarter. Amounts borrowed under the 2024 Term Loan may not be repaid and reborrowed.
The 2026 Term Loan has an initial term of seven years, maturing on April 30, 2026. Payments under the 2026 Term Loan are interest only and are due on the first day of each quarter. Amounts borrowed under the 2026 Term Loan may not be repaid and reborrowed.
The KeyBank Loans have an interest rate calculated based on LIBOR plus the applicable LIBOR margin, as provided in the Second Amended and Restated Credit Agreement, or the Base Rate plus the applicable base rate margin, as provided in the agreement. The applicable LIBOR margin and base rate margin are dependent on the consolidated leverage ratio of our Current Operating Partnership, us, and our subsidiaries, as disclosed in the periodic compliance certificate provided to our administrative agent each quarter. If the Current Operating Partnership obtains an investment grade rating of its senior unsecured long term debt from Standard & Poor's Rating Services, Moody's Investors Service, Inc., or Fitch, Inc., the applicable LIBOR margin and base rate margin will be dependent on such rating.
LIBOR is expected to be discontinued after 2021. As of September 30, 2020, our KeyBank Loans and $750.0 million in notional value of derivatives are indexed to LIBOR which mature after 2021. The agreement governing our KeyBank Loans provides procedures for determining a replacement or alternative base rate in the event that LIBOR is discontinued. However, there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR.
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The International Swaps and Derivatives Association is expected to issue protocols to allow swap parties to amend their existing contracts. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and work with our lenders to seek to ensure that any transition away from LIBOR will have minimal impact on our financial condition, but we can provide no assurances regarding the impact of the discontinuation of LIBOR.
First Amendment to the Second Amended and Restated Credit Agreement
On October 1, 2020, we entered into the first amendment to the Second Amended and Restated Credit Agreement (the “First Amendment”) which eliminates the requirement to obtain approval of the majority lenders, as defined in the Second Amended and Restated Credit Agreement, to enter into any merger which will result in an increase in our total asset value by 25% or more; allowing for greater flexibility in the acquisition of assets or portfolios of assets.
As of September 30, 2020, the remaining capacity pursuant to the Revolving Credit Facility was $217.2 million.
Derivative Instruments
As discussed in Note 6, Interest Rate Contracts, to the consolidated financial statements, we entered into interest rate swap agreements to hedge the variable cash flows associated with certain existing or forecasted, LIBOR-based variable-rate debt, including our Second Amended and Restated Credit Agreement. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income ("AOCI") and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of debt. The ineffective portion of the change in the fair value of the derivatives is recognized directly in earnings.
The following table sets forth a summary of the interest rate swaps at September 30, 2020 and December 31, 2019 (dollars in thousands):
Fair Value (1)
Current Notional Amounts
Derivative InstrumentEffective DateMaturity DateInterest Strike RateSeptember 30, 2020December 31, 2019September 30, 2020December 31, 2019
Assets/(Liabilities):
Interest Rate Swap3/10/20207/1/20250.83%$(3,374)$— $150,000 $— 
Interest Rate Swap3/10/20207/1/20250.84%(2,300)— 100,000 — 
Interest Rate Swap3/10/20207/1/20250.86%(1,791)— 75,000 — 
Interest Rate Swap7/1/20207/1/20252.82%(15,064)(7,038)125,000 125,000 
Interest Rate Swap7/1/20207/1/20252.82%(12,074)(5,651)100,000 100,000 
Interest Rate Swap7/1/20207/1/20252.83%(12,084)(5,665)100,000 100,000 
Interest Rate Swap7/1/20207/1/20252.84%(12,165)(5,749)100,000 100,000 
Interest Rate Swap7/9/20157/1/20201.69%— (43)— 425,000 
Total$(58,852)$(24,146)$750,000 $850,000 
(1)We record all derivative instruments on a gross basis in the consolidated balance sheets, and accordingly, there are no offsetting amounts that net assets against liabilities. As of September 30, 2020, derivatives in a liability position are included in the line item "Interest rate swap liability," in the consolidated balance sheets at fair value.
Perpetual Convertible Preferred Shares
Upon consummation of the Mergers, we issued 5,000,000 Series A Preferred Shares to the Purchaser (defined below). We assumed the purchase agreement (the "Purchase Agreement") that EA-1 entered into on August 8, 2018 with SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13(H) (acting through Kookmin Bank as trustee) (the "Purchaser") and Shinhan BNP Paribas Asset Management Corporation, as an asset manager of the Purchaser, pursuant to which the Purchaser agreed to purchase an aggregate of 10,000,000 shares of EA-1 Series A Cumulative Perpetual Convertible Preferred Stock at a price of $25.00 per share (the "EA-1 Series A Preferred Shares") in two tranches, each comprising 5,000,000 EA-1 Series A Preferred Shares.
Pursuant to the Purchase Agreement, the Purchaser has agreed to purchase an additional 5,000,000 Series A Preferred Shares at a later date for an additional purchase price of $125 million subject to approval by the Purchaser’s internal investment committee and the satisfaction of the conditions in the Purchase Agreement, including, but not limited to, the execution of an Ownership Limit Exemption Agreement. Pursuant to the Purchase Agreement, the Purchaser is generally restricted from
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transferring the Series A Preferred Shares or the economic interest in the Series A Preferred Shares for a period of five years from the closing date.
Distributions for Perpetual Convertible Preferred Shares
Subject to the terms of the applicable articles supplementary, the holders of the Series A Preferred Shares are entitled to receive distributions quarterly in arrears at a rate equal to one-fourth (1/4) of the applicable varying rate, as follows:
i.an initial annual distribution rate of 6.55%, or if our board of directors decides to proceed with the Second Issuance, 6.55% from and after the Second Issuance Date until the five year anniversary of the First Issuance Date, or if the Second Issuance occurs, the five year anniversary of the Second Issuance Date, subject to paragraphs (iii) and (iv) below;
ii.6.75% from and after the Reset Date, subject to paragraphs (iii) and (iv) below;
iii.if a listing (“Listing”) of our shares of common stock or the Series A Preferred Shares on a national securities exchange registered under Section 6(a) of the Exchange Act, does not occur by August 1, 2020. 7.55% from and after August 2, 2020 and 7.75% from and after the Reset Date, subject to certain conditions as set forth in the articles supplementary; or
iv.if a Listing does not occur by August 1, 2021, 8.05% from and after August 2, 2021 until the Reset Date, and 8.25% from and after the Reset Date.
As of September 30, 2020, our annual distribution rate was 7.55% for the Series A Preferred Shares since a Listing of our shares did not occur prior to August 1, 2020.
Other Potential Future Sources of Capital
Other potential future sources of capital include proceeds from potential private or public offerings of our stock or OP Units of our Current Operating Partnership, proceeds from secured or unsecured financings from banks or other lenders, including debt assumed in a real estate acquisition transaction, proceeds from the sale of properties and undistributed funds from operations. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures. To the extent we are not able to secure additional financing in the form of a credit facility or other third party source of liquidity, we will be heavily dependent upon our current financing and income from operations.
Contractual Commitments and Contingencies
The following is a summary of our contractual obligations as of September 30, 2020 (in thousands):
 Payments Due During the Years Ending December 31,
 Total 20202021-20222023-2024Thereafter
Outstanding debt obligations (1)
$2,182,615 $1,844 $19,982 $796,579 $1,364,210 
Interest on outstanding debt obligations (2)
347,952 15,955 126,384 99,274 106,339 
Interest rate swaps (3)
66,518 3,424 27,540 27,540 8,014 
Ground lease obligations 295,429 427 3,062 3,833 288,107 
Total$2,892,514 $21,650 $176,968 $927,226 $1,766,670 
(1)Amounts only include principal payments. The payments on our mortgage debt do not include the premium/discount or debt financing costs.
(2)Projected interest payments are based on the outstanding principal amounts at September 30, 2020. Projected interest payments on the Revolving Credit Facility and Term Loan are based on the contractual interest rates in effect at September 30, 2020.
(3)The interest rate swaps contractual commitment was calculated based on the swap rate less the LIBOR as of September 30, 2020.
Short-Term Liquidity and Capital Resources
We expect to meet our short-term operating liquidity requirements with operating cash flows generated from our properties and draws from our KeyBank Loans.
Our cash, cash equivalents and restricted cash balances increased by approximately $86.4 million during the nine months ended September 30, 2020 compared to the same period a year ago and were primarily used in or provided by the following (in thousands):
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Nine Months Ended September 30,
20202019Change
Net cash provided by operating activities$128,953 $119,423 $9,530 
Net cash (used in) provided by investing activities$(34,459)$11,743 $(46,202)
Net cash provided by (used in) financing activities$9,809 $(113,276)$123,085 
Operating Activities. Cash flows provided by operating activities are primarily dependent on the occupancy level, the rental rates of our leases, the collectability of rent and recovery of operating expenses from our tenants, and the timing of acquisitions. During the nine months ended September 30, 2020, we generated $129.0 million in cash from operating activities compared to $119.4 million for the nine months ended September 30, 2019. Net cash provided by operating activities before changes in operating assets and liabilities for the nine months ended September 30, 2020 increased by approximately $2.6 million to approximately $129.5 million compared to approximately $126.9 million for the nine months ended September 30, 2019.
Investing Activities. Cash provided by investing activities for the nine months ended September 30, 2020 and 2019 consisted of the following (in thousands):
 Nine Months Ended September 30,
2020 2019Increase (decrease)
Sources of cash (used in) provided by investing activities:
Distributions of capital from investment in unconsolidated entities$8,530 $13,189 $(4,659)
Proceeds from disposition of properties23,480 46,784 (23,304)
Real estate acquisition deposits1,047 — 1,047 
Restricted reserves159 2,030 (1,871)
Cash acquired in connection with the Mergers, net of acquisition costs— 25,321 (25,321)
Total sources of cash (used in) provided by investing activities$33,216 $87,324 $(54,108)
Uses of cash for investing activities:
Acquisition of properties, net$(16,584)$(37,781)$21,197 
Payments for construction in progress(41,981)(29,447)(12,534)
Contributions of capital for investment in unconsolidated entities(8,160)— (8,160)
Purchase of investments(950)(8,353)7,403 
Total uses of cash (used in) provided by investing activities $(67,675)$(75,581)$7,906 
 Net cash (used in) provided by investing activities$(34,459)$11,743 $(46,202)











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Financing Activities. Cash used in financing activities for the nine months ended September 30, 2020 and 2019 consisted of the following (in thousands):
Nine Months Ended September 30,
20202019Increase (decrease)
Sources of cash (used in) provided by financing activities:
Proceeds from borrowings - Revolver Loan$215,000 $215,854 $(854)
Issuance of common stock, net of discounts and underwriting costs4,699 2,789 1,910 
Total sources of cash (used in) provided by financing activities$219,699 $218,643 $1,056 
Uses of cash (used in) provided by financing activities:
Proceeds from borrowings - KeyBank Loans $— $627,000 $(627,000)
Principal payoff of secured indebtedness - Unsecured Credit Facility - EA-1(25,000)(715,000)690,000 
Principal amortization payments on secured indebtedness(5,341)(4,903)(438)
Deferred financing costs(145)(5,737)5,592 
Offering costs(490)(1,707)1,217 
Repurchase of common stock(101,761)(98,928)(2,833)
Repurchase of noncontrolling interest(1,137)— (1,137)
Principal payoff of secured indebtedness - Revolver Loan— (44,439)44,439 
Distributions to noncontrolling interests(10,521)(12,506)1,985 
Distributions to preferred units subject to redemption(6,141)(6,141)— 
Distributions to common stockholders(59,354)(69,558)10,204 
Total sources of cash (used in) provided by financing activities$(209,890)$(331,919)$122,029 
 Net cash (used in) provided by financing activities$9,809 $(113,276)$123,085 
Distributions and Our Distribution Policy
Distributions will be paid to our stockholders as of the record date selected by our Board. We expect to continue to pay distributions monthly based on daily declaration and record dates. We expect to pay distributions regularly unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so. Distributions will be authorized at the discretion of our Board, which will be directed, in substantial part, by its obligation to cause us to comply with the REIT requirements of the Internal Revenue Code. The funds we receive from operations that are available for distribution may be affected by a number of factors, including the following:
•our operating and interest expenses;
•the amount of distributions or dividends received by us from our indirect real estate investments;
•our ability to keep our properties occupied;
•our ability to maintain or increase rental rates;
•tenant improvements, capital expenditures and reserves for such expenditures;
•the issuance of additional shares; and
•financings and refinancings.
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Distributions may be funded with operating cash flow from our properties, any future public offerings, or a combination thereof. To the extent that we do not have taxable income, distributions paid will be considered a return of capital to stockholders. The following table shows distributions paid, and cash flow provided by operating activities during the nine months ended September 30, 2020 and year ended December 31, 2019 (dollars in thousands):
Nine Months Ended September 30, 2020Year Ended December 31, 2019
Distributions paid in cash — noncontrolling interests$10,521 $16,865 
Distributions paid in cash — common stockholders59,354 90,116 
Distributions paid in cash — preferred stockholders6,141 8,188 
Distributions of DRP17,165 41,060 
Total distributions$93,181 (1)$156,229 
Source of distributions (2)
Paid from cash flows provided by operations$76,016 82 %$115,169 74 %
Offering proceeds from issuance of common stock pursuant to the DRP17,165 18 %41,060 26 %
Total sources$93,181 (3)100 %$156,229 100 %
Net cash provided by operating activities$128,953 $160,849 
(1)Distributions are paid on a monthly basis in arrears. Distributions for all record dates of a given month are paid on or about the first business day of the following month. Total cash distributions declared but not paid as of September 30, 2020 were $7.6 million for common stockholders and noncontrolling interests.
(2)Percentages were calculated by dividing the respective source amount by the total sources of distributions.
(3)Allocation of total sources are calculated on a quarterly basis.
For the nine months ended September 30, 2020, we paid and declared cash distributions of approximately $72.0 million to common stockholders including shares issued pursuant to the DRP and approximately $9.9 million to the limited partners of our Current Operating Partnership, as compared to FFO, attributable to common stockholders and limited partners and AFFO available to common stockholders and limited partners for the nine months ended September 30, 2020 of approximately $139.2 million and $131.0 million, respectively. The payment of distributions from sources other than FFO or AFFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. From our inception through September 30, 2020, we paid approximately $827.6 million of cumulative distributions (excluding preferred distributions), including approximately $311.0 million reinvested through our DRP, as compared to net cash provided by operating activities of approximately $540.0 million.
Off-Balance Sheet Arrangements
As of September 30, 2020, we had no off-balance sheet transactions, nor do we currently have any such arrangements or obligations.
Subsequent Events
See Note 15, Subsequent Events, to the consolidated financial statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risks include risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market-sensitive instruments. We expect that the primary market risk to which we will be exposed is interest rate risk, including the risk of changes in the underlying rates on our variable rate debt. Our current indebtedness consists of our credit facility Loans, AIG, AIG II, BOA, BOA/KeyBank loans and property secured mortgages. These instruments were not entered into for trading purposes.
Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also utilize a variety of financial instruments, including interest rate swap agreements, caps, floors, and other interest rate exchange contracts. We will not enter into these financial instruments for speculative purposes. The use of these types of instruments to hedge a portion of our exposure to changes in interest rates carries additional risks, such as counterparty credit risk and the legal enforceability of hedging contracts.
On July 9, 2015, we executed one interest rate swap agreement to hedge the variable cash flows associated with LIBOR. The interest rate swap was effective for the period from July 9, 2015 to July 1, 2020 with a notional amount of $425.0 million, which matured during the third quarter of 2020.
On August 31, 2018, we executed four interest rate swap agreements to hedge future variable cash flows associated with LIBOR. The forward-starting interest rate swaps with a total notional amount of $425.0 million became effective on July 1, 2020 and have a term of five years.
On March 10, 2020, we entered into three interest rate swap agreements to hedge variable cash flows associated with LIBOR. Three interest rate swaps became effective on March 10, 2020, and have a term of approximately five and half years with notional amounts of $150.0 million, $100.0 million and $75.0 million.
As of September 30, 2020, our debt consisted of approximately $1.8 billion in fixed rate debt (including the interest rate swaps) and approximately $401.5 million in variable rate debt (excluding unamortized deferred financing cost and discounts, net, of approximately $8.3 million). As of December 31, 2019, our debt consisted of approximately $1.4 billion in fixed rate debt (including the effect of interest rate swaps) and approximately $536.5 million in variable rate debt (excluding unamortized deferred financing cost and discounts, net, of approximately $10.0 million). Changes in interest rates have different impacts on the fixed and variable rate debt. A change in interest rates on fixed rate debt impacts its fair value but has no effect on interest incurred or cash flows. A change in interest rates on variable rate debt could affect the interest incurred and cash flows and its fair value.
Our future earnings and fair values relating to variable rate financial instruments are primarily dependent upon prevalent market rates of interest, such as LIBOR. However, our interest rate swap agreements are intended to reduce the effects of interest rate changes. The effect of an increase of 100 basis points in interest rates, assuming a LIBOR floor of 0%, on our variable-rate debt, including our KeyBank Loans, after considering the effect of our interest rate swap agreements, would decrease our future earnings and cash flows by approximately $4.1 million annually.
Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, management, with the participation of our principal executive and principal financial officers, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Securities and Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for us. Our management, including our chief executive officer and chief financial officer, evaluated, as of September 30, 2020, the effectiveness of our internal control over financial reporting using the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of September 30, 2020.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the SEC on March 4, 2020 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 as filed with the SEC on May 12, 2020. Except as presented below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
The exchange ratio payable in connection with the REIT Merger is fixed and will not be adjusted in the event of any change in the relative values of CCIT II or the Company.
Upon the consummation of the REIT Merger, each issued and outstanding share of CCIT II’s common stock (other than certain excluded shares) will be converted into the right to receive 1.392 shares of the Company’s Class E Common Stock, in accordance with the CCIT II Merger Agreement. Such exchange ratio will not be adjusted, other than in the limited circumstances as expressly contemplated in the CCIT II Merger Agreement in connection with stock splits, combinations, reorganizations, or other similar events affecting the outstanding CCIT II common stock or the Company’s common stock. Except as expressly contemplated in the CCIT II Merger Agreement, no change in the REIT Merger Consideration will be made for any reason, including: (i) changes in the respective businesses, operations, assets, liabilities and prospects of CCIT II or the Company; (ii) changes in the estimated NAV per share of either the shares of CCIT II common stock or the Company's Class E Common Stock; (iii) interest rates, general market and economic conditions and other factors generally affecting the businesses of CCIT II or the Company; (iv) federal, state and local legislation, governmental regulation and legal developments in the businesses in which CCIT II or the Company operate; (v) dissident stockholder activity, including any stockholder litigation challenging the CCIT II Mergers; (vi) other factors beyond the control of CCIT II and the Company, including those described or referred to elsewhere in this “Risk Factors” section; and (vii) acquisitions, dispositions or new development opportunities.
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Any such changes may materially alter or affect the relative values of CCIT II and the Company and, as a result, the REIT Merger Consideration may be more or less than the current fair value of the Company's shares of Class E Common Stock.
Completion of the CCIT II Mergers is subject to many conditions and if these conditions are not satisfied or waived, the CCIT II Mergers will not be completed, which could result in the CCIT II Mergers being terminated resulting in the expenditure of significant unrecoverable transaction costs.
The CCIT II Mergers are subject to many conditions that must be satisfied or to the extent permitted by law, waived in order to complete the CCIT II Mergers. The mutual conditions of the parties include, among others, receipt of the approval of the REIT Merger (and of an amendment to CCIT II’s charter that is required to consummate the REIT Merger) by holders of a majority of the outstanding shares of the CCIT II common stock entitled to vote thereon, the delivery of certain documents and legal opinions, and the effectiveness of the registration statement on Form S-4 to register the shares of the Company’s Class E Common Stock to be issued as consideration in the REIT Merger.
There can be no assurance that the conditions to closing of the CCIT II Mergers will be satisfied or waived or that the CCIT II Mergers will be completed. Failure to consummate the CCIT II Mergers may adversely affect the Company's results of operations and the Company's ongoing business could be adversely affected for the following reasons, among others: (i) the Company will have incurred and will continue to incur certain transaction costs, regardless of whether the CCIT II Mergers close, which could adversely affect the Company's financial condition, results of operations and ability to make distributions to its stockholders; and (ii) the CCIT II Mergers, whether or not they close, may divert some of the attention of certain of the Company's management from ongoing business activities, including the pursuit of other opportunities that could be beneficial to the Company. In addition, CCIT II or the Company may terminate the CCIT II Merger Agreement under certain circumstances, including, among other reasons, if the CCIT II Mergers are not completed by May 30, 2021.
The Company expects to incur substantial costs related to completion of the CCIT II Mergers.
The Company expects to incur substantial costs in connection with completing the CCIT II Mergers and integrating the properties and operations of CCIT II with the Company. While the Company has assumed that a certain level of transaction costs would be incurred, there are a number of factors beyond the Company's control that could affect the total amount or the timing of such costs. Many of the costs that will be incurred, by their nature, are difficult to estimate accurately at the present time. As a result, following the completion of the CCIT II Mergers, the transaction costs associated with the CCIT II Mergers could diminish the near-term cost savings that the Company expects to achieve from the elimination of duplicative costs and the realization of economies of scale.
The REIT Merger will dilute the ownership position of our stockholders and result in CCIT II’s stockholders having an ownership stake in the Combined Company.
The REIT Merger will result in CCIT II stockholders having an ownership stake in the Combined Company, which will dilute the ownership position of our stockholders. Based on the number of shares of our common stock and CCIT II common stock outstanding on June 30, 2020, our current stockholders would own approximately 74% of the issued and outstanding shares of our common stock following the REIT Merger. Consequently, our stockholders, as a general matter, will have less influence over the management and policies of the Combined Company following the CCIT II Mergers than currently exercisable over our management and policies.
If the CCIT II Mergers are not consummated by May 30, 2021 (unless extended under certain circumstances), the Company or CCIT II may terminate the CCIT II Merger Agreement.
Either the Company or CCIT II may terminate the CCIT II Merger Agreement under certain circumstances, including if the CCIT II Mergers have not been consummated by May 30, 2021. However, this termination right will not be available to a party if that party failed to fulfill its obligations under the CCIT II Merger Agreement and that failure was the cause of, or resulted in, the failure to consummate the CCIT II Mergers by May 30, 2021.
Litigation challenging the CCIT II Mergers may increase costs and prevent the CCIT II Mergers from becoming effective within the expected timeframe, or from being completed at all.
If any stockholder files a lawsuit challenging the CCIT II Mergers, the Company cannot provide any assurance as to the outcome of any such lawsuit, including the costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation or settlement of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the CCIT II Mergers on the agreed-upon terms, such an injunction may prevent the completion of the CCIT II Mergers in the expected time frame or may prevent them from being completed at all. Whether or
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not any such plaintiffs’ claims are successful, this type of litigation is often expensive and diverts management’s attention and resources, which could adversely affect the operations of each company’s business.
The Combined Company’s anticipated level of indebtedness will increase upon completion of the CCIT II Mergers.
In connection with the CCIT II Mergers, the Company will refinance certain indebtedness of CCIT II and will be subject to risks associated with debt financing, including a risk that the Combined Company’s cash flow could be insufficient to meet required payments on its debt. As of September 30, 2020, the Company had approximately $2.2 billion of outstanding indebtedness for borrowed money and approximately $398.0 million of liquidity (cash and cash equivalents and amounts available to be drawn under the Revolving Credit Facility). After giving effect to the CCIT II Mergers, the Combined Company’s total pro forma consolidated indebtedness as of September 30, 2020 (using June 30, 2020 for CCIT II) would be approximately $2.6 billion and its liquidity would be approximately $314.0 million (cash and cash equivalents and amounts available to be drawn under the Revolving Credit Facility).
The Combined Company’s indebtedness could have important consequences to the Combined Company's stockholders, including: (i) vulnerability of the Combined Company to general adverse economic and industry conditions; (ii) limiting the Combined Company’s ability to obtain additional financing to fund future working capital, acquisitions, capital expenditures and other general corporate requirements; (iii) requiring the use of an increased portion of the Combined Company’s cash flow from operations for the payment of principal and interest on its indebtedness, thereby reducing its ability to use its cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements; (iv) limiting the Combined Company’s flexibility in planning for, or reacting to, changes in its business and its industry; (v) putting the Combined Company at a disadvantage compared to its competitors with less indebtedness; and (vi) limiting the Combined Company’s ability to access capital markets or the possibility of a listing on a securities exchange.
The future results of the Combined Company will suffer if the Combined Company does not effectively manage its expanded operations following the CCIT II Mergers.
Following the CCIT II Mergers, the Combined Company expects to continue to expand its operations including strategic transactions, some of which may involve complex challenges. The future success of the Combined Company will depend, in part, upon the ability of the Combined Company to manage its expansion opportunities, which may pose substantial challenges for the Combined Company to integrate new operations into its existing business in an efficient and timely manner, and upon its ability to successfully monitor its operations, costs, regulatory compliance and service quality, and to maintain other necessary internal controls. There is no assurance that the Combined Company’s strategic opportunities will be successful, or that the Combined Company will realize its expected operating efficiencies, cost savings, revenue enhancements, or other benefits.
Following the consummation of the CCIT II Mergers, the Combined Company will assume certain potential liabilities relating to CCIT II.
Following the consummation of the CCIT II Mergers, the Combined Company will have assumed certain potential liabilities relating to CCIT II. These liabilities could have a material adverse effect on the Combined Company’s business to the extent the Combined Company has not identified such liabilities or has underestimated the scope of such liabilities.
If the Combined Company has a potential liquidity event in the future (such as a merger, listing or sale of assets) (a “Strategic Transaction”), the market value ascribed to the shares of common stock of the Combined Company upon the Strategic Transaction may be lower than the estimated value per share of the Company and CCIT II considered by their respective boards of directors in approving and recommending the REIT Merger.
In approving and recommending the REIT Merger, the Company's Board, the CCIT II Special Committee (as defined in the CCIT II Merger Agreement), and CCIT II’s board of directors considered the most recent estimated value per share of CCIT II and the Company as determined by the respective boards of directors with the assistance of respective third-party financial advisors and appraisers. In the event that the Combined Company completes a Strategic Transaction after consummation of the CCIT II Mergers, such as a listing of its shares on a national securities exchange, a merger in which stockholders of the Combined Company receive securities that are listed on a national securities exchange, or a sale of the Combined Company for cash, the market value of the shares of the Combined Company upon consummation of such Strategic Transaction may be lower than the estimated values considered by CCIT II’s board of directors, the CCIT II Special Committee, and the Company's Board and the estimated value per share of the Company that may be reflected on the account statements of stockholders of the Combined Company after consummation of the CCIT II Mergers. There can be no assurance, however, that any such Strategic Transaction will occur.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Share Redemption Program
On July 16, 2020, the Board approved the partial reinstatement of the SRP, effective August 17, 2020, subject to the following limitations: (A) redemptions will be limited to those sought upon a stockholder's death, qualifying disability, or determination of incompetence or incapacitation in accordance with the terms of the SRP, and (B) the quarterly cap on aggregate redemptions will be equal to the aggregate NAV, as of the last business day of the previous quarter, of the shares issued pursuant to the DRP during such quarter. Settlements of share redemptions will be made within the first three business days of the following quarter.

During the quarter ended September 30, 2020, we redeemed shares as follows:
For the Month EndedTotal Number of Shares repurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet be Purchased Under the Plans or Programs
July 31, 2020— $— ——
August 31, 2020— $— ——
September 30, 2020693,199 $8.86 —(1)
(1)For a description of the maximum number of shares that may be purchased under our SRP, see Note 9, Equity.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.
ITEM 5. OTHER INFORMATION
(a)During the quarter ended September 30, 2020, there was no information required to be disclosed in a report on Form 8-K which was not disclosed in a report on Form 8-K.
(b)During the quarter ended September 30, 2020, there were no material changes to the procedures by which security holders may recommend nominees to the Board.
ITEM 6. EXHIBITS
The exhibits required to be filed with this report are set forth on the Exhibit Index hereto and incorporated by reference herein.
EXHIBIT INDEX
The following exhibits are included in this Quarterly Report on Form 10-Q for the period ended September 30, 2020 (and are numbered in accordance with Item 601 of Regulation S-K).
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Exhibit
No.		Description
101*
The following Griffin Capital Essential Asset REIT, Inc. financial information for the period ended September 30, 2020 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive Income (Loss) (unaudited), (iv) Consolidated Statements of Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited) and (vi) Notes to Consolidated Financial Statements (unaudited).
*
Filed herewith.
**
Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
(Registrant)

Dated:November 6, 2020By: 
/s/ Javier F. Bitar
 
Javier F. Bitar
 On behalf of the Registrant and as Chief Financial Officer and Treasurer (Principal Financial Officer)
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