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

FORM 10-Q
____________________________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
¨
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: 000-54377
_______________________________________________
Griffin Capital Essential Asset REIT, Inc.
(Exact name of Registrant as specified in its charter)
________________________________________________
Maryland
 
26-3335705
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)

Griffin Capital Plaza
1520 E. Grand Ave

El Segundo, California 90245
(Address of principal executive offices)
(310) 469-6100
(Registrant’s telephone number)

__________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes   x      No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
 
x   (Do not check if a smaller reporting company)
 
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   x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 10, 2018 : 165,530,395 shares of common stock, $0.001 par value per share.

1
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, all of which are 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, 2017 , as updated by our Form 10-Q for the quarter ended March 31, 2018 , each 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.
Available Information

Our company website address is www.griffincapital.com/griffin-capital-essential-asset-reit. 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 “Latest News” subpage of our website, which is accessible by clicking on the tab labeled “Latest News” 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.

Additionally, the public may read and copy any of the materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at (800) SEC-0330. Our electronically filed reports can also be obtained on the SEC’s internet site at http://www.sec.gov.


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Table of Contents

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share amounts)

June 30, 2018

December 31, 2017
ASSETS



Cash and cash equivalents
$
36,245


$
40,735

Restricted cash
18,202


174,132

Real estate:
 
 
 
Land
353,008


342,021

Building and improvements
2,170,571


2,024,865

Tenant origination and absorption cost
532,700


495,364

Construction in progress
17,663


7,078

Total real estate
3,073,942


2,869,328

Less: accumulated depreciation and amortization
(484,310
)

(426,752
)
Total real estate, net
2,589,632


2,442,576

Investments in unconsolidated entities
35,872


37,114

Intangible assets, net
14,799


18,269

Deferred rent
52,039


46,591

Deferred leasing costs, net
20,923


19,755

Other assets
31,674


24,238

Total assets
$
2,799,386


$
2,803,410

LIABILITIES AND EQUITY



Debt, net
$
1,461,403

 
$
1,386,084

Restricted reserves
9,012


8,701

Redemptions payable
29,638

 
20,382

Distributions payable
6,205


6,409

Due to affiliates
4,732


3,545

Below market leases, net
26,361


23,581

Accrued expenses and other liabilities
64,355


64,133

Total liabilities
1,601,706


1,512,835

Commitments and contingencies (Note 11)



Noncontrolling interests subject to redemption; 531,000 units eligible towards redemption as of June 30, 2018 and December 31, 2017
4,887


4,887

Common stock subject to redemption
—


33,877

Stockholders’ equity:



Common Stock, $0.001 par value; 700,000,000 shares authorized; 166,468,160 and 170,906,111 shares outstanding, as of June 30, 2018 and December 31, 2017, respectively
166


171

Additional paid-in capital
1,544,734


1,561,694

Cumulative distributions
(512,885
)

(454,526
)
Accumulated earnings
124,657


110,907

Accumulated other comprehensive income
6,526


2,460

Total stockholders’ equity
1,163,198


1,220,706

Noncontrolling interests
29,595


31,105

Total equity
1,192,793


1,251,811

Total liabilities and equity
$
2,799,386


$
2,803,410

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 June 30,
 
Six Months Ended June 30,
 
2018

2017
 
2018
 
2017
Revenue:



 
 
 
 
Rental income
$
61,488


$
65,111

 
$
121,573

 
$
131,210

Lease termination income
6,304


—

 
9,006

 
12,845

Property expense recoveries
18,199


17,661

 
35,811

 
35,425

Total revenue
85,991


82,772

 
166,390

 
179,480

Expenses:



 
 
 
 
Property operating expense
11,682


11,750

 
23,005

 
23,754

Property tax expense
11,140


11,536

 
22,159

 
22,549

Asset management fees to affiliates
5,947


5,932

 
11,655

 
11,865

Property management fees to affiliates
2,234


2,538

 
4,546

 
5,066

General and administrative expenses
1,489


2,700

 
2,931

 
4,244

Corporate operating expenses to affiliates
848


679

 
1,682

 
1,307

Depreciation and amortization
31,843


29,952

 
59,162

 
60,548

Impairment provision
—


—

 
—

 
5,675

Total expenses
65,183


65,087

 
125,140

 
135,008

Income before other income and (expenses)
20,808


17,685

 
41,250

 
44,472

Other income (expenses):



 
 
 
 
Interest expense
(13,753
)

(12,472
)
 
(27,090
)
 
(24,540
)
Other income
105


136

 
160

 
235

Loss from investment in unconsolidated entities
(519
)

(482
)
 
(1,038
)
 
(994
)
Gain from disposition of assets
1,158

 
4,293

 
1,158

 
4,293

Net income
7,799


9,160

 
14,440

 
23,466

Net (income) attributable to noncontrolling interests
(280
)

(316
)
 
(514
)
 
(808
)
Net income attributable to controlling interest
7,519


8,844

 
13,926

 
22,658

Distributions to redeemable noncontrolling interests attributable to common stockholders
(88
)

(88
)
 
(176
)
 
(176
)
Net income attributable to common stockholders
$
7,431


$
8,756

 
$
13,750

 
$
22,482

Net income attributable to common stockholders per share, basic and diluted
$
0.04


$
0.05

 
$
0.08

 
$
0.13

Weighted average number of common shares outstanding, basic and diluted
167,866,188


175,048,607

 
169,573,603

 
175,359,706

Distributions declared per common share
$
0.17


$
0.17

 
$
0.34

 
$
0.34

See accompanying notes.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in thousands)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
7,799

 
$
9,160

 
$
14,440

 
$
23,466

Other comprehensive income:
 
 
 
 
 
 
 
Equity in other comprehensive income (loss) of unconsolidated joint venture
9

 
6

 
236

 
178

Change in fair value of swap agreements
740

 
(202
)
 
3,979

 
2,723

Total comprehensive income
8,548

 
8,964

 
18,655

 
26,367

Distributions to redeemable noncontrolling interests attributable to common stockholders
(88
)
 
(88
)
 
(176
)
 
(176
)
Comprehensive (income) attributable to noncontrolling interests
(307
)
 
(309
)
 
(663
)
 
(907
)
Comprehensive income attributable to common stockholders
$
8,153

 
$
8,567

 
$
17,816

 
$
25,284

See accompanying notes.




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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited; in thousands, except share data)
 
 
 
 
 
 
 
 
 
 
 
Accumulated Other Comprehensive (Loss) Income
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Cumulative
Distributions
 
Accumulated (Deficit)
Earnings
 
 
Total
Stockholders’
Equity
 
Non-
controlling
Interests
 
Total
Equity
 
Shares
 
Amount
 
Balance December 31, 2016
176,032,871

 
$
176

 
$
1,561,516

 
$
(333,829
)
 
$
(29,750
)
 
$
(4,643
)
 
$
1,193,470

 
$
30,114

 
$
1,223,584

Deferred equity compensation
13,000

 
—

 
173

 
—

 
—

 
—

 
173

 
—

 
173

Distributions to common stockholders
—

 
—

 
—

 
(71,156
)
 
—

 
—

 
(71,156
)
 
—

 
(71,156
)
Issuance of shares for distribution reinvestment plan
4,791,485

 
5

 
49,536

 
(49,541
)
 
—

 
—

 
—

 
—

 
—

Repurchase of common stock
(9,931,245
)
 
(10
)
 
(98,896
)
 
—

 
—

 
—

 
(98,906
)
 
—

 
(98,906
)
Reduction of common stock subject to redemption
—

 
—

 
49,365

 
—

 
—

 
—

 
49,365

 
—

 
49,365

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(4,369
)
 
(4,369
)
Distributions to noncontrolling interests subject to redemption
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(13
)
 
(13
)
Net income
—

 
—

 
—

 
—

 
140,657

 
—

 
140,657

 
5,120

 
145,777

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
7,103

 
7,103

 
253

 
7,356

Balance December 31, 2017
170,906,111

 
$
171

 
$
1,561,694

 
$
(454,526
)
 
$
110,907

 
$
2,460

 
$
1,220,706

 
$
31,105

 
$
1,251,811

Deferred equity compensation
7,667

 
—

 
36

 
—

 
—

 
—

 
36

 
—

 
36

Distributions to common stockholders
—

 
—

 
—

 
(35,706
)
 
—

 
—

 
(35,706
)
 
—

 
(35,706
)
Issuance of shares for distribution reinvestment plan
2,256,321

 
2

 
22,651

 
(22,653
)
 
—

 
—

 
—

 
—

 
—

Repurchase of common stock
(6,701,939
)
 
(7
)
 
(64,268
)
 
—

 
—

 
—

 
(64,275
)
 
—

 
(64,275
)
Reduction of common stock subject to redemption
—

 
—

 
41,622

 
—

 
—

 
—

 
41,622

 
—

 
41,622

Redemptions in excess of distribution reinvestment plan
—

 
—

 
(17,001
)
 
—

 
—

 
—

 
(17,001
)
 
—

 
(17,001
)
Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2,166
)
 
(2,166
)
Distributions to noncontrolling interests subject to redemption
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(7
)
 
(7
)
Net income
—

 
—

 
—

 
—

 
13,750

 
—

 
13,750

 
514

 
14,264

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
4,066

 
4,066

 
149

 
4,215

Balance June 30, 2018
166,468,160

 
$
166

 
$
1,544,734

 
$
(512,885
)
 
$
124,657

 
$
6,526

 
$
1,163,198

 
$
29,595

 
$
1,192,793

See accompanying notes.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
 
Six Months Ended June 30,
 
2018
 
2017
Operating Activities:
 
 
 
Net income
$
14,440

 
$
23,466

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of building and building improvements
28,399

 
28,296

Amortization of leasing costs and intangibles, including ground leasehold interests
30,763

 
32,252

Amortization of above and below market leases
528

 
721

Amortization of deferred financing costs and debt premium
1,538

 
996

Amortization of swap interest
63

 
—

Deferred rent
(5,448
)
 
(5,065
)
Termination fee revenue - receivable from tenant, net
(6,304
)
 
(12,845
)
Gain from sale of depreciable operating property
(1,158
)
 
(4,293
)
Unrealized  loss on interest rate swap
2

 
27

Loss from investment in unconsolidated entities
1,038

 
994

Impairment provision
—

 
5,675

Stock-based compensation
36

 
133

Change in operating assets and liabilities:
 
 
 
Deferred leasing costs and other assets
682

 
7,091

Restricted reserves
242

 
259

Accrued expenses and other liabilities
(3,040
)
 
(1,318
)
Due to affiliates, net
1,187

 
945

Net cash provided by operating activities
62,968

 
77,334

Investing Activities:
 
 
 
Acquisition of properties, net
(182,250
)
 
—

Proceeds from disposition of properties
1,383

 
10,245

Real estate acquisition deposits
(3,350
)
 
—

Reserves for tenant improvements
69

 
50

Improvements to real estate
—

 
(558
)
Payments for construction-in-progress
(10,928
)
 
(5,774
)
Investment in unconsolidated joint venture
(3,264
)
 
—

Distributions of capital from investment in unconsolidated entities
3,704

 
3,801

Net cash (used in) provided by invest ing activities
(194,636
)
 
7,764

Financing Activities:
 
 
 
Proceeds from borrowings - Revolver Loan
96,100

 
23,000

Principal payoff of secured indebtedness - Mortgage Debt
(18,954
)
 
(22,820
)
Partial principal payoff of TW Telecom loan
—

 
(324
)
Principal amortization payments on secured indebtedness
(3,319
)
 
(2,965
)
Deferred financing costs
(45
)
 
(185
)
Repurchase of common stock
(64,275
)
 
(32,146
)
Distributions to noncontrolling interests
(2,362
)
 
(2,362
)
Distributions to common stockholders
(35,897
)
 
(35,393
)
Net cash used in financing activities
(28,752
)
 
(73,195
)
Net (decrease) increase in cash, cash equivalents and restricted cash
(160,420
)
 
11,903

Cash, cash equivalents and restricted cash at the beginning of the period
214,867

 
56,862

Cash, cash equivalents and restricted cash at the end of the period
$
54,447

 
$
68,765

Supplemental Disclosures of Significant Non-cash Transactions:
 
 
 
Increase in fair value swap agreement
$
3,917

 
$
2,696

Common stock issued pursuant to the distribution reinvestment plan
$
22,653

 
$
25,070

Common stock redemptions funded subsequent to period-end
$
29,638

 
$
29,292

See accompanying notes.

8
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)


1.
Organization
Griffin Capital Essential Asset REIT, Inc., a Maryland corporation (the "Company"), was formed on August 28, 2008 under the Maryland General Corporation Law and qualified as a real estate investment trust ("REIT") commencing with the year ended December 31, 2010. The Company was organized primarily with the purpose of acquiring single tenant properties that are essential to the tenant’s business and used a substantial amount of the net proceeds from the Public Offerings (as defined below) to invest in these properties. The Company’s year end is December 31.
Griffin Capital Company, LLC, a Delaware limited liability company (the "Sponsor"), has sponsored the Company’s Public Offerings. The Sponsor, which was formerly known as Griffin Capital Corporation, began operations in 1995 to engage principally in acquiring and developing office and industrial properties. Kevin A. Shields, the Company's Chief Executive Officer and Chairman of the Company's board of directors, controls the Sponsor.
Griffin Capital Essential Asset Advisor, LLC, a Delaware limited liability company (the "Advisor"), was formed on August 27, 2008. Griffin Capital Real Estate Company, LLC ("GRECO") is the sole member of the Advisor, and Griffin Capital, LLC is the sole member of GRECO. The Company has entered into an advisory agreement with the Advisor (as amended and restated, the "Advisory Agreement"), which states that the Advisor is responsible for managing the Company’s affairs on a day-to-day basis and identifying and making acquisitions and investments on behalf of the Company. The officers of the Advisor are also officers of the Sponsor. The Advisory Agreement has a one -year term, and it may be renewed for an unlimited number of successive one -year periods by the Company's board of directors.
The Company’s property manager is Griffin Capital Essential Asset Property Management, LLC, a Delaware limited liability company (the “Property Manager”), which was formed on August 28, 2008 to manage the Company’s properties. The Property Manager derives substantially all of its income from the property management services it performs for the Company.
From 2009 to 2014, the Company offered shares of common stock pursuant to a private placement offering to accredited investors (the "Private Offering") and two public offerings, consisting of an initial public offering and a follow-on offering (together, the "Public Offerings"), which included shares for sale pursuant to the distribution reinvestment plan ("DRP"). The Company issued 126,592,885 total shares of its common stock for gross proceeds of approximately $1.3 billion pursuant to the Private Offering and Public Offerings. The Company also issued approximately  41,800,000  shares of its common stock upon the consummation of the merger of Signature Office REIT, Inc. in June 2015.
On May 7, 2014, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission ("SEC") for the registration of $75.0 million in shares for sale pursuant to the DRP (the “2014 DRP Offering”). On September 22, 2015, the Company filed a Registration Statement on Form S-3 with the SEC for the registration of $100.0 million in shares for sale pursuant to the DRP (the “2015 DRP Offering”). On June 9, 2017, the Company filed a Registration Statement on Form S-3 with the SEC for the registration of 10 million shares for sale pursuant to the DRP (the "2017 DRP Offering," and together with the 2014 DRP Offering and 2015 DRP Offering, the "DRP Offerings"). The 2017 DRP Offering may be terminated 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 June 30, 2018 , the Company had issued 189,019,997 shares of common stock. The Company has received aggregate gross offering proceeds of approximately $1.5 billion from the sale of shares in the Private Offering, the Public Offerings, and the DRP Offerings. There were 166,468,160 shares outstanding at June 30, 2018 , including shares issued pursuant to the DRP, less shares redeemed pursuant to the share redemption program ("SRP"). As of June 30, 2018 and December 31, 2017 , the Company had issued approximately $234.6 million and $211.9 million , respectively, in shares pursuant to the DRP, which are classified on the consolidated balance sheets as common stock subject to redemption, net of redemptions paid of approximately $221.9 million , and redemptions payable totaling approximately $29.6 million and $20.4 million , respectively. Since inception and through June 30, 2018 , the Company had redeemed 22,551,837 shares of common stock for approximately $221.9 million pursuant to the SRP.
Griffin Capital Essential Asset Operating Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"), was formed on August 29, 2008. The Operating Partnership owns, directly or indirectly, all of the properties that the Company has acquired. The Advisor purchased an initial 99% limited partnership interest in the Operating Partnership for $0.2 million, and the Company contributed the initial one thousand dollars capital contribution, received from the Advisor, to the Operating

9
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

Partnership in exchange for a 1% general partner interest. As of June 30, 2018 , the Company owned approximately 96% of the limited partnership units of the Operating Partnership, and, as a result of the contribution of five properties to the Company, the Sponsor and certain of its affiliates, including certain officers of the Company, owned approximately 2% of the limited partnership units of the Operating Partnership. Approximately 2.1 million units are owned by the Company’s Chief Executive Officer and Chairman, Kevin A. Shields. The remaining approximately 2% of the limited partnership units are owned by unaffiliated third parties. No limited partnership units of the Operating Partnership have been redeemed during the six months ended June 30, 2018 and year ended December 31, 2017 . The Operating Partnership may conduct certain activities through the Company’s taxable REIT subsidiary, Griffin Capital Essential Asset TRS, Inc., a Delaware corporation (the "TRS"), formed on September 2, 2008, which is a wholly-owned subsidiary of the Operating Partnership. The TRS had no activity as of June 30, 2018 .

10
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

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, 2017 . 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, 2017 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 six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 . 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, 2017 .
The consolidated financial statements of the Company include all accounts of the Company, the 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, which 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.
Change in Consolidated Financial Statements Presentation
During the year ended December 31, 2017, the Company elected to early adopt Accounting Standards Update ("ASU") No. 2016-18, Restricted Cash ("ASU No. 2016-18"). As a result, the Company no longer presents transfers between cash and restricted cash in the consolidated statements of cash flows. Instead, restricted cash is included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the consolidated statements of cash flows.
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 June 30, 2018 and December 31, 2017 , there were no material common stock equivalents that would have a dilutive effect on earnings (loss) per share for common stockholders.
Segment Information
ASC Topic 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.

11
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

Recently Issued Accounting Pronouncements
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging ("ASU No. 2017-12"). The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. For cash flow hedges that are highly effective, the new standard requires all changes (effective and ineffective components) in the fair value of the hedging instrument to be recorded in other comprehensive income and to be reclassified into earnings only when the hedged item impacts earnings. Current guidance requires a periodic recognition of hedge ineffectiveness in earnings.
Under existing standards a quantitative assessment is made on an ongoing basis to determine if a hedge is highly effective in offsetting changes in cash flows associated with the hedged item. Under the new standard, entities will still be required to perform an initial quantitative test. However, the new standard allows entities to elect to subsequently perform only a qualitative assessment unless facts and circumstances change.
This ASU is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The Company elected to early adopt ASU No. 2017-12 for the reporting period ending March 31, 2018. The adoption of ASU No. 2017-12 did not have a material effect on the Company's financial position or statement of operations.
In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU No. 2016-02"). ASU No. 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 will direct how the Company accounts for payments from the elements of leases that are generally fixed and determinable at the inception of the lease (“Fixed Lease Payments”) while ASU No. 2014-09 (defined below) will direct how the Company accounts for the non-lease components of lease contracts, primarily expense reimbursements (“Non-Lease Payments”) and the accounting for the disposition of real estate facilities. ASU No. 2016-02 will be effective beginning in the first quarter of 2019. Early adoption of ASU No. 2016-02 as of its issuance is permitted.
ASU No. 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. Based on the required adoption date of January 1, 2019, the modified retrospective method for ASU No. 2016-02 requires application of the standard to all leases that exist at, or commence after, January 1, 2017 (beginning of the earliest comparative period presented in the 2019 financial statements), with a cumulative adjustment to the opening balance of accumulated earnings (deficit) on January 1, 2017, for the effect of applying the standard at the date of initial application, and restatement of the amounts presented prior to January 1, 2019.
The FASB has also issued an amendment to the standard that would provide an entity an optional transition method to initially account for the impact of the adoption of the standard with a cumulative adjustment to accumulated earnings (deficit) on January 1, 2019 (the effective date of ASU No. 2016-02), rather than January 1, 2017, which would eliminate the need to restate amounts presented prior to January 1, 2019. Under ASU No. 2016-02, an entity may elect a practical expedient package, which states that: (a) an entity need not reassess whether any expired or existing contracts are leases or contain leases; (b) an entity need not reassess the lease classification for any expired or existing leases; and (c) an entity need not reassess initial direct costs for any existing leases. These three practical expedients are available as a single election that must be elected as a package and must be consistently applied to all existing leases at the date of adoption. The FASB has also tentatively noted in its May 2017 board meeting minutes that lessors that adopt this package of practical expedients are not expected to reassess expired or existing leases at the date of initial application, which is January 1, 2017 under ASU No. 2016-02, or January 1, 2019, if the Company elects the optional transition method. The FASB noted that the transition provisions generally enable entities to “run off” their existing leases for the remainder of the lease term, which would effectively eliminate the need to calculate adjustment to the opening balance of accumulated earnings (deficit).
In March 2018, the FASB approved a proposal to the drafting of an amendment to ASU No. 2016-02 to allow lessors to elect, as a practical expedient, not to allocate the total consideration to lease and non-lease components based on their relative standalone selling prices. If adopted, this single-lease component practical expedient will allow lessors to elect a combined single-lease component presentation if (i) the timing and pattern of transfer of the lease component and the non-lease component(s) associated with it are the same, and (ii) the lease component would be classified as an operating lease if it were accounted for separately. Non-lease components that do not meet the criteria of this practical expedient and combined

12
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

components in which the non-lease component is the predominant component will be accounted for under the new ASU No. 2016-02.
The Company does not expect that ASU No. 2016-02 will impact the Company's accounting for Fixed Lease Payments because the Company's accounting policy is currently consistent with the provisions of the standard. The Company is currently evaluating the impact of the standard as it relates to Non-Lease Payments. If the practical expedient mentioned above is adopted and the Company elects it, the Company expects payments for expense reimbursements that qualify as Non-Lease Payments will be presented under a single lease component presentation. However, without the proposed practical expedient, the Company expects these reimbursements would be separated into Fixed Lease Payments and Non-Lease Payments. Under ASU No. 2016-02, reimbursements relating to property taxes and insurances are Fixed Lease Payments as the payments relate to the right to use the leased assets, while reimbursements relating to maintenance activities and common area expense are Non-Lease Payments and would be accounted under ASU No. 2014-09 upon the adoption of the ASU No. 2016-02 as these payments for goods or services are transferred separately from the right to use the underlying assets.
Additionally, the Company is analyzing its current ground lease obligation under ASU No. 2016-02 where the Company is the lessee. The Company has done a preliminary assessment and continues to evaluate the potential impact the guidance may have on its consolidated financial statements and related disclosures and will adopt ASU No. 2016-02 as of January 1, 2019. The Company is the lessee under two ground leases.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 replaces substantially all industry-specific revenue recognition requirements and converges areas under this topic with International Financial Reporting Standards. ASU No. 2014-09 implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. ASU No. 2014-09 also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows from contracts with customers. Other major provisions in ASU No. 2014-09 include capitalizing and amortizing certain contract costs, ensuring the time value of money is considered in the applicable transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. ASU No. 2014-09 was originally effective for reporting periods beginning after December 31, 2016 (for public entities). On April 1, 2015, the FASB voted to defer the effective date of ASU No. 2014-09 by one year to annual reporting periods beginning after December 15, 2017. On July 9, 2015, the FASB affirmed its proposal to defer the effective date to annual reporting periods beginning after December 15, 2017, although entities may elect to adopt the standard as of the original effective date. The Company adopted the guidance using the modified retrospective approach for the fiscal year beginning on January 1, 2018. The impact of the adoption of the new accounting guidance was minimal on the Company's consolidated financial statements relating to the recognition of gains and losses on the sale of real estate assets was minimal as the Company’s current accounting for such transactions is consistent with the new guidance’s core principle. Rental income from leasing arrangements is a substantial portion of the Company’s revenue, is specifically excluded from ASU No. 2014-09 and will be governed by the applicable lease codification, ASU No. 2016-02. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU No. 2016-08"). The amendments clarify how an entity should identify the unit of accounting (i.e., the specified good or service) for the principal versus agent evaluation, and how it should apply the control principle to certain types of arrangements, such as service transactions, by explaining what a principal controls before the specified good or service is transferred to the customer. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements of ASU No. 2014-09 described above. The Company adopted the guidance using the modified retrospective approach for the fiscal year beginning on January 1, 2018. The impact of the adoption of the new accounting guidance was minimal on the Company's consolidated financial statements relating to the recognition of reporting revenue gross versus net on the Company's consolidated financial statements as the Company’s current accounting for such transactions is consistent with the new guidance’s core principle.

13
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

3.     Real Estate
As of June 30, 2018 , the Company’s real estate portfolio consisted of 76 properties in 20 states consisting substantially of office, warehouse, and manufacturing facilities and two land parcels held for future development with a combined acquisition value of approximately $3.0 billion , including the allocation of the purchase price to above and below-market lease valuation.
Depreciation expense for buildings and improvements for the six months ended June 30, 2018 was $28.4 million . Amortization expense for intangibles, including, but not limited to, tenant origination and absorption costs for the six months ended June 30, 2018 was $30.8 million .
2018 Acquisitions
The purchase price and other acquisition items for the properties acquired during the six months ended June 30, 2018 are shown below:
Property
 
Location
 
Tenant/Major Lessee
 
Acquisition Date
 
Purchase Price
 
Approx. Square Feet
 
Acquisition Fees and Expenses (1)
 
Year of Lease Expiration
Quaker
 
Lakeland, Florida
 
Quaker Sales and Distribution, Inc.
 
3/13/2018
 
$
59,600

 
605,400
 
$
1,777

 
2028
McKesson
 
Scottsdale, Arizona
 
McKesson Corporation
 
4/10/2018
 
$
67,000

 
271,100
 
$
2,139

 
2028
Shaw
 
Wentworth, Georgia
 
Shaw Industries, Inc.
 
5/3/2018
 
$
56,526

 
1,001,500
 
$
1,782

 
2033
(1)
The Advisor is entitled to receive acquisition fees equal to 2.5% and acquisition expense reimbursement of up to 0.5% of the contract purchase price for each acquisition. In addition, the Company incurred third-party costs associated with the three acquisitions.

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 acquisitions completed during the six months ended June 30, 2018 , the Company used a discount rate of 6.25% to 7.75% .
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 in the period they are incurred.

14
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

The following summarizes the purchase price allocations of the properties acquired during the six months ended June 30, 2018 :
Property (1)
 
Land
 
Building and improvements
 
Tenant origination and absorption costs
 
In-place lease valuation - above (below) market
 
Receivable- Ground Lease
 
Payable-
Ground Lease Payments
 
Total
Quaker
 
$
5,433

 
$
50,953

 
$
4,387

 
$
(502
)
 
$
—

 
$
—

 
$
60,271

McKesson
 
312

 
45,109

 
24,652

 
(933
)
 
—

 
—

 
69,140

Shaw
 
5,465

 
48,820

 
8,297

 
(4,273
)
 
2,008

 
(2,008
)
 
58,309


(1)
The Company evaluated the transactions above under the clarified framework for determining whether an integrated set of assets and activities meets the definition of a business, pursuant to ASU No. 2017-01, Business Combinations, issued in January 2017, which the Company early-adopted effective January 1, 2017. Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions. Since the transactions above lacked a substantive process, the transactions did not meet the definition of a business and consequently were accounted for as asset acquisitions. The Company allocated the total consideration (including acquisition costs of approximately $5.7 million ) to the individual assets and liabilities acquired on a relative fair value basis.




15
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

Future Minimum Contractual Rent Payments
The future minimum contractual rent payments pursuant to the current lease terms are shown in the table below. The Company's current leases have expirations ranging from 2018 to 2036.
 
As of June 30, 2018
Remaining 2018
$
121,757

2019
225,155

2020
203,467

2021
189,963

2022
181,369

Thereafter
772,872

Total
$
1,694,583

Intangibles
The Company allocated a portion of the acquired and contributed real estate asset value to in-place lease valuation and tenant origination and absorption cost, net of the write-off of intangibles, as of June 30, 2018 and December 31, 2017 :
 
June 30, 2018
 
December 31, 2017
In-place lease valuation (above market)
$
43,826

 
$
43,826

In-place lease valuation (above market) - accumulated amortization
(31,159
)
 
(27,703
)
In-place lease valuation (above market), net
12,667

 
16,123

Ground leasehold interest (below market)
2,255

 
2,255

Ground leasehold interest (below market) - accumulated amortization
(123
)
 
(109
)
Ground leasehold interest (below market), net
2,132

 
2,146

Intangible assets, net
$
14,799

 
$
18,269

In-place lease valuation (below market)
$
(55,482
)
 
$
(49,774
)
In-place lease valuation (below market) - accumulated amortization
29,121

 
26,193

In-place lease valuation (below market), net
$
(26,361
)
 
$
(23,581
)
Tenant origination and absorption cost
$
532,700

 
$
495,364

Tenant origination and absorption cost - accumulated amortization
(271,761
)
 
(242,601
)
Tenant origination and absorption cost, net
$
260,939

 
$
252,763

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 June 30, 2018 for the next five years:
Year
 
In-place lease valuation, net
 
Tenant origination and absorption costs
 
Ground leasehold improvements
 
Other leasing costs
Remaining 2018
 
$
21,283

 
$
45,505

 
$
14

 
$
2,312

2019
 
$
41,588

 
$
78,311

 
$
14

 
$
4,612

2020
 
$
38,719

 
$
72,107

 
$
14

 
$
4,588

2021
 
$
37,291

 
$
68,529

 
$
14

 
$
4,460

2022
 
$
37,212

 
$
66,528

 
$
14

 
$
4,335

Tenant and Portfolio Risk
The Company monitors the credit of all tenants to stay abreast of any material changes in credit quality. The Company monitors tenant credit by (1) reviewing the credit ratings of tenants (or their parent companies) that are rated by nationally recognized rating agencies; (2) reviewing financial statements and related metrics and information that are publicly available or that are required to be provided pursuant to the lease; (3) monitoring news reports and press releases regarding the tenants and their underlying business and industry; and (4) monitoring the timeliness of rent collections.

16
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

Restricted Cash
In conjunction with 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
 
June 30, 2018
 
December 31, 2017
Cash reserves
$
15,273

 
$
17,034

Midland mortgage loan restricted lockbox
2,929

 
2,158

1031 Exchange Funds  (1)
—

 
154,940

Total
$
18,202

 
$
174,132

(1)
Section 1031 of the Internal Revenue Code of 1986, as amended ("1031 Exchanges"). Represents cash proceeds from a disposition that are temporarily held at the qualified intermediary for purposes of facilitating potential Section 1031 Exchanges. The Company's three acquisitions during the six months ended June 30, 2018 completed the 1031 Exchange.
4.
Investments
Investment in Unconsolidated Entities
Heritage Commons X, LTD
In June 2018, the Company, through a special purpose entity, wholly-owned by the Operating Partnership, formed a joint venture (the "Heritage Common 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 Forth Worth Texas (the "Heritage Commons Property"). The Heritage Commons Property is expected to be completed in January 2019 and is 100% leased to Mercedes-Benz Financial Services USA. The total project budget is $48.1 million , which was funded via a $41.4 million construction loan, and approximately $6.7 million of equity contributed by the members of the joint venture.
As of June 30, 2018 , the Company has an ownership interest of approximately 45% in the Heritage Common X joint venture. The Company's equity contributions consisted of $3.1 million , provided during the initial creation of Heritage Common X.
Digital Realty Trust, Inc.
In September 2014, the Company, through a special purpose entity ("SPE"), wholly-owned by the Operating Partnership, acquired an 80% interest in a joint venture with an affiliate of Digital Realty Trust, Inc. 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 four years .
The joint venture currently uses an interest rate swap to manage its interest rate risk associated with its variable rate debt. The interest rate swap is designated as an interest rate hedge of its exposure to the volatility associated with interest rates. As a result of the hedge designation and in satisfying the requirement for cash flow hedge accounting, the joint venture records changes in the fair value in accumulated other comprehensive income. In conjunction with the investment in the joint venture discussed above, the Company recognized its 80% share, or approximately $0.2 million of other comprehensive income for the six months ended June 30, 2018 .

17
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

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 are 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 their unconsolidated investments is primarily limited to its carrying value in the investments.
As of June 30, 2018 , the balance of the investments are shown below:
 
 
Digital Realty
Joint Venture
 
Heritage Common X
 
Total
Balance as of December 31, 2017
 
$
37,114

 
$
—

 
$
37,114

Initial contribution
 
—

 
3,264

 
3,264

Net loss
 
(1,038
)
 
—

 
(1,038
)
Distributions
 
(3,704
)
 
—

 
(3,704
)
Other comprehensive income
 
236

 
—

 
236

Balance as of June 30, 2018
 
$
32,608

 
$
3,264

 
$
35,872

5.
Debt
As of June 30, 2018 and December 31, 2017 , the Company’s debt consisted of the following:
 
June 30, 2018
 
December 31, 2017
 
Contractual
Interest 
Rate  (1)
 
Loan
Maturity
 
Effective Interest Rate (2)
TW Telecom loan (3)
$
—

 
$
19,169

 
—
 
—
 
—%
HealthSpring loan
 
21,458

 
21,694

 
4.18%
 
April 2023
 
4.60%
Midland loan
 
103,239

 
104,197

 
3.94%
 
April 2023
 
4.10%
Emporia Partners loan
 
2,769

 
2,978

 
5.88%
 
September 2023
 
5.96%
Samsonite loan
 
22,529

 
22,961

 
6.08%
 
September 2023
 
5.18%
Highway 94 loan
 
16,929

 
17,352

 
3.75%
 
August 2024
 
4.64%
Bank of America loan
 
375,000

 
375,000

 
3.77%
 
October 2027
 
3.91%
AIG loan
 
108,429

 
109,275

 
4.96%
 
February 2029
 
5.07%
Total Mortgage Debt
 
650,353

 
672,626

 
 
 
 
 
 
Term Loan
 
715,000

 
715,000

 
LIBOR+1.40% (4)
 
July 2020
 
3.73%
Revolver Loan
 
106,253

 
10,153

 
LIBOR +1.45% (4)
 
July 2020 (4)
 
4.43%
Total Debt
 
1,471,606


1,397,779

 
 
 
 
 
 
Unamortized Deferred Financing Costs and Discounts, net
 
(10,203
)
 
(11,695
)
 
 
 
 
 
 
Total Debt, net
$
1,461,403

 
$
1,386,084

 
 
 
 
 
 
(1)
Including the effect of interest rate swap agreements with a total notional amount of $725.0 million , the weighted average interest rate as of June 30, 2018 was 3.52% for the Company’s fixed-rate and variable-rate debt combined and 3.53% for the Company’s fixed-rate debt only.
(2)
Reflects the effective interest rate as of June 30, 2018 and includes the effect of amortization of discounts/premiums and deferred financing costs.
(3)
In March 2018, the Company, through the Operating Partnership, paid off the remaining balance of the TW Telecom loan.
(4)
The LIBO rate as of June 30, 2018 was 1.99% .The Revolver Loan has an initial term of four years, maturing on July 20, 2019, and may be extended for a one -year period if certain conditions are met and upon payment of an extension fee. See discussion below.


18
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

Unsecured Credit Facility
On July 20, 2015, the Company, through the Operating Partnership, entered into an amended and restated credit agreement, as amended by that certain first amendment to amended and restated credit agreement dated as of February 12, 2016 (as amended, the "Unsecured Credit Agreement") with a syndicate of lenders, co-led by KeyBank National Association ("KeyBank"), Bank of America, N.A. ("Bank of America"), Fifth Third Bank ("Fifth Third"), and BMO Harris Bank, N.A. ("BMO Harris"), under which KeyBank serves as administrative agent and Bank of America, Fifth Third, and BMO Harris serve as co-syndication agents, and KeyBanc Capital Markets, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Fifth Third, and BMO Capital Markets serve as joint bookrunners and joint lead arrangers. Pursuant to the Unsecured Credit Agreement, the Company was provided with a $1.14 billion senior unsecured credit facility (the "Unsecured Credit Facility"), consisting of a $500.0 million senior unsecured revolver (the "Revolver Loan") and a $640.0 million senior unsecured term loan (the "Term Loan"). The Unsecured Credit Facility may be increased up to $860.0 million , in minimum increments of $50.0 million , for a maximum of $2.0 billion by increasing either the Revolver Loan, the Term Loan, or both. The Revolver Loan has an initial term of four years, maturing on July 20, 2019, and may be extended for a one -year period if certain conditions are met and upon payment of an extension fee. The Term Loan has a term of five years, maturing on July 20, 2020. On March 29, 2016, the Company exercised its right to increase the total commitments, pursuant to the Unsecured Credit Agreement. As a result, the total commitments on the Term Loan increased from $640.0 million to $715.0 million .
Bank of America Loan
On September 29, 2017, the Company, through ten SPEs wholly owned by the Operating Partnership, entered into a loan agreement with Bank of America, N.A. (together with its successors and assigns, the "Lender") in which the Company borrowed $375.0 million (the “Bank of America Loan”). The Bank of America Loan is secured by cross-collateralized and cross-defaulted first mortgage liens on ten properties. The Bank of America Loan has a term of 10 years , maturing on October 1, 2027. The Bank of America Loan bears interest at a rate of 3.77% and requires monthly payments of interest only.
Debt Covenant Compliance
Pursuant to the terms of the Company's mortgage loans, Unsecured Credit Facility, and Bank of America Loan the 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 June 30, 2018 .
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 value 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
The Company has entered into interest rate swap agreements to hedge the variable cash flows associated with certain existing or forecasted London Interbank Offered Rate ("LIBOR")-based variable-rate debt, including the Company's Unsecured Credit Facility. The change in the fair value of derivatives designated and qualifying as cash flow hedges is initially recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive income ("AOCI") related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt.

19
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

The following table sets forth a summary of the interest rate swaps at June 30, 2018 and December 31, 2017 :
 
 
 
 
 
 
 
 
 
 
Fair Value (1)
Derivative Instrument
 
Notional Amounts
 
Effective Date
 
Maturity Date
 
Interest Strike Rate
 
June 30, 2018

December 31, 2017
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Swap
 
$
425,000

 
7/9/2015
 
7/1/2020
 
1.69%
 
$
7,627

 
$
3,255

Interest Rate Swap
 
300,000

 
1/1/2016
 
7/1/2018
 
1.32%
 
—

 
458

Total
 
$
725,000

 
 
 
 
 
 
 
$
7,627

 
$
3,713

(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 June 30, 2018 , derivatives in an asset position are included in the line item "Other assets" 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:
 
Six Months Ended June 30,
 
2018
 
2017
Interest Rate Swap in Cash Flow Hedging Relationship:
 
 
 
Amount of (gain) loss recognized in AOCI on derivatives
$
(4,753
)
 
$
(54
)
Amount of gain (loss) reclassified from AOCI into earnings under “Interest expense”
$
774

 
$
2,637

Total interest expense presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded
$
27,090

 
$
24,540

During the 12 months subsequent to June 30, 2018 , the Company estimates that an additional $3.0 million of income will be recognized from AOCI into earnings.
Certain agreements with the derivative counterparties contain a provision where if the Company defaults on any of the Company's indebtedness, including 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 June 30, 2018 and December 31, 2017 , the fair value of interest rate swaps in a net asset position, which excludes any adjustment for nonperformance risk related to these agreements, was approximately $7.6 million and $3.7 million , respectively. As of June 30, 2018 and December 31, 2017 , 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 June 30, 2018 and December 31, 2017 :
 
 
June 30, 2018

December 31, 2017
Prepaid rent
 
$
15,908

 
$
16,312

Real estate taxes payable
 
19,568

 
21,317

Interest payable
 
8,914

 
7,924

Other liabilities
 
19,965

 
18,580

Total
 
$
64,355

 
$
64,133


20
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

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 six months ended June 30, 2018 and the year ended December 31, 2017 .
The following tables set forth the assets that the Company measures at fair value on a recurring basis by level within the fair value hierarchy as of June 30, 2018 and December 31, 2017 :
Assets/(Liabilities)
 
Total Fair Value
 
Quoted Prices in Active Markets for Identical Assets and Liabilities
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
June 30, 2018
 
 
 
 
 
 
 
 
Interest Rate Swap Asset
 
$
7,627

 
$
—

 
$
7,627

 
$
—

December 31, 2017
 

 
 
 

 
 
Interest Rate Swap Asset
 
$
3,713

 
$
—

 
$
3,713

 
$
—

Financial Instruments Disclosed at Fair Value
Financial instruments as of June 30, 2018 and December 31, 2017 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 June 30, 2018 and December 31, 2017 . The fair value of the two 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.
 
June 30, 2018
 
December 31, 2017
 
Fair Value

Carrying Value (1)
 
Fair Value
 
Carrying Value (1)
Highway 94 loan
$
15,911


$
16,929

 
$
16,484

 
$
17,352

BofA loan
$
362,742


$
375,000

 
$
377,289

 
$
375,000

(1)
The carrying values do not include the debt premium/(discount) or deferred financing costs as of June 30, 2018 and December 31, 2017 . See Note 5, Debt , for details.

21
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

9.
Equity
Common Equity
As of June 30, 2018 , the Company had received aggregate gross offering proceeds of approximately $1.5 billion from the sale of shares in the Private Offering, the Public Offerings, and the DRP Offerings, as discussed in Note 1, Organization . There were 166,468,160 shares outstanding at June 30, 2018 , including shares issued pursuant to the DRP, less shares redeemed pursuant to the SRP discussed 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 fee will be paid on shares sold through the DRP. 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 June 30, 2018 and December 31, 2017 , the Company had issued approximately $234.6 million and $211.9 million , respectively, in shares pursuant to the DRP, which are classified on the consolidated balance sheets as common stock subject to redemption, net of redemptions paid of approximately $221.9 million , and redemptions payable totaling approximately $29.6 million and $20.4 million , respectively.
Share Redemption Program
The Company has adopted the SRP that enables stockholders to sell their stock to the Company in limited circumstances. As long as the common stock is not listed on a national securities exchange or over-the-counter market, stockholders who have held their stock for at least one year may, under certain circumstances, be able to have all or any portion of their shares of stock redeemed by the Company. Only those stockholders who purchased their shares from the Company or received their shares from the Company (directly or indirectly) through one or more non-cash transactions may be able to participate in the SRP. During any calendar year, the Company will not redeem more than 5% of the weighted average number of shares outstanding during the prior calendar year. The cash available for redemption will be limited to the proceeds from the sale of shares pursuant to the DRP.

If the Company cannot purchase all shares presented for redemption in any quarter, based upon insufficient cash available or the limit on the number of shares the Company may redeem during any calendar year, the Company will attempt to honor redemption requests 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 two thousand five hundred dollars of shares of 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. The Company will treat the unsatisfied portion of the redemption request as a request for redemption the following quarter. Such pending requests will generally be honored on a pro rata basis. Any stockholder request to cancel an outstanding redemption must be sent to the Company's transfer agent prior to the last day of the new quarter. The Company will determine whether sufficient funds are available or the SRP has reached the 5% share limit as soon as practicable after the end of each quarter, but in any event prior to the applicable payment date.
As the use of the proceeds from the DRP for redemptions is outside the Company’s control, the net proceeds from the DRP are considered to be temporary equity and are presented as common stock subject to redemption on the accompanying consolidated balance sheets. The cumulative proceeds from the DRP, net of any redemptions, will be computed at each reporting date and will be classified as temporary equity on the Company’s consolidated balance sheets. As noted above, the SRP is limited to proceeds from new permanent equity from the sale of shares pursuant to the DRP.
Pursuant to the SRP, the redemption price per share shall be the lesser of (i) the amount paid for the shares or (ii) 95% of the NAV of the shares. Shares redeemed in connection with the death or qualifying disability of a stockholder may be repurchased at 100% of the NAV of the shares. The redemption price per share will be as of the last business day of the applicable quarter.

22
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

Redemption requests will be honored on or about the last business day of the month following the end of each quarter. Requests for redemption must be received on or prior to the end of the quarter in order for the Company to repurchase the shares as of the end of the following month. The following table summarizes share redemption activity during the three and six months ended June 30, 2018 and 2017 :
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Shares of common stock redeemed
 
6,700,875

 
2,063,607

 
6,701,939

 
3,219,139

Weighted average price per share
 
$
9.59

 
$
9.97

 
$
9.59

 
$
9.99

During the three months ended June 30, 2018 , the Company received requests for the redemption of common stock of approximately 3,094,461 shares. During the six months ended June 30, 2018 , the Company redeemed 6,701,939 shares of common stock for approximately $64.3 million at a weighted average price per share of $9.59 pursuant to the SRP. Since inception and through June 30, 2018 , the Company had redeemed 22,551,837 shares of common stock for approximately $221.9 million at a weighted average price per share of $9.84 pursuant to the SRP. Since inception and through June 30, 2017, the Company honored all redemption requests. During the quarter ended September 30, 2017, the Company reached the 5% annual limitation of the SRP for 2017. The Company processed the redemption requests according to the SRP policy described above and carried forward the requests not processed. As the  5%  maximum was reached for the quarter ended September 30, 2017, the Company did not process any redemption requests for the quarter ended December 31, 2017. During the year ended December 31, 2017 , the Company redeemed  9,931,245  shares of common stock for approximately  $98.9 million at a weighted average price per share of  $9.96 . For the quarter ended March 31, 2018, the Company processed all prior requests carried forward as described above.  As a result, all redemption requests for all periods through March 31, 2018 were honored and paid. During the three months ended June 30, 2018 , the amount of redemption requests exceeded the proceeds available from the DRP by $17.0 million . As a result, standard redemption requests for the quarter ended June 30, 2018 were processed on a pro-rata basis and were paid out on August 1, 2018.
Noncontrolling Interests
Noncontrolling interests represent limited partnership interests in the Operating Partnership in which the Company is the general partner. General partnership units and limited partnership units of the Operating Partnership were issued as part of the initial capitalization of the Operating Partnership, and limited partnership units were issued in conjunction with management's contribution of certain assets, as well as other contributions, as discussed in Note 1, Organization .
As of June 30, 2018 , noncontrolling interests were approximately 3.62% of total shares and 3.56% of weighted average shares outstanding (both measures assuming limited partnership units were converted to common stock). The Company has evaluated the terms of the limited partnership interests in the Operating Partnership and as a result, has classified limited partnership interests issued in the initial capitalization and in conjunction with the contributed assets 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 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.
The Operating Partnership issued 6.6 million limited partnership units to affiliated parties and unaffiliated third parties in exchange for certain properties and 0.1 million limited partnership units to unaffiliated third parties unrelated to property contributions. To the extent the contributors should elect to redeem all or a portion of their 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 limited partnership units in the respective transaction.
The limited partners of the 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 Operating Partnership, the Company, to redeem their limited partnership units for cash equal to the value of an equivalent number of shares, or, at the Company’s option, purchase their limited partnership units by issuing one share of the Company’s common stock for the original redemption value

23
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

of each limited partnership unit redeemed. These rights may not be exercised under certain circumstances which could cause the Company to lose its REIT election. There were no unit redemption requests during the six months ended June 30, 2018 and year ended December 31, 2017 .  
The following summarizes the activity for noncontrolling interests recorded as equity for the six months ended June 30, 2018 and year ended December 31, 2017 :
 
Six Months Ended June 30, 2018

Year Ended December 31, 2017
Beginning balance
$
31,105

 
$
30,114

Distributions to noncontrolling interests
(2,166
)
 
(4,369
)
Allocated distributions to noncontrolling interests subject to redemption
(7
)
 
(13
)
Net income
514

 
5,120

Other comprehensive income
149

 
253

Ending balance
$
29,595

 
$
31,105

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 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.
10.
Related Party Transactions
Summarized below are the related party costs incurred by the Company for the six months ended June 30, 2018 and 2017 , respectively, and any related amounts payable as of June 30, 2018 and December 31, 2017 :
 
Incurred for the Six Months Ended June 30,
Payable as of June 30,
 
Payable as of December 31,
 
2018
 
2017
 
2018
 
2017
Expensed
 
 
 
 
 
 
 
Operating expenses
$
1,682

 
$
1,307

 
$
1,682

 
$
670

Asset management fees
11,655

 
11,865

 
1,999

 
1,878

Property management fees
4,546

 
5,066

 
720

 
730

Costs advanced by the Advisor
551

 
510

 
331

 
267

Capitalized
 
 
 
 
 
 
 
Acquisition fees (1)  
5,331

 
—

 
—

 
—

Leasing commissions
—

 
2,220

 
—

 
—

Total
$
23,765

 
$
20,968

 
$
4,732

 
$
3,545

(1)
Acquisition fees related to the acquisitions of Quaker, McKesson, and Shaw were capitalized as the acquisition did not meet the business combination criteria.

Advisory Agreement
The Company currently does not have nor does it expect to have any employees. The Advisor will be primarily responsible for managing the business affairs and carrying out the directives of the Company’s board of directors. The Company entered into an advisory agreement with the Advisor. The Advisory Agreement entitles the Advisor to specified fees and expense reimbursements upon the provision of certain services with regard to the Public Offerings and investment of funds in real estate properties, among other services, including as reimbursement for organizational and offering costs incurred by the Advisor on the Company’s behalf and reimbursement of certain costs and expenses incurred by the Advisor in providing services to the Company.

24
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

Management Compensation
The following table summarizes the compensation and fees the Company has paid or may pay to the Advisor, the Property Manager, and the Sponsor and other affiliates, including amounts to reimburse costs for providing services.
Type of Compensation (Recipient)
  
Determination of Amount
Acquisition Fees and Expenses
(Advisor)
  
Under the Advisory Agreement, the Advisor receives acquisition fees equal to 2.5%, and reimbursement for actual acquisition related expenses incurred by the Advisor of up to 0.50% of the contract purchase price, as defined therein, of each property acquired by the Company, and reimbursement for actual acquisition expenses incurred on the Company's behalf, including certain payroll costs for acquisition-related efforts by the Advisor's personnel, as defined in the agreement. In addition, the Company pays acquisition expenses to unaffiliated third parties equal to approximately 0.60% of the purchase price of the Company's properties. The acquisition fee and acquisition expenses paid by the Company shall be reasonable and in no event exceed an amount equal to 6% of the contract purchase price, unless approved by a majority of the independent directors.
Disposition Fee
(Advisor)
 
In the event that the Company sells any or all of its properties (or a portion thereof), or all or substantially all of the business or securities of the Company are transferred or otherwise disposed of by way of a merger or other similar transaction, the Advisor will be entitled to receive a disposition fee if the Advisor or an affiliate provides a substantial amount of the services (as determined by a majority of the Company's directors, including a majority of the independent directors) in connection with such transaction. The disposition fee the Advisor or such affiliate shall be entitled to receive at closing will be equal to the lesser of: (1) 3% of the Contract Sales Price, as defined in the Advisory Agreement or (2) 50% of the Competitive Commission, as defined in the Advisory Agreement; provided, however, that in connection with certain types of transactions described further in the Advisory Agreement, the disposition fee shall be subordinated to Invested Capital (as defined in the operating partnership agreement). The disposition fee may be paid in addition to real estate commissions or other commissions paid to non-affiliates, provided that the total real estate commissions or other commissions (including the disposition fee) paid to all persons by the Company or the operating partnership shall not exceed an amount equal to the lesser of (i) 6% of the aggregate Contract Sales Price or (ii) the Competitive Commission.
Asset Management Fee
(Advisor)
  
The Advisor receives an annual asset management fee for managing the Company’s assets equal to 0.75% of the Average Invested Assets, defined as the aggregate carrying value of the assets invested before reserves for depreciation. The fee will be computed based on the average of these values at the end of each month. The asset management fees are earned monthly.
Operating Expenses
(Advisor)
  
The Advisor and its affiliates are entitled to reimbursement, at cost, for actual expenses incurred by them on behalf of the Company in connection with their provision of administrative services, including related personnel costs; provided, however, the Advisor must reimburse the Company for the amount, if any, by which total operating expenses, including advisory fees, paid during the previous 12 months then ended exceeded the greater of: (i) 2% of the Company’s average invested assets for that 12 months then ended; or (ii) 25% of the Company’s net income, before any additions to reserves for depreciation, bad debts or other expenses connected with the acquisition and disposition of real estate interests and before any gain from the sale of the Company’s assets, for that fiscal year, unless the Company’s board of directors has determined that such excess expenses were justified based on unusual and non-recurring factors. For the six months ended June 30, 2018 and 2017, the Company’s total operating expenses did not exceed the 2 %/25 % guideline.
Operating expenses for the six months ended June 30, 2018 included approximately $0.3 million, to reimburse the Advisor and its affiliates a portion of the compensation paid by the Advisor and its affiliates for the Company's principal financial officer, Javier F. Bitar, executive vice president, David C. Rupert, and vice president and assistant secretary, Howard S. Hirsch, for services provided to the Company, for which the Company does not pay the Advisor a fee. In addition, the Company incurred approximately $0.1 million for reimbursable expenses to the Advisor for services provided to the Company by certain of its other executive officers for each of the six month periods ended June 30, 2018 and 2017. The reimbursable expenses include components of salaries, bonuses, benefits and other overhead charges and are based on the percentage of time each such executive officer spends on the Company's affairs.

25
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

Property Management Fees
(Property Manager)
  
The Property Manager is entitled to receive a fee for its services in managing the Company’s properties up to 3% of the gross monthly revenues from the properties plus reimbursement of the costs of managing the properties. The Property Manager, in its sole and absolute discretion, can waive all or a part of any fee earned. In the event that the Property Manager assists with the development or redevelopment of a property, the Company may pay a separate market-based fee for such services. In the event that the Company contracts directly with a non-affiliated third-party property manager with respect to a particular property, the Company will pay the Property Manager an oversight fee equal to 1% of the gross revenues of the property managed. In no event will the Company pay both a property management fee to the Property Manager and an oversight fee to the Property Manager with respect to a particular property.
In addition, the Company may pay the Property Manager or its designees a leasing fee in an amount equal to the fee customarily charged by others rendering similar services in the same geographic area. The Company may also pay the Property Manager or its designees a construction management fee for planning and coordinating the construction of any tenant directed improvements for which the Company is responsible to perform pursuant to lease concessions, including tenant-paid finish-out or improvements. The Property Manager shall also be entitled to a construction management fee of 5% of the cost of improvements.
Subordinated Share of Net Sale Proceeds (Advisor) (1)
 
Payable to the Advisor in cash upon the sale of a property after the Company's stockholders receive a return of capital plus a 6% cumulative, non-compounded return. The share of net proceeds from the sale of property is 5% if stockholders are paid a return of capital plus 6% to 8% annual cumulative non-compounding return, 10% if stockholders are paid a return of capital plus 8% to 10% annual cumulative non-compounding return, or 15% if stockholders are paid a return of capital plus 10% or more annual cumulative non-compounding return.
Subordinated Incentive Listing Distribution (Advisor) (1)
 
Payable to the Advisor no earlier than 7 months and no later than 19 months following a listing of the shares on a national securities exchange, based upon the market value of the Company's shares during a period of 30 trading days commencing after the first day of the 6th month, but no later than the last day of the 18th month following a listing, the commencement date of which shall be chosen by the Advisor in its sole discretion, and after the Company's stockholders receive a return of capital plus a 6% cumulative, non-compounded return. The distribution share is 5% if stockholders are paid a return of capital plus 6% to 8% annual cumulative non-compounding return, 10% if stockholders are paid a return of capital plus 8% to 10% annual cumulative non-compounding return, or 15% if stockholders are paid a return of capital plus 10% or more annual cumulative non-compounding return, and is payable in cash, shares of the Company's stock, units of limited partnership interest in the Operating Partnership, or a combination thereof.
Subordinated Distribution Due Upon Termination
(Advisor)

 
Payable to the Advisor (in cash, shares of the Company's stock, units of limited partnership interest in the Operating Partnership, or a combination thereof), 1/3rd within 30 days of the date of involuntary termination of the Advisory Agreement, 1/3rd upon the one year anniversary of such date, and 1/3rd upon the two year anniversary of such date. Calculated based upon appraised value of properties less the fair value of the underlying debt, and plus or minus net current assets or net current liabilities, respectively, and payable after the Company's stockholders receive a return of capital plus a 6% cumulative, non-compounded return. The distribution share is 5% if stockholders are paid a return of capital plus 6% to 8% annual cumulative non-compounding return, 10% if stockholders are paid a return of capital plus 8% to 10% annual cumulative non-compounding return, or 15% if stockholders are paid a return of capital plus 10% or more annual cumulative non-compounding return.
Upon a voluntary termination of the Advisory Agreement, the Advisor will not be entitled to receive the Subordinated Distribution Due Upon Termination but instead will be entitled to receive at the time of the applicable liquidity event a distribution equal to the applicable Subordinated Share of Net Sale Proceeds, Subordinated Incentive Listing Distribution, or Subordinated Distribution Due Upon Extraordinary Transaction.
Subordinated Distribution Due Upon Extraordinary Transaction
(Advisor) (1)

 
Payable to the Advisor upon the closing date of an Extraordinary Transaction (as defined in the operating partnership agreement); payable in cash, shares of the Company's stock, units of limited partnership in the Operating Partnership, or a combination thereof after the Company's stockholders receive a return of capital plus a 6% cumulative, non-compounded return. The distribution share is 5% if stockholders are paid a return of capital plus 6% to 8% annual cumulative non-compounding return, 10% if stockholders are paid a return of capital plus 8% to 10% annual cumulative non-compounding return, or 15% if stockholders are paid a return of capital plus 10% or more annual cumulative non-compounding return.

26
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

Sponsor Break-Even Amount
(Sponsor)

 
In the event of a merger of the Advisor into the Company or one of its affiliates in anticipation of listing or a merger with an already-listed entity, any merger consideration paid to the Company's sponsor or its affiliates in excess of unreturned and unreimbursed capital invested by the Company's sponsor and its affiliates into the Company, the Advisor, the Company's dealer manager, or affiliates, relating in any way to the business organization of the Company, the Operating Partnership, or any offering of the Company, shall be subordinated to the return of stockholders' invested capital. Such excess merger consideration shall be paid in stock that may not be traded for one year from the date of receipt, and such stock shall be held in escrow pending the occurrence of certain conditions outlined further in the Operating Partnership Agreement.

(1)
The Advisor cannot earn more than one incentive distribution. Any receipt by the Advisor of subordinated share of net sale proceeds (for anything other than a sale of the entire portfolio) will reduce the amount of the subordinated distribution due upon termination, the subordinated incentive listing distribution and the subordinated distribution due upon extraordinary transaction.
Conflicts of Interest
The Sponsor, Advisor, Property Manager and their officers and certain of their key personnel and their respective affiliates currently serve as key personnel, advisors, managers and sponsors or co-sponsors to some or all of 12 other programs affiliated with the Sponsor, including Griffin Capital Essential Asset REIT II, Inc. ("GCEAR II"), Griffin-American Healthcare REIT III, Inc. ("GAHR III"), Griffin-American Healthcare REIT IV, Inc. ("GAHR IV") and Phillips Edison Grocery Center REIT III ("PECO III"), each of which are publicly-registered, non-traded real estate investment trusts, and 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 Investment Company Act of 1940, as amended (the "1940 Act"). Because these persons have competing demands on their time and resources, they may have conflicts of interest in allocating their time between the Company’s business and these other activities.
Some of the material conflicts that the Sponsor, Advisor, and Property Manager and their key personnel and their respective affiliates will face are (1) competing demand for time of the Advisor’s executive officers and other key personnel from the Sponsor and other affiliated entities; (2) determining if certain investment opportunities should be recommended to the Company or another program sponsored or co-sponsored by the Sponsor; and (3) influence of the fee structure under the Advisory Agreement and the distribution structure under the operating partnership agreement that could result in actions not necessarily in the long-term best interest of the Company’s stockholders. The board of directors has adopted the Sponsor’s acquisition allocation policy as to the allocation of acquisition opportunities among the Company and GCEAR II, which is based on the following factors:
• the investment objectives of each program;
• the amount of funds available to each program;
• the financial impact of the acquisition on each program, including each program’s earnings and distribution ratios;
• various strategic considerations that may impact the value of the investment to each program;
• the effect of the acquisition on concentration/diversification of each program’s investments; and
• the income tax effects of the purchase to each program.
In the event all acquisition allocation factors have been exhausted and an investment opportunity remains equally suitable for the Company and GCEAR II, the Sponsor will offer the investment opportunity to the REIT that has had the longest period of time elapse since it was offered an investment opportunity.

27
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

If the Sponsor no longer sponsors GCEAR II, then, in the event that an investment opportunity becomes available that is suitable, under all of the factors considered by the Advisor, for both the Company and one or more other entities affiliated with the Sponsor, the Sponsor has agreed to present such investment opportunities to the Company first, prior to presenting such opportunities to any other programs sponsored by or affiliated with the Sponsor. In determining whether or not an investment opportunity is suitable for more than one program, the Advisor, subject to approval by the board of directors, shall examine, among others, the following factors:
• anticipated cash flow of the property to be acquired and the cash requirements of each program;
• effect of the acquisition on diversification of each program’s investments;
• policy of each program relating to leverage of properties;
• income tax effects of the purchase to each program;
• size of the investment;
• no significant increase in the cost of financing; and
• amount of funds available to each program and the length of time such funds have been available for investment.
Economic Dependency
The Company will be dependent on the Advisor for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase and disposition of properties and other investments, management of the daily operations of the Company’s real estate portfolio, and other general and administrative responsibilities. In the event that the Advisor is unable to provide the services, the Company will be required to obtain such services from other resources.
11.
Commitments and Contingencies
Ground Lease Obligations
The Company acquired properties on January 16, 2014 and April 10, 2018 that are subject to ground leases with expiration dates of December 2095 and September 2102, respectively. The Company incurred rent expense of approximately $0.3 million for the six months ended June 30, 2018 and 2017 , related to the ground leases. As of June 30, 2018 , the remaining required payments under the terms of the ground leases are as follows:
 
June 30, 2018
Remaining 2018
$
516

2019
1,032

2020
1,032

2021
1,032

2022
1,072

Thereafter
200,237

Total
$
204,921

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.

28
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited; dollars in thousands unless otherwise noted)

12.
Declaration of Distributions
During the quarter ended June 30, 2018 , the Company paid distributions in the amount of $0.001901096 per day per share on the outstanding shares of common stock payable to stockholders of record at the close of business on each day during the period from April 1, 2018 through June 30, 2018 . Such distributions were paid on a monthly basis, on or about the first day of the month, for the month then-ended.
On May 9, 2018 , the Company’s board of directors declared distributions in the amount of $0.001901096 per day per share on the outstanding shares of common stock payable to stockholders of record at the close of business on each day during the period from July 1, 2018 through September 30, 2018. Such distributions payable to each stockholder of record during a month will be paid on such date of the following month as the Company’s Chief Executive Officer may determine.
13.
Subsequent Events
Offering Status
As of August 10, 2018 , the Company had issued 21,013,363 shares of the Company’s common stock pursuant to the DRP Offerings for approximately $215.4 million .
Redemptions
On August 1, 2018, the Company redeemed 1,311,583 shares of common stock for approximately $12.6 million at a weighted average price per share of $9.63 . 
Preferred Stock Issuance
On August 8, 2018, the Company entered into a purchase agreement (the "Purchase Agreement") 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 Series A Cumulative Perpetual Convertible Preferred Stock of the Company, $0.001 par value per share, at a price of $25.00 per share (the "Series A Preferred Shares") in two tranches, each comprising 5,000,000 Series A Preferred Shares. On August 8, 2018, the Company issued 5,000,000 Series A Preferred Shares to the Purchaser for a total purchase price of $125 million (the "First Issuance"). The Company paid transaction fees totaling 3.5% of the First Issuance purchase price and incurred approximately $0.4 million in transaction-related expenses to third parties unaffiliated with the Company or the Sponsor. The Advisor incurred transaction-related expenses of approximately $0.2 million , which will be reimbursed by the Company. 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 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. Holders of Series A Preferred Shares are entitled to receive distributions quarterly in arrears at an initial annual distribution rate of 6.55% . Holders of Series A Preferred Shares have the right to redeem or convert their shares if certain conditions are not met, as set forth in the applicable Articles Supplementary.
In connection with and to accommodate the issuance of the Series A Preferred Shares, the Company, through the Operating Partnership, entered into an amendment to the Unsecured Credit Agreement.



29

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, 2017 . See also “Cautionary Note Regarding Forward Looking Statements” preceding Part I. As used herein, “we,” “us,” and “our” refer to Griffin Capital Essential Asset REIT, Inc.
Overview
We are a public, non-traded REIT that invests primarily in business essential properties significantly occupied by a single tenant, diversified by corporate credit, physical geography, product type and lease duration. We have no employees and are externally advised and managed by our Advisor.
On August 28, 2008, our Advisor purchased 100 shares of common stock for $1,000 and became our initial stockholder. From 2009 to 2014, we offered shares of common stock pursuant to a Private Offering to accredited investors and two Public Offerings, consisting of an initial public offering and a follow-on offering, which included shares for sale pursuant to the DRP. We issued 126,592,885 total shares of our common stock for gross proceeds of approximately $1.3 billion pursuant to the Private Offering and Public Offerings.
As of June 30, 2018 , our real estate portfolio, consisted of 76 properties in 20 states and 88 lessees consisting substantially of office, warehouse, and manufacturing facilities and 2 land parcels held for future development with a combined acquisition value of approximately $3.0 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 June 30, 2018 was approximately $221.5 million with approximately 62.0% generated by properties leased to tenants and/or guarantors or whose non-guarantor parent companies have investment grade or what management believes are generally equivalent ratings. Our portfolio, based on square footage, is approximately 95.8% leased as of June 30, 2018 , with a weighted average remaining lease term of 6.5 years, average annual rent increases of approximately 2.1% , and a debt to total real estate acquisition value of 48.8% .

30
Table of Contents

Revenue Concentration
No lessee or property, based on net rent for the 12-month period subsequent to June 30, 2018 , pursuant to the respective in-place leases, was greater than 5% as of June 30, 2018 .
The percentage of net rent for the 12-month period subsequent to June 30, 2018 , by state, based on the respective in-place leases, is as follows (dollars in thousands):
State
 
Net Rent
(unaudited)
 
Number of
Properties
 
Percentage of
Net Rent
Texas

$
28,322


10


12.8
%
California

22,902


5


10.3

Ohio

20,929


8


9.4

Illinois

19,334


8


8.7

Georgia

18,793


5


8.5

Colorado

18,357


6


8.3

Arizona

17,694


5


8.0

New Jersey

11,407


3


5.2

South Carolina

10,011


2


4.5

Florida

9,680


4


4.4

All Others (1)

44,062


20


19.9

Total
 
$
221,491

 
76

 
100.0
%
(1)
All others account for less than 4% of total net rent on an individual basis.

31
Table of Contents

The percentage of net rent for the 12-month period subsequent to June 30, 2018 , 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
 
$
38,711

 
12


17.5
%
Telecommunication Services
 
23,610

 
7


10.7

Health Care Equipment & Services
 
23,419

 
10


10.6

Insurance
 
22,264

 
9


10.1

Diversified Financials
 
17,643

 
5


8.0

Software & Services
 
13,856

 
8


6.3

Consumer Durables & Apparel
 
11,369

 
4


5.1

Retailing
 
10,248

 
3


4.6

Media
 
10,189

 
3


4.6

Energy
 
9,194

 
3


4.2

Consumer Services
 
8,381

 
4


3.8

Technology, Hardware & Equipment
 
8,059

 
4


3.6

All others (2)
 
24,548

 
16


10.9

Total
 
$
221,491

 
88

 
100.0
%
(1)
Industry classification based on the Global Industry Classification Standard.
(2)
All others account for less than 3% of total net rent on an individual basis.
The tenant lease expirations by year based on net rent for the 12-month period subsequent to June 30, 2018 are as follows (dollars in thousands):
Year of Lease Expiration
 
Net Rent
(unaudited)
 
Number of
Lessees
 
Approx. Square Feet
 
Percentage of
Net Rent
Remaining 2018

$
—

 
—

 
—

 
—
%
2019

23,393

(1)  
13

 
2,550,600

 
10.6

2020

20,517

 
10

 
1,484,900

 
9.3

2021

17,925

(1)  
8

 
1,588,300

 
8.1

2022

12,340

 
6

 
816,000

 
5.6

2023

10,018

(1)  
6

 
670,000

 
4.5

Thereafter

137,298

 
45

 
12,061,100

 
61.9

Vacant
 
—

 
—

 
936,000

 
—

Total
 
$
221,491

 
88

 
20,106,900

 
100.0
%
(1)
Included in the net rent amount is approximately 140,400 square feet related to a lease expiring in 2019 with the remaining square footage expiring in 2021 and 2023. We included the lessee in the number of lessees in 2019.


32
Table of Contents

Critical Accounting Policies
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, 2017 included in our Annual Report on Form 10-K filed with the SEC.
Recently Issued Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies and Basis of Presentation , to the consolidated financial statements.
Results of Operations
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 6.8% of our base rental revenue will expire during the period from July 1, 2018 to June 30, 2019. 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 July 1, 2018 to June 30, 2019, thereby resulting in revenue that may differ from the current in-place rents.
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, 2017 .
Same Store Analysis
For the three and six months ended June 30, 2018 , our "Same Store" portfolio consisted of 72 properties, encompassing approximately 17.8 million square feet, with an acquisition value of $2.7 billion. 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 June 30, 2018 and 2017 (dollars in thousands):
 
Three Months Ended June 30,
 
Increase/(Decrease)
 
Percentage
Change
 
2018
 
2017
 
Rental income
$
56,776

 
$
58,281

 
$
(1,505
)
 
(3
)%
Lease termination income
6,033

 
—

 
6,033

 
100
 %
Property expense recoveries
17,161

 
16,870

 
291

 
2
 %
Property operating expense
11,196

 
10,968

 
228

 
2
 %
Property tax expense
10,168

 
10,538

 
(370
)
 
(4
)%
Asset management fees to affiliates
5,117

 
5,092

 
25

 
0
 %
Property management fees to affiliates
2,114

 
2,209

 
(95
)
 
(4
)%
Depreciation and amortization
29,387

 
27,654

 
1,733

 
6
 %
Lease Termination Income
The increase in lease termination income of approximately $6.0 million is primarily the result of a lease termination at the 2275 Cabot Drive property.


33
Table of Contents

The following table provides a comparative summary of the results of operations for the 72 properties for the six months ended June 30, 2018 and 2017 (dollars in thousands):
 
Six Months Ended June 30,
 
Increase/(Decrease)
 
Percentage
Change
 
2018
 
2017
 
Rental income
$
114,131

 
$
117,556

 
$
(3,425
)
 
(3
)%
Lease termination income
9,006

 
12,845

 
(3,839
)
 
(30
)%
Property expense recoveries
34,201

 
34,246

 
(45
)
 
0
 %
Property operating expense
22,507

 
22,210

 
297

 
1
 %
Property tax expense
20,601

 
20,947

 
(346
)
 
(2
)%
Asset management fees to affiliates
10,264

 
10,187

 
77

 
1
 %
Property management fees to affiliates
4,361

 
4,496

 
(135
)
 
(3
)%
Depreciation and amortization
55,696

 
55,957

 
(261
)
 
0
 %
Lease Termination Income
The decrease in lease termination income of approximately $3.8 million is primarily the result of a lease termination of approximately $13.2 million on the 2500 Windy Ridge Parkway and 6841 Benjamin Franklin Drive properties in the prior period; offset by $9.3 million in termination income related to the 333 East Lake Street, 2500 Windy Ridge Parkway and 2275 Cabot Drive properties.
Portfolio Analysis
As of June 30, 2018 , we owned 76 properties and have completed the offering stage of our life cycle. We may continue to draw from our Unsecured Credit Facility to acquire assets that adhere to our investment criteria.
Comparison of the Three Months Ended June 30, 2018 and 2017
The following table provides summary information about our results of operations for the three months ended June 30, 2018 and 2017 (dollars in thousands):
 
 
Three Months Ended June 30,
 
Increase/(Decrease)
 
Percentage
Change
 
 
2018
 
2017
 
Rental income
 
$
61,488

 
$
65,111

 
$
(3,623
)
 
(6
)%
Lease termination income
 
6,304

 
—

 
6,304

 
100
 %
Property expense recoveries
 
18,199

 
17,661

 
538

 
3
 %
Property operating expense
 
11,682

 
11,750

 
(68
)
 
(1
)%
Property tax expense
 
11,140

 
11,536

 
(396
)
 
(3
)%
Asset management fees to affiliates
 
5,947

 
5,932

 
15

 
0
 %
Property management fees to affiliates
 
2,234

 
2,538

 
(304
)
 
(12
)%
General and administrative expenses
 
1,489

 
2,700

 
(1,211
)
 
(45
)%
Corporate operating expenses to affiliates
 
848

 
679

 
169

 
25
 %
Depreciation and amortization
 
31,843

 
29,952

 
1,891

 
6
 %
Interest expense
 
13,753

 
12,472

 
1,281

 
10
 %
Rental Income
The decrease in rental income of approximately $3.6 million compared to the same period a year ago is primarily the result of (1) approximately $7.8 million as a result of two properties sold during the fourth quarter of 2017 and terminations/expired leases subsequent to June 30, 2017; and (2) approximately $0.8 million in acceleration of amortization of intangibles primarily related to early lease terminations; offset by (3) approximately $5.0 million of rental income related to real estate acquired subsequent to June 30, 2017 and (5) approximately $0.2 million in new leases signed in the current period.
Lease Termination Income
The increase in lease termination income of approximately $6.3 million is primarily the result of a lease termination at the 2275 Cabot Drive property.

34
Table of Contents

Property Management Fees to Affiliates
The decrease in property management fees to affiliates of approximately $0.3 million is primarily the result of two properties sold during the fourth quarter of 2017.
General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2018 decreased by approximately $1.2 million compared to the same period a year ago primarily as a result of lower estimated state taxes in the current year.
Corporate Operating Expenses to Affiliates
Corporate operating expenses to affiliates for the three months ended June 30, 2018 increased by approximately $0.2 million as a result of an increase in allocated personnel and rent costs incurred by our Advisor.
Interest Expense
The increase of approximately $1.3 million in interest expense as compared to the same period in the prior year is primarily the result of (1) approximately $3.6 million as a result of the Bank of America loan; and (2) approximately $1.7 million in higher LIBO rates; offset by (3) approximately $1.7 million in Revolver Loan interest expense due to pay downs during 2017 and the current year; and (4) approximately $1.8 million as a result of favorable swap positions in the current period.
Comparison of the Six Months Ended June 30, 2018 and 2017
The following table provides summary information about our results of operations for the six months ended June 30, 2018 and 2017 (dollars in thousands):
 
 
Six Months Ended June 30,
 
Increase/(Decrease)
 
Percentage
Change
 
 
2018
 
2017
 
Rental income
 
$
121,573

 
$
131,210

 
$
(9,637
)
 
(7
)%
Lease termination income
 
9,006

 
12,845

 
(3,839
)
 
(30
)%
Property expense recoveries
 
35,811

 
35,425

 
386

 
1
 %
Property operating expense
 
23,005

 
23,754

 
(749
)
 
(3
)%
Property tax expense
 
22,159

 
22,549

 
(390
)
 
(2
)%
Asset management fees to affiliates
 
11,655

 
11,865

 
(210
)
 
(2
)%
Property management fees to affiliates
 
4,546

 
5,066

 
(520
)
 
(10
)%
General and administrative expenses
 
2,931

 
4,244

 
(1,313
)
 
(31
)%
Corporate operating expenses to affiliates
 
1,682

 
1,307

 
375

 
29
 %
Depreciation and amortization
 
59,162

 
60,548

 
(1,386
)
 
(2
)%
Impairment provision
 
—

 
5,675

 
(5,675
)
 
(100
)%
Interest expense
 
27,090

 
24,540

 
2,550

 
10
 %
Rental Income
The decrease in rental income of approximately $9.6 million compared to the same period a year ago is primarily the result of (1) approximately $15.7 million as a result of two properties sold during the fourth quarter of 2017 and terminations/expired leases subsequent to March 31, 2017; (2) approximately $1.2 million in reduction of occupied space; and (3) approximately $1.0 million in acceleration of amortization of intangibles primarily related to early lease terminations; offset by (4) approximately $7.4 million of rental income related to real estate acquired subsequent to June 30, 2017 and (5) approximately $0.7 million in concessions in the prior period.
Lease Termination Income
The decrease in lease termination income of approximately $3.8 million is primarily the result of a lease termination of approximately $12.8 million on the 2500 Windy Ridge Parkway property in the prior period; offset by $9.2 million in termination income related to the 333 East Lake Street, 2500 Windy Ridge Parkway and 2275 Cabot Drive properties.

35
Table of Contents

Property Management Fees to Affiliates
The decrease in property management fees to affiliates of approximately $0.5 million is primarily the result of two properties sold during the fourth quarter of 2017.
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2018 decreased by approximately $1.3 million compared to the same period a year ago primarily as a result of lower estimated state taxes in the current year.
Corporate Operating Expenses to Affiliates
Corporate operating expenses to affiliates for the six months ended June 30, 2018 increased by approximately $0.4 million as a result of an increase in allocated personnel and rent costs incurred by our Advisor.
Impairment Provision
The decrease in impairment provision expense is a result of one tenant filing for bankruptcy in the prior period. We recorded an impairment provision of approximately $5.7 million related to the lease intangibles as it was determined that the carrying value of these assets would more than likely not be recoverable.
Interest Expense
The increase of approximately $2.6 million in interest expense as compared to the same period in the prior year is primarily the result of (1) approximately $7.1 million as a result of the Bank of America loan; and (2) approximately $3.1 million in higher LIBO rates; offset by (3) approximately $3.5 million in Revolver Loan interest expense due to pay downs during 2017 and the current year; and (4) approximately $3.5 million as a result of favorable swap positions in the current period.
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.
Beginning with the three months ended March 31, 2018, we are now using Adjusted Funds from Operations (“AFFO”) as a non-GAAP financial measure to evaluate our operating performance. We previously used Modified Funds from Operations as a non-GAAP measure of operating performance.  Management decided to replace the Modified Funds from Operations measure with AFFO because AFFO provides investors with supplemental performance information that is consistent with the performance models and analysis used by management. In addition, AFFO is a measure used among our peer group, which includes publicly traded 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 the Company's 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. As explained below, management’s evaluation of our operating performance excludes items considered in the calculation of AFFO based on the following economic considerations:
•
Deferred rent. Most of our leases provide for periodic minimum rent payment increases throughout the term of the lease. In accordance with GAAP, these periodic minimum rent payment increases during the term of a lease are recorded on a straight-line basis and creates deferred rent. As deferred rent is a GAAP non-cash adjustment and is included in historical earnings, FFO is adjusted for the effect of deferred rent to arrive at AFFO as a means of determining operating results of our portfolio.
•
Amortization of in-place lease valuation. Acquired in-place leases are valued as above-market or below-market as of the date of acquisition based on the present value of the difference between (a) the contractual amounts to be paid pursuant to the in-place leases and (b) management's estimate of fair market lease rates for the corresponding in-place leases over a period equal to the remaining non-cancelable term of the lease for above-market leases. The above-market and below-market lease values are capitalized as intangible lease assets or liabilities and amortized as an adjustment to rental income

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over the remaining terms of the respective leases. As this item is a non-cash adjustment and is included in historical earnings, FFO is adjusted for the effect of the amortization of in-place lease valuation to arrive at AFFO as a means of determining operating results of our portfolio.
•
Acquisition-related costs. We were organized primarily with the purpose of acquiring or investing in income-producing real property in order to generate operational income and cash flow that will allow us to provide regular cash distributions to our stockholders. In the process, we incur non-reimbursable affiliated and non-affiliated acquisition-related costs, which in accordance with GAAP are capitalized and included as part of the relative fair value when the property acquisition meets the definition of an asset acquisition or are expensed as incurred and are included in the determination of income (loss) from operations and net income (loss), for property acquisitions accounted for as a business combination. By excluding acquisition-related costs, AFFO may not provide an accurate indicator of our operating performance during periods in which acquisitions are made. However, it can provide an indication of our on-going ability to generate cash flow from operations and continue as a going concern after we cease to acquire properties on a frequent and regular basis, which can be compared to the AFFO of other non-listed REITs that have completed their acquisition activity and have similar operating characteristics to ours. Management believes that excluding these costs from AFFO provides investors with supplemental performance information that is consistent with the performance models and analyses used by management.
•
Financed termination fee, net of payments received. We believe that a fee received from a tenant for terminating a lease is appropriately included as a component of rental revenue and therefore included in AFFO. If, however, the termination fee is to be paid over time, we believe the recognition of such termination fee into income should not be included in AFFO. Alternatively, we believe that the periodic amount paid by the tenant in subsequent periods to satisfy the termination fee obligation should be included in AFFO.
•
Gain or loss from the extinguishment of debt. We use debt as a partial source of capital to acquire properties in our portfolio. As a term of obtaining this debt, we will pay financing costs to the respective lender. Financing costs are presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and amortized into interest expense on a straight-line basis over the term of the debt. We consider the amortization expense to be a component of operations if the debt was used to acquire properties. From time to time, we may cancel certain debt obligations and replace these canceled debt obligations with new debt at more favorable terms to us. In doing so, we are required to write off the remaining capitalized financing costs associated with the canceled debt, which we consider to be a cost, or loss, on extinguishing such debt. Management believes that this loss is considered an event not associated with our operations, and therefore, deems this write off to be an exclusion from AFFO.
•
Unrealized gains (losses) on derivative instruments. These adjustments include unrealized gains (losses) from mark-to-market adjustments on interest rate swaps and losses due to hedge ineffectiveness.  The change in the fair value of interest rate swaps not designated as a hedge and the change in the fair value of the ineffective portion of interest rate swaps are non-cash adjustments recognized directly in earnings and are included in interest expense.  We have excluded these adjustments in our calculation of AFFO to more appropriately reflect the economic impact of our interest rate swap agreements.
For all of these reasons, we believe the non-GAAP measures of FFO and 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 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 six months ended June 30, 2018 and 2017 (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018

2017
 
2018
 
2017
Net income
$
7,799


$
9,160

 
$
14,440

 
$
23,466

Adjustments:



 
 
 
 
Depreciation of building and improvements
14,620


14,211

 
28,399

 
28,296

Amortization of leasing costs and intangibles
17,216


15,734

 
30,749

 
32,238

Impairment provision
—


—

 
—

 
5,675

Equity interest of depreciation of building and improvements - unconsolidated entities
643


619

 
1,277

 
1,237

Equity interest of amortization of intangible assets - unconsolidated entities
1,162


1,171

 
2,324

 
2,347

Gain from sale of depreciable operating property
(1,158
)
 
(4,293
)
 
(1,158
)
 
(4,293
)
FFO
$
40,282

 
$
36,602

 
$
76,031

 
$
88,966

Distributions to noncontrolling interest
(1,181
)
 
(1,181
)
 
(2,349
)
 
(2,349
)
FFO, net of noncontrolling interest distributions
$
39,101


$
35,421

 
$
73,682

 
$
86,617

Reconciliation of FFO to AFFO:



 
 
 
 
FFO, net of noncontrolling interest distributions
$
39,101

 
$
35,421

 
$
73,682

 
$
86,617

Adjustments:



 
 
 
 
Deferred rent
(2,883
)
 
(2,481
)
 
(5,187
)
 
(5,065
)
Amortization of above/(below) market rent
772

 
316

 
528

 
721

Amortization of debt premium/(discount)
8

 
8

 
16

 
(430
)
Amortization of ground leasehold interests
7

 
7

 
14

 
14

Non-cash lease termination income
(6,304
)
 
—

 
(6,304
)
 
(12,845
)
Financed termination fee payments received
1,830

 
5,070

 
3,436

 
6,966

Equity interest of revenues in excess of cash received (straight-line rents) - unconsolidated entities
(7
)
 
(112
)
 
(38
)
 
(249
)
Unrealized (gain) loss on derivatives
—

 
12

 
—

 
(5
)
Equity interest of amortization of above market rent - unconsolidated entities
739

 
744

 
1,478

 
1,488

AFFO
$
33,263


$
38,985

 
$
67,625

 
$
77,212


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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, and for the payment of debt service on our outstanding indebtedness, including repayment of our Unsecured Credit Facility, Bank of America Loan, and property secured mortgage loans. Generally, cash needs for items, other than property acquisitions, will be met from operations and the 2017 DRP Offering. Our Advisor will evaluate potential additional property acquisitions and engage in negotiations with sellers on our behalf. After a purchase contract is executed 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.
Unsecured Credit Facility
On July 20, 2015, we, through our Operating Partnership, entered into the Unsecured Credit Agreement with a syndicate of lenders, co-led by KeyBank, Bank of America, Fifth Third, and BMO Harris, under which KeyBank serves as administrative agent and Bank of America, Fifth Third, and BMO Harris serve as co-syndication agents, and KeyBank Capital Markets, Merrill Lynch, Fifth Third, and BMO Capital Markets serve as joint bookrunners and joint lead arrangers. Pursuant to the Unsecured Credit Agreement, we were provided with a $1.14 billion senior unsecured credit facility (the "Unsecured Credit Facility") consisting of a $500.0 million senior unsecured revolver and a $640.0 million senior unsecured term loan. The Unsecured Credit Facility may be increased up to $860.0 million , in minimum increments of $50.0 million , for a maximum of $2.0 billion by increasing either the Revolver Loan, the Term Loan, or both. The Revolver Loan has an initial term of four years, maturing on July 20, 2019, and may be extended for a one -year period if certain conditions are met and upon payment of an extension fee. The Term Loan has a term of five years, maturing on July 20, 2020.
The Unsecured Credit Facility has an interest rate calculated based on LIBOR plus the applicable LIBOR margin or Base Rate (as defined below) plus the applicable Base Rate margin, both as provided in the Unsecured Credit Agreement. The applicable LIBOR margin and Base Rate margin are dependent on whether the interest rate is calculated prior to or after we have received an investment grade senior unsecured credit rating of BBB-/Baa3 from Standard & Poors, Moody's, or Fitch, and we have elected to utilize the investment grade pricing list, as provided in the Unsecured Credit Agreement. Otherwise, the applicable LIBOR margin will be based on a leverage ratio computed in accordance with our quarterly compliance package and communicated to KeyBank. The Base Rate is calculated as the greater of (i) the KeyBank Prime rate (as defined in the Unsecured Credit Agreement) or (ii) the Federal Funds rate (as defined in the Unsecured Credit Agreement) plus 0.50%. Payments under the Unsecured Credit Facility are interest only and are due on the first day of each quarter.
On March 29, 2016, we exercised our right to increase the total commitments, pursuant to the Unsecured Credit Agreement, by entering into the increase agreement. As a result, the total commitments on the Term Loan increased from $640.0 million to $715.0 million .
As of June 30, 2018 , the remaining capacity pursuant to the Revolver Loan was $101.2 million .
Bank of America Loan
On September 29, 2017, we, through ten special purpose entities wholly owned by our Operating Partnership, entered into a loan agreement with Bank of America, N.A. in which we borrowed $375.0 million . The Bank of America Loan is secured by cross-collateralized and cross-defaulted first mortgage liens on ten properties. The Bank of America Loan has a term of 10 years, maturing on October 1, 2027. The Bank of America Loan bears interest at a rate of 3.77%. The Bank of America Loan requires monthly payments of interest only.
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 Unsecured Credit Facility. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged

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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 June 30, 2018 and December 31, 2017 (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
Fair Value (1)
Derivative Instrument
 
Notional Amounts
 
Effective Date
 
Maturity Date
 
Interest Strike Rate
 
June 30, 2018
 
December 31, 2017
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Swap
 
$
425,000

 
7/9/2015
 
7/1/2020
 
1.69%
 
$
7,627

 
$
3,255

Interest Rate Swap
 
300,000

 
1/1/2016
 
7/1/2018
 
1.32%
 
—

 
458

Total
 
$
725,000

 
 
 
 
 
 
 
$
7,627

 
$
3,713

(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 June 30, 2018 , derivatives in an asset position are included in the line item "Other assets" in the consolidated balance sheets at fair value.

Other Potential Future Sources of Capital
Other potential future sources of capital include proceeds from potential private or public offerings of our stock or limited partnership units of our 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, our 2017 DRP Offering, and income from operations.
Contractual Commitments and Contingencies
The following is a summary of our contractual obligations as of June 30, 2018 (in thousands):
 
Payments Due During the Years Ending December 31,
 
Total
 
2018
 
2019-2020
 
2021-2022
 
Thereafter
Outstanding debt obligations (1)
$
1,471,606

 
$
3,010

 
$
834,704

 
$
14,767

 
$
619,125

Interest on outstanding debt obligations (2)
283,686

  
27,170

 
103,997

 
51,527

 
100,992

Ground lease obligations (3)
204,921

 
516

 
2,064

 
2,104

 
200,237

Total
$
1,960,213

  
$
30,696

 
$
940,765

 
$
68,398

 
$
920,354

(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 June 30, 2018 . Projected interest payments on the Revolver Loan and Term Loan are based on the contractual interest rate in effect at June 30, 2018 .
(3)
Includes a capital lease obligation of approximately $2.0 million.

Short-Term Liquidity and Capital Resources
We expect to meet our short-term operating liquidity requirements with remaining proceeds raised in our 2017 DRP Offering, operating cash flows generated from our properties, and draws from our Unsecured Credit Facility. All advances from our Advisor will be repaid, without interest, as funds are available after meeting our current liquidity requirements, subject to the limitations on reimbursement.
Our cash, cash equivalents and restricted cash balances decreased by approximately $160.4 million during the six months ended June 30, 2018 and were primarily used in or provided by the following:
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 six months ended June 30, 2018 , we generated $63.0 million of net cash provided by operating

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activities compared to $77.3 million for the six months ended June 30, 2017 . Net cash provided by operating activities before changes in operating assets and liabilities for the six months ended June 30, 2018 decreased by approximately $6.5 million to approximately $63.9 million compared to approximately $ 70.4 million for the six months ended June 30, 2017 .
Investing Activities . During the six months ended June 30, 2018 , we used approximately $194.6 million in cash for investing activities compared to approximately $7.8 million provided by investing activities during the same period in 2017 . The $202.4 million decrease in cash provided by investing activities is primarily related to the following:
• $187.4 million increase in cash paid for property acquisition and payments for construction in progress;
• $3.4 million increase in cash paid for acquisition deposits;
• $8.9 million decrease in cash proceeds from disposition of properties in prior year; and
• $3.3 million increase in cash paid for investment in an unconsolidated joint venture;
offset by
• $0.6 million decrease in cash paid for improvements to real estate.

Financing Activities . During the six months ended June 30, 2018 , we used approximately $28.8 million in cash for financing activities compared to approximately $73.2 million in cash used in financing activities during the same period in 2017 . The decrease in cash used in financing activities of $44.4 million is primarily comprised of the following:
• $3.9 million decrease in principal payoff of mortgage debt; and
• $73.1 million increase in proceeds from borrowings under the Unsecured Credit Facility, due to a partial paydown of the loan in the current year;
offset by
• $32.1 million increase in repurchases of common stock;
• $0.4 million increase in principal amortization payments on secured indebtedness; and
• $0.5 million increase in distribution payments to common stockholders and noncontrolling interests due to an increase in shares issued.
Distributions and Our Distribution Policy
Distributions will be paid to our stockholders as of the record date selected by our board of directors. 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 of directors, 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, offering proceeds raised in future public offerings (if any), 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 declared, distributions paid, and cash flow provided by operating activities during the six months ended June 30, 2018 and year ended December 31, 2017 (dollars in thousands):
 
Six Months Ended June 30, 2018
 
 
 
Year Ended December 31, 2017
 
 
Distributions paid in cash — noncontrolling interests
$
2,362

 
 
 
$
4,737

 
 
Distributions paid in cash — common stockholders
35,897

 
 
 
71,124

 
 
Distributions of DRP
22,653

 
 
 
49,541

 
 
Total distributions
$
60,912

(1)  
 
 
$
125,402

 
 
Source of distributions (2)
 
 
 
 
 
 
 
Paid from cash flows provided by operations
$
38,259

  
63
%
 
$
75,861

 
60
%
Offering proceeds from issuance of common stock pursuant to the DRP
22,653

  
37
%
 
49,541

 
40
%
Total sources
$
60,912

(3)  
100
%
 
$
125,402

 
100
%
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
62,968

 
 
 
$
142,097

 
 
(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 distributions declared but not paid as of June 30, 2018 were $6.2 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 six months ended June 30, 2018 , we paid and declared distributions of approximately $58.4 million to common stockholders including shares issued pursuant to the DRP and approximately $2.4 million to the limited partners of our Operating Partnership, as compared to FFO, net of noncontrolling interest distributions and AFFO for the six months ended June 30, 2018 of approximately $73.7 million and $67.6 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 June 30, 2018 , we paid approximately $536.0 million of cumulative distributions (excluding preferred distributions), including approximately $234.6 million reinvested through our DRP, as compared to net cash provided by operating activities of approximately $312.1 million .
Off-Balance Sheet Arrangements
As of June 30, 2018 , we had no off-balance sheet transactions, nor do we currently have any such arrangements or obligations.
Subsequent Events
See Note 13, Subsequent Events , to the consolidated financial statements.

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 Unsecured Credit Facility, Bank of America Loan and property secured mortgages. These instruments were entered into for other than 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 (through our Operating Partnership) executed three interest rate swap agreements to hedge the variable cash flows associated with certain existing or forecasted LIBOR-based,variable rate debt, including our Unsecured

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Credit Facility. Three interest rate swaps are effective for the periods from July 9, 2015 to July 1, 2020, January 1, 2016 to July 1, 2018, and July 1, 2016 to July 1, 2018, and have notional amounts of $425.0 million, $300.0 million, and $100.0 million, respectively. Due to our pay down of a significant portion of our Unsecured Credit Facility, effective as of November 1, 2017, we novated the $100.0 million swap agreement to an affiliated party.

As of June 30, 2018 , our debt consisted of approximately $1.4 billion , in fixed rate debt (including the interest rate swaps) and approximately $96.3 million in variable rate debt (excluding unamortized deferred financing cost and discounts, net, of approximately $10.2 million ). As of December 31, 2017 , our debt consisted of approximately $1.4 billion in fixed rate debt (including the interest rate swaps) and approximately $19.3 million in variable rate debt (excluding unamortized deferred financing cost and discounts, net, of approximately $11.7 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. An increase of 100 basis points in interest rates on our variable-rate debt, assuming a LIBOR floor of 0%, including our Unsecured Credit Facility and our mortgage loans, after considering the effect of our interest rate swap agreements, would decrease our future earnings and cash flows by approximately $6.1 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.
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
There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2018 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 discussed below and disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, which could materially affect our business, financial condition or future results. Except as presented below, there have been no material changes in the risk factors set forth in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the

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SEC on March 9, 2018 and Part II, Item 1A, "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 as filed with the SEC on May 14, 2018.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a judicial forum of their choosing for disputes with us or our directors, officers or employees.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland (or, if that Court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division) shall be the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders with respect to our Company, our directors, our officers or our employees (we note we currently have no employees). This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of their choosing, which may discourage meritorious claims from being asserted against us and our directors, officers and employees. Alternatively, if a court were to find this provision of our bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations. We adopted this provision because we believe it makes it less likely that we will be forced to incur the expense of defending duplicative actions in multiple forums and less likely that plaintiffs’ attorneys will be able to employ such litigation to coerce us into otherwise unjustified settlements, and we believe the risk of a court declining to enforce this provision is remote, as the General Assembly of Maryland has specifically amended the Maryland General Corporation Law to authorize the adoption of such provisions.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As noted in Note 9, Equity – Share Redemption Program , we adopted a SRP that enables stockholders to sell their stock to us in limited circumstances. As long as the common stock is not listed on a national securities exchange or over-the-counter market, stockholders who have held their stock for at least one year may, under certain circumstances, be able to have all or any portion of their shares of stock redeemed by us. Only those stockholders who purchased their shares from us or received their shares from us (directly or indirectly) through one or more non-cash transactions may be able to participate in the SRP. During any calendar year, we will not redeem more than 5.0% of the weighted average number of shares outstanding during the prior calendar year. The cash available for redemption will be limited to the proceeds from the sale of shares pursuant to the DRP.
If we cannot purchase all shares presented for redemption in any quarter, based upon insufficient cash available or the limit on the number of shares we may redeem during any calendar year, we will attempt to honor redemption requests 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 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. We will treat the unsatisfied portion of the redemption request as a request for redemption the following quarter. Such pending requests will generally be honored on a pro rata basis. Any stockholder request to cancel an outstanding redemption must be sent to our transfer agent prior to the last day of the new quarter. We will determine whether sufficient funds are available or the SRP has reached the 5% share limit as soon as practicable after the end of each quarter, but in any event prior to the applicable payment date. 
Pursuant to the SRP, the redemption price per share shall be the lesser of (i) the amount paid for the shares or (ii) 95% of the NAV of the shares. Shares redeemed in connection with the death or qualifying disability of a stockholder may be repurchased at 100% of the NAV of the shares. The redemption price per share will be as of the last business day of the applicable quarter.
Redemption requests will be honored on or about the last business day of the month following the end of each quarter. Requests for redemption must be received on or prior to the end of the quarter in order for us to repurchase the shares as of the end of the following month. Since inception and through June 30, 2018 , we had redeemed 22,551,837 shares of common stock for approximately $221.9 million at a weighted average price per share of $9.84 pursuant to the SRP. Since inception and through June 30, 2017, we honored all redemption requests. During the quarter ended September 30, 2017, we reached the 5% annual limitation of the SRP for 2017. We processed the redemption requests according to the SRP policy described above and carried forward the requests not processed. As the 5% maximum was reached for the quarter ended September 30, 2017, we did not process any redemption requests for the quarter ended December 31, 2017. During the year ended December 31, 2017 , the Company redeemed  9,931,245  shares of common stock for approximately  $98.9 million at a weighted average price per share of  $9.96 . For the quarter ended March 31, 2018, the Company processed all prior requests carried forward as described above.  As a result, all redemption requests for all periods through March 31, 2018 were honored and paid. During the quarter ended June 30, 2018 , the amount of redemption requests exceeded the proceeds available from the DRP by $17.0 million . As a result,

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standard redemption requests for the quarter ended June 30, 2018 were processed on a pro-rata basis and were paid out on August 1, 2018.
During the six months ended June 30, 2018 , we had redeemed 6,701,939 shares of common stock for approximately $64.3 million at a weighted average price per share of $9.59 pursuant to the SRP. Our board of directors may choose to amend, suspend, or terminate the SRP upon 30 days' written notice at any time, which may be provided through our filings with the SEC.
During the quarter ended June 30, 2018 , we redeemed shares as follows:
For the Month Ended
 
Total
Number of
Shares
Redeemed
 
Weighted Average
Price Paid
per Share
 
Total Number of
Shares Redeemed as
Part of Publicly
Announced Plans or
Programs
 
Maximum Number (or
Approximate Dollar Value)
of Shares (or Units) that May
 Yet Be Purchased Under the Plans or Programs
April 30, 2018
 
6,700,875

 
9.59

 
6,700,875

 
(1)  
May 31, 2018
 
—

 
—

 
—

 
(1)  
June 30, 2018
 
—

 
—

 
—

 
(1)  
(1)
A description of the maximum number of shares that may be purchased under our share redemption program is included in the narrative preceding this table.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
(a)
Preferred Stock Issuance
Purchase Agreement
On August 8, 2018, we entered into a purchase agreement (the "Purchase Agreement") 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 our Series A Cumulative Perpetual Convertible Preferred Stock, $0.001 par value per share, at a price of $25.00 per share (the "Series A Preferred Shares") in two tranches, each comprising 5,000,000 Series A Preferred Shares. On August 8, 2018 (the "First Issuance Date"), we issued 5,000,000 Series A Preferred Shares to the Purchaser for a total purchase price of $125 million (the "First Issuance"). We paid transaction fees totaling 3.5% of the First Issuance purchase price and incurred approximately $0.4 million in transaction-related expenses to third parties unaffiliated with us or the Sponsor. The Advisor incurred transaction-related expenses of approximately $0.2 million, which will be reimbursed by us. Pursuant to the Purchase Agreement, the Purchaser has agreed to purchase an additional 5,000,000 Series A Preferred Shares at a later date (the "Second Issuance 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 (the "Second Issuance"). Pursuant to the Purchase Agreement, the Purchaser is generally restricted from 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.
The Series A Preferred Shares were offered and sold pursuant to an exemption from the registration requirements provided under Regulation S of the Securities Act. We relied on this exemption from registration based in part on representations made by the Purchaser in the Purchase Agreement. The shares of our common stock issuable upon conversion of the Series A Preferred Shares have not been registered under the Securities Act and may not be offered or sold in the United States in the absence of an effective registration statement or an applicable exemption from the registration requirements.

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Articles Supplementary
In connection with and prior to the closing of the First Issuance, on August 7, 2018, we filed with the State of Maryland Department of Assessments and Taxation (the "Department") Articles Supplementary (“Articles Supplementary”) to our Fourth Articles of Amendment and Restatement (as amended or supplemented, the "Charter") designating 10,000,000 authorized but unissued shares of preferred stock as the "Series A Cumulative Perpetual Convertible Preferred Stock." The Articles Supplementary were effective upon filing with the Department. The Article Supplementary set forth the key terms of the Series A Preferred Shares as follows.

Rank
The Series A Preferred Shares will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Company, rank senior to our shares of common stock.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the Series A Preferred Shares will be entitled to be paid out of our assets legally available for distribution to our stockholders, after payment of or provision for our debts and other liabilities, liquidating distributions, in cash or property at its fair market value as determined by our Board of Directors, in the amount, for each outstanding share of Series A Preferred Shares equal to $25.00 per share of Series A Preferred Shares (the "Liquidation Preference"), plus an amount equal to any accumulated and unpaid distributions to the date of payment, before any distribution or payment is made to holders of our shares of common stock or any other class or series of equity securities ranking junior to the Series A Preferred Shares but subject to the preferential rights of holders of any class or series of equity securities ranking senior to the Series A Preferred Shares. After payment of the full amount of the Liquidation Preference to which they are entitled, plus an amount equal to any accumulated and unpaid distributions to the date of payment, the holders of Series A Preferred Shares will have no right or claim to any of our remaining assets.
In the event that, upon any liquidation of us, our available assets are insufficient to pay the Liquidation Preference on all outstanding Series A Preferred Shares, plus an amount equal to any accumulated and unpaid distributions to the date of such payment and any corresponding amounts payable as liquidating distributions on all other classes or series of equity securities ranking on a parity with the Series A Preferred Shares in the distribution of assets upon a liquidation, then the holders of Series A Preferred Shares and all other such equity securities ranking on a parity with the Series A Preferred Shares will share ratably in any such distribution of assets in proportion to the full liquidating distributions per share to which they would otherwise be respectively entitled.
Distributions
Subject to the terms of the 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% from and after the First Issuance Date, or if the Second Issuance occurs, 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 (the "Reset 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 (the "First Triggering Event"), 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.
Company Redemption Rights

The Series A Preferred Shares may be redeemed by us, in whole or in part, at our option, upon the earlier to occur of: (i) five years from the First Issuance Date or (ii) the First Triggering Event, at a per share redemption price (the "Redemption Price") in cash equal to the Liquidation Preference, plus any accumulated and unpaid distributions on the Series A Preferred Shares up to the redemption date, plus, a redemption fee of 1.5% of the Redemption Price in the case of a redemption that occurs on or after the date of the First Triggering Event, but before the date that is five years from the First Issuance Date.


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Holder Redemption Rights
    
In the event we fail to effect a Listing by August 1, 2023, the holder of any Series A Preferred Shares has the option to request a redemption of such shares on or on any date following August 1, 2023, at the Redemption Price, plus any accumulated and unpaid distributions up to the redemption date (the "Redemption Right"); provided, however, that no holder of the Series A Preferred Shares shall have a Redemption Right if a Listing occurs prior to or on August 1, 2023.

Conversion Rights

Subject to our redemption rights and certain conditions set forth in the Articles Supplementary, a holder of the Series A Preferred Shares, at his or her option, will have the right to convert such holder's Series A Preferred Shares into shares of our common stock any time after the earlier of (i) five years from the First Issuance Date, or if the Second Issuance occurs, five years from the Second Issuance Date or (ii) a Change of Control (as defined in the Articles Supplementary) at a per share conversion rate equal to the Liquidation Preference divided by the then Common Stock Fair Market Value (as defined in the Articles Supplementary).
    
Voting Rights

Except as set forth below, the holders of the Series A Preferred Shares are not entitled to vote at any meeting of our stockholders for election of directors or for any other purpose or otherwise to participate in any action taken by us or our stockholders. However, if, at any time, full cumulative distributions on the Series A Preferred Shares have not been paid for six or more quarterly periods, whether or not the quarterly periods are consecutive, the holders of Series A Preferred Shares (voting together as a single class) will be entitled to elect two additional directors who will serve on our Board of Directors. Once all distributions accumulated on the Series A Preferred Shares have been paid in full for all past distribution periods and the accumulated distribution for the then current distribution period has been authorized, declared and paid in full or authorized, the term of such additional directors will terminate.

Consent Rights

So long as any Series A Preferred Shares remain outstanding, we will not, without the prior affirmative vote or consent of the holders of at least two-thirds of the Series A Preferred Shares outstanding at the time, (i) amend, alter, supplement or repeal any of the provisions of the Charter, including the Articles Supplementary, in a manner that materially and adversely affects any contract right of the Series A Preferred Shares, or (ii) increase the authorized or issued amount of, or issue, any class or series of equity securities ranking senior or on a parity to the Series A Preferred Shares in respect of rights to receive distributions and to participate in distributions or payments in the event of any liquidation, or any security, including any debt security, convertible into or evidencing the right to purchase any class or series of such equity securities.

The foregoing description of the Series A Preferred Shares, the Articles Supplementary and the Purchase Agreement does not purport to be complete and is qualified in its entirety by the Articles Supplementary and the Purchase Agreement attached as Exhibits 3.1 and 10.1, respectively, to this Quarterly Report on Form 10-Q and incorporated into this Item 5 disclosure by reference.

(b)
During the quarter ended  June 30, 2018 , there were no material changes to the procedures by which security holders may recommend nominees to our board of directors.
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 June 30, 2018 (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 June 30, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive Income (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:
August 13, 2018
By:
 
/s/ Javier F. Bitar
 
 
 
 
Javier F. Bitar
 
 
 
 
On behalf of the Registrant and as Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

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Exhibit 3.1
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
 
ARTICLES SUPPLEMENTARY

10,000,000 SHARES OF SERIES A CUMULATIVE PERPETUAL
CONVERTIBLE PREFERRED STOCK
 
Griffin Capital Essential Asset REIT, Inc., a Maryland corporation (the “ Corporation ”), hereby certifies to the State Department of Assessments and Taxation of Maryland (the “ SDAT ”), that:
FIRST: Article V of the Fourth Articles of Amendment and Restatement of the Corporation filed with the SDAT on July 14, 2017 (as amended or supplemented, the “ Charter ”), authorizes the issuance of 900,000,000 shares of stock of the Corporation, consisting of 700,000,000 shares of common stock, $0.001 par value per share (the “ Common Stock ”), and 200,000,000 shares of preferred stock, $0.001 par value per share (the “ Preferred Stock ”). The Charter expressly authorizes the Board of Directors of the Corporation (the “ Board ”) to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the Corporation has the authority to issue and to designate the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each class or series.
SECOND: Pursuant to the authority expressed in Article V of the Charter, the Board, by duly adopted resolutions, classified and designated 10,000,000 authorized but unissued shares of Preferred Stock as the “ Series A Cumulative Perpetual Convertible Preferred Stock ” and fixed the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption of such Series A Cumulative Perpetual Convertible Preferred Stock. Capitalized terms used in these Articles Supplementary which are defined in the Charter and not otherwise defined herein are used herein as so defined in the Charter. Certain other capitalized terms used in these Articles Supplementary are defined in ARTICLE THIRD, Section 15 below, which definitions shall apply only to the Series A Cumulative Perpetual Convertible Preferred Stock and shall not affect the definition of such terms as used or as otherwise defined with respect to other class or series of Preferred Stock or elsewhere in the Charter.
THIRD: The series of Preferred Stock referred to in Article SECOND of these Articles Supplementary shall have the following designation, number of shares, preferences, conversion and other rights, voting powers, restrictions and limitation as to dividends and other distributions, qualifications and terms and conditions of redemption:
(1) Designation and Number . There shall be a series of Preferred Stock designated as the “Series A Cumulative Perpetual Convertible Preferred Stock, $0.001 par value per share” (the “ Series A Preferred Stock ”). The number of authorized shares of Series A Preferred Stock is 10,000,000.
(2) Rank . The Series A Preferred Stock will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Corporation, rank: (a) senior to the Common Stock and to any other class or series of equity securities issued by the Corporation the terms of which specifically provide that such class or series ranks, with respect to distribution rights and/or rights upon liquidation, dissolution or winding up of the Corporation, junior to the Series A Preferred Stock; (b) on a parity with any other class or series of equity securities issued by the Corporation the terms of which specifically provide that such class or series ranks, with respect to distribution rights and/or rights upon liquidation, dissolution

1




or winding up of the Corporation, on a parity with the Series A Preferred Stock; and (c) junior to any other class or series of equity securities issued by the Corporation the terms of which specifically provide that such class or series ranks, with respect to distribution rights and/or rights upon liquidation, dissolution or winding up of the Corporation, senior to the Series A Preferred Stock. For the avoidance of doubt, debt securities of the Corporation which are outstanding and convertible into or exchangeable for equity securities of the Corporation or any other debt securities of the Corporation do not constitute a class or series of equity securities for purposes of this Section 2, provided, however, that any future issuance of debt securities convertible into or exchangeable for equity securities ranking senior or on a parity to the Series A Preferred Stock will be subject to Section 7(d)(ii) hereof.
(3) Distributions .
(a)      Subject to the preferential rights of the holders of any class or series of equity securities issued by the Corporation ranking senior to the Series A Preferred Stock as to distributions, holders of the Series A Preferred Stock are entitled to receive, when and if authorized by the Board and declared by the Corporation, out of funds of the Corporation legally available for the payment of distributions, cumulative cash distributions: (i) at a rate equal to one-fourth (1/4) of the then applicable Distribution Rate on the Liquidation Amount with respect to each Distribution Period (other than the Initial Distribution Period), payable quarterly in arrears on each Distribution Payment Date, and (ii) with respect to the Initial Distribution Period, on the first Distribution Payment Date after the date of issuance, an amount equal to the then applicable Distribution Rate multiplied by the number of days from the date of issuance to the last day of the Initial Distribution Period (inclusive) divided by 360.
(b)      If any Distribution Payment Date is not a Business Day, then the distribution which would otherwise have been payable on such Distribution Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Distribution Payment Date, and no interest or additional distributions or other sums shall accrue on the amount so payable from such Distribution Payment Date to such next succeeding Business Day.
(c)      The amount of distributions payable on the Series A Preferred Stock on any date prior to the end of a Distribution Period shall be computed on the basis of a 360-day year consisting of four 90-day quarters, and actual days elapsed over a 90-day quarter. Distributions shall be payable to holders of record as they appear in the stock transfer records of the Corporation at the close of business on the applicable record date (each, a “ Distribution Record Date ”), which will be the same date set for any quarterly distribution payable to holders of the Common Stock and other Preferred Stock of the Corporation, or on such other date designated by the Board for the payment of distributions that is not more than 30 nor less than 10 days prior to the applicable Distribution Payment Date.
(d)    No distributions on the Series A Preferred Stock shall be authorized by the Board or paid or set apart for payment by the Corporation at any time when the terms and provisions of any agreement of the Corporation relating to any indebtedness of the Corporation or any agreement of the Corporation relating to any securities that are senior to the Series A Preferred Stock, prohibit the authorization, payment or setting apart for payment thereof or provide that the authorization, payment or setting apart for payment thereof would constitute a breach of the agreement or a default under the agreement, or if the authorization, payment or setting apart for payment shall be restricted or prohibited by law.
(e)    Except as provided in Section 3(g) below, unless full cumulative distributions on the Series A Preferred Stock for all past Distribution Periods have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof is set apart for payment, no distributions (other than distributions paid in Common Stock or equity securities ranking junior to the Series A Preferred Stock as to distributions and upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation, or options, warrants or rights to subscribe for or purchase Common Stock or such

2




junior equity securities) shall be authorized, declared or paid or set apart for payment upon the Common Stock or any other equity securities of the Corporation ranking junior to or on a parity with the Series A Preferred Stock as to distributions, nor shall any Common Stock or any other equity securities of the Corporation ranking junior to or on a parity with the Series A Preferred Stock as to distributions be redeemed, purchased or otherwise acquired for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation except (i) by conversion into or exchange for Common Stock or such junior equity securities, (ii) by redemption, purchase or other acquisition of Common Stock or such junior equity securities made for purposes of an incentive, benefit, share redemption program or share purchase plan of the Corporation or any of its direct or indirect subsidiaries, (iii) for redemptions, purchases or other acquisitions by the Corporation, whether pursuant to any provision of the Charter or otherwise, for the purpose of preserving the Corporation’s status as a REIT for U.S. federal income tax purposes or (iv) for any distributions by the Corporation required for it to maintain its status as a REIT for U.S. federal income tax purposes.
(f)      Any distribution payments made on the Series A Preferred Stock shall first be credited against the earliest accrued but unpaid distributions due with respect to the Series A Preferred Stock which remain payable.
(g)      When full cumulative distributions for all past Distribution Periods are not paid in full in cash (or a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Stock and the equity securities of any other class or series ranking on a parity as to distributions with the Series A Preferred Stock, then all distributions declared upon the Series A Preferred Stock and any such other class or series of equity securities (ranking on a parity as to distributions with the Series A Preferred Stock) shall be declared pro rata so that the amount of distributions authorized per share of the Series A Preferred Stock and such other classes or series of equity securities shall in all cases bear to each other in the same ratio that accumulated, accrued and unpaid distributions per share on the Series A Preferred Stock and such other class or series of equity securities (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such other class or series does not have a cumulative distribution) bear to each other.
(h)      No interest, or sum of money in lieu thereof, shall be payable with respect to any distribution payment or payments on Series A Preferred Stock which may be in arrears, and the holders of shares of Series A Preferred Stock are not entitled to any distributions, whether payable in cash, securities or other property, in excess of the full cumulative distributions described in this Section 3. Subject to the provisions of this Section 3, such distributions (payable in cash, securities or other property) as may be determined by the Board or any duly authorized committee of the Board may be declared and paid on any securities of the Corporation from time to time out of any funds legally available for such payment, and holders of Series A Preferred Stock shall not be entitled to participate in any such distributions.
(i)      The Corporation shall remain entitled to receive and retain any interest or other earnings on any money set apart for the payment of distributions on Series A Preferred Stock and holders thereof shall have no claim to such interest or other earnings. To the extent permitted by applicable law, any funds for the payment of distributions on Series A Preferred Stock which have been set apart by the Corporation and which remain unclaimed by the holders of the Series A Preferred Stock entitled thereto on the first anniversary of the applicable Distribution Payment Date, or other distribution payment date, shall revert and be repaid to the general funds of the Corporation, and thereafter the holders of the Series A Preferred Stock entitled to the funds which have reverted or been repaid to the Corporation shall look only to the general funds of the Corporation for payment, without interest or other earnings thereon.
(j)      Any cash distributions paid in respect of Series A Preferred Stock, including any portion thereof which the Corporation elects to designate as “capital gain dividends” (as defined in

3




Section 857 (or any successor provision) of the Internal Revenue Code) or as a return of capital, shall be credited to the distributions on the Series A Preferred Stock.
(4)      Liquidation Preference .
(a)      Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (referred to herein as a “liquidation”), the holders of the Series A Preferred Stock will be entitled to be paid out of the assets of the Corporation legally available for distribution to its stockholders, after payment of or provision for the debts and other liabilities of the Corporation, liquidating distributions, in cash or property at its fair market value as determined by the Board, in the amount, for each outstanding share of Series A Preferred Stock equal to the Liquidation Amount (the “ Liquidation Preference ”), plus an amount equal to any accumulated and unpaid distributions to the date of payment, before any distribution or payment is made to holders of Common Stock or any other class or series of equity securities of the Corporation ranking junior to the Series A Preferred Stock as to the distribution of assets upon a liquidation but subject to the preferential rights of holders of any class or series of equity securities of the Corporation ranking senior to the Series A Preferred Stock as to the distribution of assets upon a liquidation. After payment of the full amount of the Liquidation Preference to which they are entitled, plus an amount equal to any accumulated and unpaid distributions to the date of payment, the holders of Series A Preferred Stock will have no right or claim to any of the remaining assets of the Corporation.
(b)      In the event that, upon any liquidation of the Corporation, the available assets of the Corporation are insufficient to pay the Liquidation Preference on all outstanding Series A Preferred Stock, plus an amount equal to any accumulated and unpaid distributions to the date of such payment and any corresponding amounts payable as liquidating distributions on all other classes or series of equity securities of the Corporation ranking on a parity with the Series A Preferred Stock in the distribution of assets upon a liquidation, then the holders of Series A Preferred Stock and all other such equity securities of the Corporation ranking on a parity with Series A Preferred Stock shall share ratably in any such distribution of assets in proportion to the full liquidating distributions per share to which they would otherwise be respectively entitled.
(c)      For purposes of this Section 4, neither the voluntary sale, lease, exchange, transfer or conveyance (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation to, nor the merger or consolidation or any other business combination of the Corporation with or into or with any other entity or the merger or consolidation of any other entity into or with the Corporation or a statutory share exchange by the Corporation, shall be deemed to be a liquidation. Upon a Change of Control, if the shares of the Series A Preferred Stock are not redeemed or converted as provided in Sections 5 or 6 hereof, respectively, then the Corporation will cause any acquirer of the Corporation to assume the obligations set forth in these Articles Supplementary and be subject to the terms and conditions set forth therein. And, notwithstanding the foregoing, if such assumption is not permitted by law, the Corporation shall take any actions under its control necessary to cause the acquirer to issue securities of the acquirer with substantially similar contractual rights as those contained in these Articles Supplementary (including the inclusion of a provision in the relevant merger or consolidation agreement requiring the acquirer to issue securities of the acquirer with substantially similar contractual rights as those contained in these Articles Supplementary).
(d)      In determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition of shares of equity securities of the Corporation or otherwise, is permitted under Maryland law, amounts that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of the Series A Preferred Stock shall not be added to the Corporation’s total liabilities.

4




(e)      Written notice of any liquidation, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage prepaid, not less than 30 nor more than 60 days prior to the payment date stated therein to each record holder of the Series A Preferred Stock at the respective address of such holders as the same shall appear on the stock transfer records of the Corporation.
(5)
Redemption .
(a)      The Corporation may redeem the Series A Preferred Stock, in whole or in part at the option of the Corporation upon the date of, and on any date after, the earliest to occur of (i) five years from the First Issuance Date or (ii) the First Triggering Event, at a per share redemption price in cash equal to the Liquidation Amount (the “ Redemption Price ”), plus any accumulated and unpaid distributions on the Series A Preferred Stock up to the Redemption Date (as defined below), plus, in the case of a redemption pursuant to Section 5(a)(ii) that occurs on or after the date of the First Triggering Event, but before the date that is five years from the First Issuance Date, the Redemption Fee. If fewer than all of the outstanding Series A Preferred Stock are to be redeemed, the Corporation shall determine the number of shares of Series A Preferred Stock to be redeemed on a pro rata basis (as nearly as practicable without creating any fractional shares), by lot or in such other manner as determined by the Corporation to be fair and equitable to holders of Series A Preferred Stock.
(b)      If the Corporation fails by August 1, 2023 to list either its shares of Common Stock or the Series A Preferred Stock on a national securities exchange registered under Section 6(a) of the Exchange Act, the Corporation shall redeem, at the option of the holder of the Series A Preferred Stock on or on any date following August 1, 2023, such holder’s shares of the Series A Preferred Stock, at the Redemption Price, plus any accumulated and unpaid distributions on the Series A Preferred Stock up to the Redemption Date (as defined below) (the “ Mandatory Redemption Right ”); provided, however, that no holder of the Series A Preferred Stock shall have a Mandatory Redemption Right under this Section 5(b) if the Corporation lists its shares of Common Stock or the Series A Preferred Stock on a national securities exchange registered under Section 6(a) of the Exchange Act prior to or on August 1, 2023.
(c)      Notwithstanding anything to the contrary contained in these Articles Supplementary: (i) absent an exemption therefrom, Series A Preferred Stock owned by a stockholder in excess of the Aggregate Stock Ownership Limit or other ownership limitations set forth in Article VI of the Charter shall be subject to the provisions of Article VI of the Charter (including with respect any notice to any such stockholder) and (ii) except as otherwise provided herein, the redemption provisions of the Series A Preferred Stock do not in any way limit the Corporation’s right or ability to purchase, from time to time either at a public or a private sale, Series A Preferred Stock at such price or prices as the Corporation may determine, subject to the provisions of applicable law.
(d)      If, prior to the Conversion Date (as defined below), the Corporation has provided notice of its election to redeem some or all of the Series A Preferred Stock pursuant to Section 5(a), or the Corporation has received a notice of its obligation to redeem the Series A Preferred Stock pursuant to Section 5(b), the holders of the Series A Preferred Stock will not have a Conversion Right (as defined below) with respect to the Series A Preferred Stock called or put for redemption.
(e)      If as a result of a redemption pursuant to this Section 5, any holder of Series A Preferred Stock (other than a holder that is an Excepted Holder) would have actual or constructive ownership in excess of the Aggregate Stock Ownership Limit or otherwise would violate Article VI of the Charter because a holder’s Series A Preferred Stock was not redeemed, or was only redeemed in part, then, except as otherwise provided in the Charter, the Corporation shall redeem the requisite number of shares of Series A Preferred Stock of such holder such that no Person will hold shares in excess of the Aggregate Stock Ownership Limit or otherwise in violation of Article VI of the Charter subsequent to such redemption.

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(f)      Notice of a redemption pursuant to Section 5(a) will be mailed by the Corporation, postage prepaid, not less than 15 Business Days prior to the Redemption Date, addressed to the respective holders of the Series A Preferred Stock to be redeemed at their respective addresses as they appear on the books of the Corporation. Each notice shall state: (i) the redemption date for the Series A Preferred Stock being redeemed (the “ Redemption Date ”); (ii) the number of shares of Series A Preferred Stock to be redeemed; (iii) the Redemption Price; (iv) the place or places where certificates representing such Series A Preferred Stock are to be surrendered for payment of the Redemption Price; and (v) that distributions on the Series A Preferred Stock to be redeemed will cease to accumulate on such Redemption Date. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock except as to a holder to whom notice was defective or not given.
(g)      A holder of Series A Preferred Stock desiring to exercise its Mandatory Redemption Right under Section 5(b) hereof must deliver a written redemption notice (the “ Mandatory Redemption Notice ”) in the form approved by the Corporation, duly completed, to the Corporation by certified mail postage prepaid to the Corporation's principal office c/o the Secretary. The Redemption Notice must state: (i) the number of shares of Series A Preferred Stock to be redeemed by the Corporation; and (ii) that the Series A Preferred Stock is to be redeemed pursuant to Section 5(b) hereof. Upon receipt of a Mandatory Redemption Notice, the Corporation, not less than 15 Business Days prior to the Redemption Date, shall mail a notice to such holder which shall state: (i) the Redemption Date; (ii) the place or places where certificates representing such Series A Preferred Stock are to be surrendered for payment of the Redemption Price; and (iii) that distributions on the Series A Preferred Stock to be redeemed will cease to accumulate on such Redemption Date.
(h)      On or after a Redemption Date, each holder of Series A Preferred Stock to be redeemed must present and surrender the certificates (or an affidavit of loss and indemnity satisfactory to the Corporation), to the extent such shares are certificated, representing the Series A Preferred Stock to the Corporation to be redeemed at the place designated in the notice from the Corporation referenced in (f) or (g) above, as the case may be, and thereupon the Redemption Price for such shares of Series A Preferred Stock (and all accumulated and unpaid distributions to but excluding the Redemption Date) will be paid to or on the order of such holder by wire transfer pursuant to wire instructions provided by such holder and each surrendered certificate, if any, will be canceled. If the shares of Series A Preferred Stock to be redeemed are certificated, then in the event that fewer than all the shares of Series A Preferred Stock are to be redeemed, a new certificate will be issued representing the unredeemed shares of Series A Preferred Stock.
(i)      Except as provided in the next sentence, from and after a Redemption Date, all distributions on the Series A Preferred Stock subject to such redemption will cease to accumulate and all rights of the holders thereof, except the right to receive the Redemption Price thereof (and all accumulated and unpaid distributions to but excluding the Redemption Date), will cease and terminate and such Series A Preferred Stock shall not be deemed to be outstanding for any purpose whatsoever. In the event that the Corporation defaults in the payment of the Redemption Price for any Series A Preferred Stock surrendered for redemption pursuant to Section 5(a), such Series A Preferred Stock shall continue to be deemed to be outstanding for all purposes and to be owned by the respective holders, and the Corporation shall promptly return any surrendered certificates representing such Series A Preferred Stock to such holders (although the failure of the Corporation to return any such certificates to such holders shall in no way affect the ownership of such Series A Preferred Stock by such holders or their rights thereunder) (and the holders of the Series A Preferred Stock that was not redeemed shall have no other remedy against the Corporation).
(j)      At its election, the Corporation, prior to a Redemption Date, may irrevocably deposit the Redemption Price of the Series A Preferred Stock to be redeemed pursuant to this Section 5 in trust for the holders of Series A Preferred Stock with a bank or trust company, in which case the Corporation

6




shall send a notice to the holders of shares of Series A Preferred Stock to be redeemed which shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the Redemption Price and (C) require the holder of shares of Series A Preferred Stock to be redeemed to surrender the certificates, if any, representing such shares of Series A Preferred Stock (or an affidavit of loss and indemnity satisfactory to the Corporation) at such place on or about the date fixed in the redemption notice (which may not be later than the Redemption Date) against payment of the Redemption Price. Any monies so deposited which remain unclaimed at the end of two years after the Redemption Date shall be returned by such bank or trust company to the Corporation.
(6)      Conversion Rights . The shares of Series A Preferred Stock are not convertible into or exchangeable for any other property or securities of the Corporation, except as provided in Article VI of the Charter and in this Section 6.
(a) Subject to the Corporation’s redemption rights under Section 5, at the option of the holder of Series A Preferred Stock, any time after the earlier of (i) five years from the First Issuance Date, or if the Second Issuance occurs, five years from the Second Issuance Date or (ii) a Change of Control, such holder shall have the right to convert (the “ Conversion Right ”) any or all of the holder's shares of Series A Preferred Stock into shares of Common Stock at a per share conversion rate equal to the Liquidation Amount divided by the then Common Stock Fair Market Value (the “ Conversion Price ”); provided, however, that no shares of Series A Preferred Stock may be converted on any Conversion Date (as defined below) pursuant to this Section 6 unless at least 1,000 shares of Series A Preferred Stock, in the aggregate, are converted by one or more holders thereof.
(b) A holder of Series A Preferred Stock desiring to exercise its Conversion Right must deliver, on or before the close of business on the Conversion Date, the certificates (if any) evidencing the Series A Preferred Stock to be converted, duly endorsed for transfer (or an affidavit of loss and indemnity satisfactory to the Corporation), together with a written conversion notice (the “ Conversion Notice ”) in the form approved by the Corporation, duly completed, to the Corporation by certified mail postage prepaid to the Corporation's principal office c/o the Secretary. The Conversion Notice must state: (i) the date the holder proposes to convert the shares of Series A Preferred Stock into Common Stock (the “ Conversion Date ”); provided, however, that the Conversion Date must be a Business Day and may not be less than five nor more than 15 days after the date the Conversion Notice is delivered to the Corporation, or in the event that holders of 15% or more of the then outstanding Series A Preferred Stock provide a Conversion Notice to the Corporation, the Conversion Date may not be less than 30 days after the date the Conversion Notice is delivered to the Corporation; (ii) the number of shares of Series A Preferred Stock to be converted; and (iii) that the Series A Preferred Stock is to be converted pursuant to the applicable provisions hereof. Subject to the terms of these Articles Supplementary, the Corporation’s obligation to convert the Series A Preferred Stock shall be extended for such period of time as may be reasonably necessary for (i) the parties to comply with the Hart-Scott-Rodino Antitrust Improvements Act of 1976; or (ii) the issuance of a Fairness Opinion if such an opinion is requested by the Purchaser.
(c) No fractional shares of Common Stock will be issued upon the conversion of the Series A Preferred Stock in connection with a Conversion Right. Instead, the Corporation will make a cash payment (computed to the nearest cent) equal to the value of such fractional Common Stock based upon the Conversion Price.
(d) At the Corporation’s option, upon the exercise of the Conversion Right by a holder of Series A Preferred Stock and upon written notice to the holder delivered not later than three Business Days prior to the Conversion Date, in lieu of issuing the requisite number of shares of Common Stock to the converting holder of Series A Preferred Stock in accordance with Section 6(a) above, the Corporation may elect to make a cash payment to the converting holder of Series A Preferred Stock in an amount equal to the product of (1) the Conversion Price and (2) the number of shares of Common Stock

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that would have been otherwise issued to the converting holder of Series A Preferred Stock. In such a case, the holder shall only have the right to such payment and shall cease to have any further rights as a stockholder of the Corporation.
(e) Any conversion or redemption pursuant to this Section 6 shall be effective as of the close of business on the Conversion Date. To the extent that any shares of Series A Preferred Stock to be converted or redeemed pursuant to this Section 6 are certificated, if fewer than all the shares evidenced by any such certificate are to be converted or redeemed, a new certificate shall be issued evidencing the shares that have not been converted or redeemed.
(f) Notwithstanding anything to the contrary contained herein, no holder of Series A Preferred Stock will be entitled to exercise a Conversion Right (i) to the extent that receipt of such Common Stock would cause such holder (or any other Person) to violate the applicable restrictions on ownership and transfer in Article VI of the Charter, unless the Corporation provides an exemption from the applicable limitation to such holder (or other Person) pursuant to Article VI of the Charter; (ii) in the opinion of counsel for the Corporation, the Corporation would no longer qualify as a REIT or its status as a REIT may be compromised as a result of such conversion; or (iii) such conversion would, in the opinion of counsel for the Corporation, constitute or be likely to constitute a violation of applicable securities laws. Notwithstanding the foregoing, upon the exercise of the Conversion Right by a holder of Series A Preferred Stock in accordance with Section 6 of the Articles Supplementary, the Corporation will use reasonable efforts to satisfy the conditions set forth in Section 6(f)(i)-(iii) of the Articles Supplementary.
(g) The Corporation shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized and unissued Common Stock, solely for the purpose of effecting conversion of the Series A Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all outstanding Series A Preferred Stock not theretofore converted into Common Stock.
(h) The Corporation shall pay any documentary stamp or similar issue or transfer taxes required to be paid by the Corporation under applicable law in respect of the issue or delivery of Common Stock on conversion of Series A Preferred Stock pursuant hereto. The converting holder of the Series A Preferred Stock shall pay any documentary stamp or similar issue or transfer taxes required to be paid by such holder of the Series A Preferred Stock under applicable law in respect of the issue or delivery of Common Stock on conversion of Series A Preferred Stock pursuant hereto.
(7)      Voting Rights .
(a)      Notwithstanding anything to the contrary contained in the Charter or Maryland law, except as set forth below in this Section 7, the holders of the Series A Preferred Stock shall not be entitled to vote at any meeting of the stockholders for election of directors or for any other purpose or otherwise to participate in any action taken by the Corporation or the stockholders thereof, or to receive notice of any meeting of stockholders (except for such notices as may be expressly required by law).
(b)      If, at any time, full cumulative distributions on the Series A Preferred Stock shall not have been paid for six or more quarterly periods (a “ Preferred Distribution Default ”), whether or not the quarterly periods are consecutive, the holders of Series A Preferred Stock (voting together as a single class) will be entitled to elect two additional directors of the Corporation (each, a “ Preferred Stock Director ”). The election will take place at the next annual meeting of stockholders, or at a special meeting of the holders of Series A Preferred Stock called for that purpose, and such right to elect Preferred Stock Directors shall continue until all distributions accumulated on the Series A Preferred Stock have been paid in full for all past distribution periods and the accumulated distribution for the then current distribution period shall have been authorized, declared and paid in full or authorized, declared and a sum sufficient for the payment thereof irrevocably set apart for payment in trust. Upon the election of the Preferred Stock

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Directors, the number of directors then constituting the Board will automatically increase by two, if not already increased by two by reason of the election of Preferred Stock Directors by the holders of the Series A Preferred Stock. For the avoidance of doubt, and by means of example, in the event distributions on the Series A Preferred Stock shall be in arrears for six or more quarterly periods, the holders of the Series A Preferred Stock shall be entitled to vote for the election of two additional directors in the aggregate, not two times the number of the sum of the Series A Preferred Stock.
(c)      The Series A Preferred Stock shall vote for and elect (and may only vote for and elect) as the Preferred Stock Directors such persons as shall have been selected by a plurality of the votes cast at a meeting of the holders (other than the Corporation) of the Series A Preferred Stock (voting together as a single class) held for such purpose, such meeting to be held with respect to notice and other procedural matters in substantially the same manner as a special meeting of stockholders of the Corporation (as determined by the Board in its sole discretion).
(i)      If all distributions accumulated on the Series A Preferred Stock and on the Series A Preferred Stock for all past distribution periods have been paid in full, or the Corporation has authorized, declared and a sum sufficient for the payment thereof has been irrevocably set apart for payment in trust, and the Corporation has authorized, declared and a sum sufficient for the payment thereof has been set apart for the then-current distribution period, the right of the holders of Series A Preferred Stock to elect such two Preferred Stock Directors shall cease, and the term of office of such Preferred Stock Directors previously so elected shall automatically terminate and the authorized number of directors of the Corporation will thereupon automatically return to the number of authorized directors otherwise in effect, but subject always to the same provisions for the reinstatement and divestment of the right to elect two additional Preferred Stock Directors in the case of any such future Preferred Distribution Default.
(ii)      If at any time when the voting rights conferred upon the Series A Preferred Stock pursuant to this Section 7(c) are exercisable, any vacancy in the office of a Preferred Stock Director elected pursuant to this Section 7(c) shall occur, then such vacancy may be filled only by action of the other Preferred Stock Director who remains in office or by the vote and pursuant to the procedures described in the first two paragraphs of this Section 7(c).
(iii)      Subject to the next paragraph, any director elected or appointed pursuant to this Section 7(c) may be removed with or without cause only by the holders of the outstanding Series A Preferred Stock (voting together as a single class), by the affirmative vote of a majority of the votes entitled to be cast generally in the election of Preferred Stock Directors, and may not be removed by the holders of the Common Stock.
(iv)      Each Preferred Stock Director will hold office for a one-year term and will be entitled to cast one vote on any matter before the Board of Directors. The term of any Preferred Stock Director elected or appointed pursuant to this Section 7(c) shall be from the date of such election or appointment and their qualification until the next annual meeting of the stockholders and until their successors are duly elected and qualify, except as otherwise provided above in this Section 7(c).
(v)      At any time that the voting rights conferred upon the Preferred Stock pursuant to Section 7(c) are exercisable, and notwithstanding anything to the contrary in the Corporation’s bylaws, the Secretary of the Corporation may, and upon the written request of holders entitled to cast at least 10% of the votes entitled to be cast by the holders of the Series A Preferred Stock (addressed to the Secretary at the Corporation’s principal office), shall, call a special meeting of the holders of the Series A Preferred Stock for the purpose of electing the Preferred Stock Directors, such call to be made by notice similar to that provided in the

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Corporation’s bylaws for a special meeting of the stockholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within 20 days after receipt Corporation of any such request, then any holder of Series A Preferred Stock may call such meeting, upon the notice above provided, and for that purpose shall have access to the Corporation’s stock books.
(d)      So long as any shares of Series A Preferred Stock remain outstanding, the Corporation shall not, without the prior affirmative vote or consent of the holders of at least two-thirds of the Series A Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting (the holders of Series A Preferred Stock voting separately as a class):
(i)      amend, alter, supplement or repeal any of the provisions of the Charter (including these Articles Supplementary) in a manner that materially and adversely affects any contract right of the Series A Preferred Stock (each, a “ Material Adverse Effect ”). For the purposes of this Section 7(d)(i), Material Adverse Effects include actions that materially and adversely affect the right to receive distributions, the right to receive payment or distributions upon a liquidation, or the conversion or redemption rights of the holders of the Series A Preferred Stock; provided, however, that any issuance of or increase in the number of shares of Series A Preferred Stock or the amendment of, or supplement to, the provisions of the Charter so as to authorize, create, increase or decrease the authorized amount of any equity securities ranking junior to the Series A Preferred Stock with respect to the payment of distributions and the distribution of assets upon liquidation, or the issuance of any such shares, shall not be deemed to cause a Material Adverse Effect to the Series A Preferred Stock (and for the avoidance of doubt, the consummation by the Corporation of any transaction that is an Excepted Transaction shall not be deemed to cause a Material Adverse Effect to the Series A Preferred Stock); or
(ii)      authorize, reclassify or create, or increase the authorized or issued amount of, or issue, any class or series of equity securities of the Corporation ranking senior or on a parity to the Series A Preferred Stock in respect of rights to receive distributions and to participate in distributions or payments in the event of any liquidation, or any security, including any debt security, convertible into or evidencing the right to purchase any class or series of such equity securities.
(e)      The voting provisions set forth in clauses (b), (c) and (d) above will not apply if, at or prior to the time when the act with respect to which a vote would otherwise be required shall be effected, (i) all outstanding shares of Series A Preferred Stock shall have been redeemed or reacquired by the Corporation or converted into Common Stock or (ii) all outstanding shares of Series A Preferred Stock shall have been called for redemption and sufficient funds shall have been irrevocably deposited in trust to effect the redemption.
(f)      On each matter submitted to a vote of the holders of Series A Preferred Stock or on which the holders of Series A Preferred Stock are otherwise entitled to vote as provided herein, each share of Series A Preferred Stock shall entitle the holder thereof to cast one vote, except that when shares of any other class or series of Preferred Stock have the right to vote together with the Series A Preferred Stock as a single class on any matter, the holders of Series A Preferred Stock and the shares of each such other class or series will have one vote for each $25.00 of liquidation preference (excluding any unpaid distributions which are part of any liquidation preference).
(g)      Except as expressly set forth in these Articles Supplementary, holders of the Series A Preferred Stock shall not have any voting rights with respect to, and the consent of the holders of the Series A Preferred Stock shall not be required for, the taking of any corporate action or any action that

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may otherwise require the vote of the Corporation’s stockholders under the Charter or the MGCL, regardless of the effect that such corporate action may have upon the Series A Preferred Stock.
(h)      As to any voting right set forth above, the holders of Series A Preferred Stock shall have exclusive voting rights on any proposed amendment to the Charter that would alter only the contract rights of the Series A Preferred Stock.
(8)      In the event any shares of Series A Preferred Stock have been redeemed or repurchased by the Corporation pursuant to Section 5 or 6 hereof or converted pursuant to Section 6 hereof, or otherwise reacquired by the Corporation, the Shares so redeemed, repurchased, converted or reacquired shall become authorized but unissued shares of Preferred Stock without further designation as to class or series, available for future classification or reclassification by the Board and issuance by the Corporation.
(9)      Transfers Restrictions; Legend . The holders of the Series A Preferred Stock are at all times subject to the provisions contained in Articles VI of the Charter and to the transfer restrictions set forth in the Preferred Stock Purchase Agreement. Each certificate representing shares of the Series A Preferred Stock shall bear any legend required by the Charter or bylaws, any legend required by Maryland law, any legend as required by the “blue sky” laws of any state, and a restrictive legend in substantially the following form until such time as they are not required:

“THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES ARE BEING OFFERED TO INVESTORS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) AND WITHOUT REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT IN RELIANCE UPON REGULATION S PROMULGATED UNDER THE SECURITIES ACT. TRANSFER OF THESE SECURITIES IS PROHIBITED, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES ACT, PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AVAILABLE EXEMPTION FROM REGISTRATION. HEDGING TRANSACTIONS MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT. THESE SECURITIES ARE ALSO SUBJECT TO THE RESTRICTIONS SET FORTH IN (I) THE SERIES A CUMULATIVE PERPETUAL CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, DATED AUGUST 8, 2018, BY AND AMONG GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC., SHBNPP GLOBAL PROFESSIONAL INVESTMENT TYPE PRIVATE REAL ESTATE TRUST NO. 13(H) (ACTING THROUGH KOOKMIN BANK AS TRUSTEE OF SHBNPP GLOBAL PROFESSIONAL INVESTMENT TYPE PRIVATE REAL ESTATE TRUST NO. 13(H)) AND SHINHAN BNP PARIBAS ASSET MANAGEMENT CORPORATION, AND (II) THE CHARTER OF GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC., INCLUDING THE ARTICLES SUPPLEMENTARY OF GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC. DATED AS OF AUGUST 8, 2018 AND FILED WITH THE MARYLAND DEPARTMENT OF ASSESSMENTS AND TAXATION.”

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(10)      Record Holders . The Corporation and the transfer agent for the Series A Preferred Stock may deem and treat the record holder of any Series A Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor the transfer agent shall be affected by any notice to the contrary.
(11)      No Preemptive Rights . No holder of the Series A Preferred Stock will, as a holder of the Series A Preferred Stock, have any preemptive rights to purchase or subscribe for Common Stock or any other security of the Corporation (whether now or hereafter authorized).
(12)      Notices to Holders . Unless otherwise provided herein or required by law, notices to holders of Series A Preferred Stock provided for in these Articles Supplementary shall be mailed to such holders by first class mail, postage pre-paid, at the respective addresses as the same shall appear on the stock transfer records of the Corporation. Unless otherwise provided herein or required by law, any requirements set forth in these Articles Supplementary for public announcements or publications by the Corporation may be satisfied if the subject matter thereof is contained in (a) a document filed by the Corporation with, or furnished by the Corporation to, the Securities and Exchange Commission and such filing is available to be viewed by the public on the Securities and Exchange Commission’s EDGAR system (or any successor system thereto) or (b) a press release submitted by the Corporation for publication to Dow Jones & Corporation, Inc., Business Wire. PR Newswire or Bloomberg Business News (or, if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public).
(13)      Severability . If any of the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of the Series A Preferred Stock is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, then, to the extent permitted by law, all other preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of the Series A Preferred Stock which can be given effect without the invalid, unlawful or unenforceable preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of the Series A Preferred Stock shall remain in full force and effect and shall not be deemed dependent upon any invalid, unlawful or unenforceable preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of the Series A Preferred Stock.
(14)      Form . The Series A Preferred Stock shall be certificated. The Corporation shall replace any mutilated certificate at holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of an affidavit of loss and indemnity satisfactory to the Corporation.
(15)      Definitions .
“ Approved Financial Advisors ” means entities affiliated with each of Deloitte & Touche LLP, PricewaterhouseCoopers LLP, KPMG LLP, Ernst & Young LLP, Cushman & Wakefield, CBRE, JLL, Robert Stanger & Co., Inc., Duff & Phelps, LLC and Altus Group.
“ Business Day ” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York and Seoul, Korea are authorized or required by law, regulation or executive order to close.
“ Change of Control ” will be deemed to have occurred with respect to the Corporation on any date after the First Issuance Date on which the Corporation is no longer managed directly or indirectly by GCC or any affiliate thereof, except as a result of an Excepted Transaction.
“ Common Stock Fair Market Value ” means, with respect to any Conversion Date, the average closing price of a share of Common Stock for the 10 consecutive trading days preceding such Conversion Date on the

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principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, the average of the reported bid and asked prices during such 10 trading day period in the over the counter market as furnished by the National Quotation Bureau, Inc., or, if such firm is not then engaged in the business of reporting such prices, as furnished by any member of the Financial Industry Regulatory Authority selected by the Corporation or, if the Common Stock is not publicly traded, the Common Stock Fair Market Value for such day shall be the fair market value thereof determined in good faith by the Board consistent with its duties under Section 2-405.1 of the MGCL after consultation with its financial advisor to be approved by the Purchaser, which approval may not be unreasonably withheld or delayed; provided, however, that the Approved Financial Advisors shall be deemed to be automatically approved by the Purchaser; provided, further, that if the Board selects Robert Stanger & Co., Inc., Duff & Phelps, LLC or Altus Group as its financial advisor, then, at the election of the Purchaser, the determination of the Common Stock Fair Market Value shall be subject to the issuance of a Fairness Opinion from one of the Approved Financial Advisors (other than Robert Stanger & Co., Inc., Duff & Phelps, LLC and Altus Group).
“ Distribution Payment Date ” means January 15, April 15, July 15 and October 15 of each year.
“ Distribution Period ” means the period from and including any Distribution Payment Date to, but excluding, the next Distribution Payment Date; provided, however, the initial Distribution Period with respect to any share of Series A Preferred Stock (the “ Initial Distribution Period ”) shall be the period from and including the issuance date of such share to, but excluding, the next Distribution Payment Date.
“ Distribution Rate ” shall be as follows:
(i)
6.55% from and after the First Issuance Date, or if the Second Issuance occurs, 6.55% from and after the Second Issuance Date (the “ Initial Rate ”) 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 (the “ Reset Date ”), subject to paragraphs (iii) and (iv) below;
(ii)
6.75% from and after the Reset Date (the “ Standard Reset Rate ”), subject to paragraphs (iii) and (iv) below;
(iii)
if the First Triggering Event occurs, 7.55% from and after August 2, 2020 until the Second Triggering Event if it occurs (provided that, if the Listing Date occurs on or prior to February 2, 2021, the Distribution Rate shall be the (1) the Initial Rate from and after the Listing Date until the Reset Date and (2) the Standard Reset Rate from and after the Reset Date (provided , further that, if the Listing Date does not occur within six months following the First Triggering Event, the Distribution Rate shall be 7.75% from and after the Reset Date); or
(iv)
if the Second Triggering Event occurs, 8.05% from and after August 2, 2021 until the Reset Date and, 8.25% from and after the Reset Date.
“ Excepted Transaction ” means a merger, sale of all or substantially all of the voting securities or assets or similar transaction (i) between or among the Corporation and one or more affiliates of GCC or other REITs managed directly or indirectly by GCC or (ii) in which the Corporation becomes internally managed by a substantial number of the GCC real estate management team or by Persons that were or are affiliates of GCC.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.
“Fairness Opinion” means an opinion to be rendered, at the election of Purchaser and at Purchaser’s sole cost, from one of the Approved Financial Advisors (other than Robert Stanger & Co., Inc., Duff & Phelps, LLC and Altus Group) regarding the determination of the Common Stock Fair Market Value.

13




“ First Triggering Event ” will be deemed to have occurred if the Listing Date has not occurred by August 1, 2020.
“ First Issuance Date ” means the first date on which any shares of Series A Preferred Stock are issued.
“ GCC ” means Griffin Capital Company, LLC.
“ Liquidation Amount ” means $25.00 per share of Series A Preferred Stock.
“ Listing Date ” means the effective date of the listing by the Corporation at the Corporation’s election of either its shares of Common Stock or the Series A Preferred Stock on a national securities exchange registered under Section 6(a) of the Exchange Act.
“ MGCL ” means Maryland General Corporation Law.
“ Person ” means any individual, partnership, limited liability company, corporation, joint venture, trust or other entity.
“ Preferred Stock Purchase Agreement ” means that certain Series A Cumulative Perpetual Convertible Preferred Stock Purchase Agreement, dated August 8, 2018, by and among the Corporation, Purchaser and Shinhan BNP Paribas Asset Management Corporation, as asset manager of Purchaser, as amended from time to time.
“Purchaser” means SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13(H) (acting through Kookmin Bank as trustee of SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13(H)).
“ Redemption Fee ” means a fee comprising 1.5% of the Redemption Price.
“ Second Issuance ” means an issuance of any shares of Series A Preferred Stock that occurs after the First Issuance Date.
“ Second Issuance Date ” means the date on which the Second Issuance occurs.
“ Second Triggering Event ” will be deemed to have occurred if the Listing Date has not occurred by August 1, 2021.
“ Securities Act ” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated by the Securities and Exchange Commission thereunder.

FOURTH : The Series A Preferred Stock have been classified and designated by the Board of Directors under the authority contained in the Charter.
FIFTH : These Articles Supplementary have been approved by the Board of Directors in the manner and by the vote required by law.



[Remainder of this page left blank intentionally - signature page follows]


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IN WITNESS WHEREOF, Griffin Capital Essential Asset REIT, Inc. has caused these Articles Supplementary to be signed and acknowledged in its name and on its behalf by its Chief Executive Officer and attested to by its Assistant Secretary on this 7th day of August, 2018; and its Chief Executive Officer acknowledges that these Articles Supplementary are the act of Griffin Capital Essential Asset REIT, Inc., and he further acknowledges that, as to all matters or facts set forth herein which are required to be verified under oath, such matters and facts are true in all material respects to the best of his knowledge, information and belief, and that this statement is made under the penalties for perjury.

ATTEST:
 
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
 
 
 
By: /s/ Howard S. Hirsch
 
By: /s/ Kevin Shields
Howard S. Hirsch
 
Kevin Shields
Vice President and Assistant Secretary
 
Chief Executive Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 








Exhibit 10.1

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

SERIES A CUMULATIVE PERPETUAL
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
August 8, 2018




TABLE OF CONTENTS

Page

1.
Purchase and Sale of Preferred Stock
1
 
1.1 Sale and issuance of Series A Preferred Shares
1
2.
Representations and Warranties of the Company
2
 
2.1 Organization; Good Standing; Qualification
2
 
2.2 Corporate Power
2
 
2.3 Authorization
2
 
2.4 Valid Issuance of Preferred Shares
2
 
2.5 Capitalization of Company
2
 
2.6 Subsidiaries
3
 
2.7 The Articles Supplementary
3
 
2.8 Compliance with Other Instruments
3
 
2.9 Governmental Consent, etc.
3
 
2.10 Offering
3
 
2.11 General Solicitation
3
 
2.12 Non-Reliance
3
3.
Representations, Warranties and Covenants of the Purchaser and the Manager
3
 
3.1 Organization; Power; Authorization
3
 
3.2 No Conflicts
4
 
3.3 No Litigation
4
 
3.4 Compliance with Laws
4
 
3.5 Purchase Entirely for Own Account
4
 
3.6 No General Solicitation
4
 
3.7 Reliance Upon Purchaser's Representations
5
 
3.8 Investment Experience; Economic Risk
5
 
3.9 Purchaser Status
5
 
3.10 Regulation S Requirements
5
 
3.11 Restricted Securities
5
 
3.12 SEC Filings
5
 
3.13 Disclosure of Information
5
 
3.14 Tax Liability
6
 
3.15 Inspection
6
 
3.16 Legends
6
4.
Exemption from Aggregate Share Ownership Limit; Conversion Rights and Consent to Issuance of Parity Stock under Articles Supplementary
7
5.
Conditions to Closing of the Purchaser
7
6.
Conditions to Closing of the Company
8
7.
Compliance with Laws; Review of Governing Documents
9
8.
Indemnification
9
 
8.1 Indemnification by Purchaser
9
 
8.2 Indemnification by Company
10
 
8.3 Indemnification Proceedures
10
9.
Covenant not to Sue
11
10.
Lock-Up; Consent to Sale
11

- i -
TABLE OF CONTENTS
(continued)
Page

 
10.1 Lock-up
11
 
10.2 Consent Required for Sale
11
 
10.3 KYC or Other Lender Requirements
11
11.
Miscellaneous
12
 
11.1 Taxes
12
 
11.2 Governing Law and Time
12
 
11.3 Jurisdiction and Service of Process
12
 
11.4 Waiver of Jury Trial
12
 
11.5 Limitation on Liability
12
 
11.6 Survival
12
 
11.7 Severability
12
 
11.8 Entire Agreement
13
 
11.9 Amendment
13
 
11.10 Notices
13
 
11.11 Expenses
13
 
11.12 Parties
13
 
11.13 Confidential Information
14
 
11.14 Counterparts
14
 
11.15 No Third Party Beneficiaries
14
 
11.16 Construction
14
 
11.17 Standstill
14
 
11.18 Certain Defined Terms
15
 
 
 
Exhibits
 
 
EXHIBIT A
Articles Supplementary
18
EXHIBIT B
Disclosure Schedule
19
EXHIBIT C
Exemption Agreement
20
EXHIBIT D
Series A Stock Certificate
21






- ii -


SERIES A CUMULATIVE PERPETUAL CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Series A Cumulative Perpetual Convertible Preferred Stock Purchase Agreement (this “ Agreement ”) is made as of August 8, 2018 by and among Griffin Capital Essential Asset REIT, Inc., a Maryland corporation (the “ Company ”), SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13(H), a real estate investment trust established under the laws of the Republic of Korea (acting through Kookmin Bank as trustee of SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13(H) (the “ Trustee ”)) (the “ Purchaser ”), and Shinhan BNP Paribas Asset Management Corporation, an asset manager of the Purchaser (the “ Manager ”).
WHEREAS, the Company proposes to issue and sell to the Purchaser an aggregate of 10,000,000 shares of Series A Cumulative Perpetual Convertible Preferred Stock, $0.001 par value per share, at a price of $25.00 per share (liquidation preference $25.00 per share) (the “ Series A Preferred Shares ”) in two tranches, each comprising 5,000,000 Series A Preferred Shares;
WHEREAS, subject to the terms and conditions and representations and warranties set forth in this Agreement, the Purchaser hereby agrees to purchase an aggregate of 10,000,000 Series A Preferred Shares in two tranches, each comprising 5,000,000 Series A Preferred Shares;
WHEREAS, the terms and provisions of the Series A Preferred Shares shall be set forth and established in Articles Supplementary to the Company’s Fourth Articles of Amendment and Restatement (the “ Charter ”), dated as of the First Closing Date (the “ Articles Supplementary ”), to be filed with the Maryland Department of Assessments and Taxation (“ SDAT ”), which Articles Supplementary shall be substantially in the form attached hereto as Exhibit A ; and
WHEREAS, the Series A Preferred Shares are being offered and sold by the Company to the Purchaser without being registered with the Securities and Exchange Commission (the “ Commission ”) in reliance on Regulation S under the Securities Act of 1933, as amended (the “ Securities Act ”).
NOW, THEREFORE, the parties hereby agree as follows:




1. Purchase and Sale of Preferred Stock.
1.1      Sale and Issuance of Series A Preferred Shares.
(a)      On the basis of the representations and warranties contained herein and subject to the terms and conditions herein set forth, the Company agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the Company, 5,000,000 Series A Preferred Shares on the First Closing Date (as defined below) and an additional 5,000,000 Series A Preferred Shares on the Second Closing Date (as defined below), for the consideration specified in Section 1.1(b) and Section 1.1(c) , respectively.
(b)      On the First Closing Date, the Company will deliver to the Purchaser a certificate representing 5,000,000 Series A Preferred Shares (the “ First Tranche ”) against payment of an amount equal to $125,000,000 (calculated as the product of (i) $25.00 multiplied by (ii) 5,000,000 Series A Preferred Shares) (the “ First Purchase Price ”), in Federal (same day) funds by wire transfer to the account of the Company specified on Schedule 1.1(b) of the Disclosure Schedule (as defined in Section 2 ), at the office of Baker & McKenzie LLP, 300 East Randolph Street #5000, Chicago, IL 60601, at 10:00 a.m. central time. The closing of the First Tranche is referred to herein as the “ First Closing ” and the date on which all of the conditions to closing set forth in Sections 5.1 and 6.1 are waived or satisfied and the payment under this Section 1.1(b) is made to the Company is referred to herein as the “ First Closing Date ”.
(c)      On the Second Closing Date, the Company will deliver to the Purchaser a certificate representing an additional 5,000,000 Series A Preferred Shares (the “ Second Tranche ”) against payment of an amount equal to $125,000,000 (calculated as the product of (i) $25.00 multiplied by (ii) 5,000,000 Series A Preferred Shares) (the “ Second Purchase Price ”), in Federal (same day) funds by wire transfer to the account of the Company specified on Schedule 1.1(b) of the Disclosure Schedule (as defined in Section 2 ), at the office of Baker & McKenzie LLP, 300 East Randolph Street #5000, Chicago, IL 60601, at 10:00 a.m. central time. The closing of the Second Tranche is referred to herein as the “ Second Closing ” and the date on which all of the conditions to closing set forth in Sections 5.2 and 6.2 are waived or satisfied and the payment under this Section 1.1(c) is made to the Company is referred to herein as the “ Second Closing Date ”.
(d)      The certificate for the Series A Preferred Shares to be issued to the Purchaser on the First Closing Date shall be registered in the name of the Purchaser. The certificate for the Series A Preferred Shares and evidence of its registration will be made available for examination by the Purchaser in Chicago, Illinois, not later than 10:00 a.m. (central time) on the Business Day prior to the First Closing Date. The certificate for the Series A Preferred Shares to be issued to the Purchaser on the Second Closing Date shall be registered in the name of the Purchaser. The certificate for the Series A Preferred Shares and evidence of its registration will be made available for examination by the Purchaser in Chicago, Illinois, not later than 10:00 a.m. (central time) on the Business Day prior to the Second Closing Date.
2.      Representations and Warranties of the Company . Except as set forth on the disclosure schedule attached hereto as Exhibit B (the “ Disclosure Schedule ”), the Company represents and warrants to the Purchaser as follows:
2.1      Organization; Good Standing; Qualification . The Company has been duly organized and is validly existing as a corporation, in good standing under the laws of the jurisdiction of its organization.
2.2      Corporate Power . The Company has all requisite legal and corporate power and authority (i) to own and operate its properties and assets and to carry on its business as presently conducted, (ii) to execute and deliver this Agreement and the agreements contemplated hereby, (iii) to sell and issue the Series A Preferred Shares and (iv) to carry out and perform its obligations under this Agreement and the agreements to which it is a party contemplated hereby.
2.3      Authorization . With the exception of an exemption from the Aggregate Share Ownership Limit (as defined in the Company’s Charter) to be granted by the Company in accordance to Section 4 , all corporate action on the part of the Company, necessary for the authorization, execution, and delivery of this Agreement, the performance of the respective obligations of the Company hereunder and the authorization and issuance of the Series A Preferred Shares has been taken or will be taken prior to the First Closing. This Agreement constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
2.4      Valid Issuance of Preferred Shares . The Series A Preferred Shares, when issued in accordance with the terms of this Agreement for the consideration expressed herein, will be duly authorized, validly issued, fully paid and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and under applicable state and federal securities laws and under the Charter, including the Articles Supplementary.
2.5      Capitalization of Company . The authorized capital stock of the Company consists solely of 700,000,000 shares of common stock, par value $0.001 per share of the Company (the “ Common Stock ”), and 200,000,000 shares of preferred stock, par value $0.001 per share (the “ Preferred Stock ”), of which 166,468,160 shares of Common Stock are issued and outstanding as of June 30, 2018 and no shares of Preferred Stock are issued and outstanding as of the date hereof. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and are validly issued, fully paid, outstanding and non-assessable.
2.6      Subsidiaries . Other than the subsidiaries listed on Schedule 2.6 , the Company does not own or control, directly or indirectly, any interest in any corporation, partnership, limited liability company, association or other business entity. Each of the Company’s subsidiaries listed on Schedule 2.6 is validly existing and in good standing under the laws of its jurisdiction.
2.7      The Articles Supplementary . The Articles Supplementary have been duly authorized by the Company, and, when executed and delivered by the Company and filed of record and accepted by SDAT, will constitute a legal, valid and binding obligation, enforceable in accordance with its terms, including but not limited to, the provisions of Section 6 thereof, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
2.8      Compliance with Other Instruments . Subject to the receipt of an exemption from the Aggregate Share Ownership Limit under the Company’s Charter and Bylaws to be granted by the Company in accordance to Section 4 , the Company is not in violation of its Charter or Bylaws.
2.9      Governmental Consent, etc. No consent, approval, qualification, order or authorization of, or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the Company’s execution, delivery or performance of this Agreement and issuance of the Series A Preferred Shares, except (i) such filings as may be required under applicable state and federal securities laws, which will be timely filed within the applicable periods therefor and (ii) the filing of the Articles Supplementary with the SDAT, which shall be completed prior to the First Closing Date.
2.10      Offering . Subject in part to the truth and accuracy of the Purchaser’s and the Manager’s representations set forth in Section 3 of this Agreement, the issuance of the Series A Preferred Shares as contemplated by this Agreement is exempt from the registration requirements of the Securities Act and all applicable state securities laws, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss or revocation of such exemption.
2.11      General Solicitation . The Company has not engaged in any form of general solicitation or general advertising including advertisings, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by general solicitation or general underwriting with respect to the Series A Preferred Shares.
2.12      Non-Reliance . Except for the representations and warranties contained in this Section 2 (including the related portions of the Disclosure Schedule), the Company has not made and does not make any other express or implied representation or warranty, either written or oral, on behalf of the Company, including any representation or warranty as to the accuracy or completeness of any information that the Company furnished or made available to the Purchaser and any of its representatives or as to the future revenue, profitability or success of the Company, or any representation or warranty arising from statute or otherwise in law.
3.      Representations, Warranties and Covenants of the Purchaser and the Manager . The Purchaser and the Manager hereby represent, warrant and covenant to the Company as follows:
3.1      Organization; Power; Authorization . The Manager has been duly incorporated and is validly existing under the laws of Korea. The Purchaser is a privately placed professional investment type fund duly established and validly existing under the Financial Investment Services and Capital Markets Act of Korea (“ FISCMA ”). Each of the Purchaser and the Manager has all requisite power and authority to execute and deliver this Agreement and perform its obligations under this Agreement and the transactions contemplated thereby and in connection with the Trust Activities (as defined below). This Agreement, when executed and delivered by each of the Purchaser and the Manager, constitutes a valid and legally binding obligation of the Purchaser and the Manager, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
3.2      No Conflicts . Neither the execution, delivery and performance by the Purchaser or the Manager of this Agreement, nor the consummation by the Purchaser or the Manager of the transactions contemplated hereby or thereby, including any future issuance of certificates, interests or other securities of the Purchaser, or any Trust Activities (as defined below) will: directly or indirectly (with or without notice, lapse of time or both), conflict with, result in a breach or violation of, constitute a default under, give rise to any right of revocation, withdrawal, suspension, acceleration, cancellation, termination, modification, imposition of additional obligations or loss of rights under, result in any payment becoming due under, or result in the imposition of any encumbrance on any of the properties or assets of the Purchaser or the Manager under (i) the governing or organizational documents of the Purchaser or the Manager, (ii) any contract to which the Purchaser or the Manager is a party or by which the Purchaser or the Manager is bound or to which any of their properties or assets is subject or (iii) any Law, Judgment or Governmental Authorizations applicable to either the Purchaser or the Manager or any of its respective businesses, properties or assets.
3.3      No Litigation . As of the date hereof, there is no claim, action, suit, proceeding or arbitration (i) in progress or pending, or threatened against the Purchaser or the Manager or (ii) that challenge or may have the effect of preventing, delaying, making illegal or otherwise interfering with the terms of this transactions contemplated by this Agreement.
3.4      Compliance with Laws . Without limiting the scope of any other representation in this Agreement, each of the Purchaser and the Manager is in compliance and has complied with all, and neither the Purchaser nor the Manager has violated any, Laws, Judgments or Governmental Authorizations applicable to it or to the conduct of its business or the ownership or use of any of its properties or assets. Neither the Purchaser nor the Manager has received any notice or other communication from any Governmental Authority or any other Person regarding any actual, alleged or potential violation of, or failure to comply with, any applicable Law, Judgment or Governmental Authorization, any actual or threatened revocation, withdrawal, suspension, cancellation, termination or modification of any Governmental Authorization, or any actual, alleged or potential obligation on the part of the Purchaser or the Manager to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. The Purchaser or the Manager, as applicable, will promptly notify the Company upon receipt of any such notice or other communication pursuant to this Section 3.4 .
3.5      Purchase Entirely for Own Account . Neither the Purchaser nor the Manager has any present intention of reselling the Series A Preferred Shares, or any direct or indirect interest therein, to any parties who are U.S. persons, or of effecting a “ distribution ,” as defined in the Securities Act, of the Series A Preferred Shares in violation of U.S. securities laws. Each of the Purchaser and the Manager understands and agrees that the Purchaser has not acquired the Series A Preferred Shares as a result of, and has not and will not, and will direct its “ affiliates ,” as defined under the Securities Act, and any person acting on its or their behalf not to, engage in any “ directed selling efforts ,” as defined under Rule 902(c) of Regulation S, in the United States in respect of the Series A Preferred Shares, which would include any activities undertaken for the purpose of, or that could reasonably be expected to have the effect of, condition the market in the United States for the resale of the Series A Preferred Shares.
3.6      No General Solicitation . Neither the Purchaser nor the Manager is aware of any advertisement of any of the Series A Preferred Shares and the Purchaser is not acquiring the Series A Preferred Shares as a result of any form of general solicitation or general advertising including advertisings, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting or any general solicitation or general advertisement.
3.7      Reliance Upon Purchaser's Representations . The Purchaser and the Manager understand that the Series A Preferred Shares are not registered under the Securities Act on the grounds that the sale provided for in this Agreement and the issuance of the Series A Preferred Shares hereunder is exempt from registration under the Securities Act pursuant to Regulation S thereof, and that the Company’s reliance on such exemption is predicated on the Purchaser’s and the Manager’s representations set forth herein.
3.8      Investment Experience; Economic Risk . The Purchaser and the Manager are experienced in evaluating and investing in transactions of securities of companies in a similar stage of development to that of the Company and acknowledge that the Purchaser and the Manager are able to fend for themselves. The Purchaser and the Manager have such knowledge and experience in financial and business matters that the Purchaser and the Manager are capable of evaluating the merits and risks of the investment in the Series A Preferred Shares. The Purchaser can bear the economic risk of the Purchaser’s investment and is able to suffer a complete loss of the Purchaser’s investment.
3.9      Purchaser Status . Neither the Purchaser nor the Manager is a “ U.S. person ,” as defined under Rule 902(k) of Regulation S, nor, is the Purchaser acquiring the Series A Preferred Shares for the account or benefit of, directly or indirectly, any U.S. person.
3.10      Regulation S Requirements . The Purchaser and the Manager understand and agree that, pursuant to U.S. securities laws, they may not (a) sell, transfer or dispose of the Series A Preferred Shares to any person or entity, other than (i) outside the United States in an offshore transaction in accordance with Regulation S under the Securities Act, (ii) pursuant to another exemption from registration under the Securities Act (for example, pursuant to a transaction by any person other than an issuer, underwriter, or dealer, as contemplated by Section 4(1) of the Securities Act, or pursuant to the safe harbor provisions for such resales provided by Rule 144) or (iii) pursuant to an effective registration statement under the Securities Act, or (b) engage in any hedging or other transactions involving the Series A Preferred Shares unless in compliance with the Securities Act. The Purchaser and the Manager understand and agree that any direct or indirect sale of the Series A Preferred Shares by any Person (as defined herein) in any jurisdiction outside of the United States will be made in compliance with the securities laws of such jurisdiction and Regulation S.
3.11      Restricted Securities . The Purchaser and the Manager understand and agree that the Series A Preferred Shares are being offered and sold to the Purchaser without such offer and sale being registered under the Securities Act, or “blue sky” laws of any state of the United States and will be issued to the Purchaser in an offshore transaction outside of the United States in accordance with the safe harbor from registration requirements of the Securities Act provided by Regulation S. As such, the Purchaser and the Manager understand and agree that the Series A Preferred Shares are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such federal securities laws and applicable regulations, such Series A Preferred Shares may be resold without registration under the Securities Act only in certain limited circumstances. The Purchaser and the Manager understand and agree that the Company does not have an obligation to register the Series A Preferred Shares or to comply with the conditions of any exemption available under U.S. securities laws, or to take any other action necessary in order to make available any exemption for the resale of the Series A Preferred Shares without registration.
3.12      SEC Filings . The Purchaser and the Manager each acknowledge that it has access to and has reviewed the Company’s reports and filings that are made with the U.S. Securities and Exchange Commission from time to time.
3.13      Disclosure of Information . The Purchaser and the Manager have received all the information the Purchaser and the Manager consider necessary or appropriate for deciding whether to purchase the Series A Preferred Shares. The Purchaser and the Manager have had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series A Preferred Shares and the Company’s business, financial condition, properties and prospects and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to the Purchaser and the Manager or to which the Purchaser and the Manager had access. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Purchaser to rely thereon.
3.14      Tax Liability . The Purchaser and the Manager have reviewed with their own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Each of the Purchaser and the Manager is relying solely on its own advisors and not on any statements or representations of the Company, the Company’s counsel, or any of the Company’s agents or advisors. Each of the Purchaser and the Manager understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.
3.15      Inspection. The Company (i) will deliver or make available to the Purchaser and the Manager (aa) copies of its Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K as filed with the SEC and (bb) any additional information that may be reasonably requested by the Purchaser or Manager including, but not limited to, financial records, operation reports and aging A/R reports of the Company and (ii) will permit, not more than once per quarter, one authorized representative of either the Purchaser or the Manager to visit its Headquarters during normal business hours, upon reasonable advance notice, in order to review additional financial records, operation reports and aging A/R reports of the Company, provided, however, that any such visit shall not disruptively interfere with the Company’s normal operations. Each of the Purchaser and the Manager acknowledges that it is aware of and will comply with the United States securities laws that prohibit any Person having material, non-public information about an issuer from trading in the securities of that issuer or from communicating such information to other Persons.
3.16      Legends . The Purchaser and the Manager understand and agree that the certificate evidencing the Series A Preferred Shares shall bear a legend in substantially the following form (in addition to any legend required under applicable state securities laws, the Charter, including the Articles Supplementary):
“THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES ARE BEING OFFERED TO INVESTORS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) AND WITHOUT REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT IN RELIANCE UPON REGULATION S PROMULGATED UNDER THE SECURITIES ACT. TRANSFER OF THESE SECURITIES IS PROHIBITED, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES ACT, PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AVAILABLE EXEMPTION FROM REGISTRATION. HEDGING TRANSACTIONS MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT. THESE SECURITIES ARE ALSO SUBJECT TO THE RESTRICTIONS SET FORTH IN (I) THE SERIES A CUMULATIVE PERPETUAL CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, DATED AUGUST 8, 2018, BY AND AMONG GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC., SHBNPP GLOBAL PROFESSIONAL INVESTMENT TYPE PRIVATE REAL ESTATE TRUST NO. 13(H) (ACTING THROUGH KOOKMIN BANK AS TRUSTEE OF SHBNPP GLOBAL PROFESSIONAL INVESTMENT TYPE PRIVATE REAL ESTATE TRUST NO. 13(H)) AND SHINHAN BNP PARIBAS ASSET MANAGEMENT CORPORATION, AND (II) THE CHARTER OF GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC., INCLUDING THE ARTICLES SUPPLEMENTARY OF GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC. DATED AS OF AUGUST 8, 2018 AND FILED WITH THE MARYLAND DEPARTMENT OF ASSESSMENTS AND TAXATION.”
4.      Exemption from Aggregate Share Ownership Limit; Conversion Rights .
4.1      The Board of Directors of the Company (the “ Board ”) has granted an irrevocable exemption to the Purchaser and the Manager, with respect to the transactions contemplated by this Agreement, from the application of the Aggregate Share Ownership Limit (as defined in the Charter), subject to the execution and delivery, at the First Closing, of the Ownership Limit Exemption Agreement in the form attached hereto as Exhibit C (the “ Exemption Agreement ”) by the Purchaser (including the receipt by the Company of a representation letter from the Purchaser).
4.2      Upon the exercise of the Conversion Right (as such term is defined in the Articles Supplementary) by a holder of Series A Preferred Shares in accordance with Section 6 of the Articles Supplementary, the Company will use reasonable efforts to satisfy the conditions set forth in Section 6(f)(i)-(iii) of the Articles Supplementary.
5.      Conditions to Closing of the Purchaser .
5.1      The obligations of the Purchaser to the Company to consummate the purchase of the First Tranche on the First Closing Date are subject to the fulfillment on or before the First Closing of each of the following conditions by the Company:
(a)      Representations and Warranties Correct. The representations and warranties of the Company contained in Section 2 shall be true and correct in all material respects on and as of the First Closing.
(b)      Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the First Closing shall have been performed or complied with in all material respects.
(c)      First Closing Deliverables. The Company shall have delivered to the Purchaser at the First Closing the following:
(i)      a certificate executed by an officer of the Company on behalf of the Company certifying that the conditions specified in Sections 5.1(a) and 5.1(b) have been satisfied;
(ii)      the Articles Supplementary in the form attached hereto as Exhibit A , duly executed by the Company, and filed with the SDAT;
(iii)      a certificate registered in the name of the Purchaser representing the number of Series A Preferred Shares to be purchased by the Purchaser on the First Closing Date substantially in the form attached hereto as Exhibit D (the “ Series A Stock Certificate ”), duly executed by the Company; and
(iv)      the Exemption Agreement, duly executed by the Company.
5.2      The obligations of the Purchaser to the Company to purchase the Second Tranche on the Second Closing Date are subject to the fulfillment on or before the Second Closing of each of the following conditions in items (a) – (f) below by the Company and item (f) below by the Purchaser:
(a)      Representations and Warranties Correct. The representations and warranties of the Company contained in Section 2 shall be true and correct in all material respects on and as of the Second Closing.
(b)      Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Second Closing shall have been performed or complied with in all material respects.
(c)      Second Closing Deliverables. The Company shall have delivered to the Purchaser at the Second Closing the following:
(i)      a certificate executed by an officer of the Company on behalf of the Company certifying that the conditions specified in Sections 5.2(a) and 5.2(b) have been satisfied; and
(ii)      a Series A Stock Certificate in the name of the Purchaser representing the number of Series A Preferred Shares to be purchased by the Purchaser on the Second Closing Date, duly executed by the Company.
(d)      No Material Adverse Change . No Material Adverse Change to the Company shall have occurred and the Company shall not have taken any actions to cause a Material Adverse Change to occur.
(e)      No Notice of Default . The Company must not have received a notice of default under its credit facilities relating to the Second Tranche.
(f)      Approvals . The Purchaser must have received the approvals listed on Schedule 5.2(f) , including the Purchaser’s internal approval of the Second Closing and the Manager’s approval of internal investment committee for the Second Closing.
6.      Conditions to Closing of the Company .
6.1      The obligations of the Company to the Purchaser to consummate the sale of the First Tranche on the First Closing Date are subject to fulfillment on or before the First Closing of each of the following conditions:
(a)      Representations and Warranties Correct. The representations and warranties of the Purchaser and the Manager contained in Section 3 must be true on and as of the First Closing.
(b)      Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchaser or the Manager on or prior to the First Closing shall have been performed or complied with in all respects.
(c)      First Closing Deliverables . The Purchaser must have delivered to the Company at the First Closing the following:
(i)      an amount equal to the First Purchase Price, by wire transfer of immediately available funds to an account specified by the Company;
(ii)      a certificate executed by an officer of the Purchaser and the Manager on behalf of the Purchaser or the Manager, as applicable, certifying that the conditions specified in Sections 6.1(a) and 6.1(b) have been satisfied;
(iii)      fully executed copies of the Purchaser Organizational Documents; and
(iv)      the Exemption Agreement, duly executed by the Purchaser.
(d)      Consents . The Company must have received the consents listed on Schedule 6.1(d) (the “ Consents ”).
6.2      The obligations of the Company to the Purchaser to consummate the sale of the Second Tranche on the Second Closing Date are subject to fulfillment on or before the Second Closing of each of the following conditions:
(a)      Representations and Warranties Correct . The representations and warranties of the Purchaser and the Manager contained in Section 3 must be true on and as of the Second Closing.
(b)      Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchaser or the Manager on or prior to the Second Closing shall have been performed or complied with in all respects.
(c)      Second Closing Deliverables . The Purchaser must have delivered to the Company at the Second Closing the following:
(i)      an amount equal to the Second Purchase Price, by wire transfer of immediately available funds to an account specified by the Company; and
(ii)      a certificate executed by an officer of the Purchaser and the Manager on behalf of the Purchaser or the Manager, as applicable, certifying that the conditions specified in Sections 6.2(a) and 6.2(b) have been satisfied.
7.      Compliance with Laws; Review of Governing Documents .
(a)      Any act, circumstance, or event arising out of, resulting from or related to the formation, use, operation, or any other matter concerning the Purchaser, the Manager or any of their respective affiliates, including, but not limited to, any Transfer (as defined below) or issuance of certificates, interests or other securities of the Purchaser, or any of its affiliates, by the Manager, or any of their respective affiliates, to any Person (collectively, “ Trust Activities ”), whether occurring before or after the First Closing, or the Second Closing, as applicable, will be performed in compliance with all Laws, Judgments or Governmental Authorizations.
(b)      The Company shall have a right to (i) review drafts of all documents relating to the organization, formation or establishment of the Purchaser (“ Purchaser Organizational Documents ”), (ii) provide comments to the Purchaser Organizational Documents and (iii) receive final executed copies of all Purchaser Organizational Documents. The Company shall also have a right to review and comment upon any proposed amendments to the Purchaser Organizational Documents and receive final executed copies of any such amendments.
8.      Indemnification.
8.1      Indemnification by Purchaser . The Purchaser agrees to indemnify, defend and hold harmless the Company, and its affiliates, directors, officers, equity owners, employees, agents, consultants and other advisors and representatives (collectively, the “ Company Indemnified Parties ”) from and against all third party costs and expenses (including, without limitation, reasonable attorney’s fees and expenses) and any losses and damages (collectively, “ Company Losses ”) suffered or incurred by the Company (whether or not due to third party claims) that arise out of, result from, or relate to:
(a)      subject in all cases to the limitations set forth in Section 10.2 , the sale or resale, conveyance, assignment, assumption, transfer or delivery (collectively, “ Transfer ”) of the Series A Preferred Shares, including any Transfer of the Series A Preferred Shares to any Person, and any Transfer of the Series A Preferred Shares by the Purchaser, the Manager or by any other Person (“ Future Resale Event ”);
(b)      any Trust Activities;
(c)      any breach of any representation or warranty or other statement of the Purchaser or the Manager contained in this Agreement; or
(d)      the failure of the Purchaser or the Manager to perform or observe any covenant or agreement contained in this Agreement.
8.2      Indemnification by Company.     The Company agrees to indemnify, defend and hold harmless the Purchaser, and its affiliates, directors, officers, equity owners, employees, agents, consultants and other advisors and representatives (collectively, the “ Purchaser Indemnified Parties ”) from and against all third party costs and expenses (including, without limitation, reasonable attorney’s fees and expenses) and any losses and damages (collectively, “ Purchaser Losses ”) suffered or incurred by the Purchaser (whether or not due to third party claims) that arise out of, result from, or relate to:
(a)      any breach of any representation or warranty or other statement of the Company contained in this Agreement; or
(b)      the failure of the Company to perform or observe any covenant or agreement contained in this Agreement.
8.3      Indemnification Procedures . Promptly after a party seeking indemnification under this Section 8 (an “ Indemnified Party ”) receives notice of a claim or the commencement of an action for which the Indemnified Party intends to seek indemnification under Section 8.3 , the Indemnified Party will notify the party from whom indemnification is sought (an “ Indemnifying Party ”) in writing of the claim or commencement of the action, suit or proceeding; provided, however, that failure to notify the Indemnifying Party will not relieve the Indemnifying Party from liability under Section 8.3 , except to the extent it has been materially prejudiced by the failure to give notice. The Indemnifying Party will be entitled to participate in the defense of any claim, action, suit or proceeding as to which indemnification is being sought, and if the Indemnifying Party acknowledges in writing the obligation to indemnify the party against whom the claim or action is brought to the extent required hereunder, the Indemnifying Party may (but will not be required to) assume the defense against the claim, action, suit or proceeding with counsel satisfactory to it. After the Indemnifying Party notifies an Indemnified Party that the Indemnifying Party wishes to assume the defense of a claim, action, suit or proceeding, the Indemnifying Party will not be liable for any legal or other expenses incurred by the Indemnified Party in connection with the defense against the claim, action, suit or proceeding except that if, in the opinion of counsel to the Indemnified Party (which counsel will be reasonably acceptable to the indemnifying parties), one or more of the Indemnified Parties should be separately represented in connection with a claim, action, suit or proceeding, the Indemnifying Party will pay the reasonable fees and expenses of one separate counsel, and one local counsel, for the Indemnified Parties. Each Indemnified Party, as a condition to receiving indemnification as provided in Section 8.3 , will cooperate in all reasonable respects with the Indemnifying Party in the defense of any action or claim as to which indemnification is sought. The Indemnifying Party will not be liable for any settlement of any action effected without its prior written consent. The Indemnifying Party will not, without the prior written consent of the Indemnified Party, effect any settlement of a pending or threatened action with respect to which an Indemnified Party is, or is informed that it may be, made a party and for which it would be entitled to indemnification, unless the settlement includes an unconditional release of the Indemnified Party from all liability and claims which are the subject matter of the pending or threatened action.
9.      Covenant not to Sue. Each of the Purchaser, the Manager and their respective affiliates covenant to never institute or participate in any administrative proceeding, suit or action, at law or in equity, against the Company, or any of its affiliates, in connection with any Future Resale Event to any Person or any Trust Activities. The Purchaser and the Manager will cause prospective investors to covenant to never institute or participate in any administrative proceeding, suit or action, at law or in equity, against the Company, or any of its affiliates, in connection with any Future Resale Event or any Trust Activities. The Purchaser and the Manager understand and agree that the neither the Company, nor any of its affiliates, shall have any liability whatsoever relating to any Future Resale Event or any Trust Activities.
10.      Lock-Up; Consent to Sale.
10.1      Lock-Up . The Purchaser agrees, that during the period beginning on the First Closing Date and ending on the date that is five years from the First Closing Date, or if the Second Closing Date occurs, ending on the date that is five years from the Second Closing Date, as applicable, subject to extensions as may be mutually agreed upon by the parties (the “ Lock-Up Period ”), the Purchaser will not, without the prior written consent of the Company, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any Series A Preferred Shares or any securities convertible into or exchangeable or exercisable for Series A Preferred Shares (collectively, the “ Lock-Up Securities ”), or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Lock-Up Securities, whether any such swap or transaction is to be settled by delivery of the Series A Preferred Shares or other securities, in cash or otherwise.
10.2      Consent Required for Sale .Without the prior written consent of the Company not to be unreasonably withheld or delayed and subject to the delivery by the Purchaser to the Company of any information or documents that the Company may request for the purpose of enabling it to satisfy its obligations pursuant to Section 10.3 hereof, including, without limitation, a transfer request form, or such other document in the form or substance as the Company may reasonably request for the purpose of enabling it to comply with applicable law, the Purchaser will not, directly or indirectly offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any Series A Preferred Shares or any shares of Common Stock issued upon the conversion of any Series A Preferred Shares (each, a “ Sale ”) if (i) such Sale would constitute a violation of any agreement of the Company relating to any indebtedness of the Company or (ii) such Sale is to a Competitor of the Company. The Purchaser agrees that any prospective buyer will receive a copy of, and agree to be bound by the provisions of, this Agreement. Notwithstanding the foregoing but subject to the next sentence, the provisions of this Section 10.2 shall not apply to any Sale of shares of Common Stock listed on a national securities exchange registered under Section 6(a) of the Exchange Act, or to any Sale of the Series A Preferred Shares listed on a national securities exchange registered under Section 6(a) of the Exchange Act. Subject to the Exemption Agreement, nothing contained in this Section 10.2 shall limit the obligations of Purchaser under Section 6 of the Charter.
10.3      KYC or Other Lender Requirements. The Purchaser and the Manager covenant to provide and comply with any and all “know your customer” information or other requirements that the lenders of the Company may request with respect to a Person’s title, right, or any interest in and to the Series A Preferred Shares, including with respect to investors in the Purchaser. To the extent permitted under applicable law, the Purchaser and the Manager agree to continue to cooperate with the Company and its representatives in connection with any steps required to be taken as part of the Company’s obligations to its lenders and agree (a) to furnish, or cause to be furnished, upon request of the Company such further information, (b) to execute and deliver, or cause to be executed and delivered, to the Company such other documents and (c) to do, or cause to be done, such other acts and things, all as the Company may reasonably request for the purpose of carrying out the intent of this Agreement and the transactions contemplated by this Agreement.
11.      Miscellaneous.
11.1      Taxes . The Company shall pay any taxes required to be paid by the Company under applicable law with respect to the issuance and delivery of the Series A Preferred Shares under this Agreement. The Purchaser shall pay any taxes required to be paid by the Purchaser under applicable law with respect to the Series A Preferred Shares issued to the Purchaser under this Agreement and any Trust Activities.
11.2      Governing Law and Time . The internal laws of the State of New York (without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of laws of any other jurisdiction) govern all matters arising out of or relating to this Agreement and its Exhibits and Schedules and the transactions contemplated by this Agreement, including its validity, interpretation, construction, performance and enforcement and any disputes or controversies arising therefrom or related thereto.
11.3      Jurisdiction and Service of Process . Any action or proceeding arising out of or relating to this Agreement or the transactions contemplated by this Agreement must be brought in the courts of the State of New York, or, if it has or can acquire jurisdiction, in the United States District Court for the Southern District of New York. Each of the parties knowingly, voluntarily and irrevocably submits to the exclusive jurisdiction of each such court in any such action or proceeding and waives any objection it may now or hereafter have to venue or to convenience of forum. Any party to this Agreement may make service on another party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for the giving of notices in Section 11.10 . Nothing in this Section 11.3 , however, affects the right of any party to serve legal process in any other manner permitted by law.
11.4      Waiver of Jury Trial . EACH OF THE PARTIES KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE ACTIONS OF ANY PARTY TO THIS AGREEMENT IN NEGOTIATION, EXECUTION AND DELIVERY, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT.
11.5      Limitation on Liability . NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT TO THE CONTRARY, IN NO EVENT WILL ANY PARTY OR ANY OF ITS AFFILIATES BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS, LOSS OF REVENUE OR LOST SALES) IN CONNECTION WITH ANY CLAIMS, LOSSES, DAMAGES OR INJURIES ARISING OUT OF THE CONDUCT OF SUCH PARTY PURSUANT TO THIS AGREEMENT REGARDLESS OF WHETHER THE NONPERFORMING PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR NOT.
11.6      Survival . Except as set forth herein (including the proviso below), the representations, warranties and covenants of the Company, the Purchaser and the Manager contained herein or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the First Closing, or the Second Closing, as applicable, until the expiration of the applicable statutes of limitations period with respect to a default or breach relating to such representations, warranties and covenants and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Company, the Purchaser or the Manager.
11.7      Severability . If any provision of this Agreement is held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement are not affected or impaired in any way and the parties agree to negotiate in good faith to replace such invalid, illegal and unenforceable provision with a valid, legal and enforceable provision that achieves, to the greatest lawful extent under this Agreement, the economic, business and other purposes of such invalid, illegal or unenforceable provision.
11.8      Entire Agreement . This Agreement, including the exhibits attached to this Agreement, and the other documents delivered pursuant to this Agreement constitute the full and entire understanding and agreement among the parties with regard to the subject matter hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein.
11.9      Amendment . Except as expressly provided herein, neither this Agreement nor any term of this Agreement may be amended, waived, discharged or terminated other than by a written instrument signed by each party against whom enforcement of any such amendment, waiver, discharge or termination is sought.
11.10      Notices . All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Purchaser and the Manager shall be directed to SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13, 13th floor, 21, Yeouinaru-ro 4-gil , Youngdeungpo-gu, Seoul 07330, Korea; Attention: Jean Moon with copy to SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13, 18th fl, Shinhan Investment Tower, Yeou-idaero 70, Yeoungdeungpo-gu, Seoul 07325, Korea Attention: Ju Hyun Kim; and notices to the Company shall be directed to them at Griffin Capital Plaza, 1520 E. Grand Avenue, El Segundo, California 90245; Attention: Javier Bitar, Chief Financial Officer.
11.11      Expenses . Each party will pay its respective direct and indirect expenses incurred by it in connection with the preparation and negotiation of this Agreement and the consummation of the transactions contemplated by this Agreement.
11.12      Parties . This Agreement shall inure to the benefit of and be binding upon the Purchaser, the Manager, the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any Person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the parties hereto and their respective successors, and for the benefit of no other person, firm or corporation.
11.13      Confidential Information . The Purchaser, the Manager, the Company and their respective affiliates, as the case may be, will maintain the confidentiality of Confidential Information in accordance with procedures adopted by such party in good faith to protect confidential information of third parties delivered to such party; provided, that the Purchaser, the Manager, the Company or their respective affiliates, as the case may be, may deliver or disclose Confidential Information to (i) their respective directors, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by the Series A Preferred Shares), (ii) their respective financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 11.13 , (iii) any other holder of Series A Preferred Shares, (iv) any person from which the Purchaser, the Manager, the Company or their respective affiliates, as the case may be, receive offers to purchase any security of the Company or beneficiary interest of the collective investment fund to be established by the Purchaser to purchase the Series A Preferred Shares, or any of their respective subsidiaries (if such person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 11.13 ), (v) any federal or state regulatory authority having jurisdiction over the Purchaser or the Company or their respective affiliates, as the case may be, (vi) any other person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to the Purchaser, the Manager, the Company or their respective affiliates, as the case may be, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which the Purchaser, the Manager, the Company or their respective affiliates, as the case may be, is a party or (z) to comply with the requirements set forth under Section 10.3 of this Agreement. Without the prior written consent of the Company, on the one hand, and the Purchaser and the Manager, on the other hand, no party hereto may make an announcement, issue an advertisement or a press release or otherwise make any publicly available statement concerning this Agreement or the other transaction documents or the transactions contemplated hereby or thereby, other than as required by or pursuant to U.S. federal or state securities laws. Each holder of Series A Preferred Shares, by its acceptance of such Series A Preferred Shares, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 11.13 .
11.14      Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be enforceable, and all of which together shall constitute one instrument. The delivery of signed counterparts by email transmission in portable document format or .tiff format that includes a copy of the sending party’s signature(s) is as effective as signing and delivering the counterpart in person.
11.15      No Third Party Beneficiaries . Except as expressly provided for in Section ‎11.12 , nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement, and no Person that is not a party to this Agreement (including any partner, member, stockholder, director, officer, employee or other beneficial owner of any party, in its own capacity as such or in bringing a derivative action on behalf of a party) shall have any rights or standing as third‑party beneficiary with respect to this Agreement or the transactions contemplated by this Agreement.
11.16      Construction . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. When a reference is made in this Agreement to a Section, Schedule or Exhibit, such reference shall be to a Section, Schedule or Exhibit of this Agreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The terms “hereof”, “herein”, “hereby” and derivative or similar words refer to this Agreement as a whole and not to any particular provision of this Agreement. The terms “shall” and “will” mean “must,” and shall and will have equal force and effect and express an obligation. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument or statute defined or referred to in this Agreement means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes. The term “party” or “parties” shall mean a party to or the parties to this Agreement unless the context requires otherwise. Each of the parties has participated in the drafting and negotiation of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if it is drafted by each of the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authorship of any of the provisions of this Agreement. All references in this Agreement to “dollars” or “$” shall mean United States dollars. Any period of time hereunder ending on a day that is not a Business Day shall be extended to the next Business Day. The word “day”, unless otherwise indicated, shall be deemed to refer to a calendar day.
11.17      Standstill . For a period of five years from the date of this Agreement, neither the Purchaser, nor the Manager, nor any of their respective representatives or affiliates will in any manner, directly or indirectly, without the prior written consent of the Company:
(a)      make, or in any way participate, directly or indirectly, in any, “solicitation” of “proxies” (as such terms are used in the rules of the United States Securities and Exchange Commission), or advise or seek to influence any Person with respect to the voting of any voting securities of the Company or any of its subsidiaries;
(b)      make any public announcement with respect to, or submit a proposal for, or offer of (with or without conditions) any tender or exchange offer, merger, recapitalization, reorganization, business combination or other extraordinary transaction involving the Company or any of its subsidiaries or any of their securities or assets;
(c)      seek the election, appointment or removal of any director of the Company’s Board, or seek a change in the composition or size of the Company’s Board;
(d)      form, join or in any way participate in a “group” as defined in Section 13(d)(3) of the Exchange Act, in connection with any of the foregoing;
(e)      otherwise act, alone or in concert with others (including, without limitation, by providing financing to another party), to seek or offer to control or influence the management, Board, policies or affairs of the Company;
(f)      advise, assist or encourage any other Persons in connection with any of the foregoing; or
(g)      request the Company or any of its representatives, directly or indirectly, to amend or waive any provision of this paragraph.
The Purchaser and/or the Manager will promptly advise the Company of any inquiry or proposal made to it with respect to any of the foregoing.

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11.18      Certain Defined Terms . The terms that follow, when used in this Agreement, shall have the meanings indicated.
“ Business Day ” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York and Seoul, Korea are authorized or required by law, regulation or executive order to close.
“ Competitor ” means a US REIT that owns and operates office properties or industrial properties.
“ Confidential Information ” means information delivered either (i) to the Purchaser and/or the Manager by or on behalf of the Company or their respective affiliates or (ii) to the Company or its affiliates by or on behalf of the Purchaser and/or the Manager, as the context may require, in each case in connection with the transactions contemplated by or otherwise pursuant to this Agreement or any other transaction documents that are proprietary in nature; provided, that such term does not include information that (a) was publicly known prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by the Purchaser, the Manager, the Company or its affiliates, as the case may be, or any person acting on such party’s behalf or (c) otherwise becomes known to the Purchaser, the Manager, the Company or their respective affiliates, as the case may be, other than through the disclosure to such party by the Purchaser, the Manager, the Company or their respective affiliates, as the case may be.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.
“ Governmental Authority ” means any (a) nation, region, state, county, city, town, village, district or other jurisdiction, (b) federal, state, local, municipal, foreign or other government, (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department or other entity and any court or other tribunal), (d) multinational organization or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature.
“ Governmental Authorization ” means any consent, license, franchise, permit, exemption, clearance or registration issued, granted, given or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Law.
“ Headquarters ” means the office of the Company located at Griffin Capital Plaza, 1520 E. Grand Avenue, El Segundo, California 90245.
“ Judgment ” means any order, injunction, judgment, decree, ruling, assessment or arbitration award of any Governmental Authority or arbitrator.
“ Law ” means any federal, state, local, municipal, foreign, international, multinational, or other constitution, law, statute, treaty, rule, regulation, ordinance, code, binding case law or principle of common law.
“ Material Adverse Change ” means a decline after the First Closing Date of more than 10% of the Company’s monthly revenues as compared to the Company’s monthly revenues for the month ended immediately prior to the First Closing Date.
“ REIT ” means a real estate investment trust.
“ SEC ” means the United States Securities and Exchange Commission.

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“ Person ” means an individual or an entity, including a corporation, limited liability company, partnership, trust, unincorporated organization, association or other business or investment entity, or any Governmental Authority.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above.
 
 
 
 
 
 
 
 
 
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
 
 
 
 
 
 
By: /s/ Javier F. Bitar
 
Name: Javier F. Bitar
 
Title: Chief Financial Officer
 
 
 
 
 
 
 
 
 
SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13(H)
Kookmin Bank  (as trustee of SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13(H)  as Purchaser)

 
 
 
 
 
By: /s/ Jean Moon
 
Name: Jean Moon
 
Title: Manager of Custody Business Department


 
SHINHAN BNP PARIBAS ASSET MANAGEMENT CORPORATION (an asset manager of the Purchaser)

 
 
 
 
 
By: /s/ Min Jung Kee
 
Name: Min Jung Kee
 
Title: CEO


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Exhibit 10.2

THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This Third Amendment to Amended and Restated Credit Agreement (the “Amendment”) is made as of this 8 th day of August, 2018, by and among GRIFFIN CAPITAL ESSENTIAL ASSET OPERATING PARTNERSHIP, L.P., a Delaware limited partnership, having an address at Griffin Capital Plaza, 1520 E. Grand Avenue, El Segundo, California 90245 (“Borrower”), KEYBANK NATIONAL ASSOCIATION, as Administrative Agent (the “Agent”) and each of the Lenders (the “Lenders”) party to the Amended and Restated Credit Agreement (as defined below) as of the date hereof.
W I T N E S S E T H :
WHEREAS, reference is hereby made to that certain Amended and Restated Credit Agreement dated as of July 20, 2015, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated as of February 12, 2016 and that certain Second Amendment to Amended and Restated Credit Agreement dated as of April 18, 2018 (the “Credit Agreement”; unless otherwise defined herein, capitalized terms shall have the meanings provided in the Credit Agreement) entered into by and among Borrower, Agent, and the Lenders; and
WHEREAS, the Borrower, the Agent and the Lenders have agreed to amend and modify the Credit Agreement as set forth herein.
NOW, THEREFORE, it is agreed by and among the Borrower, the Agent and the Lenders as follows:
1. The definition of “Change in Control” set forth in the Credit Agreement is hereby deleted in its entirety and shall be replaced by the following:
“ Change in Control ” means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than fifty percent (50%) of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Parent; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Parent by Persons who were neither (i) nominated by the board of directors of the Parent nor (ii) appointed by directors so nominated; (c) the acquisition of direct or indirect Control of the Parent by any Person or group; (d) the replacement, removal or resignation of Griffin Capital Corporation or an Affiliate thereof as asset manager and advisor to the Borrower, any UAP Property Owner and the Parent, or (e) the failure of the OP to own, directly or indirectly, free and




clear of any Liens, 100% of the ownership interests in each UAP Property Owner.
2.      The definition of “Core Funds from Operations” set forth in the Credit Agreement is hereby deleted in its entirety and shall be replaced by the following:
“ Core Funds from Operations ” means for a given period, Parent’s net income (or loss) determined on a consolidated basis in accordance with GAAP (unless otherwise indicated herein) for such period (after payment of any amounts by the Borrower under the 2018 Preferred Documents), excluding gains or losses from extraordinary items, impairment and other non-cash charges, acquisition fees and related expenses, plus real estate depreciation and amortization. Core Funds from Operations will be adjusted for (i) unconsolidated entities to reflect funds from operations on the same basis, (ii) the impact of straight-lining of rents, (iii) the amortization of intangibles associated with the amortization of above or below market rents, pursuant to ASC 805 (formerly FASB 141) and calculation of interest expense in accordance with FBS APB 14-1.
3.      The definition of “Fixed Charge Coverage Ratio” set forth in the Credit Agreement is hereby deleted in its entirety and shall be replaced by the following:
“ Fixed Charge Coverage Ratio ” means the ratio of, for the Parent, the Borrower and their Subsidiaries on a consolidated basis(without duplication) (a) the sum of Adjusted EBITDA for the immediately preceding calendar quarter; to (b) all of the principal due and payable and principal paid on the Indebtedness (other than amounts paid in connection with balloon maturities), plus all Interest Expense, plus the aggregate of all cash dividends payable on any preferred stock (including any paid under the 2018 Preferred Documents).
4.      The definition of “Indebtedness” set forth in the Credit Agreement is hereby deleted in its entirety and shall be replaced by the following:
“ Indebtedness ” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, including mandatorily redeemable preferred stock, provided, however, that the Series A Preferred Stock (as defined in the 2018 Preferred Documents), shall not be deemed Indebtedness (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others (excluding non-recourse carve-out guarantees until such time as a claim has been filed for breach thereof), (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit

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and letters of guaranty, (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances and (k) all obligations contingent or otherwise, of such Person with respect to any Hedging Agreements (calculated on a mark-to-market basis as of the reporting date). The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. Indebtedness shall be calculated on a consolidated basis in accordance with GAAP, and including (without duplication) Borrower's Equity Percentage of Indebtedness for non-wholly owned subsidiaries.
5.      The following new definitions are hereby inserted in Article I of the Credit Agreement in appropriate alphabetical order:
“Beneficial Ownership Certification” shall mean a certification regarding beneficial ownership required by the Beneficial Ownership Regulation, which certification shall be substantially similar in form and substance to the form of Certification Regarding Beneficial Owners of Legal Entity Customers published jointly, in May 2018, by the Loan Syndications and Trading Association and Securities Industry and Financial Markets Association.”
“Beneficial Ownership Regulation” shall mean 31 C.F.R. §1010.230.”
“ 2018 Preferred Documents ” means, collectively, (each dated, as applicable on or about August 8, 2018): (a) the Parent’s Fourth Articles of Amendment and Restatement, (b) the Parent’s Articles Supplementary Establishing and Fixing the Rights and Preferences of Series A Cumulative Perpetual Preferred Stock, (c) Series A Cumulative Perpetual Preferred Stock Purchase Agreement entered into between the Parent and the 2018 Preferred Holder
“ 2018 Preferred Holder ” means SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13(H), a real estate investment trust established under the laws of the Republic of Korea (acting through Kookmin Bank as trustee of SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13(H) and its successors and assigns.
6.      Clause 5.02(b) set forth in the Credit Agreement is hereby deleted in its entirety and shall be replaced by the following:
(b)    Tangible Net Worth shall not be less than (i) $1,240,246,341, plus (ii) (A) seventy-five percent (75%) of the net proceeds (gross proceeds less reasonable and customary costs of sale and issuance paid to Persons not Affiliates of any Credit Party) received by the Parent or the Borrower at any time from the issuance of stock (whether common, preferred or otherwise) of the Parent or the Borrower after July 20, 2015, plus (B) seventy-five percent (75%) of the amount of operating partnership units of the Parent issued in connection with the contribution of any real estate or other assets of the Parent after July 20, 2015, less (C) any amounts paid for the redemption or retirement of or any accrued return on the preferred equity issued under the Starwood Documents or the 2018 Preferred Documents;

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7.      Clauses 5.15(e) and (f) set forth in the Credit Agreement are hereby deleted in their entirety and shall be replaced by the following:
(e) prior to a listing of the Series A Preferred Stock (as defined in the 2018 Preferred Documents) except as contemplated in the 2018 Preferred Documents, not permit the Series A Preferred Stock to be transferred, and the OP and the Parent will not consent to any transfer of the Series A Preferred Stock, as the case may be, to any entity unless the Lenders have satisfactorily obtained all required “know your customer” and other information regarding such transferee as the Lenders may reasonably request (provided that, if the 2018 Preferred Holder is a trust, the transfer of underlying beneficial interests in such Trust shall not be deemed a transfer of the Series A Preferred Stock);
(f) not enter into, nor permit the Parent, the OP nor any Affiliate thereof to enter into any amendment of the 2018 Preferred Documents (including to increase the amount of the preferred equity issued thereunder) or of any constituent document of any Credit Party or UAP Property Owner in a manner which would be materially adverse to the Lenders without the prior written approval of the Required Lenders; and
8.      A new Section 5.19 is hereby added to the Credit Agreement as follows
“ Beneficial Ownership Certification/Patriot Act . The Borrower shall, promptly following a request by the Administrative Agent or any Lender, provide all documentation and other information that the Administrative Agent or such Lender requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the PATRIOT Act and the Beneficial Ownership Regulation.”
9.      Section 6.07 set forth in the Credit Agreement is hereby deleted in its entirety and shall be replaced by the following:
The Parent will not (a) own any Property other than the ownership interests of Borrower and other assets with no more than $10,000,000.00 in value; (b) give or allow any Lien on the ownership interests of Borrower provided that nothing contained in the 2018 Preferred Documents shall be deemed to constitute a violation of this Section 6.07(b); (c) create, incur, suffer or permit to exist, or assume or guarantee, directly or indirectly, contingently or otherwise, or become or remain liable with respect to any Indebtedness if the aggregate of such Indebtedness would violate Section 5.02 or (d) engage to any material extent in any business other than the ownership, development, operation and management of office, industrial, warehouse, distribution or educational (or mixed uses thereof) properties leased to third parties under triple net or absolute leases.
10.      The last paragraph of Article VII is hereby deleted in its entirety.
11.      Section 9.16 set forth in the Credit Agreement is hereby deleted in its entirety and shall be replaced by the following

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9.16. Preferred Equity .
The Lenders hereby acknowledge the execution by the Parent and the OP of the various 2018 Preferred Documents and acknowledge that the execution of the 2018 Preferred Documents, and the Series A Preferred Stock (as defined in the 2018 Preferred Documents) and the acceptance of the preferred equity investment in the Parent evidenced by the 2018 Preferred Documents does not violate any term or condition of this Agreement or constitute an Event of Default hereunder. The foregoing confirmation shall not be deemed to (a) waive all future compliance and/or performance by the Borrower and the Guarantor of all and singular the terms and conditions of the Credit Agreement and each other Loan Document including any Change in Control as a result of a breach of clause (d) of the definition thereof, or (b) waive or limit in any way any of the powers, rights and remedies of the Administrative Agent and the Lenders under the Loan Documents as a result of any Default or Event of Default occurring on or after the date hereof.
12.      Borrower represents and warrants as follows:
(a)
It has taken all necessary action to authorize the execution, delivery and performance of this Amendment.
(b)
This Amendment has been duly executed and delivered by Borrower and constitutes the Borrower’s legal, valid and binding obligations, enforceable in accordance with its terms.
(c)
No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by Borrower of this Amendment.
(d)      The representations and warranties set forth in this Amendment and all of the Loan Documents continue to remain true and correct in all respects.
(e)      To the best of Borrower’s knowledge, no Default or Event of Default has occurred and is continuing as of the date hereof.
13.      Except as expressly amended hereby, the remaining terms and conditions of the Credit Agreement shall continue in full force and effect. All future references to the “Credit Agreement” shall be deemed to be references to the Credit Agreement as amended by this Amendment. It is intended that this Amendment, which may be executed in multiple counterparts, shall be governed by and construed in accordance with the laws of the State of New York.
14.      This Amendment shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto.
15.      This Amendment shall constitute a Loan Document for all purposes.

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16.      For the purpose of facilitating the execution of this Amendment as herein provided and for other purposes, this Amendment may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute and be one and the same instrument. Facsimile signatures shall have the same legal effect as originals.
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IN WITNESS WHEREOF, the undersigned has executed and delivered this Amendment under seal as of the date first written above.
GRIFFIN CAPITAL ESSENTIAL ASSET OPERATING PARTNERSHIP, L.P., a Delaware limited partnership

By: GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC., a Maryland corporation, its General Partner

By: /s/ Javier F. Bitar
Name: Javier F. Bitar
Title: Chief Financial Officer and Treasurer



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KEYBANK NATIONAL ASSOCIATION, individually and as Administrative Agent, Swingline Lender and Issuing Bank


By:     /s/ Christopher T. Neil
Name:    Christopher T. Neil
Title:    Vice President

BANK OF AMERICA, N.A.


By: /s/ Dennis Kwan
Name: Dennis Kwan
Title: Vice President

FIFTH THIRD BANK, an Ohio banking corporation


By: /s/ John Kang
Name: John Kang
Title: Officer

SUNTRUST BANK


By: /s/ Ryan C. Almond
Name: Ryan C. Almond
Title: Director l Group Vice President

WELLS FARGO BANK, NATIONAL ASSOCIATION


By:                     
Name: Kevin A. Stacker
Title: Senior Vice President



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BMO HARRIS BANK N.A.


By: /s/ Michael Kauffman
Name: Michael Kauffman
Title: Managing Director

SUMITOMO MITSUI BANKING CORPORATION


By:                     
Name: Ian Hunter
Title:

JPMORGAN CHASE BANK, N.A.


By:                     
Name: Elizabeth R. Johnson
Title: Authorized Officer


U.S. BANK NATIONAL ASSOCIATION


By: /s/ Michael F. Diemer
Name: Michael F. Diemer
Title: Vice President

GOLDMAN SACHS BANK USA


By: /s/ Jamie Minieri
Name: Jamie Minieri
Title: Authorized Signatory


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CAPITAL ONE, NATIONAL ASSOCIATION


By: /s/ Frederick H. Denecke
Name: Frederick H. Denecke
Title: Senior Vice President



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GUARANTOR CONFIRMATION

The undersigned hereby acknowledges and consents to the foregoing Third Amendment to Amended and Restated Credit Agreement and acknowledges and agrees that it remains obligated for the various obligations and liabilities, as applicable, set forth in that certain Amended and Restated Guaranty Agreement (the "Guaranty") dated July 20, 2015, executed by the undersigned in favor of the Agent, which Guaranty remains in full force and effect.
GUARANTOR:
GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.,
a Maryland corporation
By: /s/ Javier F. Bitar
Name:    Javier F. Bitar
Title:     Chief Financial Officer and Treasurer

THE GC NET LEASE (GV QUEBEC COURT) INVESTORS, LLC
THE GC NET LEASE (RENTON) INVESTORS, LLC
THE GC NET LEASE (ARLINGTON HEIGHTS) INVESTORS, LLC
THE GC NET LEASE (IRVINE ARMSTRONG) INVESTORS, LLC
THE GC NET LEASE (JOLIET) INVESTORS, LLC
THE GC NET LEASE (WESTMINSTER) INVESTORS, LLC
THE GC NET LEASE (PHOENIX NORTHGATE) INVESTORS, LLC
THE GC NET LEASE (EL SEGUNDO GRAND) INVESTORS, LLC
THE GC NET LEASE (ATLANTA WINDY RIDGE) INVESTORS, LLC
THE GC NET LEASE (ATLANTA WILDWOOD I) INVESTORS, LLC
THE GC NET LEASE (ATLANTA WILDWOOD II) INVESTORS, LLC
THE GC NET LEASE (MASON SIMPSON) INVESTORS, LLC

    By:    GRIFFIN CAPITAL ESSENTIAL ASSET OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership, its Sole Member

By:    GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC., a
Maryland corporation, its General Partner

By: /s/ Javier F. Bitar
Name:    Javier F. Bitar
Title:     Chief Financial Officer and Treasurer

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THE GC NET LEASE (MASON DUKE) INVESTORS, LLC
THE GC NET LEASE (WESTERVILLE) INVESTORS, LLC
THE GC NET LEASE (DUBLIN) INVESTORS, LLC
THE GC NET LEASE (ARLINGTON CENTREWAY) INVESTORS, LLC
THE GC NET LEASE (ALLEN PARK) INVESTORS, LLC
THE GC NET LEASE (MILWAUKEE) INVESTORS, LLC
THE GC NET LEASE (WAYNE) INVESTORS, LLC
THE GC NET LEASE (MARYLAND HEIGHTS) INVESTORS, LLC
THE GC NET LEASE (OLATHE) INVESTORS, LLC
THE GC NET LEASE (PARSIPPANY) INVESTORS, LLC
THE GC NET LEASE (MARYLAND HEIGHTS LACKLAND) INVESTORS, LLC
THE GC NET LEASE (PHOENIX BEARDSLEY) INVESTORS, LLC
THE GC NET LEASE (SAN CARLOS) INVESTORS, LLC
THE GC NET LEASE (LONE TREE) INVESTORS, LLC
THE GC NET LEASE (EARTH CITY) INVESTORS, LLC
THE GC NET LEASE (MASON I) INVESTORS, LLC
THE GC NET LEASE (LYNNWOOD II) INVESTORS, LLC
THE GC NET LEASE (HOUSTON WESTGATE III) INVESTORS, LLC
THE GC NET LEASE (FRISCO) INVESTORS, LLC
PLAINFIELD PARTNERS, LLC

By:    GRIFFIN CAPITAL ESSENTIAL ASSET OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership, its Sole Member

By:    GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC., a
Maryland corporation, its General Partner
            
By: /s/ Javier F. Bitar
Name:    Javier F. Bitar
Title:     Chief Financial Officer and Treasurer



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THE GC NET LEASE (HERNDON) INVESTORS, LLC
THE GC NET LEASE (HOUSTON WESTWAY I) INVESTORS, LLC
THE GC NET LEASE (HOUSTON WESTWAY II) INVESTORS, LLC
THE GC NET LEASE (DEERFIELD) INVESTORS, LLC
THE GC NET LEASE (LISLE) INVESTORS, LLC
THE GC NET LEASE (DENVER) INVESTORS, LLC
THE GC NET LEASE (COLUMBUS) INVESTORS, LLC
THE GC NET LEASE (MIRAMAR) INVESTORS, LLC

By:    SOR OPERATING PARTNERSHIP, LLC, a Delaware limited liability
company, its Sole Member

By:    GRIFFIN CAPITAL ESSENTIAL ASSET OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership, its Sole Member

By: GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC., a
Maryland corporation, its General Partner

By: /s/ Javier F. Bitar
Name:    Javier F. Bitar
Title:     Chief Financial Officer and Treasurer


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THE GC NET LEASE (COLUMBIA) INVESTORS, LLC, a Delaware limited liability company

By: THE POINT AT CLARK STREET REIT, LLC, a Delaware limited liability
company, its Sole Member

By:     FRANKLIN CENTER MEMBER, LLC, a Delaware limited liability
company, its Sole Member

By: SOR OPERATING PARTNERSHIP, LLC a
Delaware limited liability company, its Sole Member

By: GRIFFIN CAPITAL ESSENTIAL ASSET
OPERATING PARTNERSHIP, L.P., a Delaware limited
partnership, its Sole Member

By: GRIFFIN CAPITAL ESSENTIAL ASSET REIT,
INC., a Maryland corporation, its General Partner

By: /s/ Javier F. Bitar
Name: Javier F. Bitar
Title: Chief Financial Officer and Treasurer


THE GC NET LEASE (CHARLOTTE – NORTH FALLS) INVESTORS, L.P., a Delaware limited partnership

By: The GC Net Lease (Charlotte – North Falls) GP, LLC, a Delaware limited liability company, its General Partner

By: Griffin Capital Essential Asset Operating Partnership, L.P., a Delaware limited partnership, its Sole Member

By: Griffin Capital Essential Asset REIT, Inc., a Maryland corporation, its General Partner

By: /s/ Javier F. Bitar
          Name:    Javier F. Bitar
        Title:     Chief Financial Officer and Treasurer

2338389.8

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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Kevin A. Shields, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Griffin Capital Essential Asset REIT, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated:
August 13, 2018
By:
/s/    Kevin A. Shields        
 
 
 
Kevin A. Shields
 
 
 
Chief Executive Officer and Chairman
 
 
 
(Principal Executive Officer)




Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Javier F. Bitar, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Griffin Capital Essential Asset REIT, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
 
 
Dated:
August 13, 2018
By:
/s/ Javier F. Bitar 
 
 
 
Javier F. Bitar
 
 
 
Chief Financial Officer and Treasurer
 
 
 
(Principal Financial and Accounting Officer)




Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Griffin Capital Essential Asset REIT, Inc. (the “Company”), in connection with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2018 (the “Report”), hereby certifies that:
(i)
the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated:
August 13, 2018
By:
/s/  Kevin A. Shields        
 
 
 
Kevin A. Shields
 
 
 
Chief Executive Officer and Chairman
 
 
 
(Principal Executive Officer)




Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Griffin Capital Essential Asset REIT, Inc. (the “Company”), in connection with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2018 (the “Report”), hereby certifies that:
(i)
the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated:
August 13, 2018
By:
/s/    Javier F. Bitar  
 
 
 
Javier F. Bitar

 
 
 
Chief Financial Officer and Treasurer
 
 
 
(Principal Financial and Accounting Officer)