For the transition period from                      to                               

Commission File Number: 000-55605

Griffin Capital Essential Asset REIT, Inc.

(Exact name of Registrant as specified in its charter)

Maryland		46-4654479
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

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Class		Outstanding											Non-Affiliate
		Shares @ 6/30/19			NAV				Market Value				Market Value
T		229,120			$	9.64			$	2,209			$	2,206
S		283			$	9.64			$	3			$	—
D		19,499			$	9.62			$	188			$	185
I		822,666			$	9.62			$	7,914			$	5,150
A		24,925,347			$	9.53			$	237,539			$	234,758
AA		48,180,929			$	9.53			$	459,164			$	459,164
AAA		959,152			$	9.53			$	9,141			$	9,141
E		168,473,558			$	9.54			$	1,607,238			$	1,607,238

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PART I

ITEM 1. BUSINESS

Overview

Griffin Capital Essential Asset REIT, Inc., formerly known as Griffin Capital Essential Asset REIT II, Inc. (“GCEAR”), is a real estate investment trust (“REIT”) organized primarily with the purpose of acquiring single tenant net lease properties essential to the business operations of the tenant, and has used a substantial amount of the net investment proceeds from its offerings to invest in such properties. GCEAR’s year-end date is December 31.

On December 14, 2018, GCEAR, Griffin Capital Essential Asset Operating Partnership II, L.P. (the “GCEAR II Operating Partnership”), GCEAR’s wholly-owned subsidiary Globe Merger Sub, LLC (“Merger Sub”), the entity formerly known as Griffin Capital Essential Asset REIT, Inc. (“EA-1”), and Griffin Capital Essential Asset Operating Partnership, L.P. (the “EA-1 Operating Partnership”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). On April 30, 2019, pursuant to the Merger Agreement, (i) EA-1 merged with and into Merger Sub, with Merger Sub surviving as GCEAR’s direct, wholly-owned subsidiary (the “Company Merger”) and (ii) the GCEAR II Operating Partnership merged with and into the EA-1 Operating Partnership (the “Partnership Merger” and, together with the Company Merger, the “Mergers”), with the EA-1 Operating Partnership (and now known as the “Current Operating Partnership”) surviving the Partnership Merger. In addition, on April 30, 2019, following the Mergers, Merger Sub merged into GCEAR. In connection with the Mergers, each issued and outstanding share of EA-1’s common stock (or fraction thereof) was converted into 1.04807 shares of GCEAR’s newly created Class E common stock, $0.001 par value per share, and each issued and outstanding share of EA-1’s Series A cumulative perpetual convertible preferred stock was converted into one share of GCEAR’s newly created Series A cumulative perpetual convertible preferred stock (the “Series A Preferred Shares”). Also on April 30, 2019, each EA-1 Operating Partnership unit outstanding converted into 1.04807 Class E units in the Current Operating Partnership and each unit outstanding in the GCEAR II Operating Partnership converted into one unit of like class in the Current Operating Partnership (the “OP Units”). On April 30, 2019, GCEAR issued approximately 174,981,547 Class E shares and 5,000,000 shares of Series A Preferred Shares. Immediately following the consummation of the Mergers, GCEAR had 252,863,421 shares of common stock outstanding, and 5,000,000 shares of Series A Preferred Shares outstanding and the Current Operating Partnership had 284,533,435 OP Units outstanding.

In connection with the Mergers, GCEAR was the legal acquirer and EA-1 was the accounting acquirer for financial reporting purposes, as discussed in Note 4, Real Estate. Thus, the financial information set forth herein subsequent to the Mergers reflects results of the combined entity, and the financial information set forth herein prior to the Mergers reflects EA-1’s results. For this reason, period to period comparisons may not be meaningful.

Unless the context requires otherwise, all references to the “Company,” “we,” “our,” and “us” herein mean EA-1 and one or more of EA-1’s subsidiaries for periods prior to the Mergers, and GCEAR and one or more of GCEAR’s subsidiaries for periods following the Mergers. Certain historical information of GCEAR is included for background purposes.

Prior to the Mergers, on December 14, 2018, EA-1 and the EA-1 Operating Partnership entered into a series of transactions, agreements, and amendments to EA-1’s existing agreements and arrangements (such agreements and amendments hereinafter collectively referred to as the “Self Administration Transaction”), with EA-1’s former sponsor, Griffin Capital Company, LLC (“GCC”), and Griffin Capital, LLC (“GC LLC”), pursuant to which GCC and GC LLC contributed to the EA-1 Operating Partnership all of the membership interests of Griffin Capital Real Estate Company, LLC (“GRECO”) and certain assets related to the business of GRECO, in exchange for 20,438,684 units of limited partnership in the EA-1 Operating Partnership and additional limited partnership units as earn-out consideration. As a result of the Self Administration Transaction, EA-1 became self-managed and acquired the advisory, asset management and property management business of GRECO. As part of the Self Administration Transaction, EA-1 entered into a series of agreements and amendments to existing agreements which were assumed by GCEAR pursuant to the Mergers.

On September 20, 2017, GCEAR commenced a follow-on offering of up to $2.2 billion of shares (the “Follow-On Offering”), consisting of up to $2.0 billion of shares in GCEAR’s primary offering and $0.2 billion of shares pursuant to its distribution reinvestment plan (“DRP”). Pursuant to the Follow-On Offering, GCEAR offered to the public four new classes of shares of common stock: Class T shares, Class S shares, Class D shares, and Class I shares with net asset value (“NAV”) based pricing. The share classes have different selling commissions, dealer manager fees, and ongoing distribution fees. On August 16, 2018, the board of directors of GCEAR approved the temporary suspension of the primary portion of the Follow-On Offering, effective August 17, 2018. On June 12, 2019, the board of directors (the “Board”) of the Company approved the reinstatement of the primary portion of the Follow-On Offering, effective June 18, 2019. Since September 20, 2017, we have

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issued 8,412,006 shares of common stock for aggregate gross proceeds of approximately $80.7 million in our Follow-On Offering as of December 31, 2019.

In connection with a potential strategic transaction, on February 26, 2020, the Board approved the temporary suspension of (i) the primary portion of our Follow-On Offering, effective February 27, 2020; (ii) our share redemption program ("SRP"), effective March 28, 2020; and (iii) our DRP, effective March 8, 2020. For the first quarter of 2020 only, those redemptions sought upon a stockholder's death, qualifying disability, or determination of incompetence or incapacitation will be honored in accordance with the terms of the SRP, and the SRP shall be officially suspended as of March 28, 2020. The DRP shall be officially suspended as of March 8, 2020. All subsequent distributions, other than the stock distribution declared by the Board on December 18, 2019, to be paid on April 1, 2020, will be paid in cash. The SRP and DRP shall remain suspended until such time, if any, as the Board may approve the resumption of the SRP and DRP. The Board reserves the right to recommence the Follow-On Offering, if appropriate and at the appropriate time.

The Current Operating Partnership owns, directly or indirectly, all of the properties that we have acquired. As of December 31, 2019, we owned approximately 87.7% OP Units of the Current Operating Partnership. As a result of the contribution of five properties to us and the Self Administration Transaction, the former sponsor and certain of its affiliates, including certain officers of our Company, owned approximately 10.6% of the OP Units of the Current Operating Partnership, including approximately 2.4 million OP Units owned by the Company’s Executive Chairman and Chairman of the Board, Kevin A. Shields, as of December 31, 2019. The remaining approximately 1.7% OP Units are owned by unaffiliated third parties. 6,000 OP Units of the Current Operating Partnership have been redeemed during the years ended December 31, 2019 and 2018. The Current Operating Partnership may conduct certain activities through one or more of the Company’s taxable REIT subsidiaries, which are wholly-owned subsidiaries of the Current Operating Partnership.

As of December 31, 2019, our real estate portfolio consisted of 99 properties in 25 states and 118 lessees consisting substantially of office, warehouse, and manufacturing facilities and two land parcels held for future development with a combined acquisition value of approximately $4.2 billion, including the allocation of the purchase price to above and below-market lease valuation. Our net rent for the 12-month period subsequent to December 31, 2019 is approximately $276.7 million with approximately 65.5% to be generated by properties leased to tenants and/or guarantors or entities whose non-guarantor parent companies have investment grade or what management believes are generally equivalent ratings. Our portfolio, based on square footage, is approximately 91.3% leased as of December 31, 2019, with a weighted average remaining lease term of 7.36 years, weighted average annual rent increases of approximately 2.2%, and a debt to total real estate acquisition value of 48.6% as defined in our credit agreement.

Major Tenants

As of December 31, 2019, our ten largest tenants represented 28.5% of the total net rents generated by our properties.

Investment Objectives

Overview

We invest in a portfolio consisting primarily of single tenant business essential properties. Our investment objectives and policies may be amended or changed at any time by our Board. Although we have no plans at this time to change any of our investment objectives, our Board may change any and all such investment objectives, including our focus on single tenant business essential properties, if they believe such changes are in the best interests of our stockholders. We intend to notify our stockholders of any change to our investment policies by disclosing such changes in a public filing such as a prospectus supplement, or through a filing under the Exchange Act, as appropriate. In addition, we may invest in real estate properties other than single tenant business essential properties if our Board deems such investments to be in the best interests of our stockholders. We cannot assure our stockholders that our policies or investment objectives will be attained or that the value of our common stock will not decrease.

Primary Investment and Portfolio Management Objectives

Our primary investment and portfolio management objectives are to:

•	invest in income-producing real property in a manner that allows us to qualify as a REIT for federal income tax purposes;

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•	provide regular cash distributions to achieve an attractive distribution yield;

•	preserve and protect invested capital;

•	realize appreciation in NAV from proactive portfolio and asset management; and

•	provide an investment alternative for stockholders seeking to allocate a portion of their long-term investment portfolios to commercial real estate with lower volatility than public real estate companies.

We cannot assure our stockholders that we will attain these primary investment and portfolio management objectives.

Investment Strategy

We seek to acquire a portfolio consisting primarily of single tenant business essential properties throughout the United States diversified by corporate credit, physical geography, product type and lease duration. Although we have no current intention to do so, we may also invest a portion of the net investment proceeds in single tenant business essential properties outside the United States. We acquire assets consistent with our single tenant acquisition philosophy by focusing primarily on properties:

•	essential to the business operations of the tenant;

•	located in primary, secondary and certain select tertiary metropolitan statistical areas, or MSAs;

•	leased to tenants with strong credit quality;

•	subject to long-term leases with defined rental rate increases or with short-term leases with high-probability renewal and potential for increasing rent; and

•	of new or recent, Class A construction quality and condition.

Our management team has been acquiring single tenant business essential properties for over a decade. Our management team’s positive acquisition and ownership experience with single tenant business essential properties of the type we intend to acquire stems from the following:

•	the credit quality of the lease payment is determinable and equivalent to the senior unsecured credit rating of the tenant;

•	the essential nature of the asset to the tenant's business provides greater default protection relative to the tenant's balance sheet debt;

•	the percentage recovery in the event of a tenant default is empirically greater than an unsecured lender; and

•	long-term leases provide a consistent and predictable income stream across market cycles while short-term leases offer income appreciation upon renewal and reset.

We seek to provide investors the following benefits:

•	a cohesive management team experienced in all aspects of real estate investment with a track record of acquiring primarily single tenant business essential assets;

•	stable cash flow backed by a portfolio of primarily single tenant business essential real estate assets;

•	minimal exposure to operating and maintenance expense increases as we attempt to structure or acquire leases where the tenant assumes responsibility for these costs;

•	contractual lease rate increases enabling potential distribution growth and a potential hedge against inflation;

•	insulation from short-term economic cycles resulting from the long-term nature of underlying asset leases;

•	enhanced stability resulting from diversified credit characteristics of corporate credits; and

•	portfolio stability promoted through geographic and product type investment diversification.

We cannot assure our stockholders that any of the properties we acquire will result in the benefits discussed above.

General Acquisition and Investment Policies

We seek to make investments that satisfy the primary investment objective of providing regular cash distributions to our stockholders. However, because a significant factor in the valuation of income-producing real property is its potential for future appreciation, some properties we acquire may have the potential both for growth in value and for providing regular cash distributions to our stockholders.

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Each acquisition will be approved by our Board. In selecting a potential property for acquisition, we consider a number of factors, including, but not limited to, the following:

•	strong tenant creditworthiness;

•	whether a property is essential to the business operations of the tenant;

•	lease terms, including length of lease term, scope of landlord responsibilities, presence and frequency of contractual rental increases, renewal option provisions, exclusive and permitted use provisions, co-tenancy requirements and termination options;

•	projected demand in the area;

•	a property’s geographic location and type;

•	proposed purchase price, terms and conditions;

•	historical financial performance;

•	projected net cash flow yield and internal rates of return;

•	a property’s physical location, visibility, curb appeal and access;

•	new or recent, Class A construction quality and condition;

•	potential for capital appreciation;

•	demographics of the area, neighborhood growth patterns, economic conditions, and local market conditions;

•	potential capital and tenant improvements and reserves required to maintain the property;

•	prospects for liquidity through sale, financing or refinancing of the property;

•	the potential for the construction of new properties in the area;

•	treatment under applicable federal, state and local tax and other laws and regulations;

•	evaluation of title and obtaining of satisfactory title insurance; and

•	evaluation of any reasonable ascertainable risks such as environmental contamination.

There is no limitation on the number, size or type of properties that we may acquire or on the percentage of net offering proceeds that may be invested in any particular property type or single property. The number and mix of properties will depend upon real estate market conditions and other circumstances existing at the time of acquisition. In determining whether to purchase a particular property, we may obtain an option on such property. The amount paid for an option, if any, is normally surrendered if the property is not purchased and may or may not be credited against the purchase price if the property is ultimately purchased.

Description of Leases

We primarily acquire single tenant properties with existing net leases. When spaces in a property become vacant, existing leases expire, or we acquire properties under development or requiring substantial refurbishment or renovation, we anticipate entering into "net" leases. "Net" leases means leases that typically require tenants to pay all or a majority of the operating expenses, including real estate taxes, special assessments and sales and use taxes, utilities, insurance, common area maintenance charges and building repairs related to the property, in addition to the lease payments. There are various forms of net leases, typically classified as triple-net or double-net. Under most commercial leases, tenants are obligated to pay a predetermined annual base rent. Some of the leases also will contain provisions that increase the amount of base rent payable at points during the lease term and/or that require the tenant to pay rent based upon a number of factors. Triple-net leases typically require the tenant to pay common area maintenance, insurance, and taxes associated with a property in addition to the base rent and percentage rent, if any. Double-net leases typically require the tenant to pay two of those three expenses. In either instance, these leases will typically hold the landlord responsible for the roof and structure, or other major repairs and replacements with respect to the property, while the tenant is responsible for only those operating expenses specified in the lease.

To the extent we acquire multi-tenant properties, we expect to have a variety of lease arrangements with the tenants of these properties. Since each lease is an individually negotiated contract between two or more parties, each lease will have different obligations of both the landlord and tenant and we cannot predict at this time the exact terms of any future leases into which we will enter. We will weigh many factors when negotiating specific lease terms, including, but not limited to, the rental rate, strong creditworthiness of the tenant, location of the property and type of property. Many large national tenants have standard lease forms that generally do not vary from property to property. We will have limited ability to revise the terms of leases with those tenants. Some of these limited negotiable terms include lease duration and special provisions on the recovery

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of operating expenses. In certain instances, we may be responsible for normal operating expenses up to a certain amount, which will reduce the amount of operating cash flow available for future investments.

Most of our acquisitions have lease terms of 5 to 15 years at the time of the property acquisition. We may acquire properties under which the lease term has partially expired. We also may acquire properties with shorter lease terms if the property is located in a desirable location, is difficult to replace, or has other significant favorable real estate attributes. Generally, the leases require each tenant to procure, at its own expense, commercial general liability insurance, as well as property insurance covering the building for the full replacement value and naming the ownership entity and the lender, if applicable, as the additional insured on the policy. As a precautionary measure, we obtain, to the extent available, contingent liability and property insurance and flood insurance, as well as loss of rents insurance that covers one or more years of annual rent in the event of a rental loss. In addition, we maintain a pollution insurance policy for all of our properties to insure against the risk of environmental contaminants; however, the coverage and amounts of our environmental and flood insurance policies may not be sufficient to cover our entire risk.

Tenants are required to provide proof of insurance by furnishing a certificate of insurance to us on an annual basis. The insurance certificates are tracked and reviewed for compliance by our property manager.

Our Borrowing Strategy and Policies

We may incur our indebtedness in the form of bank borrowings, purchase money obligations to the sellers of properties and publicly- or privately-placed debt instruments or financing from institutional investors or other lenders. We may obtain a credit facility or separate loans for each acquisition. Our indebtedness may be unsecured or may be secured by mortgages or other interests in our properties, and by guarantees or pledges of membership interests. We may use borrowing proceeds to finance acquisitions of new properties, to pay for capital improvements, repairs or buildouts, to refinance existing indebtedness, to pay distributions, to fund redemptions of our shares or to provide working capital. To the extent we borrow on a short-term basis, we may refinance such short-term debt into long-term, amortizing mortgages once a critical mass of properties has been acquired and to the extent such debt is available at terms that are favorable to the then in-place debt.

There is no limitation on the amount we can borrow for the purchase of any property. Our aggregate borrowings, secured and unsecured, must be reasonable in relation to our net assets and must be reviewed by our Board at least quarterly. We anticipate that we will utilize approximately 50% leverage in connection with our acquisition strategy. However, our charter currently limits our borrowing to 300% of our net assets (equivalent to 75% of the cost of our assets) unless any excess borrowing is approved by a majority of our independent directors and is disclosed to our stockholders in our next quarterly report, along with the justification for such excess.

We may borrow amounts from our affiliates only if such loan is approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, as fair, competitive, commercially reasonable and no less favorable to us than comparable loans between unaffiliated parties under the circumstances.

Except as set forth in our charter regarding debt limits, we may re-evaluate and change our debt strategy and policies in the future without a stockholder vote. Factors that we could consider when re-evaluating or changing our debt strategy and policies include then-current economic and market conditions, the relative cost of debt and equity capital, any acquisition opportunities, the ability of our properties to generate sufficient cash flow to cover debt service requirements and other similar factors. Further, we may increase or decrease our ratio of debt to equity in connection with any change of our borrowing policies. As of December 31, 2019, our leverage ratio was approximately 48.6% as defined in our credit agreement.

Acquisition Structure

Although we are not limited as to the form our investments may take, our investments in real estate will generally constitute acquiring fee title or interests in joint ventures or similar entities that own and operate real estate. We may also acquire ground leases.

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We will make acquisitions of our real estate investments directly through our Current Operating Partnership or indirectly through limited liability companies or limited partnerships, or through investments in joint ventures, partnerships, co-tenancies or other co-ownership arrangements with other owners of properties, affiliates of us or other persons.

Competition

As we purchase properties for our portfolio, we are in competition with other potential buyers for the same properties, and may have to pay more to purchase the property than if there were no other potential acquirers or we may have to locate another property that meets our investment criteria. Although we intend to acquire properties subject to existing leases, the leasing of real estate is highly competitive in the current market, and we may experience competition for tenants from owners and managers of competing projects. As a result, we may have to provide free rent, incur charges for tenant improvements, or offer other inducements, or we might not be able to timely lease the space, all of which may have an adverse impact on our results of operations. At the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchasers for our properties.

Joint Venture Investments

We have acquired and may continue to acquire some of our properties in joint ventures, some of which may be entered into with our affiliates. We may also enter into joint ventures, general partnerships, co-tenancies and other participations with real estate developers, owners and others for the purpose of owning and leasing real properties. Among other reasons, we may want to acquire properties through a joint venture with third parties or affiliates in order to diversify our portfolio of properties in terms of geographic region or property type. Joint ventures may also allow us to acquire an interest in a property without requiring that we fund the entire purchase price. In addition, certain properties may be available to us only through joint ventures. In determining whether to invest in a particular joint venture, we will evaluate the real property which such joint venture owns or is being formed to own under the same criteria that we use to evaluate other real estate investments.

We may enter into joint ventures with affiliates for the acquisition of properties, but only provided that:

•	a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, approve the transaction as being fair and reasonable to us; and

•	the investment by us and such affiliate are on substantially the same terms and conditions otherwise dictated by the market.

To the extent possible and if approved by our Board, including a majority of our independent directors, we will attempt to obtain a right of first refusal or option to buy the property held by the joint venture and allow such venture partners to exchange their interest for our Current Operating Partnership’s units or to sell their interest to us in its entirety. In the event that the venture partner were to elect to sell property held in any such joint venture, however, we may not have sufficient funds to exercise our right of first refusal to buy the venture partner’s interest in the property held by the joint venture. Entering into joint ventures with our affiliates will result in certain conflicts of interest.

Construction and Development Activities

From time to time, we may construct and develop real estate assets or render services in connection with these activities. We may be able to reduce overall purchase costs by constructing and developing a property versus purchasing a completed property. Developing and constructing properties would, however, expose us to risks such as cost overruns, carrying costs of projects under construction or development, completion guarantees, availability and costs of materials and labor, weather conditions and government regulation. To comply with the applicable requirements under federal income tax law, we intend to limit our construction and development activities to performing oversight and review functions, including reviewing the construction design proposals, negotiating and contracting for feasibility studies and supervising compliance with local, state or federal laws and regulations, negotiating contracts, overseeing construction, and obtaining financing. In addition, we may use taxable REIT subsidiaries or certain independent contractors to carry out these oversight and review functions. We will retain independent contractors to perform the actual construction work.

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Government Regulations

Our business is subject to many laws and governmental regulations. Changes in these laws and regulations, or their interpretation by agencies and courts, occur frequently.

We and any operating subsidiaries that we may form may be subject to state and local tax in states and localities in which they or we do business or own property. The tax treatment of us, our Current Operating Partnership, any operating subsidiaries we may form and the holders of our shares in local jurisdictions may differ from our federal income tax treatment.

Americans with Disabilities Act

Under the Americans with Disabilities Act of 1990, or ADA, all public accommodations and commercial facilities are required to meet certain federal requirements related to access and use by disabled persons. These requirements became effective in 1992. Complying with the ADA requirements could require us to remove access barriers. Failing to comply could result in the imposition of fines by the federal government or an award of damages to private litigants. Although we acquire properties that substantially comply with these requirements, we may incur additional costs to comply with the ADA. In addition, a number of additional federal, state and local laws may require us to modify any properties we purchase, or may restrict further renovations thereof, with respect to access by disabled persons. Additional legislation could impose financial obligations or restrictions with respect to access by disabled persons. Although we believe that these costs will not have a material adverse effect on us, if required changes involve a greater amount of expenditures than we currently anticipate, our ability to make expected distributions could be adversely affected.

Environmental Matters

Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real property may be held liable for the costs of removing or remediating hazardous or toxic substances. These laws often impose clean-up responsibility and liability without regard to whether the owner or operator was responsible for, or even knew of, the presence of the hazardous or toxic substances. The costs of investigating, removing or remediating these substances may be substantial, and the presence of these substances may adversely affect our ability to rent properties or sell the property or to borrow using the property as collateral and may expose us to liability resulting from any release of or exposure to these substances. If we arrange for the disposal or treatment of hazardous or toxic substances at another location, we may be liable for the costs of removing or remediating these substances at the disposal or treatment facility, whether or not the facility is owned or operated by us. We may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site that we own or operate. Certain environmental laws also impose liability in connection with the handling of or exposure to asbestos-containing materials, pursuant to which third parties may seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials and other hazardous or toxic substances. We maintain a pollution insurance policy for all of our properties to insure against the potential liability of remediation and exposure risk.

Other Regulations

The properties we acquire likely will be subject to various federal, state and local regulatory requirements, such as zoning and state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. We acquire properties that are in material compliance with all such regulatory requirements. However, we cannot assure you that these requirements will not be changed or that new requirements will not be imposed which would require significant unanticipated expenditures by us and could have an adverse effect on our financial condition and results of operations.

Disposition Policies

We generally intend to hold each property we acquire for an extended period. However, we may sell a property at any time if, in our judgment, the sale of the property is in the best interests of our stockholders.

The determination of whether a particular property should be sold or otherwise disposed of will generally be made after consideration of relevant factors, including prevailing economic conditions, other investment opportunities and considerations specific to the condition, value and financial performance of the property. In connection with our sales of properties, we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale. As of December 31, 2019, we have sold 12 properties and one land parcel, including three properties during the year ended December 31, 2019, for an average hold time of 3.5 years.

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We may sell assets to third parties or to our affiliates. Our nominating and corporate governance committee of our Board, which is comprised solely of independent directors, must review and approve all transactions between us and our affiliates.

Investment Limitations in Our Charter

Our charter places numerous limitations on us with respect to the manner in which we may invest our funds, most of which are those typically required by various provisions of the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association ("NASAA REIT Guidelines").

Changes in Investment Policies and Limitations

Our charter requires that our independent directors review our investment policies at least annually to determine that the policies we are following are in the best interests of our stockholders. Each determination and the basis therefor is required to be set forth in the applicable meeting minutes. The methods of implementing our investment policies may also vary as new investment techniques are developed. The methods of implementing our investment objectives and policies, except as otherwise provided in our charter, may be altered by a majority of our directors, including a majority of our independent directors, without the approval of our stockholders. The determination by our Board that it is no longer in our best interests to continue to be qualified as a REIT shall require the concurrence of two-thirds of the Board. Investment policies and limitations specifically set forth in our charter, however, may only be amended by a vote of the stockholders holding a majority of our outstanding shares.

Investments in Mortgages

While we intend to emphasize equity real estate investments and, hence, operate as what is generally referred to as an "equity REIT," as opposed to a "mortgage REIT," we may invest in first or second mortgage loans, mezzanine loans secured by an interest in the entity owning the real estate or other similar real estate loans consistent with our REIT status. We may make such loans to developers in connection with construction and redevelopment of real estate properties. Such mortgages may or may not be insured or guaranteed by the Federal Housing Administration, the Veterans Benefits Administration or another third party. We may also invest in participating or convertible mortgages if our directors conclude that we and our stockholders may benefit from the cash flow or any appreciation in the value of the subject property. Such mortgages are similar to equity participation.

Investment Company Act and Certain Other Policies

We intend to operate in such a manner that we will not be subject to regulation under the Investment Company Act of 1940, as amended (the "1940 Act"). We will continually review our investment activity to attempt to ensure that we do not come within the application of the 1940 Act. Among other things, we will attempt to monitor the proportion of our portfolio that is placed in various investments so that we do not come within the definition of an "investment company" under the 1940 Act. If at any time the character of our investments could cause us to be deemed as an investment company for purposes of the 1940 Act, we will take all necessary actions to attempt to ensure that we are not deemed to be an "investment company." In addition, we do not intend to underwrite securities of other issuers or actively trade in loans or other investments.

Subject to the restrictions we must follow in order to qualify to be taxed as a REIT, we may make investments other than as previously described in this Report, although we do not currently intend to do so. We have authority to purchase or otherwise reacquire our shares of common stock or any of our other securities. We have no present intention of repurchasing any of our shares of common stock except pursuant to our SRP and we would only take such action in conformity with applicable federal and state laws and the requirements for qualifying as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). See Note 18, Subsequent Events, for status of our SRP.

Exchange Listing and Other Strategic Transactions

While we are currently operating as a perpetual-life REIT, we may consider a liquidity event at any time in the future (such as a merger, listing, or sale of assets) (a "Strategic Transaction"). We are not prohibited by our charter or otherwise from engaging in such a Strategic Transaction at any time. We believe this perpetual-life REIT structure allows us to weather real estate cycles and provides for maximum flexibility to execute an exit strategy when it is in the best interests of our stockholders. Subject to certain significant transactions that require stockholder approval, such as dissolution, merger into another entity in which we are not the surviving entity, consolidation or the sale or other disposition of all or substantially all of our assets, our Board maintains sole discretion to change our current strategy as circumstances change if it believes such a change is in the best interest of our stockholders. If our Board determines that a Strategic Transaction is in the best interests of

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us and our stockholders, we expect that the Board will take all relevant factors at that time into consideration when making a Strategic Transaction decision, including prevailing market conditions.

Employees

As of December 31, 2019, we employed 42 people.

Industry Segments

We internally evaluate all of our properties and interests therein as one reportable segment.

Available Information

Our company website address is www.gcear.com. We use our website as a channel of distribution for important company information. Important information, including press releases and financial information regarding our company, is routinely posted on and accessible on the “News and Filings” subpage of our website, which is accessible by clicking on the tab labeled “News and Filings” on our website home page. 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.

In addition, we make available on the “SEC Filings” subpage of our website free of charge our annual reports on Form 10-K, including this Report, 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. Our electronically filed reports can also be obtained on the SEC’s internet site at http://www.sec.gov.

ITEM 1A. RISK FACTORS

Below are risks and uncertainties that could adversely affect our operations that we believe are material to stockholders. Other risks and uncertainties may exist that we do not consider material based on the information currently available to us at this time.

Risks Related to an Investment in Griffin Capital Essential Asset REIT, Inc.

There is currently no public trading market for our shares and there may never be one; therefore, it will be difficult for stockholders to sell their shares.

There is currently no public market for our shares and there may never be one. Stockholders may not sell their shares unless the buyer meets applicable suitability and minimum purchase standards. Our charter also prohibits the ownership by any one individual of more than 9.8% in value of the aggregate of our outstanding stock or more than 9.8% in value or number of shares, whichever is more restrictive, of the aggregate of our outstanding common stock, unless waived by our Board, which may inhibit large investors from desiring to purchase a stockholder’s shares. Moreover, our share redemption program includes numerous restrictions that would limit a stockholder’s ability to sell their shares to us. Our Board could choose to amend, suspend or terminate our share redemption program upon 30 days' notice. Therefore, it may be difficult for stockholders to sell their shares promptly or at all. If stockholders are able to sell their shares, they will likely have to sell them at a substantial discount to the price they paid for the shares. It also is likely that a stockholder’s shares would not be accepted as the primary collateral for a loan. Stockholders should purchase the shares only as a long-term investment because of the illiquid nature of the shares.

Stockholders may be unable to sell their shares because their ability to have their shares redeemed pursuant to our share redemption program is subject to significant restrictions and limitations and if stockholders are able to sell their shares under the share redemption program, they may not be able to recover the amount of their investment in our shares.

Even though our share redemption program may provide stockholders with a limited opportunity to sell their shares to us after they have held them for a period of one year, stockholders should be fully aware that our share redemption program contains significant restrictions and limitations. Further, our Board may limit, suspend, terminate or amend any provision of the share redemption program upon 30 days' notice. Generally, our share redemption program imposes a quarterly cap on aggregate redemptions of our shares equal to a value (based on the applicable redemption price per share on the day the redemption is effected) of up to 5% of the aggregate NAV of the outstanding shares as of the last business day of the previous quarter; provided, however, that every quarter each class of our common stock will be allocated capacity within such aggregate limit to

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allow us to redeem shares equal to a value of up to 5% of the aggregate NAV of each class of common stock as of the last calendar day of the previous quarter.

The vast majority of our assets will consist of properties which cannot generally be readily liquidated on short notice without impacting our ability to realize full value upon their disposition. Therefore, we may not always have a sufficient amount of cash to immediately satisfy redemption requests. As a result, a stockholder’s ability to have their shares redeemed by us may be limited, and our shares should be considered as having only limited liquidity and at times may be illiquid.

In connection with a potential strategic transaction, on February 26, 2020, our Board approved the temporary suspension of (i) the primary portion of our Follow-On Offering, effective February 27, 2020; (ii) our SRP, effective March 28, 2020; and (iii) our DRP, effective March 8, 2020. For the first quarter of 2020 only, those redemptions sought upon a stockholder's death, qualifying disability, or determination of incompetence or incapacitation will be honored in accordance with the terms of the SRP, and the SRP shall be officially suspended as of March 28, 2020. The SRP shall remain suspended until such time, if any, as the Board may approve the resumption of the SRP.

Valuations and appraisals of our properties, real estate-related assets and real estate-related liabilities are estimates of value and may not necessarily correspond to realizable value.

The valuation methodologies used to value our properties and certain real estate-related assets involve subjective judgments regarding such factors as comparable sales, rental revenue and operating expense data, the capitalization or discount rate, and projections of future rent and expenses based on appropriate analysis. As a result, valuations and appraisals of our properties, real estate-related assets and real estate-related liabilities are only estimates of current market value. Ultimate realization of the value of an asset or liability depends to a great extent on economic and other conditions beyond our control and the control of the independent valuation management firm and other parties involved in the valuation of our assets and liabilities. Further, these valuations may not necessarily represent the price at which an asset or liability would sell, because market prices of assets and liabilities can only be determined by negotiation between a willing buyer and seller. Valuations used for determining our NAV also may be made without consideration of the expenses that would be incurred in connection with disposing of assets and liabilities. Therefore, the valuations of our properties, our investments in real estate-related assets and our liabilities may not correspond to the timely realizable value upon a sale of those assets and liabilities. Our NAV does not reflect fees that may become payable after the date of determination of the NAV, which fees may not ultimately be paid in certain circumstances, including if we are liquidated or if there is a listing of our common stock. Our NAV does not currently represent enterprise value and may not accurately reflect the actual prices at which our assets could be liquidated on any given day, the value a third party would pay for all or substantially all of our shares, or the price that our shares would trade at on a national stock exchange. There will be no retroactive adjustment in the valuation of such assets or liabilities, the price of our shares of common stock, the price we paid to redeem shares of our common stock or NAV-based fees we paid to our dealer manager to the extent such valuations prove to not accurately reflect the true estimate of value and are not a precise measure of realizable value.

Our NAV per share amounts may change materially if the appraised values of our properties materially change from prior appraisals or the actual operating results differ from what we originally budgeted.

We anticipate daily updates based on property and real estate market events that are material to our NAV. Notification of property and real estate market events may lag the actual event and events may be missed, unknown or difficult to value. The valuations will reflect information provided to the appraisers subject to a reasonable time to analyze the event and document the new market value. Annual third-party appraisals of our properties using an appraisal report format will be conducted on a rolling basis, such that properties will be appraised at different times but each property will be appraised at least once per calendar year. When these appraisals are reflected in our NAV calculations, there may be a material change in our NAV per share amounts for each class of our common stock from those previously reported. In addition, actual operating results may differ from what we originally budgeted, which may cause a material increase or decrease in the NAV per share amounts. We will not retroactively adjust the NAV per share of each class reported. Therefore, because a new annual appraisal may differ materially from the prior appraisal or the actual results from operations may be better or worse than what we previously budgeted, the adjustment to reflect the new appraisal or actual operating results may cause the NAV per share for each class of our common stock to increase or decrease, and such increase or decrease will occur on the day the adjustment is made.

The NAV per share that we publish may not necessarily reflect changes in our NAV that are not immediately quantifiable.

From time to time, we may experience events with respect to our investments that may have a material impact on our NAV. For example, and not by way of limitation, changes in governmental rules, regulations and fiscal policies, environmental

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legislation, acts of God, terrorism, social unrest, civil disturbances and major disturbances in financial markets may cause the value of a property to change materially. The NAV per share of each class of our common stock as published on any given day may not reflect such extraordinary events to the extent that their financial impact is not immediately quantifiable. As a result, the NAV per share that we publish may not necessarily reflect changes in our NAV that are not immediately quantifiable, and the NAV per share of each class published after the announcement of a material event may differ significantly from our actual NAV per share for such class until such time as the financial impact is quantified and our NAV is appropriately adjusted in accordance with our valuation procedures. The resulting potential disparity in our NAV may inure to the benefit of redeeming stockholders or non-redeeming stockholders and new purchasers of our common stock, depending on whether our published NAV per share for such class is overstated or understated.

Our NAV is not subject to Generally Accepted Accounting Principles (“GAAP”), will not be independently audited and will involve subjective judgments by the Independent Valuation Management Firm and other parties involved in valuing our assets and liabilities.

Our valuation procedures and our NAV are not subject to GAAP and will not be subject to independent audit. Our NAV may differ from equity (net assets) reflected on our audited financial statements, even if we are required to adopt a fair value basis of accounting for GAAP financial statement purposes. In addition, the implementation and coordination of our valuation procedures include certain subjective judgments of us, such as whether the Independent Valuation Management Firm should be notified of events specific to our properties that could affect their valuations, as well as of the Independent Valuation Management Firm and other parties we engage, as to whether adjustments to asset and liability valuations are appropriate. Accordingly, stockholders must rely entirely on our Board to adopt appropriate valuation procedures and on the Independent Valuation Management Firm and other parties we engage in order to arrive at our NAV, which may not correspond to realizable value upon a sale of our assets.

No rule or regulation requires that we calculate our NAV in a certain way, and our Board, including a majority of our independent directors, may adopt changes to the valuation procedures.

There are no existing rules or regulatory bodies that specifically govern the manner in which we calculate our NAV. As a result, it is important that stockholders pay particular attention to the specific methodologies and assumptions we use to calculate our NAV. Other public REITs may use different methodologies or assumptions to determine their NAV. In addition, each year our Board, including a majority of our independent directors, will review the appropriateness of our valuation procedures and may, at any time, adopt changes to the valuation procedures. For example, we do not currently include any enterprise value or real estate acquisition costs in our assets calculated for purposes of our NAV. If we acquire real property assets as a portfolio, we may pay a premium over the amount that we would pay for the assets individually. Our Board may change this or other aspects of our valuation procedures, which changes may have an adverse effect on our NAV and the price at which stockholders may sell shares to us under our share redemption program.

We have paid, and may continue to pay distributions from sources other than cash flow from operations, including out of net proceeds from our offering and borrowings; therefore, we will have fewer funds available for the acquisition of properties, and our stockholders' overall return may be reduced.

In the event we do not have enough cash from operations to fund our distributions, we may borrow, issue additional securities, or sell assets in order to fund the distributions or make the distributions out of net proceeds from our Follow-On Offering. We are not prohibited from undertaking such activities by our charter, bylaws, or investment policies, and we may use an unlimited amount from any source to pay our distributions. Through December 31, 2019, we funded 5% of our cash distributions using offering proceeds and 95% of our cash distributions using cash flows from operations as shown on the statement of cash flows. Through December 31, 2019, we funded 41% of our total distributions using offering proceeds, which include DRP and 59% using cash flows from operations as shown on the statement of cash flows. If we continue to pay distributions from sources other than cash flow from operations, we will have fewer funds available for acquiring properties and investing in the existing portfolio, which may reduce our stockholders' overall returns. Additionally, to the extent distributions exceed cash flow from operations, a stockholder's basis in our stock may be reduced and, to the extent distributions exceed a stockholder's basis, the stockholder may recognize a capital gain.

We may be unable to maintain cash distributions or increase distributions over time.

There are many factors that can affect the availability and timing of cash distributions to stockholders. Distributions will be based principally on distribution expectations of our potential investors and cash available from our operations. The amount of cash available for distribution will be affected by many factors, such as our ability to buy properties as offering proceeds become available and our operating expense levels, as well as many other variables. Actual cash available for distribution may

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vary substantially from estimates. We cannot assure our stockholders that we will be able to pay or maintain distributions or that distributions will increase over time, nor can we give any assurance that rents from the properties will increase, or that future acquisitions of real properties will increase our cash available for distribution to stockholders. Our actual results may differ significantly from the assumptions used by our Board in establishing the distribution rate to stockholders.

Our stockholders are subject to the risk that our offering, business and operating plans may change.

Although we intend to operate as a perpetual-life REIT, this is not a requirement of our charter. Even if we are able to raise substantial funds in our offering, if circumstances change such that our Board believes it is in the best interest of our stockholders to terminate our offering or to terminate our share redemption program, we may do so without stockholder approval. Our Board may also change our investment objectives, targeted investments, borrowing policies or other corporate policies without stockholder approval. In addition, we may change the way our fees and expenses are incurred and allocated to different classes of stockholders. Our Board may decide that certain significant transactions such as listing our shares on a national securities exchange, dissolution, merger into another entity, consolidation or the sale or other disposition of all or substantially all of our assets, are in the best interests of our stockholders. For any transaction requiring stockholder approval, holders of all classes of our common stock have equal voting rights and will vote as a single group rather than on a class-by-class basis. Accordingly, investors in our common stock are subject to the risk that our offering, business and operating plans may change.

We may suffer from delays in locating suitable investments, which could adversely affect our ability to make distributions at our current level and the value of a stockholder's investment.

We could suffer from delays in locating suitable investments. Delays we encounter in the selection, acquisition and development of income-producing properties likely would adversely affect our ability to make distributions at our current level and the value of a stockholder's investment. In particular, if we acquire properties prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Therefore, stockholders could suffer delays in the receipt of cash distributions attributable to those particular properties. In such event, we may pay all or a substantial portion of our distributions from the proceeds of our public offering or from borrowings in anticipation of future cash flow, which may constitute a return of a stockholder's capital. We are not prohibited from undertaking such activities by our charter, bylaws or investment policies, and there are no current limits on the amount of distributions to be paid from such funds. Distributions from the proceeds of our public offering or from borrowings also could reduce the amount of capital we ultimately invest in properties. This, in turn, would reduce the value of a stockholder's investment. In particular, if we acquire properties prior to the start of construction or during the early stages of construction, it will typically take up to one year or more to complete construction and rent available space. Therefore, stockholders could suffer delays in the receipt of cash distributions attributable to those particular properties.

If we lose or are unable to obtain key personnel, our ability to implement our investment objectives could be delayed or hindered, which could adversely affect our ability to make distributions at our current level and the value of a stockholder’s investment.

Our success depends to a significant degree upon the contributions of our executive officers and other key personnel, including Kevin A. Shields, Michael J. Escalante, Javier F. Bitar, Howard S. Hirsch, Louis K. Sohn and Scott Tausk, each of whom would be difficult to replace. We do not have an employment agreement with Mr. Shields. While we have employment agreements with Messrs. Escalante, Bitar, Hirsch, Sohn and Tausk; we cannot guarantee that all, or any particular one, will remain affiliated with us. If any of our key personnel were to cease their affiliation with us, our operating results could suffer. We believe that our future success depends, in large part, upon our ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such skilled personnel. If we lose or are unable to obtain the services of key personnel or do not establish or maintain appropriate strategic relationships, our ability to implement our investment strategies could be delayed or hindered, and the value of a stockholder’s investment may decline.

Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or

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unreliable financial data, financial loss, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our tenant and investor relationships. As our reliance on technology increases, so will the risks posed to our information systems, both internal and those we outsource. There is no guarantee that any processes, procedures and internal controls we have implemented or will implement will prevent cyber intrusions, which could have a negative impact on our financial results, operations, business relationships or confidential information.

We disclose funds from operations ("FFO") and adjusted funds from operations ("AFFO"), each a non-GAAP financial measure, in communications with investors, including documents filed with the SEC; however, FFO and AFFO are not equivalent to our net income or loss or cash flow from operations as determined under GAAP, and stockholders may consider GAAP measures to be more relevant to our operating performance.

We use and we disclose to investors FFO, and AFFO which are non-GAAP financial measures. FFO and AFFO are not equivalent to our net income or loss or cash flow from operations as determined in accordance with GAAP, and investors may consider GAAP measures to be more relevant in evaluating our operating performance and ability to pay distributions. FFO and AFFO and GAAP net income differ because FFO and AFFO exclude gains or losses from sales of property and asset impairment write-downs, and add back depreciation and amortization and adjustments for unconsolidated partnerships and joint ventures. AFFO further adjusts for revenues in excess of cash received, amortization of in-place lease valuation, acquisition-related costs, unrealized gains or losses on derivative instruments, gain or loss from extinguishment of debt and performance participation allocation not paid in cash.

Because of these differences, FFO and AFFO may not be accurate indicators of our operating performance. In addition, FFO and AFFO are not indicative of cash flow available to fund cash needs and investors should not consider FFO and AFFO as alternatives to cash flows from operations or an indication of our liquidity, or indicative of funds available to fund our cash needs, including our ability to pay distributions to our stockholders.

Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO and AFFO. Also, because not all companies calculate FFO and AFFO the same way, comparisons with other companies may not be meaningful.

Our future results will suffer if we do not effectively manage our expanded operations that occurred as a result of the Mergers.

Following the Mergers, we expect to continue to expand our operations through additional acquisitions and other strategic transactions, some of which may involve complex challenges. Our future success will depend, in part, upon our ability to manage our expanded operations, which may pose substantial challenges for us to integrate new operations into our existing business in an efficient and timely manner, and upon our ability to successfully monitor our operations, costs, regulatory compliance and service quality, and to maintain other necessary internal controls. There is no assurance that our efforts to manage our expanded operations or pursue new acquisition opportunities will be successful, or that we will realize our expected operating efficiencies, cost savings, revenue enhancements, or other benefits.

We are newly self-managed.

As a result of the Mergers, we are a newly self-managed REIT. We no longer bear the costs of the various fees and expense reimbursements previously paid to the former external advisors of EA-1 and us and their affiliates; however, our expenses include the compensation and benefits of our officers, employees and consultants, as well as overhead previously paid by the former external advisors of EA-1 and us and their affiliates. Our employees provide services historically provided by the external advisors and their affiliates. We are subject to potential liabilities that are commonly faced by employers, such as workers’ disability and compensation claims, potential labor disputes, and other employee-related liabilities and grievances, and we bear the cost of the establishment and maintenance of any employee compensation plans. In addition, we have not previously operated as a self-managed REIT and may encounter unforeseen costs, expenses, and difficulties associated with providing these services on a self-advised basis. If we incur unexpected expenses as a result of our self-management, our results of operations could be lower than they otherwise would have been.

In connection with the Mergers, we assumed certain potential liabilities relating to EA-1.

In connection with the Mergers we assumed certain potential liabilities relating to EA-1. These liabilities could have a material adverse effect on our business to the extent we have not identified such liabilities or have underestimated the amount of such liabilities.

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We may need to incur additional indebtedness in the future.

In connection with executing our business strategies, we expect to evaluate the possibility of acquiring additional properties making strategic investments, and retenanting/repositioning properties and we may elect to finance these endeavors by incurring additional indebtedness. The amount of such indebtedness could have material adverse consequences for us, including: (i) hindering our ability to adjust to changing market, industry or economic conditions; (ii) limiting our ability to access the capital markets to refinance maturing debt or to fund acquisitions or emerging businesses; (iii) limiting the amount of free cash flow available for future operations, acquisitions, dividends, stock repurchases or other uses; (iv) making us more vulnerable to economic or industry downturns, including interest rate increases; and (v) placing us at a competitive disadvantage compared to less leveraged competitors.

If and when we have a potential liquidity event in the future (such as a merger, listing or sale of assets) (a "Strategic Transaction"), the market value ascribed to the shares of our common stock upon the Strategic Transaction may be significantly lower than our NAV per share.

Our NAV per share does not necessarily reflect the market value of our common stock in a Strategic Transaction. In the event that we complete a Strategic Transaction, such as a listing of our shares on a national securities exchange, a merger in which our stockholders receive securities that are listed on a national securities exchange, or a sale of us for cash, the market value of our shares upon consummation of such Strategic Transaction may be significantly lower than the current NAV per share of our common stock and our NAV per share that may be reflected on the account statements of our stockholders. For example, if our shares are listed on a national securities exchange at some point, the trading price of the shares may be significantly lower than our current NAV per share of $9.33 (as of December 31, 2019). There can be no assurance, however, that any such Strategic Transaction will occur.

We have issued Series A Preferred Shares that rank senior to all common stock and grant the holder superior or additional rights compared to common stockholders (including with respect to distributions), and may have the effect of diluting our stockholders’ interests in us.

We have issued Series A Preferred Shares that rank senior to all other shares of our stock, including our common stock, and grant the holder certain rights that are superior or additional to the rights of common stockholders, including with respect to the payment of distributions, liquidation preference, redemption rights, and conversion rights. Distributions on the Series A Preferred Shares are cumulative and are declared and payable quarterly in arrears. We are obligated to pay the holder of the Series A Preferred Shares its current distributions and any accumulated and unpaid distributions prior to any distributions being paid to our common stockholders and, therefore, any cash available for distribution is used first to pay distributions to the holder. The Series A Preferred Shares also have a liquidation preference in the event of our voluntary or involuntary liquidation, dissolution, or winding up of our affairs (a “liquidation”) which could negatively affect any payments to the common stockholders in the event of a liquidation. Our right to redeem the Series A Preferred Shares could have a negative effect on our ability to operate profitably and our ability to pay distributions to our common stockholders. Further, under certain limited circumstances, we could be forced to redeem the Series A Preferred Shares at a time that is not ideal to our business or other needs.

The holder of the Series A Preferred Shares has, upon the occurrence of certain events, the right to convert any or all of the Series A Preferred Shares held by the holder into shares of our common stock. The issuance of common stock upon conversion of the Series A Preferred Shares would result in immediate and substantial dilution to the interests of other stockholders. As of December 31, 2019, we had $125.0 million worth of Series A Preferred Shares outstanding, which would represent approximately 5.2% of our common stock on an as converted, fully diluted basis. See Note 12, Perpetual Convertible Preferred Shares, of the Notes to the Consolidated Financial Statements, for more information.

If we fail to pay distributions on the Series A Preferred Shares for six quarters (whether or not consecutive), the holder will be entitled to elect two additional directors of the Company (the “Preferred Shares Directors”).  The election will take place at the next annual meeting of stockholders, or at a special meeting of the holder of Series A Preferred Shares called for that purpose, and such right to elect Preferred Stock Directors shall continue until 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 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.

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Risks Related to Our Conflicts of Interest

The chairman of our Board is a controlling person of an entity that has received limited partnership interests in our Operating Partnership, and therefore may face conflicts with regard to his fiduciary duties to us and that entity related to that entity making investments in or redeeming our common stock or the limited partnership interests.

The chairman of our Board is a controlling person of an entity that has received limited partnership interests in our Operating Partnership which may be exchanged for our common stock in the future. The chairman of our Board may also make decisions on behalf of that entity related to investments in and redemptions of our common stock, which may result in that entity making an investment in or disposition of our common stock which may be to the detriment of our stockholders.

In addition, our ability to redeem shares pursuant to our share redemption program is subject to certain limitations, including a limitation on the number of shares we may redeem during each quarter. If that entity should elect to redeem shares in a given quarter, or if any single stockholder who owns a significant number of shares of our common stock elects to redeem shares in a given quarter, the limitations on redemption contained in our share redemption program may be met or exceeded.

Risks Related to Our Corporate Structure

The limit on the number of shares a person may own may discourage a takeover that could otherwise result in a premium price to our stockholders.

In order for us to continue to qualify as a REIT, no more than 50% of our outstanding stock may be beneficially owned, directly or indirectly, by five or fewer individuals (including certain types of entities) at any time during the last half of each taxable year. To ensure that we do not fail to qualify as a REIT under this test, our charter restricts ownership by one person or entity to no more than 9.8% in value or number, whichever is more restrictive, of any class of our outstanding stock. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (consisting, in this instance, of actions such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock.

Our charter permits our Board to issue stock with terms that may subordinate the rights of common stockholders or discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.

Our charter permits our Board to issue up to 1,000,000,000 shares of capital stock. In addition, our Board, without any action by our stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of stock that we have authority to issue. Our Board may classify or reclassify any unissued common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption of any such stock. Thus, our Board has and could authorize the issuance of additional preferred stock with terms and conditions that have a priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Preferred stock could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (consisting, in this instance, of actions such as a merger, tender offer or sale of all or substantially all of our assets) that might otherwise provide a premium price for holders of our common stock.

We are not afforded the protection of Maryland law relating to business combinations.

Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

•	any person who beneficially owns 10% or more of the voting power of the corporation’s shares; or

•	an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.

These prohibitions are intended to prevent a change of control by interested stockholders who do not have the support of our Board. Since our charter contains limitations on ownership of 9.8% or more of our common stock, we opted out of the

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business combinations statute in our charter. Therefore, we will not be afforded the protections of this statute and, accordingly, there is no guarantee that the ownership limitations in our charter would provide the same measure of protection as the business combinations statute and prevent an undesired change of control by an interested stockholder.

Our stockholders’ investment return may be reduced if we are required to register as an investment company under the Investment Company Act of 1940 (the “1940 Act”). If we lose our exemption from registration under the 1940 Act, we will not be able to continue our business unless and until we register under the 1940 Act.

We do not intend to register as an investment company under the 1940 Act. As of December 31, 2019, we owned 99 properties, and our intended investments in real estate will represent the substantial majority of our total asset mix, which would not subject us to the 1940 Act. In order to maintain an exemption from regulation under the 1940 Act, we must engage primarily in the business of buying real estate.

To maintain compliance with our 1940 Act exemption, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may be required to acquire additional income- or loss-generating assets that we might not otherwise acquire or forgo opportunities to acquire interests in companies that we would otherwise want to acquire. If we are required to register as an investment company but fail to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

Our stockholders are bound by the majority vote on matters on which our stockholders are entitled to vote and, therefore, a stockholder’s vote on a particular matter may be superseded by the vote of other stockholders.

Our stockholders may vote on certain matters at any annual or special meeting of stockholders, including the election of directors. However, our stockholders will be bound by the majority vote on matters requiring approval of a majority of the stockholders even if they do not vote with the majority on any such matter.

If stockholders do not agree with the decisions of our Board, they only have limited control over changes in our policies and operations and may not be able to change such policies and operations, except as provided for in our charter and under applicable law.

Our Board determines our major policies, including our policies regarding investments, operations, capitalization, financing, growth, REIT qualification and distributions. Our Board may amend or revise these and other policies without a vote of our stockholders. Under the Maryland General Corporation Law (the “MGCL”) and our charter, our stockholders have a right to vote only on the following:

•	the election or removal of directors;

•

any amendment of our charter, except that our Board may amend our charter without stockholder approval to increase or decrease the aggregate number of our shares, to increase or decrease the number of our shares of any class or series that we have the authority to issue, or to classify or reclassify any unissued shares by setting or changing the preferences, conversion or other rights, restrictions, limitations as to distributions, qualifications or terms and conditions of redemption of such shares, provided however, that any such amendment does not adversely affect the rights, preferences and privileges of the stockholders;

•	our liquidation or dissolution; and

•	any merger, consolidation or sale or other disposition of substantially all of our assets.

All other matters are subject to the discretion of our Board. Therefore, our stockholders are limited in their ability to change our policies and operations.

Our rights and the rights of our stockholders to recover claims against our officers and directors are limited, which could reduce our stockholders’ and our recovery against them if they cause us to incur losses.

Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation's best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter requires us to indemnify our directors and officers to the maximum extent permitted under Maryland law. Additionally, our charter limits the liability of our directors and officers for monetary damages to the maximum extent permitted under Maryland law. The former directors and officers of EA-1 also

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have indemnification agreements that we assumed in the Mergers for claims relating to such person's status as a former director or officer of EA-1. Further, our charter permits us, with the approval of our Board, to provide such indemnification and advancement of expenses to any of our employees or agents. As a result, we and our stockholders may have more limited rights against our directors, officers, employees and agents, than might otherwise exist under common law, which could reduce our stockholders’ and our recovery against them. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents in some cases which would decrease the cash otherwise available for distribution to stockholders.

Our Board may change any of our investment objectives, including our focus on single tenant business essential properties.

Our Board may change any of our investment objectives, including our focus on single tenant business essential properties. If stockholders do not agree with a decision of our Board to change any of our investment objectives, they only have limited control over such changes. Additionally, we cannot assure stockholders that we would be successful in attaining any of these investment objectives, which may adversely impact our financial performance and ability to make distributions to stockholders at our current level.

Our stockholders’ interest in us will be diluted as we issue additional shares.

Our stockholders do not have preemptive rights to any shares issued by us in the future. Subject to any limitations set forth under Maryland law, our Board may increase the number of authorized shares of stock (currently 1,000,000,000 shares), increase or decrease the number of shares of any class or series of stock designated, or reclassify any unissued shares without the necessity of obtaining stockholder approval. All of such shares may be issued in the discretion of our Board. Further, our Series A preferred shares may be converted into our common stock under certain circumstances. Therefore, as we (1) sell shares in our offering or sell additional shares in the future, including those issued pursuant to our DRP, (2) sell securities that are convertible into shares of our common stock, (3) issue shares of our common stock in a private offering of securities to institutional investors, (4) issue shares of restricted common stock or stock options to our independent directors, (5) issue shares of our common stock in connection with an exchange of limited partnership interests of our Operating Partnership, existing stockholders and investors purchasing shares in our public offering will experience dilution of their equity investment in us, or (6) convert shares of our Series A Preferred Shares into shares of our common stock. Because the limited partnership interests of our Operating Partnership may, in the discretion of our Board, be exchanged for shares of our common stock, any merger, exchange or conversion between our Operating Partnership and another entity ultimately could result in the issuance of a substantial number of shares of our common stock, thereby diluting the percentage ownership interest of other stockholders. Because of these and other reasons described in this "Risk Factors" section, stockholders should not expect to be able to own a significant percentage of our shares.

Payment of fees and expenses to third parties will reduce cash available for investment and distribution.

Certain third parties will perform services for us in connection with the management of our properties. They will be paid fees and expense reimbursements for these services, which will reduce the amount of cash available for investment in properties or distribution to stockholders.

We are uncertain of our sources of debt or equity for funding our future capital needs. If we cannot obtain funding on acceptable terms, our ability to make necessary capital improvements to our properties may be impaired or delayed.

The gross proceeds of our public offering will be used primarily to purchase real estate investments and to pay various fees and expenses. In addition, to continue to qualify as a REIT, we generally must distribute to our stockholders at least 90% of our taxable income each year, excluding capital gains. Because of this distribution requirement, it is not likely that we will be able to fund a significant portion of our future capital needs from retained earnings. We have not identified all of our sources of debt or equity for funding, and such sources of funding may not be available to us on favorable terms or at all. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, pay other expenses or expand our business.

Risks Related to Investments in Single Tenant Real Estate

Many of our properties depend upon a single tenant for all or a majority of their rental income, and our financial condition and ability to make distributions may be adversely affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of a single tenant.

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Most of our properties are occupied by only one tenant or will derive a majority of their rental income from one tenant and, therefore, the success of those properties is materially dependent on the financial stability of such tenants. The nation as a whole and our local economies are currently experiencing economic uncertainty affecting companies of all sizes and industries. A tenant at one or more of our properties may be negatively affected by the current economic climate. Lease payment defaults by tenants, including those caused by the current economic climate, could cause us to reduce the amount of distributions we pay. A default of a tenant on its lease payments to us and the potential resulting vacancy would cause us to lose the revenue from the property and force us to find an alternative source of revenue to meet any mortgage payment and prevent a foreclosure if the property is subject to a mortgage. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting the property. If a lease is terminated or an existing tenant elects not to renew a lease upon its expiration, there is no assurance that we will be able to lease the property for the rent previously received or sell the property without incurring a loss. A default by a tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a tenant’s election not to extend a lease upon its expiration, could have an adverse effect on our financial condition and our ability to pay distributions at our current level.

As of December 31, 2019, our five largest tenants represented approximately 16.1% of net rental income; therefore, we currently rely on these five tenants for a meaningful amount of revenue and adverse effects to their business could negatively affect our performance.

As of December 31, 2019, our five largest tenants, based on net rents, were General Electric Company - GE, located in Georgia, Ohio and Texas (approximately 3.5%), Wood Group Mustang, Inc., located in Texas (approximately 3.5%), Southern Company Services, Inc., located in Alabama (approximately 3.1%), McKesson Corporation, located in Arizona (approximately 3.1%) and LPL Holdings, Inc., located in South Carolina (approximately 2.9%). The revenues generated by the properties these tenants occupy are substantially reliant upon the financial condition of these tenants and, accordingly, any event of bankruptcy, insolvency, or a general downturn in the business of any of these tenants may result in the failure or delay of such tenant's rental payments which may have a substantial adverse effect on our financial performance.

A high concentration of our properties in a particular geographic area, or that have tenants in a similar industry, would magnify the effects of downturns in that geographic area or industry.

We expect that our properties will be diverse according to geographic area and industry of our tenants. However, in the event that we have a concentration of properties in any particular geographic area, any adverse situation that disproportionately affects that geographic area would have a magnified adverse effect on our portfolio. Similarly, if our tenants are concentrated in a certain industry or industries, any adverse effect to that industry generally would have a disproportionately adverse effect on our portfolio. As of December 31, 2019, approximately 10.8%, 10.7%, and 9.3% of our net rents for the 12-month period subsequent to December 31, 2019 was concentrated in the states of California, Texas, and Ohio, respectively. Additionally, as of December 31, 2019, approximately 13.8%, 9.7% and 8.1% of our net rents for the 12-month period subsequent to December 31, 2019 was concentrated in the Capital Goods, Health Care Equipment & Services, and Insurance industries, respectively.

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A significant portion of our leases are due to expire around the same period of time, which may (i) cause a loss in the value of our stockholders’ investment until the affected properties are re-leased, (ii) increase our exposure to downturns in the real estate market during the time that we are trying to re-lease such space, and (iii) increase our capital expenditure requirements during the releasing period.

The tenant lease expirations by year based on net rent subsequent to December 31, 2019 are as follows (dollars in thousands):

Year of Lease Expiration (1)		Net Rent (unaudited) (2)				Number of Lessees			Approx. Square Feet			Percentage of Net Rent
2020		$	1,222			7			822,000			0.4	%
2021		13,158				9			1,625,700			4.8
2022		11,960				5			964,400			4.3
2023		22,208				10			1,354,800			8.0
2024		40,789				14			3,584,600			14.7
2025		36,816				20			2,941,300			13.3
2026		26,211				9			2,308,900			9.5
2027		21,332				8			1,189,100			7.7
>2028		103,024				36			9,688,000			37.3
Vacant		—				—			2,329,000			—
Total		$	276,720			118			26,807,800			100.0	%

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

(2)

Net rent is based on (a) the contractual base rental payments assuming the lease requires the tenant to reimburse us for certain operating expenses or the property is self-managed by the tenant and the tenant is responsible for all, or substantially all, of the operating expenses; or (b) contractual rent payments less certain operating expenses that are our responsibility for the 12-month period subsequent to December 31, 2019 and includes assumptions that may not be indicative of the actual future performance of a property, including the assumption that the tenant will perform its obligations under its lease agreement during the next 12 months.

We may experience similar concentrations of lease expiration dates in the future. As the expiration date of a lease for a single-tenant building approaches, the value of the property generally declines because of the risk that the building may not be re-leased upon expiration of the existing lease or may not be re-leased on terms as favorable as those of the current leases. Therefore, if we were to list or liquidate our portfolio prior to the favorable re-leasing of the space, our stockholders may suffer a loss on their investment. Our stockholders may also suffer a loss (and a reduction in distributions) after the expiration of the lease terms if we are not able to re-lease such space on favorable terms. These expiring leases, therefore, increase our risk to real estate downturns during and approaching these periods of concentrated lease expirations. In addition, we may have to spend significant capital in order to ready the space for new tenants. To meet our need for cash at this time, we may have to increase borrowings or reduce our distributions, or both.

If a tenant declares bankruptcy, we may be unable to collect balances due under relevant leases.

Any of our tenants, or any guarantor of a tenant’s lease obligations, could be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States. Such a bankruptcy filing would bar all efforts by us to collect pre-bankruptcy debts from these entities or their properties, unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be paid currently. If a lease is assumed, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. This claim could be paid only in the event funds were available, and then only in the same percentage as that realized on other unsecured claims.

A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums. Such an event could cause a decrease or cessation of rental payments that would mean a reduction in our cash flow and the amount available for distributions to our stockholders. In the event of a bankruptcy, we cannot assure our stockholders that the tenant or its trustee will assume our lease. If a given lease, or guaranty of a lease, is not assumed, our cash flow and the amounts available for distributions to our stockholders may be adversely affected. Further, our lenders may have a first priority claim to any recovery under the leases, any guarantees and any credit support, such as security deposits and letters of credit.

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If a sale-leaseback transaction is recharacterized in a tenant’s bankruptcy proceeding, our financial condition could be adversely affected.

We may enter into sale-leaseback transactions, whereby we would purchase a property and then lease the same property back to the person from whom we purchased it. In the event of the bankruptcy of a tenant, a transaction structured as a sale-leaseback may be recharacterized as either a financing or a joint venture, either of which outcomes could adversely affect our business. If the sale-leaseback were recharacterized as a financing, we might not be considered the owner of the property, and as a result would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms, and prevented from foreclosing our lien on the property. If the sale-leaseback were recharacterized as a joint venture, our lessee and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property. Either of these outcomes could adversely affect our cash flow and the amount available for distributions to our stockholders.

Net leases may not result in fair market lease rates over time.

A large portion of our rental income is derived from net leases. Net leases are typically characterized by (1) longer lease terms; and (2) fixed rental rate increases during the primary term of the lease, and, thus, there is an increased risk that these contractual lease terms will fail to result in fair market rental rates. As a result, our income and distributions to our stockholders could be lower than they would otherwise be if we did not engage in net leases.

Our real estate investments may include special use single tenant properties that may be difficult to sell or re-lease upon tenant defaults or early lease terminations.

We focus our investments on commercial and industrial properties, a number of which may include manufacturing facilities and special use single tenant properties. These types of properties are relatively illiquid compared to other types of real estate and financial assets. This illiquidity will limit our ability to quickly change our portfolio in response to changes in economic or other conditions. With these properties, if the current lease is terminated or not renewed or, in the case of a mortgage loan, if we take such property in foreclosure, we may be required to renovate the property or to make rent concessions in order to lease the property to another tenant or sell the property. In addition, in the event we are forced to sell the property, we may have difficulty selling it to a party other than the tenant or borrower due to the special purpose for which the property may have been designed. These and other limitations may affect our ability to sell or re-lease properties and adversely affect returns to stockholders.

General Risks Related to Investments in Real Estate

Our operating results will be affected by economic and regulatory changes that have an adverse impact on the real estate market in general, and we cannot assure our stockholders that we will be profitable or that we will realize growth in the value of our real estate properties.

Our operating results will be subject to risks generally incident to the ownership of real estate, including, and without limitation:

•	changes in general economic or local conditions;

•	changes in supply of or demand for similar or competing properties in an area;

•	changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive;

•	changes in tax, real estate, environmental and zoning laws;

•	changes in property tax assessments and insurance costs;

•	increases in interest rates and tight money supply; and

•	loss of entitlements.

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These and other reasons may prevent us from being profitable or from realizing growth or maintaining the value of our real estate properties.

We may obtain only limited warranties when we purchase a property.

The seller of a property will often sell such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. Also, most sellers of large commercial properties are special purpose entities without significant assets other than the property itself. The purchase of properties with limited warranties or from undercapitalized sellers increases the risk that we may lose some or all of our invested capital in the property as well as the loss of rental income from that property.

Our inability to sell a property when we desire to do so could adversely impact our ability to pay cash distributions to our stockholders at our current level.

The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Real estate generally cannot be sold quickly. Also, the tax laws applicable to REITs require that we hold our properties for investment, rather than for sale in the ordinary course of business, which may cause us to forgo or defer sales of properties that otherwise would be in our best interest. Therefore, we may not be able to dispose of properties promptly, or on favorable terms, in response to economic or other market conditions, and this may adversely impact our ability to make distributions to stockholders at our current level.

In addition, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure our stockholders that we will have funds available to correct such defects or to make such improvements.

In acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These provisions would also restrict our ability to sell a property.

We may not be able to sell our properties at a price equal to, or greater than, the price for which we purchased such properties, which may lead to a decrease in the value of our assets.

We may be purchasing our properties at a time when capitalization rates are at historically low levels and purchase prices are high. Therefore, the value of our properties may not increase over time, which may restrict our ability to sell our properties, or in the event we are able to sell such property, may lead to a sale price less than the price that we paid to purchase the properties.

We may acquire or finance properties with lock-out provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties.

Lock-out provisions are provisions that generally prohibit repayment of a loan balance for a certain number of years following the origination date of a loan. Such provisions are typically provided for by the Code or the terms of the agreement underlying a loan. Lock-out provisions could materially restrict us from selling or otherwise disposing of or refinancing properties. These provisions would affect our ability to turn our investments into cash and thus affect cash available for distribution to our stockholders. Lock-out provisions may prohibit us from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties. Any mortgage debt that we place on our properties may also impose prepayment penalties upon the sale of the mortgaged property. If a lender invokes these penalties upon the sale of a property or prepayment of a mortgage on a property, the cost to us to sell the property could increase substantially.

Lock-out provisions could impair our ability to take actions during the lock-out period that would otherwise be in our stockholders’ best interests and, therefore, may have an adverse impact on the value of the shares, relative to the value that would result if the lock-out provisions did not exist. In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in our stockholders’ best interests.

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Adverse economic conditions may negatively affect our returns and profitability.

The following market and economic challenges may adversely affect our property values or operating results:

•	poor economic times may result in a tenant’s failure to meet its obligations under a lease or bankruptcy;

•	re-leasing may require reduced rental rates under the new leases;

•	increase in the cost of supplies and labor that impact operating expenses; and

•	increased insurance premiums, resulting in part from the increased risk of terrorism, may reduce funds available for distribution, or, to the extent we are able to pass such increased insurance premiums on to our tenants, may increase tenant defaults.

We are susceptible to the effects of macroeconomic factors that can result in unemployment, shrinking demand for products, large-scale business failures, and tight credit markets. Our property values and operations could be negatively affected by such adverse economic conditions.

If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits.

Material losses may occur in excess of insurance proceeds with respect to any property, as insurance may not be sufficient to fund the losses. However, there are types of losses, generally of a catastrophic nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. In addition, we may decide not to obtain any or adequate earthquake or similar catastrophic insurance coverage because the premiums are too high even in instances where it may otherwise be available. Insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases have begun to insist that commercial property owners purchase specific coverage against terrorism as a condition for providing mortgage loans. It is uncertain whether such insurance policies will be available, or available at reasonable cost, which could inhibit our ability to finance or refinance our potential properties. In these instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure stockholders that we will have adequate coverage for such losses. The Terrorism Risk Insurance Act of 2002 is designed for a sharing of terrorism losses between insurance companies and the federal government and requires that insurers make terrorism insurance available under their property and casualty insurance policies, but this legislation does not regulate the pricing of such insurance. We cannot be certain how this act will impact us or what additional cost to us, if any, could result. If such an event damaged or destroyed one or more of our properties, we could lose both our invested capital and anticipated profits from such property.

We are subject to risks from natural disasters such as earthquakes and severe weather conditions.

Our properties are located in areas that may be subject to natural disasters, such as earthquakes, and severe weather conditions. Natural disasters and severe weather conditions may result in significant damage to our properties. The extent of our casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. When we have a geographic concentration of exposures, a single catastrophe (such as an earthquake, especially in California, Oregon or Washington) affecting a region may have a significant negative effect on our financial condition and results of operations. As a result, our operating and financial results may vary significantly from one period to the next, and our financial results may be adversely affected by our exposure to losses arising from natural disasters or severe weather conditions.

Delays in the acquisition, development and construction of properties may have adverse effects on our results of operations and returns to stockholders.

Delays we encounter in the selection, acquisition and development of real properties could adversely affect our stockholders' returns. Investments in unimproved real property, properties that are in need of redevelopment, or properties that are under development or construction will be subject to the uncertainties associated with the development and construction of real property, including those related to re-zoning land for development, environmental concerns of governmental entities and/or community groups and our builders' ability to build in conformity with plans, specifications, budgets and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder's performance may also be affected or delayed by conditions beyond the builder's control.

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Where properties are acquired prior to the start of construction or during the early stages of construction, it will typically take up to one year or more to complete construction and lease available space. Therefore, stockholders could suffer delays in the receipt of cash distributions attributable to those particular real properties. We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. These and other factors can result in increased costs of a project or loss of our investment. We also must rely on rental income and expense projections and estimates of the fair market value of a property upon completion of construction when agreeing upon a purchase price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and the return on our investment could suffer.

Costs of complying with governmental laws and regulations, including those relating to environmental matters, may adversely affect our income and the cash available for distribution.

All real property we acquire, and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. This liability could be substantial. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such property as collateral for future borrowings.

Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants' operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and that may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we must pay will reduce our ability to make distributions to stockholders and may reduce the value of our stockholders' investments.

We cannot assure stockholders that the independent third-party environmental assessments we obtain prior to acquiring any properties we purchase will reveal all environmental liabilities or that a prior owner of a property did not create a material environmental condition not known to us. We cannot predict what other environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted, or what environmental conditions may be found to exist in the future. We cannot assure stockholders that our business, assets, results of operations, liquidity or financial condition will not be adversely affected by these laws, which may adversely affect cash available for distribution, and the amount of distributions to stockholders.

Our costs associated with complying with the Americans with Disabilities Act may affect cash available for distribution.

Our properties are subject to the Americans with Disabilities Act of 1990, or ADA. Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The ADA’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. We will attempt to acquire properties that comply with the ADA or place the burden on the seller or other third party to ensure compliance with the ADA. However, we cannot assure our stockholders that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for ADA compliance may affect cash available for distribution and the amount of distributions to our stockholders.

If we sell properties by providing financing to purchasers, defaults by the purchasers would adversely affect our cash flows.

In some instances we may sell our properties by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk that the purchaser may default, which could negatively impact our cash distributions to stockholders. Even in the absence of a purchaser default, the distribution of the proceeds of sales to our stockholders, or their

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reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to make distributions to stockholders at our current level.

We will be subject to risks associated with the co-owners in our co-ownership arrangements that otherwise may not be present in other real estate investments.

We may enter into joint ventures or other co-ownership arrangements with respect to a portion of the properties we acquire. Ownership of co-ownership interests involves risks generally not otherwise present with an investment in real estate such as the following:

•	the risk that a co-owner may at any time have economic or business interests or goals that are or become inconsistent with our business interests or goals;

•	the risk that a co-owner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives;

•	the risk that disputes with co-owners may result in litigation, which may cause us to incur substantial costs and/or prevent our management from focusing on our business objectives;

•

the possibility that an individual co-owner might become insolvent or bankrupt, or otherwise default under the applicable mortgage loan financing documents, which may constitute an event of default under all of the applicable mortgage loan financing documents or allow the bankruptcy court to reject the tenants-in-common agreement or management agreement entered into by the co-owner owning interests in the property;

•

the possibility that a co-owner might not have adequate liquid assets to make cash advances that may be required in order to fund operations, maintenance and other expenses related to the property, which could result in the loss of current or prospective tenants and may otherwise adversely affect the operation and maintenance of the property, and could cause a default under the mortgage loan financing documents applicable to the property and may result in late charges, penalties and interest, and may lead to the exercise of foreclosure and other remedies by the lender;

•	the risk that a co-owner could breach agreements related to the property, which may cause a default under, or result in personal liability for, the applicable mortgage loan financing documents, violate applicable securities laws and otherwise adversely affect the property and the co-ownership arrangement; or

•	the risk that a default by any co-owner would constitute a default under the applicable mortgage loan financing documents that could result in a foreclosure and the loss of all or a substantial portion of the investment made by the co-owner.

Any of the above might subject a property to liabilities in excess of those contemplated and thus reduce the amount available for distribution to our stockholders.

In the event that our interests become adverse to those of the other co-owners, we may not have the contractual right to purchase the co-ownership interests from the other co-owners. Even if we are given the opportunity to purchase such co-ownership interests in the future, we cannot guarantee that we will have sufficient funds available at the time to purchase co-ownership interests from the co-owners.

We might want to sell our co-ownership interests in a given property at a time when the other co-owners in such property do not desire to sell their interests. Therefore, we may not be able to sell our interest in a property at the time we would like to sell. In addition, we anticipate that it will be much more difficult to find a willing buyer for our co-ownership interests in a property than it would be to find a buyer for a property we owned outright.

Risks Associated with Debt Financing

If we breach covenants under our unsecured credit agreement with KeyBank, National Association ("KeyBank") and other syndication partners, we could be held in default under such agreement, which could accelerate our repayment date and materially adversely affect the value of our stockholders’ investment in us.

We entered into a Second Amended and Restated Credit Agreement with KeyBank and other syndication partners under which we, through the Current Operating Partnership, as the Borrower, were provided with a revolving credit facility in an

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initial commitment amount of up to $750 million and three term loans as follows: a five-year term loan in the initial commitment amount of $200 million, a five-year term loan in the initial commitment amount of $400 million and a seven-year term loan in the initial commitment amount of $150 million. Such commitments may be increased under certain circumstances up to a maximum total commitment of $2 billion.

In addition to customary representations, warranties, covenants, and indemnities, the Second Amended and Restated Credit Agreement contains a number of financial covenants and requires us and the Borrower to comply with the following at all times, which will be tested on a quarterly basis: (i) a maximum consolidated leverage ratio of 60%, or, the ratio may increase to 65% for up to four consecutive quarters after a material acquisition; (ii) a minimum consolidated tangible net worth of 75% of our consolidated tangible net worth at closing of the revolving credit facility, or approximately $2 billion, plus 75% of net future equity issuances (including units of Operating Partnership interests in the Borrower), minus 75% of the amount of any payments used to redeem our stock or the Borrower's stock or our Operating Partnership units, minus any amounts paid for the redemption or retirement of or any accrued return on the preferred equity issued under the preferred equity investment by SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13 (H); (iii) a minimum consolidated fixed charge coverage ratio of not less than 1.50:1.00; (iv) a minimum unsecured interest coverage ratio of not less than 2.00:1.00; (v) a maximum total secured debt ratio of not greater than 40%, which ratio will increase by five percentage points for four quarters after closing of a material acquisition that is financed with secured debt; (vi) a maximum total secured recourse debt ratio, excluding recourse obligations associated with interest rate hedges, of 10% of our total asset value (as defined); (vii) aggregate maximum unhedged variable rate debt of not greater than 30% of our total asset value; and (viii) a maximum payout ratio (as defined) of not greater than 95%.

If we were to default under the Second Amended and Restated Credit Agreement, the lenders could accelerate the date for our repayment of the loans, and could sue to enforce the terms of the loans.

We have broad authority to incur debt, and high debt levels could hinder our ability to make distributions and could decrease the value of our stockholders’ investment.

Although, technically, our Board may approve unlimited levels of debt, our charter generally limits us to incurring debt no greater than 300% of our net assets before deducting depreciation or other non-cash reserves (equivalent to 75% leverage), unless any excess borrowing is approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report, along with a justification for such excess borrowing. High debt levels would cause us to incur higher interest charges, which would result in higher debt service payments, and could be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of our stockholders’ investment.

We have incurred, and intend to continue to incur, mortgage indebtedness and other borrowings, which may increase our business risks.

We have placed, and intend to continue to place, permanent financing on our properties or obtain a credit facility or other similar financing arrangement in order to acquire properties as funds are being raised in our public offering. We may also decide to later further leverage our properties. We may incur mortgage debt and pledge all or some of our real properties as security for that debt to obtain funds to acquire real properties. We may borrow if we need funds to pay a desired distribution rate to our stockholders. We may also borrow if we deem it necessary or advisable to assure that we qualify and maintain our qualification as a REIT for federal income tax purposes. If there is a shortfall between the cash flow from our properties and the cash flow needed to service mortgage debt, then the amount available for distribution to our stockholders may be reduced.

We have incurred, and intend to continue to incur, indebtedness secured by our properties, which may result in foreclosure.

Most of our borrowings to acquire properties will be secured by mortgages on our properties. If we default on our secured indebtedness, the lender may foreclose and we could lose our entire investment in the properties securing such loan, which could adversely affect distributions to our stockholders. To the extent lenders require us to cross-collateralize our properties, or our loan agreements contain cross-default provisions, a default under a single loan agreement could subject multiple properties to foreclosure.

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High interest rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make.

If we place mortgage debt on properties, we run the risk of being unable to refinance the properties when the loans come due, or of being unable to refinance at cost effective rates. If interest rates are higher when the properties are refinanced, we may not be able to finance the properties and our income could be reduced. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital by issuing more stock or by borrowing more money.

If we are unable to make our debt payments when required, a lender could foreclose on the property or properties securing such debt, which could reduce the amount of distributions we pay to our stockholders and decrease the value of our stockholders’ investment.

We may have a significant amount of acquisition indebtedness secured by first priority mortgages on our properties. In addition, some of our properties contain, and any future acquisitions we make will likely contain, mortgage financing. If we are unable to make our debt payments when required, a lender could foreclose on the property or properties securing such debt. In any such event, we could lose some or all of our investment in these properties, which would reduce the amount of distributions we pay to our stockholders and decrease the value of our stockholders’ investment.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to stockholders at our current level.

When providing financing, a lender could impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property or discontinue insurance coverage. These or other limitations may adversely affect our flexibility and limit our ability to make distributions to stockholders at our current level.

Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make distributions to stockholders at our current level.

We expect that we will incur indebtedness in the future. Interest we pay will reduce cash available for distribution. Additionally, if we incur variable rate debt, increases in interest rates would increase our interest costs, which could reduce our cash flows and our ability to make distributions to stockholders at our current level. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times that may not permit realization of the maximum return on such investments.

Disruptions in the credit markets and real estate markets could have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our stockholders at our current level.

Approximately 10 years ago, domestic and international financial markets experienced significant disruptions which were brought about in large part by failures in the U.S. banking system. These disruptions severely impacted the availability of credit and contributed to rising costs associated with obtaining credit. If debt financing is not available on terms and conditions we find acceptable, we may not be able to obtain financing for investments. If these disruptions in the credit markets resurface, our ability to borrow monies to finance the purchase of, or other activities related to, real estate assets will be negatively impacted. If we are unable to borrow monies on terms and conditions that we find acceptable, we may be forced to use a greater proportion of our offering proceeds to finance our acquisitions, reduce the number of properties we can purchase, and/or dispose of some of our assets. These disruptions could also adversely affect the return on the properties we do purchase. In addition, if we pay fees to lock in a favorable interest rate, falling interest rates or other factors could require us to forfeit these fees. All of these events would have a material adverse effect on our results of operations, financial condition and ability to pay distributions to stockholders at our current level.

A substantial portion of our indebtedness bears interest at variable interest rates based on US Dollar (USD) London Interbank Offered Rate ("LIBOR") and certain of our financial contracts are also indexed to USD LIBOR. Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest rates on our current or future indebtedness and may otherwise adversely affect our financial condition and results of operations.

In July 2017, the Financial Conduct Authority, the authority that regulates LIBOR, announced that it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee, or

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ARRC, in the U.S. has proposed that the Secured Overnight Financing Rate, or SOFR, is the rate that represents best practice as the alternative to the U.S. dollar, or USD, LIBOR for use in derivatives and other financial contracts that are currently indexed to USD LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD LIBOR and organizations are currently working on industry-wide and company-specific transition plans as relating to derivatives and cash markets exposed to USD LIBOR. We have certain financial contracts, including our KeyBank Loans and our interest rate swaps, that are indexed to USD LIBOR. Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest rates on our current or future indebtedness. Any transition process may involve, among other things, increased volatility or illiquidity in markets for instruments that rely on LIBOR, reductions in the value of certain instruments or the effectiveness of related transactions such as hedges, increased borrowing costs, uncertainty under applicable documentation, or difficult and costly consent processes. We are monitoring this activity and evaluating the related risks, and any such effects of the transition away from LIBOR may result in increased expenses, may impair our ability to refinance our indebtedness or hedge our exposure to floating rate instruments, or may result in difficulties, complications or delays in connection with future financing efforts, any of which could adversely affect our financial condition and results of operations.

Federal Income Tax Risks

Failure to continue to qualify as a REIT would adversely affect our operations and our ability to make distributions at our current level as we would incur additional tax liabilities.

We believe we operate in a manner that allows us to qualify as a REIT for U.S. federal income tax purposes under the Code. Qualification as a REIT involves highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. Our qualification as a REIT will depend upon our ability to meet, through investments, actual operating results, distributions and satisfaction of specific stockholder rules, the various tests imposed by the Code.

If we fail to qualify as a REIT for any taxable year, we will be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax. In addition, distributions to stockholders would no longer qualify for the distributions paid deduction, and we would no longer be required to make distributions.

Qualification as a REIT is subject to the satisfaction of tax requirements and various factual matters and circumstances that are not entirely within our control. New legislation, regulations, administrative interpretations, or court decisions could change the tax laws with respect to qualification as a REIT or the federal income tax consequences of being a REIT. Our failure to continue to qualify as a REIT would adversely affect the return of a stockholder's investment.

To qualify as a REIT, and to avoid the payment of federal income and excise taxes and maintain our REIT status, we may be forced to borrow funds (including our Follow-On Offering), use proceeds from the issuance of securities, or sell assets to pay distributions, which may result in our distributing amounts that may otherwise be used for our operations.

To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our REIT taxable income, generally determined without regard to the deduction for distributions paid and by excluding net capital gains. We will be subject to federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (i) 85% of our ordinary income, (ii) 95% of our capital gain net income, and (iii) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on the acquisition, maintenance or development of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities, or sell assets in order to distribute enough of our taxable income to maintain our REIT status and to avoid the payment of federal income and excise taxes. We may be required to make distributions to stockholders at times it would be more advantageous to reinvest cash in our business or when we do not have cash readily available for distribution, and we may be forced to liquidate assets on terms and at times unfavorable to us. These methods of obtaining funding could affect future distributions by increasing operating costs and decreasing available cash. In addition, such distributions may constitute a return of capital.

Foreign purchasers of our common stock may be subject to Foreign Investment in Real Property Tax Act ("FIRPTA") tax upon the sale of their shares.

A foreign person disposing of a U.S. real property interest, including shares of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to a tax, known as FIRPTA tax, on the gain recognized on the

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disposition. Such FIRPTA tax does not apply, however, to the disposition of stock in a REIT if the REIT is "domestically controlled." A REIT is "domestically controlled" if less than 50% of the REIT's stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT's existence.

We cannot assure stockholders that we will qualify as a "domestically controlled" REIT. If we were to fail to so qualify, gain realized by foreign investors on a sale of our shares would be subject to FIRPTA tax, unless the non-U.S. stockholder is a qualified foreign pension fund (or an entity wholly owned by a qualified foreign pension fund) or our shares were traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 10% of the value of our outstanding common stock.

If the Current Operating Partnership fails to maintain its status as a partnership for federal income tax purposes, its income would be subject to taxation and our REIT status would be terminated.

We intend to maintain the status of the Current Operating Partnership as a partnership for federal income tax purposes. However, if the Internal Revenue Service ("IRS") were to successfully challenge the status of the Current Operating Partnership as a partnership, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the Current Operating Partnership could make to us. This would also result in our losing REIT status and becoming subject to a corporate level tax on our own income. This would substantially reduce our cash available to pay distributions and the return on our stockholders' investment. In addition, if any of the entities through which the Current Operating Partnership owns its properties, in whole or in part, loses its characterization as a partnership for federal income tax purposes, the underlying entity would become subject to taxation as a corporation, thereby reducing distributions to the Current Operating Partnership and jeopardizing our ability to maintain REIT status.

Stockholders may have tax liability on distributions they elect to reinvest in our common stock.

If stockholders participate in our DRP, they will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in common stock to the extent the amount reinvested was not a tax-free return of capital. As a result, unless stockholders are a tax-exempt entity, they may have to use funds from other sources to pay their tax liability on the value of the common stock received.

In certain circumstances, we may be subject to federal and state income taxes as a REIT, which would reduce our cash available for distribution to stockholders.

Even if we qualify and maintain our status as a REIT, we may be subject to federal income taxes or state taxes. For example, net income from a “prohibited transaction” will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain income we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. We may also be subject to state and local taxes on our income or property, either directly or at the level of the Operating Partnership or at the level of the other companies through which we indirectly own our assets. Any federal or state taxes we pay will reduce our cash available for distribution to stockholders.

We may be required to pay some taxes due to actions of our taxable REIT subsidiaries which would reduce our cash available for distribution to stockholders.

Any net taxable income earned directly by our taxable REIT subsidiaries, or through entities that are disregarded for federal income tax purposes as entities separate from our taxable REIT subsidiaries, will be subject to federal and possibly state corporate income tax. We have elected to treat Griffin Capital Essential Asset TRS II, Inc. as a taxable REIT subsidiary, and we may elect to treat other subsidiaries as taxable REIT subsidiaries in the future. In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct certain interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by a taxable REIT subsidiary if the economic arrangements between the REIT, the REIT's customers, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income because not all states and localities follow the federal income tax treatment of REITs. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to stockholders.

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Distributions to tax-exempt investors may be classified as unrelated business taxable income.

Neither ordinary or capital gain distributions with respect to our common stock nor gain from the sale of common stock should generally constitute unrelated business taxable income (UBTI) to a tax-exempt investor. However, there are certain exceptions to this rule. In particular:

•

part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as UBTI if shares of our common stock are predominately held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT share ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as UBTI;

•	part of the income and gain recognized by a tax exempt investor with respect to our common stock would constitute UBTI if the investor incurs debt in order to acquire the common stock; and

•	part or all of the income or gain recognized with respect to our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) or (c)(20) of the Code may be treated as UBTI.

Complying with the REIT requirements may cause us to forgo otherwise attractive opportunities.

To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of shares of our common stock. We may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to liquidate otherwise attractive investments in order to comply with the REIT tests. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

Legislative or regulatory action could adversely affect investors.

Individuals with incomes below certain thresholds are subject to federal income taxation on qualified dividends at a maximum rate of 15%. For those with income above such thresholds, the qualified dividend rate is 20%. These tax rates are generally not applicable to distributions paid by a REIT, unless such distributions represent earnings on which the REIT itself has been taxed. As a result, distributions (other than capital gain distributions) we pay to individual investors generally will be subject to the tax rates that are otherwise applicable to ordinary income for federal income tax purposes, subject to a 20% deduction for REIT dividends available under the 2017 Tax Act. Stockholders are urged to consult with their own tax advisors with respect to the impact of recent legislation on their investment in our common stock and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our common stock.

To the extent our distributions represent a return of capital for tax purposes, a stockholder could recognize an increased capital gain upon a subsequent sale of the stockholder's common stock.

Distributions in excess of our current and accumulated earnings and profits and not treated by us as a dividend will not be taxable to a stockholder to the extent those distributions do not exceed the stockholder’s adjusted tax basis in his or her common stock, but instead will constitute a return of capital and will reduce such adjusted basis. (Such distributions to Non-U.S. Stockholders may be subject to withholding, which may be refundable.) If distributions exceed such adjusted basis, then such adjusted basis will be reduced to zero and the excess will be capital gain to the stockholder. If distributions result in a reduction of a stockholder’s adjusted basis in his or her common stock, then subsequent sales of such stockholder’s common stock potentially will result in recognition of an increased capital gain.

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Employee Retirement Income Security Act of 1974 (“ERISA”) Risks

Persons investing the assets of employee benefit plans, Individual Retirement Accounts (“IRAs”), tax-qualified retirement plans, and other tax-favored benefit accounts should consider ERISA and related risks of investing in our shares.

If stockholders are investing the assets of a pension, profit-sharing, 401(k), Keogh or other tax-qualified retirement plan, the assets of an IRA, or the assets of another employee benefit plan or tax-favored benefit account in our common stock, they should satisfy themselves that, among other things:

•	their investment is consistent with their fiduciary obligations under ERISA and the Code;

•	their investment is made in accordance with the documents and instruments governing their plan or account, including any investment policy;

•	their investment satisfies the prudence and diversification requirements of ERISA;

•	their investment will not impair the liquidity of the plan or account;

•	their investment will not produce UBTI for the plan or account; and

•	they will be able to value the assets of the plan annually in accordance with the ERISA requirements.

There are special considerations that apply to employee benefit plans, IRAs, tax-qualified retirement plans, or other tax-favored benefit accounts investing in our shares which could cause an investment in our shares to be a prohibited transaction which could result in additional tax consequences.

ERISA and Code Section 4975 prohibit certain transactions that involve (1) certain pension, profit-sharing, 401(k), Keogh or other tax-qualified retirement plans, employee benefit plans, IRAs or other tax-favored benefit accounts, and (2) any person who is a "party-in-interest" or "disqualified person" with respect to such a plan or account. Consequently, the fiduciary of a plan or owner of an account contemplating an investment in the shares should consider whether we, any other person associated with the issuance of the shares, or any of our or their affiliates is or might become a "party-in-interest" or "disqualified person" with respect to the plan or account and, if so, whether an exemption from such prohibited transaction rules is applicable. In addition, the Department of Labor plan asset regulations provide that, subject to certain exceptions, the assets of an entity in which a plan holds an equity interest may be treated as assets of the investing plan, in which event investment made by and certain other transactions entered into by such entity would be subject to the prohibited transaction rules. We intend to take such steps as may be necessary to qualify us for one or more of the exemptions available, and thereby prevent our assets as being treated as assets of any investing plan.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 2. PROPERTIES

As of December 31, 2019, we owned a fee simple interest and a leasehold interest in 96 and 3 properties, respectively, encompassing approximately 26.8 million rentable square feet and an 80% interest in an unconsolidated joint venture. See Part IV, Item 15. “Exhibits, Financial Statement Schedules—Schedule III—Real Estate and Accumulated Depreciation and Amortization,” of this Annual Report on Form 10-K for a detailed listing of our properties.

Revenue Concentration

No lessee or property, based on net rents for the 12-month period subsequent to December 31, 2019, pursuant to the respective in-place leases, was greater than 3.5% as of December 31, 2019.

The percentage of net rents for the 12-month period subsequent to December 31, 2019, by state, based on the respective in-place leases, is as follows (dollars in thousands):

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State		Net Rent (unaudited)				Number of Properties			Percentage of Net Rent
California		$	29,968			7			10.8	%
Texas		29,550				11			10.7
Ohio		25,686				11			9.3
Arizona		25,070				8			9.1
Georgia		22,935				5			8.3
Illinois		22,614				9			8.2
New Jersey		16,692				5			6.0
Colorado		14,113				5			5.1
South Carolina		11,290				3			4.1
North Carolina		11,238				5			4.1
All Others (1)		67,564				30			24.3
Total		$	276,720			99			100.0	%

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

The percentage of net rents for the 12-month period subsequent to December 31, 2019, 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		$	38,230			20			13.8	%
Health Care Equipment & Services		26,882				10			9.7
Insurance		22,517				10			8.1
Consumer Services		21,854				8			7.9
Retailing		20,519				7			7.4
Diversified Financials		18,523				6			6.7
Technology Hardware & Equipment		18,455				7			6.7
Telecommunication Services		17,533				5			6.3
Consumer Durables & Apparel		15,103				6			5.5
Energy		14,362				5			5.2
All others (2)		62,742				34			22.7
Total		$	276,720			118			100.0	%

(1)	Industry classification based on the Global Industry Classification Standard.

(2)	All others account for less than 5% of total net rents on an individual basis.

The percentage of net rent for the 12-month period subsequent to December 31, 2019, for the top 10 tenants, based on the respective in-place leases, is as follows (dollars in thousands):

Tenant		Net Rent (unaudited)				Percentage of Net Rent
General Electric Company - GE		$	9,804			3.5	%
Wood Group Mustang, Inc.		$	9,595			3.5	%
Southern Company Services, Inc.		$	8,692			3.1	%
McKesson Corporation		$	8,585			3.1	%
LPL Holdings, Inc.		$	8,141			2.9	%
State Farm		$	7,159			2.6	%
Digital Globe, Inc.		$	7,084			2.6	%
Restoration Hardware		$	6,969			2.5	%
Wyndham Hotel Group, LLC		$	6,937			2.5	%
American Express Travel Related Services Company, Inc.		$	6,076			2.2	%

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The tenant lease expirations by year based on net rents for the 12-month period subsequent to December 31, 2019 are as follows (dollars in thousands):

Year of Lease Expiration (1)		Net Rent (unaudited)				Number of Lessees			Approx. Square Feet			Percentage of Net Rent
2020		$	1,222			7			822,000			0.4	%
2021		13,158				9			1,625,700			4.8
2022		11,960				5			964,400			4.3
2023		22,208				10			1,354,800			8.0
2024		40,789				14			3,584,600			14.7
2025		36,816				20			2,941,300			13.3
2026		26,211				9			2,308,900			9.5
2027		21,332				8			1,189,100			7.7
>2028		103,024				36			9,688,000			37.3
Vacant		—				—			2,329,000			—
Total		$	276,720			118			26,807,800			100.0	%

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

ITEM 3. LEGAL PROCEEDINGS

(a)

From time to time, we may become subject to legal proceedings, claims and litigation arising in the ordinary course of our business. We are not a party to any material legal proceedings, nor are we aware of any pending or threatened litigation that would have a material adverse effect on our business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

(b)	Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

As of February 27, 2020, we had approximately 551,959 of Class T shares, 1,797 of Class S shares, 40,379 of Class D shares, 1,847,480 of Class I shares, 24,190,291 of Class A shares, 46,979,600 of Class AA shares, 917,024 of Class AAA shares and 155,033,020 of Class E shares of common stock outstanding, including common stock issued pursuant to our DRP and stock distributions held by a total of approximately 48,000 stockholders of record. There is currently no established public trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder, or at all.

Additionally, we provide discounts in our Follow-On Offering for certain categories of purchasers, including based on volume discounts. Pursuant to the terms of our charter, certain restrictions are imposed on the ownership and transfer of shares.

NAV and NAV per Share Calculation

Our Board, including a majority of our independent directors, has adopted valuation procedures, as amended from time to time, that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV. As a public company, we are required to issue financial statements generally based on historical cost in accordance with GAAP as applicable to our financial statements. To calculate our NAV for the purpose of establishing a purchase and redemption price for our shares, we have adopted a model, as explained below, which adjusts the value of certain of our assets from historical cost to fair value. As a result, our NAV may differ from the amount reported as stockholder’s equity on the face of our financial

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statements prepared in accordance with GAAP. When the fair value of our assets and liabilities are calculated for the purposes of determining our NAV per share, the calculation is generally in accordance with GAAP principles set forth in ASC 820, Fair Value Measurements and Disclosures. However, our valuation procedures and our NAV are not subject to GAAP and will not be subject to independent audit. Our NAV may differ from equity reflected on our audited financial statements, even if we are required to adopt a fair value basis of accounting for GAAP financial statement purposes in the future. Furthermore, no rule or regulation requires that we calculate NAV in a certain way. Although we believe our NAV calculation methodologies are consistent with standard industry practices, there is no established guidance among public REITs, whether listed or not, for calculating NAV in order to establish a purchase and redemption price. As a result, other public REITs may use different methodologies or assumptions to determine NAV.

We are offering to the public four classes of shares of our common stock, Class T shares, Class S shares, Class D shares and Class I shares with NAV-based pricing. The share classes have different selling commissions, dealer manager fees and ongoing distribution fees. Our NAV is calculated for each of these classes and our Class A shares, Class AA shares, Class AAA shares and Class E shares after the end of each business day that the New York Stock Exchange is open for unrestricted trading, by our NAV Accountant, ALPS Fund Services, Inc., a third-party firm approved by our Board, including a majority of our independent directors. Our Board, including a majority of our independent directors, may replace our NAV Accountant with another party, if it is deemed appropriate to do so. Our Board, including a majority of the independent directors, has adopted valuation procedures that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV.

At the end of each such trading day, before taking into consideration accrued distributions or class-specific expense accruals, any change in the aggregate company NAV (whether an increase or decrease) is allocated among each class of shares based on each class’s relative percentage of the previous aggregate company NAV plus issuances of shares that were effective the previous trading day. Changes in the aggregate company NAV reflect factors including, but not limited to, unrealized/realized gains (losses) on the fair value of our real property portfolio and our management company, any applicable organization and offering costs and any expense reimbursements, real estate-related assets and liabilities, daily accruals for income and expenses, amortization of transaction costs, and distributions to investors. Changes in our aggregate company NAV also include material non-recurring events, such as capital expenditures and material property acquisitions and dispositions. On an ongoing basis, we will adjust the accruals to reflect actual operating results and the outstanding receivable, payable and other account balances resulting from the accumulation of daily accruals when such financial information is available.

Our most significant source of net income is property income. We accrue estimated income and expenses on a daily basis based on annual budgets as adjusted from time to time to reflect changes in the business throughout the year. For the first month following a property acquisition, we calculate and accrue portfolio income with respect to such property based on the performance of the property before the acquisition and the contractual arrangements in place at the time of the acquisition, as identified and reviewed through our due diligence and underwriting process in connection with the acquisition. For the purpose of calculating our NAV, all organization and offering costs reduce NAV as part of our estimated income and expense accrual. On a periodic basis, our income and expense accruals are adjusted based on information derived from actual operating results.

We will include the fair value of our liabilities as part of our NAV calculation. Our liabilities include, without limitation, property-level mortgages, accrued distributions, the fees payable to the dealer manager, accounts payable, accrued company-level operating expenses, any company or portfolio-level financing arrangements and other liabilities. Liabilities will be valued using widely accepted methodologies specific to each type of liability. Our mortgage debt and related derivatives, if any, will typically be valued at fair value in accordance with GAAP.

Following the calculation and allocation of changes in the aggregate company NAV as described above, NAV for each class is adjusted for accrued distributions and the accrued distribution fee, to determine the current day’s NAV. The purchase price of Class T and Class S shares is equal to the applicable NAV per share plus the applicable selling commission and/or dealer manager fee. Selling commissions and dealer manager fees have no effect on the NAV of any class.

NAV per share for each class is calculated by dividing such class’s NAV at the end of each trading day by the number of shares outstanding for that class on such day.

Under GAAP, we will accrue the full cost of the distribution fee as an offering cost for Class T, Class S, and Class D shares up to the 9.0% limit at the time such shares are sold. For purposes of NAV, we will recognize the distribution fee as a reduction of NAV on a daily basis as such fee is accrued. We intend to reduce the net amount of distributions paid to stockholders by the portion of the distribution fee accrued for such class of shares, so that the result is that although the obligation to pay future distribution fees is accrued on a daily basis and included in the NAV calculation, it is not expected to impact the NAV of the shares because of the adjustment to distributions.

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Set forth below are the components of our daily NAV as of December 31, 2019 and September 30, 2019, calculated in accordance with our valuation procedures (in thousands, except share and per share amounts):

	December 31, 2019				September 30, 2019
Gross Real Estate Asset Value	$	4,348,529			$	4,437,125
Investments in Unconsolidated Entities	7,549				72,185
Management Comp. Value	230,000				230,000
Interest Rate Swap (Unrealized Gain/Loss)	(25,888		)		(30,882		)
Perpetual Convertible Preferred Stock	(125,000		)		(125,000		)
Other Assets (Liabilities), net	60,500				16,583
Total Debt at Fair Value	(1,978,361		)		(1,952,467		)
NAV	$	2,517,329			$	2,647,544
Total Shares Outstanding	269,752,377				277,666,517
NAV per share	$	9.33			$	9.53

Our independent valuation firm utilized the discounted cash flow approach for 95 properties and the direct capitalization approach for three properties in our portfolio with a weighted average of approximately 7.36 years remaining on their existing leases. Since McKesson II was acquired in September 2019, we did not obtain a valuation and used purchase price in our NAV. The following summarizes the range of overall capitalization rates for the 98 properties using the cash flow discount rates:

	Range				Weighted Average
Overall Capitalization Rate (direct capitalization approach)	5.25%		5.75%		5.51%
Terminal Capitalization Rate (discounted cash flow approach)	5.25%		9.75%		7.03%
Cash Flow Discount Rate (discounted cash flow approach)	6.00%		11.75%		7.72%

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The following table sets forth the changes to the components of NAV for the Company and the reconciliation of NAV changes for each class of shares (in thousands, except share and per share amounts):

	Share Classes
	Class T				Class S				Class D				Class I				Class E				IPO			(1)	OP Units				Total
NAV as of September 30, 2019 before share/unit sale/redemption activity	$	3,121			$	3			$	235			$	9,280			$	1,620,373			$	711,253			$	303,279			$	2,647,544
Fund level changes to NAV
Unrealized loss on net assets	(28		)		—				(1		)		(98		)		(8,872		)		(3,993		)		(1,728		)		(14,720		)
Interest Rate Swap (Unrealized Gain)	8				—				—				22				3,017				1,355				592				4,994
Dividend accrual	(53		)		—				(4		)		(199		)		(26,559		)		(11,960		)		(5,215		)		(43,990		)
Class specific changes to NAV
Stockholder servicing fees/distribution fees	(9		)		—				—				—				—				(1,042		)		(7		)		(1,058		)
NAV as of December 31, 2019 before share/unit sale/redemption activity	3,039				3				230				9,005				1,587,959				695,613				296,921				2,592,770
Unit sale/redemption activity- Dollars
Amount sold	934				14				14				5,585				11,803				6,534				793				25,677
Amount redeemed and to be paid	—				—				—				(100		)		(81,062		)		(19,903		)		(53		)		(101,118		)
NAV as of December 31, 2019	$	3,973			$	17			$	244			$	14,490			$	1,518,700			$	682,244			$	297,661			$	2,517,329
NAV as of September 30, 2019	323,815				288				24,415				964,342				169,833,962				74,737,758				31,781,937				277,666,517
Shares/units sold	97,127				1,504				1,445				584,046				1,237,360				685,659				82,975				2,690,116
Shares/units redeemed	—				—				—				(10,406		)		(8,497,191		)		(2,090,659		)		(6,000		)		(10,604,256		)
Shares/units outstanding as of December 31, 2019	420,942				1,792				25,860				1,537,982				162,574,131				73,332,758				31,858,912				269,752,377
NAV per share as of September 30, 2019	$	9.64			$	9.63			$	9.62			$	9.62			$	9.54			$	9.51
Change in NAV per share/unit	(0.20		)		(0.20		)		(0.20		)		(0.20		)		(0.20		)		(0.21		)
NAV per share as of December 31, 2019	$	9.44			$	9.43			$	9.42			$	9.42			$	9.34			$	9.30

(1) IPO shares include Class A, Class AA, and Class AAA shares.

Equity Compensation Plans

This information is incorporated by reference to the 2020 Proxy Statement to be filed with the SEC within 120 days after the end of the year ended December 31, 2019.

Recent Sales of Unregistered Securities

On March 14, 2019, we issued 7,000 shares of restricted stock to each of Kathleen S. Briscoe, J. Grayson Sanders and Samuel Tang for their services as our independent directors. The issuance of these securities was effected without registration in reliance on Section 4(a)(2) of the Securities Act as a sale by the Company not involving a public offering. No underwriters were involved with the issuance of such securities.

In connection with the Company Merger, on April 30, 2019, we issued 5,000,000 shares of our Series A Preferred Shares to the holder of EA-1’s Series A cumulative perpetual convertible preferred stock.  The Series A Preferred Shares were issued pursuant to an exemption from the registration requirements provided under Regulation S of the Securities Act of 1933, as amended (the "Securities Act"). We relied on this exemption from registration based in part on representations made by the holders of the EA-1 Series A cumulative perpetual convertible preferred stock. 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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On April 30, 2019, we issued 4,017 shares of restricted stock to Gregory M. Cazel and 3,668 shares of restricted stock to Ranjit M. Kripalani, in each case in exchange for their shares of restricted stock in EA-1 that remained unvested as of the effective time of the Company Merger, pursuant to the terms of the Merger Agreement. The issuance of these securities was effected without registration in reliance on Section 4(a)(2) of the Securities Act as a sale by the Company not involving a public offering. No underwriters were involved with the issuance of such securities.

On May 1, 2019, we entered into Time-Based Restricted Stock Unit Agreements with each of Messrs. Escalante, Bitar, Hirsch, Sohn and Tausk in accordance with the terms of their respective employment agreement for the issuance of each of their respective initial equity awards (collectively, the "Restricted Stock Unit Award Agreements"), pursuant to which we issued restricted stock units to such executive officers under the Employee and Director Long-Term Incentive Plan in the following amounts (the "RSUs"): 732,218 RSUs to Mr. Escalante; 104,603 RSUs to Mr. Bitar; 67,992 RSUs to Mr. Hirsch; 52,301 RSUs to Mr. Sohn; and 52,301 RSUs to Mr. Tausk. Each RSU represents a contingent right to receive one share of the Company’s Class E Common Stock when settled in accordance with the terms of the respective Restricted Stock Unit Award Agreement and will vest in equal, 25% installments on each of December 31, 2019, 2020, 2021 and 2022, provided that such executive officer remains continuously employed by us on each such date, subject to certain accelerated vesting provisions as provided in the Restricted Stock Unit Award Agreements. The shares of Class E Common Stock underlying the RSUs will not be delivered upon vesting, but instead will be deferred for delivery on May 1, 2023, or, if sooner, upon the executive officer's termination of employment. The issuance of these securities was effected without registration in reliance on Section 4(a)(2) of the Securities Act as a sale by the Company not involving a public offering. No underwriters were involved with the issuance of such securities.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Share Redemption Program

As noted in Note 10, Equity – Share Redemption Program, we adopted the SRP that enables stockholders to sell their stock to us in limited circumstances. The SRP was previously suspended as of January 19, 2019, due to our then-pending Mergers with EA-1 and the EA-1 Operating Partnership. On June 12, 2019, our Board reinstated the SRP effective as of July 13, 2019. Under the SRP, we will redeem shares as of the last business day of each quarter. The redemption price will be equal to the NAV per share for the applicable class generally on the 13th day of the month prior to quarter end. Redemption requests must be received by 4:00 p.m. (Eastern time) on the second to last business day of the applicable quarter. Redemption requests exceeding the quarterly cap will be filled on a pro rata basis. With respect to any pro rata treatment, redemption requests following the death or qualifying disability of a stockholder will be considered first, as a group, followed by requests where pro rata redemption would result in a stockholder owning less than the minimum balance of $2,500 of shares of our common stock, which will be redeemed in full to the extent there are available funds, with any remaining available funds allocated pro rata among all other redemption requests. All unsatisfied redemption requests must be resubmitted after the start of the next quarter, or upon the recommencement of the SRP, as applicable.

There are several restrictions under the SRP. Stockholders generally have to hold their shares for one year before submitting their shares for redemption under the program; however, we will waive the one-year holding period in the event of the death or qualifying disability of a stockholder. Shares issued pursuant to the DRP are not subject to the one-year holding period. In addition, the SRP generally imposes a quarterly cap on aggregate redemptions of our shares equal to a value of up to 5% of the aggregate NAV of the outstanding shares as of the last business day of the previous quarter, subject to the further limitations as indicated in the August 8, 2019 amendment discussed below. The Board has the right to modify or suspend the SRP upon 30 days' notice at any time if it deems such action to be in our best interest. Any such modification or suspension will be communicated to stockholders through our filings with the SEC.

On August 8, 2019, the Board amended and restated the SRP, effective as of September 12, 2019, in order to (i) clarify that only those stockholders who purchased their shares from us or received their shares from us (directly or indirectly) through one or more non-cash transactions (including transfers to trusts, family members, etc.) may participate in the SRP; (ii) allocate capacity within each class of our common stock such that we may redeem up to 5% of the aggregate NAV of each class of common stock; (iii) treat all unsatisfied redemption requests (or portion thereof) as a request for redemption the following quarter unless otherwise withdrawn; and (iv) make certain other clarifying changes.

On November 7, 2019, the Board amended and restated the SRP, effective as of December 12, 2019, in order to (i) provide for redemption sought upon a stockholder's determination of incompetence or incapacitation; (ii) clarify the circumstances under which a determination of incompetence or incapacitation will entitle a stockholder to such redemption; and (iii) make certain other clarifying changes.

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During the quarter ended December 31, 2019, we redeemed shares under the SRP as follows:

For the Month Ended		Total Number of Shares Redeemed			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
October 31, 2019		1,948			$	9.52			1,948			(1)
November 30, 2019		—			—				—			(1)
December 31, 2019		10,342,013			$	9.35			10,342,013			(1)

(1)	A description of the maximum number of shares that may be redeemed under the SRP is included in the narrative above.

In connection with a potential strategic transaction, on February 26, 2020, our Board approved the temporary suspension of (i) the primary portion of our Follow-On Offering, effective February 27, 2020; (ii) our SRP, effective March 28, 2020; and (iii) our DRP, effective March 8, 2020. For the first quarter of 2020 only, those redemptions sought upon a stockholder's death, qualifying disability, or determination of incompetence or incapacitation will be honored in accordance with the terms of the SRP, and the SRP shall be officially suspended as of March 28, 2020. The SRP shall remain suspended until such time, if any, as the Board may approve the resumption of the SRP.

Since July 31, 2014, and through December 31, 2019, we redeemed 24,230,565 shares (excluding the self-tender offer) of common stock for approximately $228.7 million at a weighted average price per share of $9.44 pursuant to the SRP. Since July 31, 2014 and through December 31, 2019, we have honored all redemption requests. We have funded all redemptions using proceeds from the sale of shares pursuant to the DRP.

Performance Graph

The information below shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, other than as provided in Item 201 of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act, except to the extent we specifically request that such information be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act or the Exchange Act.

The performance graph below is a comparison of the cumulative return of our shares of Class A common stock, the Standard and Poor’s 500 Index (“S&P 500”), and the FTSE NAREIT Equity REITs Index. Performance is shown both with and without “Sales Load” and net of all other fees and expenses. Sales Load is defined as upfront selling commissions, dealer manager fees, and estimated issuer and organizational offering expenses, in conformity with the definition of “Net Investment” amount set forth in FINRA Rule 2231. We disclosed our initial estimate of our net asset value per share on February 13, 2017, which estimate was as of December 31, 2016. Therefore, performance for periods prior to this date is based off our Net Investment amount. Performance reflects the sum of cumulative distributions paid during the measurement period, assuming distribution reinvestment. We currently have Class T, Class S, Class D, Class I, Class A, Class AA, Class AAA, and Class E common stock outstanding, with varying performance results between each class due to differences in class-specific fees and expenses. There can be no assurance that the performance of our Class A shares will continue in line with the same or similar trends depicted in the performance graph.

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial and operating information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and related notes thereto included elsewhere in this annual report on Form 10-K (in thousands, except per share data):

	For the Year Ended December 31,
	2019				2018				2017				2016				2015
Operating Data
Total revenue (1)	$	387,108			$	336,359			$	346,490			$	344,274			$	292,853
Income before other income and (expenses)	$	78,262			$	77,980			$	82,294			$	73,531			$	35,109
Net income	$	37,044			$	22,038			$	146,133			$	26,555			$	15,621
Net income (loss) attributable to common stockholders	$	24,787			$	17,618			$	140,657			$	25,285			$	(3,750	)
Net income (loss) attributable to common stockholders per share, basic and diluted (2)	$	0.11			$	0.10			$	0.80			$	0.14			$	(0.02	)
Cash distributions declared per common share	$	0.60			$	0.68			$	0.68			$	0.68			$	0.69
Balance Sheet Data
Total real estate, net	$	3,610,329			$	2,534,952			$	2,442,576			$	2,685,837			$	2,760,049
Total assets	$	4,175,502			$	3,012,775			$	2,803,410			$	2,894,803			$	3,037,390
Total debt, net	$	1,969,104			$	1,353,531			$	1,386,084			$	1,447,535			$	1,473,427
Total liabilities	$	2,303,589			$	1,527,079			$	1,512,835			$	1,574,274			$	1,636,859
Perpetual convertible preferred shares	$	125,000			$	125,000			$	—			$	—			$	—
Redeemable noncontrolling interests	$	4,831			$	4,887			$	4,887			$	4,887			$	4,887
Redeemable common stock	$	20,565			$	11,523			$	33,877			$	92,058			$	86,557
Total stockholders’ equity	$	1,476,477			$	1,112,083			$	1,220,706			$	1,193,470			$	1,287,769
Total equity	$	1,721,517			$	1,344,286			$	1,251,811			$	1,223,584			$	1,309,087
Cash flow data
Net cash provided by operating activities	$	160,849			$	120,859			$	142,097			$	137,457			$	99,972
Net cash provided by (used in) investing activities	$	85,818			$	(194,496	)		$	254,568			$	9,496			$	(401,524	)
Net cash (used in) provided by financing activities	$	(197,692	)		$	(76,945	)		$	(238,660	)		$	(183,814	)		$	274,942

(1)	Property expense recovery reimbursements are presented gross on the statement of operations for all periods presented.

(2)	Amounts were retroactively adjusted to reflect stock dividends. (See Note 2, Basis of Presentation and Summary of Significant Accounting Policies, for additional detail).

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ITEM 7. 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 this report.

In connection with the Mergers, we were the legal acquirer and EA-1 was the accounting acquirer for financial reporting purposes, as discussed in Note 4, Real Estate. Thus, the financial information set forth herein subsequent to the Mergers reflects results of the combined entity, and the financial information set forth herein prior to the Mergers reflects EA-1’s results. For this reason, period to period comparisons may not be meaningful.

Overview

We are a public, 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. As a result of the Self Administration Transaction, we are now self-managed and we acquired the advisory, asset management and property management business of GRECO. As of December 31, 2019, we have 42 employees.

On April 30, 2019, we, through Merger Sub, completed the Mergers with EA-1. In connection with the Mergers, each issued and outstanding share of EA-1’s common stock (or fraction thereof) was converted into 1.04807 shares of our newly created Class E common stock, $0.001 par value per share, and each issued and outstanding share of EA-1’s Series A cumulative perpetual convertible preferred stock was converted into one share of our newly created Series A Preferred Shares. Also on April 30, 2019, each EA-1 Operating Partnership unit outstanding converted into 1.04807 Class E units in the Current Operating Partnership and each unit outstanding in the GCEAR II Operating Partnership converted into one unit of like class in the Current Operating Partnership.

As of December 31, 2019, our real estate portfolio consisted of 99 properties in 25 states and 118 lessees consisting substantially of office, warehouse, and manufacturing facilities and two land parcels held for future development with a combined acquisition value of approximately $4.2 billion, including the allocation of the purchase price to above and below-market lease valuation. Our net rent for the 12-month period subsequent to December 31, 2019 is approximately $276.7 million with approximately 65.5% generated by properties leased to tenants and/or guarantors or entities whose non-guarantor parent companies have investment grade or what management believes are generally equivalent ratings. Our portfolio, based on square footage, is approximately 91.3% leased as of December 31, 2019, with a weighted average remaining lease term of 7.36 years, weighted average annual rent increases of approximately 2.2%, and a debt to total real estate acquisition value of 48.6% as defined in our credit agreement.

Inflation

The real estate market has not been affected significantly by inflation in the past several years due to the relatively low inflation rate. However, in the event inflation does become a factor, we expect that our leases typically will not include provisions that would protect us from the impact of inflation. We will attempt to acquire properties with leases that require the tenants to pay, directly or indirectly, all operating expenses and certain capital expenditures, which will protect us from increases in certain expenses, including, but not limited to, material and labor costs. In addition, we will attempt to acquire properties with leases that include rental rate increases, which will act as a potential hedge against inflation.

Critical Accounting Policies and Estimates

We have established accounting policies which conform to GAAP in the United States as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification. 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.

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The following critical accounting policies discussion reflects what we believe are the most significant estimates, assumptions, and judgments used in the preparation of our consolidated financial statements. This discussion of our critical accounting policies is intended to supplement the description of our accounting policies in the footnotes to our consolidated financial statements and to provide additional insight into the information used by management when evaluating significant estimates, assumptions, and judgments. For further discussion on our significant accounting policies, see Note 2, Basis of Presentation and Summary of Significant Accounting Policies, to our consolidated financial statements included in this report.

Real Estate - Valuation and Purchase Price Allocation

When we acquire operating properties, we allocate the purchase price on an asset acquisition to the various components of the acquisition based upon the relative fair value of each component. The components typically include land, building and improvements, tenant improvements, intangible assets related to above and below market leases, intangible assets related to in-place leases, debt and other assumed assets and liabilities. Transaction costs are capitalized as a component of the cost of the asset acquisition.

We allocate 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 our assumptions about 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 determining the relative fair value of intangible lease assets or liabilities, we also consider 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 relative 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 an asset acquisition are capitalized as a component of the transaction.

The difference between the relative fair value and the face value of debt assumed in connection with an acquisition is recorded as a premium or discount and amortized to “interest expense” over the life of the debt assumed. The valuation of assumed liabilities is based on our estimate of the current market rates for similar liabilities in effect at the acquisition date.

For acquisitions that do not meet the accounting criteria of an asset acquisition, acquisition costs are expensed as incurred.

Impairment of Real Estate and Related Intangible Assets and Liabilities

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of real estate and related intangible assets may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of real estate and related intangible assets may not be recoverable, management will assess the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted future operating cash flows expected from the use of the assets and the eventual disposition. If, based on this analysis, we do not believe that we will be able to recover the carrying value of the asset, we will record an impairment loss to the extent the carrying value exceeds the estimated fair value of the asset.

Projections of expected future undiscounted cash flows require management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to re-lease the property and the number of years the property is held for investment. As of December 31, 2019, we recorded an impairment provision related to the building and land on two properties. See Note 4 Real Estate for details.

Revenue Recognition

Leases associated with the acquisition and contribution of certain real estate assets have net minimum rent payment increases during the term of the lease and are recorded to rental revenue on a straight-line basis, commencing as of the contribution or acquisition date. If a lease provides for contingent rental income, we will defer the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved.

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Tenant reimbursement revenue, which is comprised of additional amounts collected from tenants for the recovery of certain operating expenses, including repair and maintenance, property taxes and insurance, and capital expenditures, to the extent allowed pursuant to the lease (collectively "Recoverable Expenses"), is recognized as revenue when the additional rent is due. Recoverable Expenses to be reimbursed by a tenant are determined based on our estimate of the property's operating expenses for the year, pro rated based on leased square footage of the property, and are collected in equal installments as additional rent from the tenant, pursuant to the terms of the lease. Quarterly, we reconcile the amount of additional rent paid by the tenant during the year to the actual amount of Recoverable Expenses incurred by us for the same period. The difference, if any, is either charged or credited to the tenant pursuant to the provisions of the lease. In certain instances, the lease may restrict the amount we can recover from the tenant such as a cap on certain or all property operating expenses.

Recently Issued Accounting Pronouncements

See Note 2, Basis of Presentation and Summary of Significant Accounting Policies, 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 0.4% of our base rental revenue will expire during the period from January 1, 2020 to December 31, 2020. We assume, based upon internal renewal probability estimates, that some of our tenants will renew and others will vacate and the associated space will be re-let subject to market leasing assumptions. Using the aforementioned assumptions, we expect that the rental rates on the respective new leases may vary from the rates under existing leases expiring during the period from January 1, 2020 to December 31, 2020 thereby resulting in revenue that may differ from the current in-place rents.

We are not aware of any 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 this Annual Report on Form 10-K.

Same Store Analysis

For the year ended December 31, 2019, our "Same Store" portfolio consisted of 69 properties, encompassing approximately 17.6 million square feet, with an acquisition value of $2.7 billion and net rents of $181.0 million (for the 12-month period subsequent to December 31, 2019). 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 69 properties for the years ended December 31, 2019 and 2018 (dollars in thousands):

	Year Ended December 31,								Increase/(Decrease)				Percentage Change
	2019				2018
Rental income	$	285,999			$	313,216			$	(27,217	)		(9	)%
Property operating expense	46,851				46,149				702				2	%
Property tax expense	30,880				41,980				(11,100		)		(26	)%
Impairment provision	30,734				—				30,734				100	%
Depreciation and amortization	99,348				110,452				(11,104		)		(10	)%
Interest expense	8,364				8,830				(466		)		(5	)%

Rental Income

The decrease in rental income of approximately $27.2 million compared to the same period a year ago primarily is a result of (1) approximately $21.5 million in expirations and termination of leases in the current year; and (2) $11.2 million of property expense recoveries primarily the result of the adoption of ASC 842, resulting in the change in reporting for real estate taxes that are paid directly by a lessee to a third party, from a gross basis to a net basis recorded in the current period; offset by (3) approximately $2.0 million of write-offs/expirations of intangibles in the prior period; and (4) an approximately $1.6 million increase in termination income in the current period.

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Property Tax Expense

The decrease in property tax expense of approximately $11.1 million compared to the same period a year ago is primarily the result of approximately $11.2 million related to the adoption of ASC 842 and the change in reporting for real estate taxes that are paid directly by a lessee to a third party, from a gross basis to a net basis for 21 of our properties.

Impairment Provision

The increase in impairment provision of approximately $30.7 million compared to the same period a year ago is the result of two impairment provisions recorded during the current year at the 2200 Channahon Road and Houston Way I properties.

Depreciation and Amortization

The decrease in depreciation and amortization of approximately $11.1 million is primarily as a result of of early lease terminations in the prior year and assets fully depreciated in the current year.

Interest Expense

The decrease in interest expense of approximately $0.5 million as compared to the same period in the prior year is primarily the result of one mortgage loan payoff during the year ended December 31, 2018 and principal payments.

Portfolio Analysis

In connection with the Mergers, we were the legal acquirer and EA-1 was the accounting acquirer for financial reporting purposes, as discussed in Note 4, Real Estate. Thus, the financial information set forth herein subsequent to the Mergers reflects results of the combined entity, and the financial information set forth herein prior to the Mergers reflects EA-1’s results. For this reason, period to period comparisons may not be meaningful.

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Comparison of the Years Ended December 31, 2019 and 2018

The following table provides summary information about our results of operations for the years ended December 31, 2019 and 2018 (dollars in thousands):

		Year Ended December 31,								Increase/(Decrease)				Percentage Change
		2019				2018
Rental income		$	387,108			$	336,359			$	50,749			15	%
Property operating expense		55,301				49,509				5,792				12	%
Property tax expense		37,035				44,662				(7,627		)		(17	)%
Asset management fees to affiliates		—				23,668				(23,668		)		(100	)%
Property management fees to affiliates		—				9,479				(9,479		)		(100	)%
Property management fees to non-affiliates		3,528				—				3,528				100	%
Self administration transaction expense		—				1,331				(1,331		)		100	%
General and administrative expenses		26,078				6,968				19,110				274	%
Corporate operating expenses to affiliates		2,745				3,594				(849		)		(24	)%
Depreciation and amortization		153,425				119,168				34,257				29	%
Gain from disposition of assets		29,938				1,231				28,707				2,332	%
Impairment provision		30,734				—				30,734				100	%
Interest expense		73,557				55,194				18,363				33	%

Rental Income

The increase in rental income of approximately $50.7 million compared to the same period a year ago is primarily the result of (1) approximately $75.3 million as a result of the Mergers and four properties acquired subsequent to January 2018, (2) a termination income increase in the same period a year ago of approximately $11.1 million, primarily the result of a termination at the 30 Independence Boulevard property, and (3) approximately $2.0 million in write-offs/expiring of above/below market intangibles; offset by (4) approximately $22.0 million in lease expirations, net of leases signed during the year ($8.1 million), (5) $14.9 million of property expense recoveries primarily the result of the adoption of ASC 842 and the change in reporting for real estate taxes that are paid directly by a lessee to a third party, from a gross basis to a net basis recorded in the current period, and (6) approximately $3.1 million related to three properties sold subsequent to January 1, 2019.

Property Operating Expense

The increase in property operating expense of approximately $5.8 million compared to the same period a year ago is primarily the result of approximately $5.9 million primarily related to the Mergers and four properties acquired subsequent to January 2018.

Property Tax Expense

The decrease in property tax expense of approximately $7.6 million compared to the same period a year ago is primarily the result of (1) $14.9 million of property expense recoveries excluded from the current year as a result of the adoption of ASC 842 and the change in reporting for real estate taxes that are paid directly by a lessee to a third party, from a gross basis to a net basis recorded in the current period; offset by (2) an increase of approximately $7.6 million related to the Mergers.

Property & Asset Management Fees to Affiliates

The decrease in property and asset management fees to affiliates is a result of the Self Administration Transaction. As part of the Self Administration Transaction, we became self-managed and acquired the advisory, asset management and property management business of GRECO. Thus, no affiliated property and asset management fees were incurred during 2019. See Note 1, Organization, for details.

Property Management Fees to Non-Affiliates

The increase in property management fees to non-affiliates is a result of the Self Administration Transaction. As part of the Self Administration Transaction, we became self-managed and responsible to pay property management fees to non-affiliates. See Note 1, Organization, for details.

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Self Administration Transaction

Self Administration Transaction expenses for the year ended December 31, 2019 decreased by approximately $1.3 million compared to the same period a year ago primarily as a result of legal and professional service fees incurred in connection with the Self Administration Transaction. See Note 3, Self Administration Transaction, for additional details.

General and Administrative Expenses

The increase in general and administrative expenses of approximately $19.1 million compared to the same period a year ago is primarily the result of (1) approximately $13.8 million in corporate payroll as a result of the Self Administration Transaction (see Note 1, Organization, for details); and (2) approximately $2.6 million in restricted stock unit expense as a result of RSUs issued to our executive officers in May 2019.

Corporate Operating Expenses to Affiliates

The decrease in corporate operating expenses to affiliates of approximately $0.8 million is a result of a decrease in corporate salary allocation from our former advisor related to the Self Administration Transaction. See Note 1, Organization, for details.

Depreciation and Amortization

The increase in depreciation and amortization of approximately $34.3 million compared to the same period a year ago is primarily the result of (1) approximately $46.0 million related to the Mergers, properties acquired during 2018 and the amortization of the management contract intangible; and (2) approximately $1.7 million in fixed assets additions during the current year; partially offset by (3) approximately $12.7 million in fully depreciated/terminated assets during the current year; and (4) approximately $0.7 million in property sales.

Gain from Disposition of Assets

The increase in gain from disposition of assets of approximately $28.7 million compared to the same period a year ago is primarily the result of the sale of the 7601 Technology Way and 2160 Grand Avenue properties.

Impairment Provision

The increase in impairment provision of approximately $30.7 million compared to the same period a year ago is primarily the result of two impairment provisions recorded during the current year at the 2200 Channahon Road and 11210 Equity Drive properties. See Note 4, Real Estate for details.

Interest Expense

The increase of approximately $18.4 million in interest expense as compared to the same period in the prior year is primarily the result of (1) approximately $13.3 million as a result of the assumption of the AIG Loan II and BOA/KeyBank Loans and write offs of deferred financing costs related to the Mergers; and (2) approximately $6.0 million in higher LIBOR in the current quarter; offset by (3) approximately $1.0 million as a result of favorable swap positions during the current period and principal mortgage loan payments.

For additional information related to a comparison of the Company's results for the years ended December 31, 2018 and 2017, please see the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 14, 2019, which information under that section is incorporated herein by reference.

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.

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

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

Additionally, we use Adjusted Funds from Operations (“AFFO”) as a non-GAAP financial measure to evaluate our operating performance. AFFO is a measure used among our peer group, which includes daily NAV REITs. We also believe that AFFO is a recognized measure of sustainable operating performance by the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies.

Management believes that AFFO is a beneficial indicator of our ongoing portfolio performance and ability to sustain our current distribution level. More specifically, AFFO isolates the financial results of our operations. AFFO, however, is not considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings. Further, since the measure is based on historical financial information, AFFO for the period presented may not be indicative of future results or our future ability to pay our dividends. By providing FFO and AFFO, we present information that assists investors in aligning their analysis with management’s analysis of long-term operating activities. As explained below, management’s evaluation of our operating performance excludes items considered in the calculation of AFFO based on the following economic considerations:

•

Revenues in excess of cash received, net. Most of our leases provide for periodic minimum rent payment increases throughout the term of the lease. In accordance with GAAP, these contractual periodic minimum rent payment increases during the term of a lease are recorded to rental revenue on a straight-line basis in order to reconcile the difference between accrual and cash basis accounting. As straight-line rent is a GAAP non-cash adjustment and is included in historical earnings, FFO is adjusted for the effect of straight-line rent to arrive at AFFO as a means of determining operating results of our portfolio. By adjusting for this item, we believe AFFO is reflective of the realized economic impact of our leases (including master agreements) that is useful in assessing the sustainability of our operating performance.

•

Amortization of stock-based compensation. We have excluded the effect of stock-based compensation expense from our AFFO calculation. Although stock-based compensation expense is calculated in accordance with current GAAP and constitutes an ongoing and recurring expense, such expense is excluded from AFFO because it is not an expense which generally requires cash settlement, and therefore is not used by us to assess the profitability of our operations. We also believe the exclusion of stock-based compensation expense provides a more useful comparison of our operating results to the operating results of our peers.

•

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 create 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.

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•

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 are amortized as an adjustment to rental income 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 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 primarily use debt as a partial source of capital to acquire properties in our portfolio and fund redemptions. 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.

•

Dead deal costs. As part of investing in income-producing real property, we incur non-reimbursable affiliated and non-affiliated acquisition-related costs for transactions that fail to close, which in accordance with GAAP, are expensed and are included in the determination of income (loss) from operations and net income (loss). Similar to acquisition-related costs (see above), 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.

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

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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 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.

Our calculation of FFO and AFFO is presented in the following table for the years ended December 31, 2019, 2018 and 2017 (in thousands):

	Year Ended December 31,
	2019				2018				2017
Net income	$	37,044			$	22,038			$	146,133
Adjustments:
Depreciation of building and improvements	80,393				60,120				55,982
Amortization of leasing costs and intangibles	73,084				59,020				60,573
Impairment provision	30,734				—				8,460
Equity interest of depreciation of building and improvements - unconsolidated entities	2,800				2,594				2,496
Equity interest of amortization of intangible assets - unconsolidated entities	4,632				4,644				4,674
Gain from sale of depreciable operating property	(29,938		)		(1,231		)		(116,382		)
Equity interest of impairment - unconsolidated entities	6,927				—				—
Equity interest of gain on sale - unconsolidated entities	(4,128		)		—				—
FFO	$	201,548			$	147,185			$	161,936
Distributions to redeemable preferred shareholders	(8,188		)		(3,275		)		—
Distributions to noncontrolling interests	(17,959		)		(4,737		)		(4,737		)
FFO, net of noncontrolling interest and redeemable preferred distributions	$	175,401			$	139,173			$	157,199
Reconciliation of FFO to AFFO:
FFO, net of noncontrolling interest and redeemable preferred distributions	$	175,401			$	139,173			$	157,199
Adjustments:
Acquisition fees and expenses to non-affiliates	—				1,331				—
Non-cash earn-out adjustment	(1,461		)		—				—
Revenues in excess of cash received, net	(19,519		)		(8,571		)		(11,372		)
Amortization of share-based compensation	2,614				—				—
Deferred rent - ground lease	1,353				841				—
Amortization of above/(below) market rent	(3,201		)		(685		)		1,689
Amortization of debt premium/(discount)	300				32				(414		)
Amortization of ground leasehold interests	(52		)		28				28
Non-cash lease termination income	(10,150		)		(12,532		)		(12,845		)
Financed termination fee payments received	6,065				15,866				11,783
Equity interest of revenues in excess of cash received (straight-line rents) - unconsolidated entities	528				116				(311		)
Unrealized gains on investments (DCP)	307				—				—
Equity interest of amortization of above market rent - unconsolidated entities	3,696				2,956				2,968
Performance fee adjustment	(2,604		)		—				—
Unrealized (gain) loss on derivatives	—				—				(28		)
Dead deal costs	252				—				—
AFFO	$	153,529			$	138,555			$	148,697

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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, including preferred equity distributions and redemptions, and for the payment of debt service on our outstanding indebtedness, including repayment of our Second Amended and Restated Credit Agreement, and property secured mortgage loans. Generally, cash needs for items, other than property acquisitions, will be met from operations and our Revolving Credit Facility. As of See Part I, Item 1. “Business" of this Annual Report on Form 10-K for status on Follow-On Offering and DRP. 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.

Offering

On September 20, 2017, we commenced a Follow-On Offering of up to $2.2 billion of shares, consisting of up to $2.0 billion of shares in our primary offering and $0.2 billion of shares pursuant to our DRP. Pursuant to the Follow-On Offering, we offered to the public four new classes of shares of common stock: Class T shares, Class S shares, Class D shares, and Class I shares with NAV-based pricing. The share classes have different selling commissions, dealer manager fees, and ongoing distribution fees and eligibility requirements. We are also offering all share classes pursuant to our DRP.

In connection with a potential strategic transaction, on February 26, 2020, our Board approved the temporary suspension of (i) the primary portion of our Follow-On Offering, effective February 27, 2020; (ii) our SRP, effective March 28, 2020; and (iii) our DRP, effective March 8, 2020. For the first quarter of 2020 only, those redemptions sought upon a stockholder's death, qualifying disability, or determination of incompetence or incapacitation will be honored in accordance with the terms of the SRP, and the SRP shall be officially suspended as of March 28, 2020. The DRP shall be officially suspended as of March 8, 2020. All subsequent distributions, other than the stock distribution declared by the Board on December 18, 2019, to be paid on April 1, 2020, will be paid in cash. The SRP and DRP shall remain suspended until such time, if any, as the Board may approve the resumption of the SRP and DRP. The Board reserves the right to recommence the Follow-On Offering in the retail marketplace, if appropriate and at the appropriate time.

Second Amended and Restated Credit Agreement

On April 30, 2019, we, through the Current Operating Partnership, entered into that certain Second Amended and Restated Credit Agreement related to a revolving credit facility and the Term Loans with a syndicate of lenders, under which KeyBank serves as administrative agent.

Pursuant to the Second Amended and Restated Credit Agreement, the Company was provided with a Revolving Credit Facility in an initial commitment amount of $750.0 million, the 2023 Term Loan in an initial commitment amount of $200.0 million, the 2024 Term Loan in an initial commitment amount of $400.0 million, and the 2026 Term Loan in an initial commitment amount of $150.0 million which commitments may be increased under certain circumstances up to a maximum total commitment of $2.0 billion. Any increase in the total commitment will be allocated to the Revolving Credit Facility and/or the Term Loans in such amounts as the KeyBank Borrower and KeyBank may determine. The KeyBank Loans are evidenced by promissory notes that are substantially similar related to each lender and the amount committed by such lender. Increases in the commitment amount must be made in amounts of not less than $25.0 million, and increases of $25.0 million in increments in excess thereof, provided that such increases do not exceed the maximum total commitment amount of $2.0 billion. The KeyBank Borrower may also reduce the amount of the Revolving Commitment in increments of $50.0 million, provided that at no time will the Revolving Credit Facility be less than $150.0 million, and such a reduction will preclude the KeyBank Borrower's ability to later increase the commitment amount. The Revolving Credit Facility may be prepaid and terminated, in whole or in part, at any time without fees or penalty.

The Revolving Credit Facility has an initial term of approximately three years, maturing on June 28, 2022. The Revolving Credit Facility may be extended for a one-year period if certain conditions are met and the KeyBank Borrower pays an extension fee. Payments under the Revolving Credit Facility are interest only and are due on the first day of each quarter. Amounts borrowed under the Revolving Credit Facility may be repaid and reborrowed, subject to the terms of the Second Amended and Restated Credit Agreement.

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The 2023 Term Loan has an initial term of approximately four years, maturing on June 28, 2023. Payments under the 2023 Term Loan are interest only and are due on the first day of each quarter. Amounts borrowed under the 2023 Term Loan may not be repaid and reborrowed.

The 2024 Term Loan has an initial term of five years, maturing on April 30, 2024. Payments under the 2024 Term Loan are interest only and are due on the first day of each quarter. Amounts borrowed under the 2024 Term Loan may not be repaid and reborrowed.

The 2026 Term Loan has an initial term of seven years, maturing on April 30, 2026. Payments under the 2026 Term Loan are interest only and are due on the first day of each quarter. Amounts borrowed under the 2026 Term Loan may not be repaid and reborrowed.

The KeyBank Loans have an interest rate calculated based on LIBOR plus the applicable LIBOR margin, as provided in the Second Amended and Restated Credit Agreement, or the Base Rate plus the applicable base rate margin, as provided in the agreement. The applicable LIBOR margin and base rate margin are dependent on the consolidated leverage ratio of the KeyBank Borrower, us, and our subsidiaries, as disclosed in the periodic compliance certificate provided to our administrative agent each quarter. If the KeyBank Borrower obtains an investment grade rating of its senior unsecured long term debt from Standard & Poor's Rating Services, Moody's Investors Service, Inc., or Fitch, Inc., the applicable LIBOR margin and base rate margin will be dependent on such rating.

LIBOR is expected to be discontinued after 2021. As of December 31, 2019, our KeyBank Loans and $425.0 million in notional value of derivatives are indexed to LIBOR which mature after 2021. The agreement governing our KeyBank Loans provides procedures for determining a replacement or alternative base rate in the event that LIBOR is discontinued. However, there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR. The International Swaps and Derivatives Association is expected to issue protocols to allow swap parties to amend their existing contracts. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and work with our lenders to seek to ensure that any transition away from LIBOR will have minimal impact on our financial condition, but we can provide no assurances regarding the impact of the discontinuation of LIBOR.

As of December 31, 2019, the remaining capacity pursuant to the Revolving Credit Facility was $260.5 million.

Derivative Instruments

As discussed in Note 7, Interest Rate Contracts, to the consolidated financial statements, we entered into interest rate swap agreements to hedge the variable cash flows associated with certain existing or forecasted, LIBOR-based variable-rate debt, including our Second Amended and Restated Credit Agreement. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income ("AOCI") and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of debt. The ineffective portion of the change in the fair value of the derivatives is recognized directly in earnings.

The following table sets forth a summary of the interest rate swaps at December 31, 2019 and December 31, 2018 (dollars in thousands):

								Fair Value (1)								Current Notional Amount
								December 31,								December 31,
Derivative Instrument		Effective Date		Maturity Date		Interest Strike Rate		2019				2018				2019				2018
Assets/(Liabilities):
Interest Rate Swap		7/9/2015		7/1/2020		1.69%		$	(43	)		$	5,245			$	425,000			$	425,000
Interest Rate Swap		7/1/2020		7/1/2025		2.82%		(7,038		)		(1,987		)		125,000				125,000
Interest Rate Swap		7/1/2020		7/1/2025		2.82%		(5,651		)		(1,628		)		100,000				100,000
Interest Rate Swap		7/1/2020		7/1/2025		2.83%		(5,665		)		(1,636		)		100,000				100,000
Interest Rate Swap		7/1/2020		7/1/2025		2.84%		(5,749		)		(1,711		)		100,000				100,000
Total								$	(24,146	)		$	(1,717	)		$	850,000			$	850,000

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(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 December 31, 2019, derivatives in an asset or liability position are included in the line item "Other assets" or "Interest rate swap liability," respectively, in the consolidated balance sheets at fair value.

Perpetual Convertible Preferred Shares

Upon consummation of the Mergers, we issued 5,000,000 Series A Preferred Shares to the Purchaser (defined below). We assumed the purchase agreement (the "Purchase Agreement") that EA-1 entered into on August 8, 2018 with SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13(H) (acting through Kookmin Bank as trustee) (the "Purchaser") and Shinhan BNP Paribas Asset Management Corporation, as an asset manager of the Purchaser, pursuant to which the Purchaser agreed to purchase an aggregate of 10,000,000 shares of EA-1 Series A Cumulative Perpetual Convertible Preferred Stock at a price of $25.00 per share (the "EA-1 Series A Preferred Shares") in two tranches, each comprising 5,000,000 EA-1 Series A Preferred Shares.

Pursuant to the Purchase Agreement, the Purchaser has agreed to purchase an additional 5,000,000 Series A Preferred Shares at a later date for an additional purchase price of $125 million subject to approval by the Purchaser’s internal investment committee and the satisfaction of the conditions in the Purchase Agreement, including, but not limited to, the execution of an Ownership Limit Exemption Agreement. Pursuant to the Purchase Agreement, the Purchaser is generally restricted from 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. See Note 12, Perpetual Convertible Preferred Shares, for details.

Distributions

Subject to the terms of the applicable articles supplementary, the holders of the Series A Preferred Shares are entitled to receive distributions quarterly in arrears at a rate equal to one-fourth (1/4) of the applicable varying rate, as follows:

i.	an initial annual distribution rate of 6.55%, or if our board of directors decides to proceed with the Second Issuance, 6.55% from and after the Second Issuance Date until the five year anniversary of the First Issuance Date, or if the Second Issuance occurs, the five year anniversary of the Second Issuance Date, subject to paragraphs (iii) and (iv) below;

ii.	6.75% from and after the Reset Date, subject to paragraphs (iii) and (iv) below;

iii.	if a listing (“Listing”) of our shares of common stock or the Series A Preferred Shares on a national securities exchange registered under Section 6(a) of the Exchange Act, does not occur by August 1, 2020. 7.55% from and after August 2, 2020 and 7.75% from and after the Reset Date, subject to certain conditions as set forth in the articles supplementary; or

iv.	if a Listing does not occur by August 1, 2021, 8.05% from and after August 2, 2021 until the Reset Date, and 8.25% from and after the Reset Date.

See Note 12, Perpetual Convertible Preferred Shares, for further discussion regarding the Series A Preferred Shares.

Other Potential Future Sources of Capital

Other potential future sources of capital include proceeds from potential private or public offerings of our stock or OP Units of our Current Operating Partnership, proceeds from secured or unsecured financings from banks or other lenders, including debt assumed in a real estate acquisition transaction, proceeds from the sale of properties and undistributed funds from operations. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures. To the extent we are not able to secure additional financing in the form of a credit facility or other third party source of liquidity, we will be heavily dependent upon our current financing and income from operations. As of See Part I, Item 1. “Business" of this Annual Report on Form 10-K for status on Follow-On Offering.

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of December 31, 2019 (in thousands):

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	Payments Due During the Years Ending December 31,
	Total				2020				2021-2022				2023-2024				Thereafter
Outstanding debt obligations (1)	$	1,979,072			$	6,881			$	19,216			$	776,321			$	1,176,654
Interest on outstanding debt obligations (2)	446,764				74,683				147,234				114,807				110,040
Interest rate swaps (3)	24,527				2,041				9,815				9,815				2,856
Ground lease obligations	296,512				1,510				3,062				3,833				288,107
Total	$	2,746,875			$	85,115			$	179,327			$	904,776			$	1,577,657

(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 December 31, 2019. Projected interest payments on the Revolving Credit Facility and Term Loan are based on the contractual interest rates in effect at December 31, 2019.

(3)	The interest rate swaps contractual commitment was calculated based on the swap rate less the LIBOR as of December 31, 2019.

Short-Term Liquidity and Capital Resources

We expect to meet our short-term operating liquidity requirements with operating cash flows generated from our properties and draws from our KeyBank Loans. See Part I, Item 1. “Business" of this Annual Report on Form 10-K for status on Follow-On Offering and DRP.

Our cash, cash equivalents and restricted cash balances increased by approximately $49.0 million during the year ended December 31, 2019 and were primarily used in or provided by the following (in thousands):

:

	Year Ended December 31,
	2019				2018				Change
Net cash provided by operating activities	$	160,849			$	120,859			$	39,990
Net cash provided by (used in) investing activities	$	85,818			$	(194,496	)		$	280,314
Net cash used in financing activities	$	(197,692	)		$	(76,945	)		$	(120,747	)

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 year ended December 31, 2019, we generated $160.8 million in cash from operating activities compared to $120.9 million for the year ended December 31, 2018. Net cash provided by operating activities before changes in operating assets and liabilities for the year ended December 31, 2019 increased by approximately $40.9 million to approximately $174.0 million compared to approximately $133.1 million for the year ended December 31, 2018.

Investing Activities. Cash provided by investing activities for the years ended December 31, 2019 and 2018 consisted of the following (in thousands):

	Year Ended December 31,
	2019				2018				Increase (decrease)
Sources of cash provided by investing activities:
Disposition of properties	$	139,446			$	11,442			$	128,004
Cash acquired in connection with the Mergers, net of acquisitions costs	25,320				—				25,320
Distributions of capital from investment in unconsolidated entities	14,603				7,691				6,912
Restricted reserves	1,039				(357		)		1,396
Total sources of cash provided by investing activities	$	180,408			$	18,776			$	161,632
Uses of cash for investing activities:
Property acquisitions, and payments for construction in progress	$	(85,121	)		$	(206,648	)		$	121,527
Investment in unconsolidated joint venture	—				(3,274		)		3,274
Real estate acquisition deposits	(1,047		)		(3,350		)		2,303
Purchase of investments	(8,422		)		—				(8,422		)
Total uses of cash provided by investing activities	$	(94,590	)		$	(213,272	)		$	118,682
Net cash provided by investing activities	$	85,818			$	(194,496	)		$	280,314

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Financing Activities. Cash used in financing activities for the years ended December 31, 2019 and 2018 consisted of the following (in thousands):

	Year Ended December 31,
	2019				2018				Increase (decrease)
Sources of cash provided by financing activities:
Proceeds from borrowings under the KeyBank Loans	$	942,854			$	—			$	942,854
Issuance of common stock, net of discounts and underwriting costs	8,826				—				8,826
Principal payoff of mortgage loans	—				(18,954		)		18,954
Total sources of cash provided by financing activities	$	951,680			$	(18,954	)		$	970,634
Uses of cash provided by financing activities:
Principal repayments under the Unsecured Credit Facility - EA-1	$	(715,000	)		$	(106,253	)		$	(608,747	)
Principal payoff of Revolver Loan	(104,439		)		—				(104,439		)
Principal amortization payments on secured indebtedness	(6,577		)		(6,494		)		(83		)
Borrowings under the Unsecured Credit Facility	—				96,100				(96,100		)
Issuance of perpetual convertible preferred shares, net of offering costs	—				120,041				(120,041		)
Repurchase of common stock	(200,013		)		(83,574		)		(116,439		)
Distributions paid to common stockholders, preferred unit holders and noncontrolling interest holders	(115,169		)		(77,787		)		(37,382		)
Deferred financing costs	(5,737		)		(24		)		(5,713		)
Acquisition deposits	(2,384		)		—				(2,384		)
Repurchase of noncontrolling interest	(53		)		—				(53		)
Total sources of cash used by financing activities	$	(1,149,372	)		$	(57,991	)		$	(1,091,381	)
Net cash used by financing activities	$	(197,692	)		$	(76,945	)		$	(120,747	)

Distributions and Our Distribution Policy

Distributions will be paid to our stockholders as of the record date selected by our Board. We expect to continue to pay distributions monthly based on daily declaration and record dates. We expect to pay distributions regularly unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so. Distributions will be authorized at the discretion of our Board, which will be directed, in substantial part, by its obligation to cause us to comply with the REIT requirements of the Internal Revenue Code. The funds we receive from operations that are available for distribution may be affected by a number of factors, including the following:

•our operating and interest expenses;

•the amount of distributions or dividends received by us from our indirect real estate investments;

•our ability to keep our properties occupied;

•our ability to maintain or increase rental rates;

•tenant improvements, capital expenditures and reserves for such expenditures;

•the issuance of additional shares; and

•financings and refinancings.

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Distributions may be funded with operating cash flow from our properties, offering proceeds raised in the Follow-On Offering or any future public offerings, or a combination thereof. To the extent that we do not have taxable income, distributions paid will be considered a return of capital to stockholders. The following table shows distributions paid, and cash flow provided by operating activities during the year ended December 31, 2019 and year ended December 31, 2018 (dollars in thousands):

	Year Ended December 31, 2019							Year Ended December 31, 2018
Distributions paid in cash — noncontrolling interests	$	16,865						$	4,737
Distributions paid in cash — common stockholders	90,116							71,822
Distributions paid in cash — preferred stockholders	8,188							1,228
Distributions of DRP	41,060							40,838
Total distributions	$	156,229		(1)				$	118,625
Source of distributions (2)
Paid from cash flows provided by operations	$	115,169			74	%		$	77,787			66	%
Offering proceeds from issuance of common stock pursuant to the DRP	41,060				26	%		40,838				34	%
Total sources	$	156,229		(3)	100	%		$	118,625			100	%
Net cash provided by operating activities	$	160,849						$	120,859

(1)	Distributions are paid on a monthly basis in arrears. Distributions for all record dates of a given month are paid on or about the first business day of the following month. Total cash distributions declared but not paid as of December 31, 2019 were $15.5 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 year ended December 31, 2019, we paid and declared cash distributions of approximately $130.1 million to common stockholders including shares issued pursuant to the DRP, and approximately $17.9 million to the limited partners of our Current Operating Partnership, as compared to FFO, net of noncontrolling interest distributions and AFFO for the year ended December 31, 2019 of approximately $175.4 million and $153.5 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 December 31, 2019, we paid approximately $740.5 million of cumulative distributions (excluding preferred distributions), including approximately $293.8 million reinvested through our DRP, as compared to net cash provided by operating activities of approximately $464.0 million.

Off-Balance Sheet Arrangements

As of December 31, 2019, we had approximately $8.2 million in an outstanding letter of credit which is not reflected on our balance sheet.

Subsequent Events

See Note 18, Subsequent Events, to the consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 KeyBank Loans, AIG, AIG II, BOA, BOA/KeyBank loans and property secured mortgages. These instruments were not entered into for trading purposes.

Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also utilize a variety of financial instruments, including interest rate swap agreements, caps, floors, and other interest rate exchange contracts. We will not enter into these financial instruments for speculative purposes. The use of these types of instruments to hedge a portion of our exposure to changes in interest rates carries additional risks, such as counterparty credit risk and the legal enforceability of hedging contracts.

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On August 31, 2018, we executed four interest rate swap agreements to hedge future variable cash flows associated with LIBOR. The forward-starting interest rate swaps with a total notional amount of $425.0 million become effective on July 1, 2020 and have a term of five years.

As of December 31, 2019, our debt consisted of approximately $1.4 billion in fixed rate debt and approximately $536.5 million in variable rate debt (including the interest rate swaps and excluding unamortized deferred financing cost and discounts, net, of approximately $10.0 million). As of December 31, 2018, our debt consisted of approximately $1.1 billion in fixed rate debt and approximately $290.0 million in variable rate debt (including the interest rate swaps and excluding unamortized deferred financing cost and discounts, net, of approximately $8.6 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 impact on interest incurred or cash flows. A change in interest rates on variable rate debt could impact 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 Rate. However, our interest rate swap agreements are intended to reduce the effects of interest rate changes. The effect of an increase of 100 basis points in interest rates, assuming a LIBOR Rate floor of 0%, on our variable-rate debt, including our KeyBank Loans, AIG, AIG II, BOA, BOA/KeyBank loans and our mortgage loans, after considering the effect of our interest rate swap agreements would decrease our future earnings and cash flows by approximately $8.8 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data filed as part of this annual report are set forth beginning on page F-1 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. 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 Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for us. Our management, including our chief executive officer and chief financial officer, evaluated, as of December 31, 2019, the effectiveness of our internal control over financial reporting using the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2019.

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There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

During the quarter ended December 31, 2019, there was no information required to be disclosed in a report on Form 8-K which was not disclosed in a report on Form 8-K.

PART III

We expect to file a definitive proxy statement for our 2020 Annual Meeting of Stockholders (the “2020 Proxy Statement”) with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K and is incorporated by reference to the 2020 Proxy Statement. Only those sections of the 2020 Proxy Statement that specifically address the items required to be set forth herein are incorporated by reference.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to the 2020 Proxy Statement to be filed within 120 days after the end of the year ended December 31, 2019.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the 2020 Proxy Statement to be filed with the SEC within 120 days after the end of the year ended December 31, 2019.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference to the 2020 Proxy Statement to be filed with the SEC within 120 days after the end of the year ended December 31, 2019.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to the 2020 Proxy Statement to be filed with the SEC within 120 days after the end of the year ended December 31, 2019.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated by reference to the 2020 Proxy Statement to be filed with the SEC within 120 days after the end of the year ended December 31, 2019.

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) List of Documents Filed.

1. The list of the financial statements contained herein is set forth on page F-1 hereof.

2. Schedule III — Real Estate and Accumulated Depreciation is set forth beginning on page S-1 hereof. All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are not applicable and therefore have been omitted.

3. The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index below.

(b) See (a) 3 above.

(c) See (a) 2 above.

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EXHIBIT INDEX

The following exhibits are included in this Annual Report on Form 10-K for the year ended December 31, 2019 (and are numbered in accordance with Item 601 of Regulation S-K).

Exhibit No.	Description
1.1	Dealer Manager Agreement and Participating Dealer Agreement dated September 18, 2017, incorporated by reference to Exhibit 1.1 to Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, filed on September 18, 2017, SEC File No. 333-217223
1.2	Amendment No. 1 to Dealer Manager Agreement and Participating Dealer Agreement dated June 24, 2019, incorporated by reference to Exhibit 1.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 14, 2019, SEC File No. 000-55605
2.1	Agreement and Plan of Merger, dated as of December 14, 2018, by and among Griffin Capital Essential Asset REIT II, Inc., Griffin Capital Essential Asset Operating Partnership II, L.P., Globe Merger Sub, LLC, Griffin Capital Essential Asset REIT, Inc. and Griffin Capital Essential Asset Operating Partnership, L.P., incorporated by reference to Exhibit 2.1 to the Registrant's current report on Form 8-K, filed on December 20, 2018, SEC File No. 000-55605
3.1	First Articles of Amendment and Restatement of Griffin Capital Essential Asset REIT II, Inc., incorporated by reference to Exhibit 3.1 to Pre-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, filed on July 30, 2014, SEC File No. 333-194280
3.2	Bylaws of Griffin Capital Essential Asset REIT II, Inc., incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-11, filed on March 3, 2014, SEC File No. 333-194280
3.3	Amendment No. 1 to Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, filed on May 1, 2019, SEC File No. 000-55605
3.4	Articles Supplementary to First Articles of Amendment and Restatement of Griffin Capital Essential Asset REIT II, Inc., incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on April 29, 2016, SEC File No. 000-55605
3.5	Articles of Amendment to First Articles of Amendment and Restatement of Griffin Capital Essential Asset REIT II, Inc., incorporated by reference to Exhibit 3.4 to Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, filed on September 18, 2017, SEC File No. 333-217223
3.6	Articles Supplementary of Griffin Capital Essential Asset REIT II, Inc., incorporated by reference to Exhibit 3.5 to Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, filed on September 18, 2017, SEC File No. 333-217223
3.7	Articles Supplementary to First Articles of Amendment and Restatement, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on April 19, 2019, SEC File No. 000-55605
3.8	Articles Supplementary to First Articles of Amendment and Restatement, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on May 1, 2019, SEC File No. 000-55605
3.9	Second Articles of Amendment to the First Articles of Amendment and Restatement, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on June 13, 2019, SEC File No. 000-55605
4.1	Form of Subscription Agreement and Subscription Agreement Signature Page, incorporated by reference to Appendix A of the Registrant’s final prospectus filed pursuant to Rule 424(b)(3), filed on June 18, 2019, SEC File No. 333-217223
4.2	Form of Additional Investment Subscription Agreement, incorporated by reference to Appendix B of the Registrant’s final prospectus filed pursuant to Rule 424(b)(3), filed on June 18, 2019, SEC File No. 333-217223
4.3	Amended and Restated Distribution Reinvestment Plan of Griffin Capital Essential Asset REIT II, Inc., incorporated by reference to Appendix C of the Registrant’s final prospectus filed pursuant to Rule 424(b)(3), filed on June 18, 2019, SEC File No. 333-217223
4.4	Enrollment Form for Distribution Reinvestment Plan, incorporated by reference to Appendix A to the prospectus contained in Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-3D, filed on April 18, 2019, SEC File No. 333-217178

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4.5	Amended and Restated Share Redemption Program effective as of December 12, 2019, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on November 12, 2019, SEC File No. 000-55605
4.6*	Description of Securities
10.1+	Employee and Director Long-Term Incentive Plan, incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 21, 2014, SEC File No. 333-194280
10.2+	Griffin Capital Essential Asset REIT II, Inc.’s Employee and Director Long-Term Incentive Plan Form of Restricted Stock Agreement for Directors, incorporated by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K, filed on March 15, 2017, SEC File No. 000-55605
10.3+	Director Compensation Plan, incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K, filed on March 15, 2017, SEC File No. 000-55605
10.4	Master Property Management, Leasing, and Construction Management Agreement, dated March 17, 2015, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on March 23, 2015, SEC File No. 333-194280
10.5	Fifth Amended and Restated Limited Partnership Agreement of the Current Operating Partnership dated April 30, 2019, incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on May 1, 2019, SEC File No. 000-55605
10.6	Certificate of Amendment to Certificate of Limited Partnership of Current Operating Partnership dated April 30, 2019, incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed on May 1, 2019, SEC File No. 000-55605
10.7	Promissory Note dated February 27, 2013 issued to Midland National Life Insurance Company, incorporated by reference to Exhibit 10.1 to EA-1’s Current Report on Form 8-K, filed on March 5, 2013, SEC File No. 000-54377
10.8	NUF Note for the Schlumberger Property, incorporated by reference to Exhibit 10.1 to EA-1’s Current Report on Form 8-K, filed on January 30, 2014, SEC File No. 000-54377
10.9	VALIC Note for the Schlumberger Property, incorporated by reference to Exhibit 10.2 to EA-1’s Current Report on Form 8-K, filed on January 30, 2014, SEC File No. 000-54377
10.10	First Deed of Trust for the Schlumberger Property, incorporated by reference to Exhibit 10.3 to EA-1’s Current Report on Form 8-K, filed on January 30, 2014, SEC File No. 000-54377
10.11	Second Deed of Trust for the Schlumberger Property, incorporated by reference to Exhibit 10.4 to EA-1’s Current Report on Form 8-K, filed on January 30, 2014, SEC File No. 000-54377
10.12	First Mortgage for the Verizon Property, incorporated by reference to Exhibit 10.5 to EA-1’s Current Report on Form 8-K, filed on January 30, 2014, SEC File No. 000-54377
10.13	Second Mortgage for the Verizon Property, incorporated by reference to Exhibit 10.6 to EA-1’s Current Report on Form 8-K, filed on January 30, 2014, SEC File No. 000-54377
10.14	Recourse Carve-Out Guaranty Agreement, incorporated by reference to Exhibit 10.7 to EA-1’s Current Report on Form 8-K, filed on January 30, 2014, SEC File No. 000-54377
10.15	VALIC Note for Owens Corning Sales, LLC Property, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on October 28, 2015, SEC File No. 333-194280
10.16	AGL Note for Owens Corning Sales, LLC Property, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on October 28, 2015, SEC File No. 333-194280
10.17	USL Note for Owens Corning Sales, LLC Property, incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed on October 28, 2015, SEC File No. 333-194280
10.18	First Deed of Trust for Owens Corning Sales, LLC Property, incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, filed on October 28, 2015, SEC File No. 333-194280
10.19	Second Deed of Trust for Owens Corning Sales, LLC Property, incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, filed on October 28, 2015, SEC File No. 333-194280
10.20	Recourse Carve-Out Guaranty Agreement, incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K, filed on October 28, 2015, SEC File No. 333-194280
10.21	Schedule of Omitted Documents, incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K, filed on October 28, 2015, SEC File No. 333-194280
10.22	Loan Agreement with Bank of America, N.A. dated September 29, 2017, incorporated by reference to Exhibit 10.1 to EA-1’s Current Report on Form 8-K, filed on October 5, 2017, SEC File No. 000-54377
10.23	Guaranty Agreement, dated September 29, 2017, incorporated by reference to Exhibit 10.2 to EA-1’s Current Report on Form 8-K, filed on October 5, 2017, SEC File No. 000-54377

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10.24	Promissory Note A-1-1, incorporated by reference to Exhibit 10.3 to EA-1’s Current Report on Form 8-K, filed on October 5, 2017, SEC File No. 000-54377
10.25	Mortgage, Assignment of Leases and Rents, Security Agreement, and Fixture Filing, incorporated by reference to Exhibit 10.4 to EA-1’s Current Report on Form 8-K, filed on October 5, 2017, SEC File No. 000-54377
10.26	Schedule of Omitted Documents for Bank of America Loan, incorporated by reference to Exhibit 10.5 to EA-1’s Current Report on Form 8-K, filed on October 5, 2017, SEC File No. 000-54377
10.27	Loan Agreement with Bank of America, N.A. and KeyBank N.A. dated April 27, 2018, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on May 3, 2018, SEC File No. 000-55605
10.28	Guaranty Agreement dated April 27, 2018, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on May 3, 2018, SEC File No. 000-55605
10.29	Promissory Note A-1-1 dated April 27, 2018, incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed on May 3, 2018, SEC File No. 000-55605
10.30	Mortgage, Assignment of Leases and Rents, Security Agreement, and Fixture Filing for the Southern Company Services, Inc. Property dated April 27, 2018, incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, filed on May 3, 2018, SEC File No. 000-55605
10.31	Schedule of Omitted Documents, incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, filed on May 3, 2018, SEC File No. 000-55605
10.32	Second Amended and Restated Credit Agreement dated April 30, 2019, incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K, filed on May 1, 2019, SEC File No. 000-55605
10.33	Guaranty Agreement with KeyBank dated April 30, 2019, incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K, filed on May 1, 2019, SEC File No. 000-55605
10.34	Amended and Restated 2023 Term Note payable to KeyBank dated April 30, 2019, incorporated by reference to Exhibit 10.5 to the Registrant's Current Report on Form 8-K, filed on May 1, 2019, SEC File No. 000-55605
10.35	2024 Term Note payable to KeyBank dated April 30, 2019, incorporated by reference to Exhibit 10.6 to the Registrant's Current Report on Form 8-K, filed on May 1, 2019, SEC File No. 000-55605
10.36	2026 Term Note payable to KeyBank dated April 30, 2019, incorporated by reference to Exhibit 10.7 to the Registrant's Current Report on Form 8-K, filed on May 1, 2019, SEC File No. 000-55605
10.37	Second Amended and Restated Revolving Note payable to KeyBank dated April 30, 2019, incorporated by reference to Exhibit 10.8 to the Registrant's Current Report on Form 8-K, filed on May 1, 2019, SEC File No. 000-55605
10.38	Swingline Note with KeyBank dated April 30, 2019, incorporated by reference to Exhibit 10.9 to the Registrant's Current Report on Form 8-K, filed on May 1, 2019, SEC File No. 000-55605
10.39	Schedule of Omitted Documents for KeyBank Loan, incorporated by reference to Exhibit 10.10 to the Registrant's Current Report on Form 8-K, filed on May 1, 2019, SEC File No. 000-55605
10.40	Registration Rights Agreement dated December 14, 2018, incorporated by reference to Exhibit 10.4 to EA-1's Current Report on Form 8-K, filed on December 20, 2018, SEC File No. 000-54377
10.41	Contribution Agreement dated December 14, 2018, incorporated by reference to Exhibit 2.2 to EA-1's Current Report on Form 8-K, filed on December 20, 2018, SEC File No. 000-54377
10.42	Form of Master Property Management, Leasing and Construction Management Agreement, incorporated by reference to Exhibit 10.6 to EA-1's Quarterly Report on Form 10-Q, filed on December 10, 2009, SEC File No. 333-159167
10.43	Series A Cumulative Perpetual Convertible Preferred Stock Purchase Agreement dated August 8, 2018, incorporated by reference to Exhibit 10.1 to EA-1's Quarterly Report on Form 10-Q, filed on August 13, 2018, SEC File No. 000-54377
10.44	Administrative Services Agreement dated December 14, 2018, by and among EA-1, the EA-1 Operating Partnership, Griffin Capital Company, LLC, Griffin Capital, LLC, Griffin Capital Essential Asset TRS, Inc., and Griffin Capital Real Estate Company, LLC, incorporated by reference to Exhibit 10.35 to EA-1's Annual Report on Form 10-K, filed on March 15, 2019, SEC File No. 000-54377
10.45	Form of Indemnification Agreement dated December 14, 2018, incorporated by reference to Exhibit 10.5 to EA-1’s Current Report on Form 8-K, filed on December 20, 2018, SEC File No. 000-54377
10.46+	Escalante Employment Agreement dated December 14, 2018, incorporated by reference to Exhibit 10.6 to EA-1’s Current Report on Form 8-K, filed on December 20, 2018, SEC File No. 000-54377

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10.47+	Form of Employment Agreement for Other Officers dated December 14, 2018, incorporated by reference to Exhibit 10.7 to EA-1’s Current Report on Form 8-K, filed on December 20, 2018, SEC File No. 000-54377
10.48+	Employment Agreement with Nina Momtazee Sitzer effective June 10, 2019, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 14, 2019, SEC File No. 000-55605
14.1	Amended and Restated Code of Ethics and Business Conduct of the Registrant effective as of August 8, 2019, incorporated by reference to Exhibit 14.1 to the Registrant’s Current Report on Form 8-K, filed on August 13, 2019, SEC File No. 000-55605
21.1*	Subsidiaries of Griffin Capital Essential Asset REIT, Inc.
23.1*	Consent of Ernst & Young, LLP, Independent Registered Accounting Firm
31.1*	Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
101*	The following Griffin Capital Essential Asset REIT, Inc. financial information for the period ended December 31, 2019 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements.
*	Filed herewith.
**	Furnished herewith.
+	Management contract, compensatory plan or arrangement filed in response to Item 15(a)(3) of Instructions to Form 10-K.

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ITEM 16. FORM 10-K SUMMARY

Not Applicable.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of El Segundo, State of California, on March 3, 2020.

 

	GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.
	By:		/s/ Michael J. Escalante
			Michael J. Escalante
			Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 

Signature		Title		Date
/s/ Michael J. Escalante		Chief Executive Officer and President and Director (Principal Executive Officer)		March 3, 2020
Michael J. Escalante
/s/ Javier F. Bitar		Chief Financial Officer and Treasurer (Principal Financial Officer)		March 3, 2020
Javier F. Bitar
/s/ Bryan K. Yamasawa		Chief Accounting Officer (Principal Accounting Officer)		March 3, 2020
Bryan K. Yamasawa
/s/ Kevin A. Shields		Executive Chairman and Chairman of the Board of Directors		March 3, 2020
Kevin A. Shields
/s/ Gregory M. Cazel		Independent Director		March 3, 2020
Gregory M. Cazel
/s/Ranjit M. Kripalani		Independent Director		March 3, 2020
Ranjit M. Kripalani
/s/ Kathleen S. Briscoe		Independent Director		March 3, 2020
Kathleen S. Briscoe
/s/ J. Grayson Sanders		Independent Director		March 3, 2020
J. Grayson Sanders
/s/ Samuel Tang		Independent Director		March 3, 2020
Samuel Tang

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2019 and 2018	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018 and 2017	F-4
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017	F-5
Consolidated Statements of Equity for the Years Ended December 31, 2019, 2018 and 2017	F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017	F-7
Notes to Consolidated Financial Statements	F-8
Financial Statement Schedule
Schedule III- Real Estate Assets and Accumulated Depreciation and Amortization	S-1

F-1

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Griffin Capital Essential Asset REIT, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Griffin Capital Essential Asset REIT, Inc. (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2008.

 

Los Angeles, California

March 3, 2020

F-2

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except units and share amounts)

	December 31,
	2019				2018
ASSETS
Cash and cash equivalents	$	54,830			$	48,478
Restricted cash	58,430				15,807
Real estate:
Land	458,339				350,470
Building and improvements	3,043,527				2,165,016
Tenant origination and absorption cost	744,773				530,181
Construction in progress	31,794				27,697
Total real estate	4,278,433				3,073,364
Less: accumulated depreciation and amortization	(668,104		)		(538,412		)
Total real estate, net	3,610,329				2,534,952
Investments in unconsolidated entities	11,028				30,565
Intangible assets, net	12,780				17,099
Deferred rent receivable	73,012				55,163
Deferred leasing costs, net	49,390				29,958
Goodwill	229,948				229,948
Due from affiliates	837				19,685
Right of use asset	41,347				—
Other assets	33,571				31,120
Total assets	$	4,175,502			$	3,012,775
LIABILITIES AND EQUITY
Debt, net	$	1,969,104			$	1,353,531
Restricted reserves	14,064				8,201
Interest rate swap liability	24,146				6,962
Redemptions payable	96,648				—
Distributions payable	15,530				12,248
Due to affiliates	10,883				42,406
Intangible liabilities, net	31,805				23,115
Lease liability	45,020				—
Accrued expenses and other liabilities	96,389				80,616
Total liabilities	2,303,589				1,527,079
Commitments and contingencies (Note 15)
Perpetual convertible preferred shares	125,000				125,000
Common stock subject to redemption	20,565				11,523
Noncontrolling interests subject to redemption; 554,110 and 531,161 units as of December 31, 2019 and December 31, 2018, respectively	4,831				4,887
Stockholders’ equity:
Common stock, $0.001 par value; 800,000,000 shares authorized; 227,853,720 and 174,278,341 shares outstanding in the aggregate as of December 31, 2019 and December 31, 2018, respectively (1)	228				174
Additional paid-in-capital	2,060,604				1,556,770
Cumulative distributions	(715,792		)		(570,977		)
Accumulated earnings	153,312				128,525
Accumulated other comprehensive loss	(21,875		)		(2,409		)
Total stockholders’ equity	1,476,477				1,112,083
Noncontrolling interests	245,040				232,203
Total equity	1,721,517				1,344,286
Total liabilities and equity	$	4,175,502			$	3,012,775

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

 

	Year Ended December 31,
	2019				2018				2017
Revenue:
Rental income	$	387,108			$	336,359			$	346,490
Expenses:
Property operating expense	55,301				49,509				50,918
Property tax expense	37,035				44,662				44,980
Property management fees to non-affiliates	3,528				—				—
Asset management fees to affiliates	—				23,668				23,499
Property management fees to affiliates	—				9,479				9,782
Self administration transaction expense	—				1,331				—
General and administrative expenses	26,078				6,968				7,322
Corporate operating expenses to affiliates	2,745				3,594				2,652
Impairment provision	30,734				—				8,460
Depreciation and amortization	153,425				119,168				116,583
Total expenses	308,846				258,379				264,196
Income before other income and (expenses)	78,262				77,980				82,294
Other income (expenses):
Interest expense	(73,557		)		(55,194		)		(51,015		)
Management fee revenue from affiliates	6,368				—				—
Other income, net	1,340				275				537
Loss from investment in unconsolidated entities	(5,307		)		(2,254		)		(2,065		)
Gain from disposition of assets	29,938				1,231				116,382
Net income	37,044				22,038				146,133
Distributions to redeemable preferred shareholders	(8,188		)		(3,275		)		—
Net income attributable to noncontrolling interests	(3,749		)		(789		)		(5,120		)
Net income attributable to controlling interest	25,107				17,974				141,013
Distributions to redeemable noncontrolling interests attributable to common stockholders	(320		)		(356		)		(356		)
Net income attributable to common stockholders	$	24,787			$	17,618			$	140,657
Net income attributable to common stockholders per share, basic and diluted	$	0.11			$	0.10			$	0.80
Weighted average number of common shares outstanding, basic and diluted	222,116,812				169,492,659				175,611,890

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

 

	Year Ended December 31,
	2019				2018				2017
Net income	$	37,044			$	22,038			$	146,133
Other comprehensive income (loss):
Equity in other comprehensive (loss) income of unconsolidated joint venture	(217		)		122				465
Change in fair value of swap agreements	(22,303		)		(5,301		)		6,891
Total comprehensive income	14,524				16,859				153,489
Distributions to redeemable preferred shareholders	(8,188		)		(3,275		)		—
Distributions to redeemable noncontrolling interests attributable to common stockholders	(320		)		(356		)		(356		)
Comprehensive income attributable to noncontrolling interests	(695		)		(479		)		(5,373		)
Comprehensive income attributable to common stockholders	$	5,321			$	12,749			$	147,760

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands, except share data)

																				Accumulated Other Comprehensive (Loss) Income
	Common Stock							Additional Paid-In Capital				Cumulative Distributions				Accumulated Income (Deficit)								Total Stockholders’ Equity				Non-controlling Interests				Total Equity
	Shares			Amount
Balance December 31, 2016	184,494,771			$	184			$	1,561,508			$	(333,829	)		$	(29,750	)		$	(4,642	)		$	1,193,470			$	30,113			$	1,223,584
Deferred equity compensation	13,625			—				173				—				—				—				173				—				173
Distributions to common stockholders	—			—				—				(71,156		)		—				—				(71,156		)		—				(71,156		)
Issuance of shares for distribution reinvestment plan	5,021,811			5				49,536				(49,541		)		—				—				—				—				—
Repurchase of common stock	(10,408,640	)		(10		)		(98,895		)		—				—				—				(98,905		)		—				(98,905		)
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	—			—				—				—				—				7,102				7,102				254				7,356
Balance December 31, 2017	179,121,568			$	179			$	1,561,686			$	(454,526	)		$	110,907			$	2,460			$	1,220,706			$	31,105			$	1,251,811
Deferred equity compensation	8,035			—				38				—				—				—				38				—				38
Distributions to common stockholders	—			—				—				(75,613		)		—				—				(75,613		)		—				(75,613		)
Issuance of shares for distribution reinvestment plan	4,262,336			4				40,834				(40,838		)		—				—				—				—				—
Repurchase of common stock	(9,113,598	)		(9		)		(83,565		)		—				—				—				(83,574		)		—				(83,574		)
Reduction of common stock subject to redemption	—			—				42,736				—				—				—				42,736				—				42,736
Redemptions in excess of distribution reinvestment plan	—			—				—				—				—				—				—				—				—
Issuance of limited partnership units	—			—				—				—				—				—				—				205,000				205,000
Distributions to noncontrolling interests	—			—				—				—				—				—				—				(4,368		)		(4,368		)
Distributions to noncontrolling interests subject to redemption	—			—				—				—				—				—				—				(13		)		(13		)
Offering costs on preferred shares	—			—				(4,959		)		—				—				—				(4,959		)		—				(4,959		)
Net income	—			—				—				—				17,618				—				17,618				789				18,407
Other comprehensive income	—			—				—				—				—				(4,869		)		(4,869		)		(310		)		(5,179		)
Balance December 31, 2018	174,278,341			$	174			$	1,556,770			$	(570,977	)		$	128,525			$	(2,409	)		$	1,112,083			$	232,203			$	1,344,286

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands, except share amounts)

																				Accumulated Other Comprehensive (Loss) Income
	Common Stock							Additional Paid-In Capital				Cumulative Distributions				Accumulated Income (Deficit)								Total Stockholders’ Equity				Non-controlling Interests				Total Equity
	Shares			Amount
Balance December 31, 2018	174,278,341			$	174			$	1,556,770			$	(570,977	)		$	128,525			$	(2,409	)		$	1,112,083			$	232,203			$	1,344,286
Gross proceeds from issuance of common stock	973,490			—				9,383				—				—				—				9,383				—				9,383
Deferred equity compensation	260,039			—				2,623				—				—				—				2,623				—				2,623
Cash distributions to common stockholders	—			—				—				(89,836		)		—				—				(89,836		)		—				(89,836		)
Issuance of shares for distribution reinvestment plan	4,298,420			4				41,056				(40,840		)		—				—				220				—				220
Repurchase of common stock	(31,290,588	)		(30		)		(296,629		)		—				—				—				(296,659		)		—				(296,659		)
Reclassification of common stock subject to redemption	—			—				(9,042		)		—				—				—				(9,042		)		—				(9,042		)
Issuance of limited partnership units	—			—				—				—				—				—				—				25,000				25,000
Issuance of stock dividend for noncontrolling interest	—			—				—				—				—				—				—				1,861				1,861
Issuance of stock dividends	1,279,084			2				12,189				(14,139		)		—				—				(1,948		)		—				(1,948		)
Mergers	78,054,934			78				746,160				—				—				—				746,238				5,039				751,277
Distributions to noncontrolling interests	—			—				—				—				—				—				—				(19,716		)		(19,716		)
Distributions to noncontrolling interests subject to redemption	—			—				—				—				—				—				—				(45		)		(45		)
Offering costs	—			—				(1,906		)		—				—				—				(1,906		)		—				(1,906		)
Reclass of noncontrolling interest subject to redemption	—			—				—				—				—				—				—				3				3
Net income	—			—				—				—				24,787				—				24,787				3,749				28,536
Other comprehensive loss	—			—				—				—				—				(19,466		)		(19,466		)		(3,054		)		(22,520		)
Balance December 31, 2019	227,853,720			$	228			$	2,060,604			$	(715,792	)		$	153,312			$	(21,875	)		$	1,476,477			$	245,040			$	1,721,517

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2019				2018				2017
Operating Activities:
Net income	$	37,044			$	22,038			$	146,133
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of building and building improvements	80,394				60,120				55,982
Amortization of leasing costs and intangibles, including ground leasehold interests and leasing costs	73,031				59,048				60,601
Amortization of (below) above market leases	(3,201		)		(685		)		1,689
Amortization of deferred financing costs and debt premium	5,562				3,071				2,444
Amortization of swap interest	126				126				—
Deferred rent	(19,519		)		(8,571		)		(11,372		)
Deferred rent, ground lease	1,640				—				—
Termination fee revenue - receivable from tenant, net	(6,000		)		(3,114		)		(12,845		)
Gain from sale of depreciable operating property	(29,940		)		(1,231		)		(116,382		)
(Gain) loss on fair value of earn-out	(1,461		)		—				—
Unrealized loss on interest rate swap	—				2				68
(Gain) loss from investment in unconsolidated entities	5,307				2,254				2,065
(Gain) loss from investments	307				—				—
Impairment provision	30,734				—				8,460
Performance distribution allocation (non-cash)	(2,604		)		—				—
Stock-based compensation	2,623				38				173
Change in operating assets and liabilities:
Deferred leasing costs and other assets	(7,775		)		(13,503		)		3,332
Restricted reserves	14				57				(175		)
Accrued expenses and other liabilities	(9,505		)		3,463				1,098
Due to affiliates, net	4,072				(2,254		)		826
Net cash provided by operating activities	160,849				120,859				142,097
Investing Activities:
Cash acquired in connection with the Mergers, net of acquisition costs	25,320				—				—
Acquisition of properties, net	(38,775		)		(182,250		)		(134,130		)
Proceeds from disposition of properties	139,446				11,442				394,502
Real estate acquisition deposits	(1,047		)		(3,350		)		(1,350		)
Reserves for tenant improvements	1,039				(357		)		—
Improvements to real estate	—				—				(760		)
Payments for construction in progress	(46,346		)		(24,398		)		(11,293		)
Investment in unconsolidated joint venture	—				(3,274		)		—
Distributions of capital from investment in unconsolidated entities	14,603				7,691				7,599
Purchase of investments	(8,422		)		—				—
Net cash provided by (used in) investing activities	85,818				(194,496		)		254,568

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2019				2018				2017
Financing Activities:
Proceeds from borrowings - BOA Loan	$	—			$	—			$	375,000
Proceeds from borrowings - Term Loan	627,000				—				—
Proceeds from borrowings - Revolver Loan	315,854				—				—
Proceeds from borrowings - Revolver Loan - EA-1	—				96,100				54,000
Principal payoff of secured indebtedness - Revolver Loan	(104,439		)		—				—
Principal payoff of secured indebtedness - Mortgage Debt	—				(18,954		)		(41,493		)
Principal payoff of secured indebtedness - Unsecured Credit Facility - EA-1	(715,000		)		(106,253		)		(441,256		)
Partial principal payoff of TW Telecom loan	—				—				(324		)
Principal amortization payments on secured indebtedness	(6,577		)		(6,494		)		(6,491		)
Deferred financing costs	(5,737		)		(24		)		(3,329		)
Offering costs	(2,384		)		—				—
Issuance of perpetual convertible preferred shares	—				125,000				—
Repurchase of common stock	(200,013		)		(83,574		)		(98,906		)
Repurchase of noncontrolling interest	(53		)		—				—
Issuance of common stock, net of discounts and underwriting costs	8,826				—				—
Payment of offering costs - preferred shares	—				(4,959		)		—
Dividends paid on preferred units subject to redemption	(8,188		)		(1,228		)		—
Distributions to noncontrolling interests	(16,865		)		(4,737		)		(4,737		)
Distributions to common stockholders	(90,116		)		(71,822		)		(71,124		)
Net cash used in financing activities	(197,692		)		(76,945		)		(238,660		)
Net increase (decrease) in cash, cash equivalents and restricted cash	48,975				(150,582		)		158,005
Cash, cash equivalents and restricted cash at the beginning of the period	64,285				214,867				56,862
Cash, cash equivalents and restricted cash at the end of the period	$	113,260			$	64,285			$	214,867
Supplemental disclosure of cash flow information:
Cash paid for interest	$	65,040			$	50,736			$	48,253
Supplemental disclosures of non-cash investing and financing transactions:
Goodwill -Self Administration Transaction	$	—			$	229,948			$	—
Affiliates - receivables and other related party assets acquired in Self Administration Transaction	$	—			$	19,878			$	—
Increase in distributions payable to common stockholders	$	3,293			$	3,792			$	32
Increase in distributions payable to noncontrolling interests	$	1,355			$	—			$	—
Common stock issued pursuant to the distribution reinvestment plan	$	41,060			$	40,838			$	49,541
Increase in redemptions payable	$	96,648			$	—			$	20,382
Issuance of stock dividends	$	14,139			$	—			$	—
Limited partnership units issued in exchange for net assets acquired in Self Administration Transaction	$	25,000			$	205,000			$	—
Due to affiliates- Self Administration Transaction	$	—			$	41,114			$	—
Other liabilities assumed in Self Administration Transaction	$	—			$	7,951			$	—
Decrease in fair value swap agreement	$	(22,303	)		$	(5,427	)		$	(6,795	)
Net assets acquired in Merger in exchange for common shares	$	751,277			$	—			$	—
Implied EA-1 common stock and operating partnership units issued in exchange for net assets acquired in Merger	$	751,277			$	—			$	—
Operating lease right-of-use assets obtained in exchange for lease liabilities upon adoption of ASC 842 on January 1, 2019	$	25,521			$	—			$	—
Operating lease right-of-use assets obtained in exchange for lease liabilities upon adoption of ASC 842 subsequent to January 1, 2019	$	16,919			$	—			$	—
Distributions to redeemable noncontrolling interests attributable to common stockholders as reflected on the consolidated statements of operations	$	—			$	355			$	356

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	Year Ended December 31,
	2018				2017
Presentation prior to January 1, 2019
Lease income	$	247,442			$	257,465
Lease termination income	15,671				14,604
Property expense recoveries	73,246				74,421
Rental income	$	336,359			$	346,490

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3.	Self Administration Transaction

	Amount
Fair value of EA-1 Operating Partnership units issued	$	205,000
Fair value of earn-outs	29,380
Accrued liabilities:
Executive deferred compensation plan	7,795
Other liabilities	11,890
Total consideration	254,065
Less: accounts receivable from affiliates and other assets	(19,878		)
Net consideration	$	234,187

	Amount
Assets:
Accounts receivable from affiliates and other assets	$	19,878
Management contract intangibles	4,239
Goodwill	229,948
Total assets acquired	254,065
Liabilities:
Earn-outs (due to affiliates)	29,380
Executive deferred compensation plan	7,795
Other liabilities	11,890
Total liabilities assumed	49,065
Net assets acquired	$	205,000

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	Year Ended December 31,
	2018
Revenue	$	336,359
Net income	$	61,362
Net income attributable to noncontrolling interests	$	9,309
Net income attributable to common stockholders (1)	$	48,423
Net income attributable to common stockholders per share, basic and diluted	$	0.29

(1)	Amount is net of net income (loss) attributable to noncontrolling interests, distributions to redeemable noncontrolling interests attributable to common stockholders and distributions to preferred shareholders.

(1)	The former advisor received acquisition fees equal to 2.5%. In addition, the Company incurred third-party costs associated with the acquisition.

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	As of April 30, 2019
GCEAR's common shares outstanding	78,054,934
Exchange ratio	1.04807
Implied EA-1 common stock issued in consideration	74,474,924
GCEAR's operating partnership units outstanding	527,045
Exchange ratio	1.04807
Implied EA-1 operating partnership units issued in consideration	502,872
EA-1's net asset value per share	$	10.02
Total consideration	$	751,278

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Merger-Related Expenses

In connection with the Mergers, the Company incurred various transaction and administrative costs. These costs included advisory fees, legal, tax, accounting, valuation fees, and other costs. These costs were capitalized as a component of the cost of the assets acquired. The costs that were obligations of GCEAR and expensed prior to the Mergers are not included in the Company's consolidated statements of operations.

The following is a breakdown of the Company's costs incurred during the the year ended December 31, 2019 related to the Mergers:

	Amount
Advisory and valuation fees	$	8,592
Legal, accounting and tax fees	1,384
Other fees	362
Total Merger-related fees	$	10,338

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Acquisition		Land				Building				Improvements				Tenant origination and absorption costs				In-place lease valuation - above market				In-place lease valuation - (below) market				Land Leasehold Value (Above Market)				Total (1)				2019 Revenue (2)
Mergers		$	135,875			$	850,811			$	62,928			$	214,428			$	3,627			$	(12,476	)		$	—			$	1,255,193			$	66,004
McKesson II (3)		$	—			$	25,446			$	4,681			$	11,513			$	239			$	—			$	(3,072	)		$	38,807			$	958

(1)	The allocations noted above are based on a determination of the relative fair value of the total consideration provided and represent the amount paid including capitalized acquisition costs.

(2)	The operating results of the properties acquired have been included in the Company's consolidated statement of operations since the acquisition date.

(3)	The Company recorded a ROU asset of $16.3 million and a corresponding liability to the Company's existing ground lease agreements as part of the acquisition (see Note 14, Operating Leases, for details).

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Intangibles

The Company allocated a portion of the acquired and contributed real estate asset value to in-place lease valuation, tenant origination and absorption cost, and other intangibles, net of the write-off of intangibles for the years ended December 31, 2019 and 2018.

The following summarizes a list of the Company's intangibles as of December 31, 2019 and 2018:

	December 31,
	2019				2018
In-place lease valuation (above market)	$	44,012			$	42,736
In-place lease valuation (above market) - accumulated amortization	(33,322		)		(31,995		)
In-place lease valuation (above market), net	10,690				10,741
Ground leasehold interest (below market)	2,254				2,255
Ground leasehold interest (below market) - accumulated amortization	(164		)		(137		)
Ground leasehold interest (below market), net	2,090				2,118
Intangibles - other	—				4,240
Intangible assets, net	$	12,780			$	17,099
In-place lease valuation (below market)	$	(67,622	)		$	(55,147	)
Land Leasehold interest (above market)	(3,073		)		—
In-place lease valuation (below market) - accumulated amortization	38,890				32,032
Intangible liabilities, net	$	(31,805	)		$	(23,115	)
Tenant origination and absorption cost	$	744,773			$	530,181
Tenant origination and absorption cost - accumulated amortization	(354,379		)		(296,201		)
Tenant origination and absorption cost, net	$	390,394			$	233,980

	Amortization (income) expense for the year ended December 31,
	2019				2018				2017
Above and below market leases, net	$	(3,201	)		$	(685	)		$	1,689
Tenant origination and absorption cost	$	69,502			$	55,464			$	59,046
Ground leasehold amortization (below market)	$	(52	)		$	27			$	27
Other leasing costs amortization	$	3,581			$	3,557			$	1,527

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(1)	Approximately $28.7 million is held in escrow pending a tax-deferred real estate exchange, as permitted by Section 1031 of the Internal Revenue Code, with the sale of 10 Commerce Center Parkway property.

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5.	Investments

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Impairment

During the year ended December 31, 2019, the Company recognized an other-than-temporary impairment loss on its investments in the unconsolidated Digital Realty Trust, Inc. joint venture. The impairment loss is a result of revised market rental rate expectations and tenant rents. The impairment loss is included in "(Loss) gain from investment in unconsolidated entities" on the Company's consolidated statements of operations. In determining the fair value of property, the Company considered Level 3 inputs. See Note 9, Fair Value Measurements, for details.

As of December 31, 2019, the balance of the investments are shown below:

	Digital Realty Joint Venture				Heritage Common X				Total
Balance as of December 31, 2018	$	27,291			$	3,274			$	30,565
Net (loss) income	(2,509		)		4,128			(1)	1,619
Distributions	(7,055		)		(6,958		)		(14,013		)
Other comprehensive loss	(217		)		—				(217		)
Impairment	(6,926		)		—				(6,926		)
Balance as of December 31, 2019	$	10,584			$	444			$	11,028

(1)	Includes approximately $0.6 million in disposition and other fees owed to the Company's former advisor. In addition, approximately $1.2 million of third party fees and taxes were incurred as part of the outside basis of the investment

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(1)	Including the effect of one interest rate swap agreement with a total notional amount of $425.0 million, the weighted average interest rate as of December 31, 2019 was 3.72% for both the Company’s fixed-rate and variable-rate debt combined and 3.89% for the Company’s fixed-rate debt only.

(2)	Reflects the effective interest rate as of December 31, 2019 and includes the effect of amortization of discounts/premiums and deferred financing costs.

(3)	Represents the Company's Term Loan (defined below), which was fully repaid on May 1, 2019. See discussion below.

(4)	The LIBO rate as of December 31, 2019 was 1.69%. The Revolving Credit Facility has an initial term of approximately three years, maturing on June 28, 2022, and may be extended for a one-year period if certain conditions are met and upon payment of an extension fee. See discussion below.

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•	there must be no less than 15 Pool Properties at any time;

•	no greater than 15% of the aggregate pool value may be contributed by a single Pool Property or tenant;

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•	no greater than 15% of the aggregate pool value may be contributed by Pool Properties subject to ground leases;

•	no greater than 20% of the aggregate pool value may be contributed by Pool Properties which are under development or assets under renovation;

•	the minimum aggregate leasing percentage of all Pool Properties must be no less than 90%; and

•	other limitations as determined by KeyBank upon further due diligence of the Pool Properties.

•	a maximum consolidated leverage ratio of 60%, or, the ratio may increase to 65% for up to four consecutive quarters after a material acquisition;

•

a minimum consolidated tangible net worth of 75% of the Company's consolidated tangible net worth at closing of the Revolving Credit Facility, or approximately $2.0 billion, plus 75% of net future equity issuances (including units of the operating partnership interests in the KeyBank Borrower), minus 75% of the amount of any payments used to redeem the Company's stock or the KeyBank Borrower's stock or the Company's operating partnership units, minus any amounts paid for the redemption or retirement of or any accrued return on the preferred equity issued under the preferred equity investment made in EA-1's August 2018 by SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13 (H);

•	upon consummation, if ever, of an initial public offering, a minimum consolidated tangible net worth of 75% of the Company's consolidated tangible net worth plus 75% of net future equity issuances (including units of operating partnership interests in the KeyBank Borrower) should we publicly list on the New York Stock Exchange;

•	a minimum consolidated fixed charge coverage ratio of not less than 1.50:1.00;

•	a maximum total secured debt ratio of not greater than 40%, which ratio will increase by five percentage points for four quarters after closing of a material acquisition that is financed with secured debt;

•	a minimum unsecured interest coverage ratio of 2.00:1.00;

•	a maximum total secured recourse debt ratio, excluding recourse obligations associated with interest rate hedges, of 10% of our total asset value;

•	aggregate maximum unhedged variable rate debt of not greater than 30% of the Company's total asset value; and

•	a maximum payout ratio of not greater than 95% commencing for the quarter ended September 30, 2019.

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	As of December 31, 2019
2020	$	6,882
2021	9,390
2022	9,826
2023	337,019
2024	439,302
Thereafter	1,176,653
Total principal	1,979,072
Unamortized debt premium/(discount)	(1,099		)
Unamortized deferred loan costs	(8,869		)
Total	$	1,969,104

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(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 December 31, 2019, derivatives in a liability position are included in the line item "Interest rate swap liability," respectively, in the consolidated balance sheets at fair value.

(2)	Represents the notional amount of swaps as of the balance sheet date of December 31, 2019 and 2018.

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8.	Accrued Expenses and Other Liabilities

	December 31,
	2019				2018
Real estate taxes payable	$	13,385			$	23,258
Prepaid tenant rent	20,510				15,204
Deferred compensation	9,209				—
Interest payable	12,264				9,310
Property operating expense payable	7,752				9,159
Accrued CIP	16,596				4,662
Other liabilities	16,673				19,023
Total	$	96,389			$	80,616

9.	Fair Value Measurements

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		Range of Inputs or Inputs
		December 31, 2019
Unobservable Inputs		2200 Channahon Road			Houston Westway I
Market rent per square foot		$2.00 to $3.00			$15.00 to $17.00
Terminal capitalization rate		9.25	%		7.75	%
Discount rate		10.50	%		9.00	%

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		Range of Inputs or Inputs
Unobservable Inputs		December 31, 2019
Market rent per kilowatt-hour (kWh)		$80.00 to $90.00
Terminal capitalization rate		6.00	%
Discount rate		6.75	%

	December 31, 2019								December 31, 2018
	Fair Value				Carrying Value (1)				Fair Value				Carrying Value (1)
Samsonite	$	22,103			$	21,154			$	22,440			$	22,085
Highway 94 loan	$	15,101			$	15,610			$	15,601			$	16,497
AIG Loan II	$	122,258			$	126,970			$	—			$	—
BOA/KeyBank Loan	$	264,101			$	250,000			$	—			$	—
AIG Loan	$	101,663			$	105,762			$	108,032			$	107,562

(1)	The carrying values do not include the debt premium/(discount) or deferred financing costs as of December 31, 2019 and December 31, 2018. See Note 6, Debt, for details.

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		December 31,
		2019				2018
Shares of common stock redeemed		20,933,322				8,695,600
Weighted average price per share		$	9.44			$	9.61

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11.	Noncontrolling Interests

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	December 31,
	2019				2018
Beginning balance	$	232,203			$	31,105
Contributions/issuance of noncontrolling interests	30,039			(1)	205,000			(1)
Issuance of stock dividend for noncontrolling interest	1,861				—
Distributions to noncontrolling interests	(19,716		)		(4,368		)
Allocated distributions to noncontrolling interests subject to redemption	(42		)		(13		)
Net Income	3,749				789
Other comprehensive income (loss)	(3,054		)		(310		)
Ending balance	$	245,040			$	232,203

(1)	The issuance of noncontrolling units was the result of the Self Administration Transaction and Mergers. See Note 3, Self Administration Transaction, and Note 4, Real Estate, respectively.

12.	Perpetual Convertible Preferred Shares

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i.	an initial annual distribution rate of 6.55%, or if the Company's Board decides to proceed with the Second Issuance, 6.55% from and after the Second Issuance Date until the five year anniversary of the First Issuance Date, or if the Second Issuance occurs, the five year anniversary of the Second Issuance Date (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 the Company's 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.

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	Incurred for the Year Ended December 31,												Payable as of December 31,
	2019				2018				2017				2019				2018
Expensed
Operating expenses	$	—			$	3,594			$	2,652			$	—			$	74
Asset management fees	—				23,668				23,499				—				—
Property management fees	—				9,479				9,782				—				875
Disposition fees	641				177				1,950				—				—
Costs advanced by the advisor	3,771				546				587				1,164				341
Consulting fee - shared services	2,500				—				—				441				—
Capitalized
Acquisition fees (1)	942				5,331				3,791				—				—
Leasing commissions	2,540				2,289				1,752				—				—
Assumed through Self- Administration Transaction/Mergers
Earn-out	—				—				—				2,919				29,380
Other Fees	20				—				—				—				11,734
Stockholder Servicing Fee	692				—				—				4,994				—
Other
Distributions	14,138				—				—				1,365				2
Total	$	25,244			$	45,084			$	44,013			$	10,883			$	42,406

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•

The Company will not purchase or lease properties in which the Company's dealer manager, any of the Company's directors or any of their respective affiliates has an interest without a determination by a majority of the directors, including a majority of the independent directors, not otherwise interested in such transaction, that such transaction is fair and reasonable to the Company and at a price to the Company no greater than the cost of the property to the seller or lessor unless there is substantial justification for any amount that exceeds such cost and such excess amount is determined to be reasonable. In no event will the Company acquire any such property at an amount in excess of its appraised value. The Company will not sell or lease properties to the Company's dealer manager, any of the Company's directors or any of their respective affiliates unless a majority of the directors, including a majority of the independent directors, not otherwise interested in the transaction, determines

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•

The Company will not make any loans to the Company's dealer manager, any of the Company's directors or any of their respective affiliates, except that the Company may make or invest in mortgage loans involving the Company's dealer manager, the Company's directors or their respective affiliates, provided that an appraisal of the underlying property is obtained from an independent appraiser and the transaction is approved as fair and reasonable to the Company and on terms no less favorable to the Company than those available from third parties. In addition, the Company's dealer manager, any of the Company's directors and any of their respective affiliates will not make loans to the Company or to joint ventures in which the Company is a joint venture partner unless approved by a majority of the directors, including a majority of the independent directors, not otherwise interested in the transaction, as fair, competitive and commercially reasonable, and no less favorable to the Company than comparable loans between unaffiliated parties. The Company will not accept goods or services from the Company's dealer manager or its affiliates or enter into any other transaction with the Company's dealer manager or its affiliates unless a majority of the Company's directors, including a majority of the independent directors, not otherwise interested in the transaction, approve such transaction as fair and reasonable to the Company and on terms and conditions not less favorable to the Company than those available from unaffiliated third parties.

14.	Operating Leases

	As of December 31, 2019
2020	$	288,579
2021	296,570
2022	298,582
2023	284,369
2024	248,114
Thereafter	1,089,718
Total	$	2,505,932

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	December 31, 2019
2020	$	1,629
2021	1,632
2022	1,675
2023	1,741
2024	1,776
Thereafter	286,739
Total undiscounted lease payments	295,192
Less imputed interest	(250,172		)
Total lease liabilities	$	45,020

	December 31, 2018
2019	$	1,032
2020	1,032
2021	1,032
2022	1,072
2023	1,422
Thereafter	199,024
Total	$	204,614

---

	2019
	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Total revenue	$	76,485			$	103,356			$	97,435			$	109,832
Income before other income and (expenses)	$	16,579			$	37,634			$	22,158			$	1,891
Net income (loss)	$	8,656			$	18,215			$	12,216			$	(2,043	)	(1)
Net income (loss) attributable to common stockholders	$	5,333			$	14,208			$	8,939			$	(3,693	)	(1)
Net income (loss) attributable to common stockholders per share	$	0.03			$	0.06			$	0.04			$	(0.02	)	(1)
	2018
	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Total revenue (2)	$	80,399			$	85,991			$	85,041			$	84,927
Income before other income and (expenses)	$	20,442			$	20,808			$	19,012			$	17,716
Net income	$	6,641			$	7,799			$	4,329			$	3,267
Net income attributable to common stockholders	$	6,319			$	7,431			$	2,854			$	1,012
Net income attributable to common stockholders per share	$	0.04			$	0.04			$	0.02			$	0.01

(1)	Primarily the result of impairment charges on the Company's real estate and investment in unconsolidated entities. See Note 4 & 5, Real Estate and Investments, respectively for additional detail.

(2)	Amounts were reclassified to conform to the current period presentation. See Note 2, Basis of Presentation and Summary of Significant Accounting Policies, for additional detail.

---

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

SCHEDULE III

REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION

(Dollars in thousands)

 

										Initial Cost to Company (2)								Total Adjustment to Basis				Gross Carrying Amount at December 31, 2019																				Life on which depreciation in latest income statement is computed
Property		Property Type		ST		Encumbrances (1)				Land				Building and Improvements				Building and Improvements				Land				Building and Improvements (2)				Total				Accumulated Depreciation and Amortization				Date of Construction		Date of Acquisition
Plainfield		Office		IL		$	—			$	3,709			$	22,209			$	7,344			$	3,709			$	29,553			$	33,262			$	14,206			N/A		6/18/2009		5-40 years
Renfro		Industrial		SC		12,816				1,400				18,182				2,012				1,400				20,194				21,594				8,757				N/A		6/18/2009		5-40 years
Emporia Partners		Industrial		KS		2,104				274				7,567				—				274				7,567				7,841				3,025				N/A		8/27/2010		5-40 years
AT&T		Office		WA		24,683				6,770				32,420				718				6,770				33,138				39,908				10,234				N/A		1/31/2012		5-40 years
Westinghouse		Office		PA		20,885				2,650				26,745				—				2,650				26,745				29,395				8,430				N/A		3/22/2012		5-40 years
TransDigm		Industrial		NJ		4,367				3,773				9,030				411				3,773				9,441				13,214				2,839				N/A		5/31/2012		5-40 years
Atrium II		Office		CO		9,019				2,600				13,500				8,087				2,600				21,587				24,187				6,393				N/A		6/29/2012		5-40 years
Zeller Plastik		Industrial		IL		8,543				2,674				13,229				651				2,674				13,880				16,554				3,710				N/A		11/8/2012		5-40 years
Northrop Grumman		Office		OH		10,324				1,300				16,188				39				1,300				16,227				17,527				6,542				N/A		11/13/2012		5-40 years
Health Net		Office		CA		12,815				4,182				18,072				324				4,182				18,396				22,578				7,730				N/A		12/18/2012		5-40 years
Comcast		Office		CO		14,105			(4)	3,146				22,826				1,593				3,146				24,419				27,565				9,578				N/A		1/11/2013		5-40 years
500 Rivertech		Office		WA		—				3,000				9,000				6,982				3,000				15,982				18,982				4,920				N/A		2/15/2013		5-40 years
Schlumberger		Office		TX		28,735				2,800				47,752				829				2,800				48,581				51,381				11,624				N/A		5/1/2013		5-40 years
UTC		Office		NC		22,712				1,330				37,858				—				1,330				37,858				39,188				9,973				N/A		5/3/2013		5-40 years
Avnet		Industrial		AZ		18,984				1,860				31,481				47				1,860				31,528				33,388				7,341				N/A		5/29/2013		5-40 years
Cigna		Office		AZ		39,000			(4)	8,600				48,102				133				8,600				48,235				56,835				12,717				N/A		6/20/2013		5-40 years
Nokia		Office		IL		—				7,697				21,843				—				7,697				21,843				29,540				4,894				N/A		8/13/2013		5-40 years
Verizon		Office		NJ		25,007				5,300				36,768				5,681				5,300				42,449				47,749				16,429				N/A		10/3/2013		5-40 years
Fox Head		Office		CA		—				3,672				23,230				—				3,672				23,230				26,902				5,090				N/A		10/29/2013		5-40 years
2500 Windy Ridge		Office		GA		—				5,000				50,227				17,824				5,000				68,051				73,051				14,882				N/A		11/5/2013		5-40 years
General Electric		Office		GA		—				5,050				51,396				148				5,050				51,544				56,594				10,959				N/A		11/5/2013		5-40 years
Atlanta Wildwood		Office		GA		—				4,241				23,414				5,445				4,241				28,859				33,100				9,008				N/A		11/5/2013		5-40 years
Community Insurance		Office		OH		—				1,177				22,323				—				1,177				22,323				23,500				5,188				N/A		11/5/2013		5-40 years
Anthem		Office		OH		—				850				8,892				175				850				9,067				9,917				2,808				N/A		11/5/2013		5-40 years

---

										Initial Cost to Company (2)								Total Adjustment to Basis				Gross Carrying Amount at December 31, 2019																				Life on which depreciation in latest income statement is computed
Property		Property Type		ST		Encumbrances (1)				Land				Building and Improvements				Building and Improvements				Land				Building and Improvements (2)				Total				Accumulated Depreciation and Amortization				Date of Construction		Date of Acquisition
JPMorgan Chase		Office		OH		—				5,500				39,000				586				5,500				39,586				45,086				9,696				N/A		11/5/2013		5-40 years
Sterling Commerce Center		Office		OH		—				4,750				32,769				4,307				4,750				37,076				41,826				12,021				N/A		11/5/2013		5-40 years
Aetna.		Office		TX		36,199			(4)	3,000				12,330				624				3,000				12,954				15,954				4,518				N/A		11/5/2013		5-40 years
CHRISTUS Health		Office		TX		—				1,950				46,922				357				1,950				47,279				49,229				13,580				N/A		11/5/2013		5-40 years
Roush Industries		Office		MI		—				875				11,375				2,449				875				13,824				14,699				3,593				N/A		11/5/2013		5-40 years
Parkland Center		Office		WI		—				3,100				26,348				10,825				3,100				37,173				40,273				16,544				N/A		11/5/2013		5-40 years
1200 Morris		Office		PA		—				2,925				18,935				2,278				2,925				21,213				24,138				7,724				N/A		11/5/2013		5-40 years
United HealthCare		Office		MO		—				2,920				23,510				6,764				2,920				30,274				33,194				7,431				N/A		11/5/2013		5-40 years
Intermec (Northpointe Corporate Center II)		Office		WA		—				1,109				6,066				4,576				1,109				10,642				11,751				3,221				N/A		11/5/2013		5-40 years
Comcast (Northpointe Corporate Center I)		Office		WA		39,650			(4)	2,292				16,930				2,324				2,292				19,254				21,546				4,829				N/A		11/5/2013		5-40 years
Farmers		Office		KS		—				2,750				17,106				816				2,750				17,922				20,672				5,366				N/A		12/27/2013		5-40 years
2200 Channahon Road		Industrial		IL		—				6,000				46,511				(15,695		)		3,537				33,279				36,816				14,276				N/A		1/7/2014		5-40 years
Digital Globe		Office		CO		—				8,600				83,400				—				8,600				83,400				92,000				19,091				N/A		1/14/2014		5-40 years
Waste Management		Office		AZ		—				—				16,515				82				—				16,597				16,597				4,607				N/A		1/16/2014		5-40 years
						—				—				—				—				—				—				—
Wyndham Worldwide		Office		NJ		—				6,200				91,153				1,171				6,200				92,324				98,524				16,350				N/A		4/23/2014		5-40 years
ACE Hardware Corporation HQ		Office		IL		22,750			(4)	6,900				33,945				—				6,900				33,945				40,845				7,392				N/A		4/24/2014		5-40 years
Equifax		Office		MO		—				1,850				12,709				194				1,850				12,903				14,753				3,913				N/A		5/20/2014		5-40 years
American Express		Office		AZ		—				15,000				45,893				375				15,000				46,268				61,268				18,300				N/A		5/22/2014		5-40 years
Circle Star		Office		CA		—				22,789				68,950				4,231				22,789				73,181				95,970				22,758				N/A		5/28/2014		5-40 years
Vanguard		Office		NC		—				2,230				31,062				—				2,230				31,062				33,292				7,152				N/A		6/19/2014		5-40 years
Parallon		Office		FL		7,120				1,000				16,772				—				1,000				16,772				17,772				3,828				N/A		6/25/2014		5-40 years
TW Telecom		Office		CO		—				10,554				35,817				1,474				10,554				37,291				47,845				9,166				N/A		8/1/2014		5-40 years
Equifax II		Office		MO		—				2,200				12,755				70				2,200				12,825				15,025				3,288				N/A		10/1/2014		5-40 years
Mason I		Office		OH		—				4,777				18,489				—				4,777				18,489				23,266				2,380				N/A		11/7/2014		5-40 years
Wells Fargo.		Office		NC		26,975			(4)	2,150				40,806				46				2,150				40,852				43,002				8,128				N/A		12/15/2014		5-40 years
GE Aviation		Office		OH		—				4,400				61,681				—				4,400				61,681				66,081				14,077				N/A		2/19/2015		5-40 years
Westgate III		Office		TX		—				3,209				75,937				—				3,209				75,937				79,146				13,333				N/A		4/1/2015		5-40 years
2275 Cabot Drive		Office		IL		—				2,788				16,200				53				2,788				16,253				19,041				6,276				N/A		6/10/2015		5-40 years
						—				—				—				—				—				—				—

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										Initial Cost to Company (2)								Total Adjustment to Basis				Gross Carrying Amount at December 31, 2019																				Life on which depreciation in latest income statement is computed
Property		Property Type		ST		Encumbrances (1)				Land				Building and Improvements				Building and Improvements				Land				Building and Improvements (2)				Total				Accumulated Depreciation and Amortization				Date of Construction		Date of Acquisition
Franklin Center		Office		MD		—				6,989				46,875				1,386				6,989				48,261				55,250				8,403				N/A		6/10/2015		5-40 years
4650 Lakehurst Court		Office		OH		—				2,943				22,651				808				2,943				23,459				26,402				6,781				N/A		6/10/2015		5-40 years
Miramar		Office		FL		—				4,488				19,979				2,221				4,488				22,200				26,688				4,268				N/A		6/10/2015		5-40 years
Royal Ridge V		Office		TX		21,385			(4)	1,842				22,052				3,622				1,842				25,674				27,516				4,373				N/A		6/10/2015		5-40 years
Duke Bridges		Office		TX		27,475			(4)	8,239				51,395				7,458				8,239				58,853				67,092				9,221				N/A		6/10/2015		5-40 years
Houston Westway II		Office		TX		—				3,961				78,668				507				3,961				79,175				83,136				17,452				N/A		6/10/2015		5-40 years
Houston Westway I		Office		TX		—				6,540				30,703				(15,039		)		3,382				18,822				22,204				6,104				N/A		6/10/2015		5-40 years
Atlanta Perimeter		Office		GA		69,461			(4)	8,382				96,718				679				8,382				97,397				105,779				25,393				N/A		6/10/2015		5-40 years
South Lake at Dulles		Office		VA		—				9,666				74,098				2,814				9,666				76,912				86,578				15,410				N/A		6/10/2015		5-40 years
Four Parkway		Office		IL		—				4,339				37,298				2,692				4,339				39,990				44,329				10,514				N/A		6/10/2015		5-40 years
Highway 94		Industrial		MO		15,610				5,637				25,280				—				5,637				25,280				30,917				5,080				N/A		11/6/2015		5-40 years
Heritage III		Office		TX		—				1,955				15,540				1,362				1,955				16,902				18,857				3,395				N/A		12/11/2015		5-40 years
Heritage IV		Office		TX		—				2,330				26,376				—				2,330				26,376				28,706				5,328				N/A		12/11/2015		5-40 years
Samsonite		Industrial		FL		21,154				5,040				42,490				—				5,040				42,490				47,530				6,183				N/A		12/11/2015		5-40 years
Restoration Hardware		Industrial		CA		78,000			(4)	15,463				36,613				37,693				15,463				74,306				89,769				14,996				N/A		1/14/2016		5-40 years
HealthSpring		Office		TN		20,723				8,126				31,447				—				8,126				31,447				39,573				5,478				N/A		4/27/2016		5-40 years
LPL		Office		SC		—				4,612				86,352				—				4,612				86,352				90,964				5,283				N/A		11/30/2017		5-40 years
LPL		Office		SC		—				1,274				41,509				—				1,274				41,509				42,783				2,541				N/A		11/30/2017		5-40 years
Quaker		Industrial		FL		—				5,433				55,341				—				5,433				55,341				60,774				3,060				N/A		3/13/2018		5-40 years
McKesson		Office		AZ		—				312				69,760				—				312				69,760				70,072				6,252				N/A		4/10/2018		5-40 years
Shaw Industries		Industrial		GA		—				5,465				57,116				—				5,465				57,116				62,581				2,957				N/A		5/3/2018		5-40 years
GEAR Entities		Land		WA		—				1,584				—				—				1,584				—				1,584				—				N/A		3/17/2016		5-40 years
Owens Corning		Industrial		NC		3,300				867				4,418				555				867				4,973				5,840				200				N/A		5/1/2019		5-40 years
Westgate II		Office		TX		34,200				7,716				48,422				870				7,716				49,292				57,008				2,023				N/A		5/1/2019		5-40 years
Administrative Office of Pennsylvania Courts		Office		PA		6,070				1,246				9,626				498				1,246				10,124				11,370				390				N/A		5/1/2019		5-40 years
American Express Center		Office		AZ		54,900				10,595				82,098				3,109				10,595				85,207				95,802				3,962				0		5/1/2019		5-40 years
MGM Corporate Center		Office		NV		18,180				4,546				25,825				1,076				4,546				26,901				31,447				1,123				0		5/1/2019		5-40 years
American Showa		Industrial		OH		10,320				1,214				16,538				2,427				1,214				18,965				20,179				637				N/A		5/1/2019		5-40 years

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										Initial Cost to Company (2)								Total Adjustment to Basis				Gross Carrying Amount at December 31, 2019																				Life on which depreciation in latest income statement is computed
Property		Property Type		ST		Encumbrances (1)				Land				Building and Improvements				Building and Improvements				Land				Building and Improvements (2)				Total				Accumulated Depreciation and Amortization				Date of Construction		Date of Acquisition
Huntington Ingalls		Industrial		VA		—				6,213				29,219				2,651				6,213				31,870				38,083				1,087				0		5/1/2019		5-40 years
Wyndham		Office		NJ		—				9,677				71,316				1,742				9,677				73,058				82,735				2,276				N/A		5/1/2019		5-40 years
Exel		Industrial		OH		—				978				14,137				2,568				978				16,705				17,683				778				N/A		5/1/2019		5-40 years
Morpho Detection		Office		MA		—				2,006				10,270				484				2,006				10,754				12,760				406				N/A		5/1/2019		5-40 years
						—				—				—				—				—				—				—
Aetna		Office		AZ		—				2,332				18,486				1,598				2,332				20,084				22,416				803				N/A		5/1/2019		5-40 years
Bank of America I		Office		CA		—				5,737				22,479				1,318				5,737				23,797				29,534				1,332				N/A		5/1/2019		5-40 years
Bank of America II		Office		CA		—				5,735				15,461				2,217				5,735				17,678				23,413				2,498				N/A		5/1/2019		5-40 years
Atlas Copco		Office		MI		—				1,156				18,297				1,505				1,156				19,802				20,958				693				N/A		5/1/2019		5-40 years
Toshiba TEC		Office		NC		—				1,916				36,374				2,423				1,916				38,797				40,713				1,301				N/A		5/1/2019		5-40 years
NETGEAR		Office		CA		—				22,600				28,859				1,700				22,600				30,559				53,159				1,521				N/A		5/1/2019		5-40 years
Nike		Office		OR		—				8,186				41,184				2,164				8,186				43,348				51,534				3,132				0		5/1/2019		5-40 years
Zebra Technologies		Office		IL		—				5,927				58,688				1,234				5,927				59,922				65,849				2,472				N/A		5/1/2019		5-40 years
WABCO		Industrial		SC		—				1,226				13,902				779				1,226				14,681				15,907				345				N/A		5/1/2019		5-40 years
IGT		Office		NV		45,300			(4)	5,673				67,610				2,021				5,673				69,631				75,304				1,804				0		5/1/2019		5-40 years
3M		Industrial		IL		43,600			(4)	5,802				75,758				6,391				5,802				82,149				87,951				1,759				N/A		5/1/2019		5-40 years
Amazon		Industrial		OH		61,500			(4)	4,773				95,475				11,546				4,773				107,021				111,794				2,725				N/A		5/1/2019		5-40 years
Zoetis		Office		NJ		—				3,718				44,082				735				3,718				44,817				48,535				1,310				N/A		5/1/2019		5-40 years
Southern Company		Office		AL		99,600			(4)	7,794				157,724				1,457				7,794				159,181				166,975				3,051				N/A		5/1/2019		38 years
Allstate		Office		CO		—				3,109				13,096				553				3,109				13,649				16,758				487				N/A		5/1/2019		5-40 years
MISO		Office		IN		—				3,725				25,848				971				3,725				26,819				30,544				831				N/A		5/1/2019		5-40 years
McKesson II		Office		AZ		—				—				36,959				4,681				—				41,640				41,640				561				N/A		9/20/2019		5-40 years
Others						—				—				—				95				—				95				95				10
Total all properties (3)						$	1,017,571			$	463,960			$	3,622,552			$	191,921			$	458,339			$	3,820,094			$	4,278,433			$	668,104

(1)	Amount does not include the net loan valuation discount of $1.1 million related to the debt assumed in the Highway 94, Samsonite and HealthSpring, Owens Corning, Westgate II, AOPC, IPC/TRWC (AMEX), MGM, American Showa and BAML properties.

(2)	Building and improvements include tenant origination, absorption costs and construction in progress.

(3)	As of December 31, 2019, the aggregate cost of real estate the Company and consolidated subsidiaries own for federal income tax purposes was approximately $4.2 billion (unaudited).

(4)	The Bank of America Loan is secured by cross-collateralized and cross-defaulted first mortgage liens on the properties.

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	Activity for the Year Ended December 31,
	2019				2018				2017
Real estate facilities
Balance at beginning of year	$	3,073,364			$	2,869,328			$	3,024,389
Acquisitions	1,305,998				193,430				133,747
Improvements	47,566				6,264				12,479
Construction-in-progress	3,874				20,619				1,752
Other adjustments	—				—				(2,785		)
Impairment Write Down	(30,734		)		—				(2,352		)
Sale of real estate assets	(121,635		)		(16,277		)		(297,902		)
Balance at end of year	$	4,278,433			$	3,073,364			$	2,869,328
Accumulated depreciation
Balance at beginning of year	$	538,412			$	426,752			$	338,552
Depreciation and amortization expense	153,425				119,168				116,583
Less: Non-real estate assets depreciation expense	(7,769		)		(3,584		)		(1,554		)
Less: Sale of real estate assets depreciation expense	(15,964		)		(3,924		)		(26,829		)
Balance at end of year	$	668,104			$	538,412			$	426,752
Real estate facilities, net	$	3,610,329			$	2,534,952			$	2,442,576