PKST 10-Q Quarterly Report March 31, 2020

PKST 10-Q Quarter ended March 31, 2020

Exhibits

Exhibits

PEAKSTONE REALTY TRUST

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10-Q 1 gcear3312020_10-q.htm 10-Q Document

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________________________________

FORM 10-Q

____________________________________________________



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-55605

_______________________________________________

Griffin Capital Essential Asset REIT, Inc.

(Exact name of Registrant as specified in its charter)

________________________________________________



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

1520 E. Grand Ave

El Segundo, California 90245

(Address of principal executive offices)

(310) 469-6100

(Registrant’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed from last report.)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 8, 2020 there were 554,112 shares of Class T common stock, 1,802 shares of Class S common stock, 40,585 shares of Class D common stock, 1,890,912 shares of Class I common stock, 24,245,556 shares of Class A common stock, 47,108,812 shares of Class AA common stock, 915,611 shares of Class AAA common stock, and 155,120,500 shares of Class E common stock of Griffin Capital Essential Asset REIT, Inc. outstanding.

Table of Contents

FORM 10-Q

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

TABLE OF CONTENTS



		Page No.
PART I. FINANCIAL INFORMATION
	Cautionary Note Regarding Forward-Looking Statements	3
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (unaudited)	4
	Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019 (unaudited)	5
	Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019 (unaudited)	6
	Consolidated Statements of Equity for the Three Months Ended March 31, 2020 and 2019 (unaudited)	7
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (unaudited)	8
	Notes to Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	47
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	49
SIGNATURES		51

Table of Contents

PART I. FINANCIAL INFORMATION

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Griffin Capital Essential Asset REIT, Inc., other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Such forward-looking statements may discuss, among other things, our future capital expenditures, distributions and acquisitions (including the amount and nature thereof), business strategies, the expansion and growth of our operations, our net sales, gross margin, operating expenses, operating income, net income, cash flow, financial condition, impairments, expenditures, capital structure, organizational structure, and other developments and trends of the real estate industry. Such statements are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, including without limitation changes in the political and economic climate, economic conditions and fiscal imbalances in the United States, and other major developments, including wars, natural disasters, epidemics and pandemics, including the outbreak of novel coronavirus (COVID-19), military actions, and terrorist attacks. The occurrence or severity of any such event or circumstance is difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations and provide distributions to stockholders, our ability to find suitable investment properties, and our ability to be in compliance with certain debt covenants, may be significantly hindered. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission (the "SEC"). We cannot guarantee the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws and regulations.

See the risk factors identified in Part II, Item 1A of this Form 10-Q and in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the SEC for a discussion of some, although not all, of the risks and uncertainties that could cause actual results to differ materially from those presented in our forward-looking statements.

Explanatory Note Regarding Financial Information

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

Available Information

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

Table of Contents

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except units and share amounts)



	March 31, 2020			December 31, 2019
ASSETS
Cash and cash equivalents	$	50,829		$	54,830
Restricted cash	44,764			58,430
Real estate:
Land	461,745			458,339
Building and improvements	3,081,397			3,043,527
Tenant origination and absorption cost	749,743			744,773
Construction in progress	33,455			31,794
Total real estate	4,326,340			4,278,433
Less: accumulated depreciation and amortization	(708,369		)	(668,104		)
Total real estate, net	3,617,971			3,610,329
Investments in unconsolidated entities	8,250			11,028
Intangible assets, net	12,085			12,780
Deferred rent receivable	76,773			73,012
Deferred leasing costs, net	49,379			49,390
Goodwill	229,948			229,948
Due from affiliates	635			837
Right of use asset	40,991			41,347
Other assets	34,304			33,571
Total assets	$	4,165,929		$	4,175,502
LIABILITIES AND EQUITY
Debt, net	$	2,076,817		$	1,969,104
Restricted reserves	13,805			14,064
Interest rate swap liability	55,004			24,146
Redemptions payable	5,238			96,648
Distributions payable	15,130			15,530
Due to affiliates	7,471			10,883
Intangible liabilities, net	30,987			31,805
Lease liability	45,174			45,020
Accrued expenses and other liabilities	98,688			96,389
Total liabilities	2,348,314			2,303,589
Commitments and contingencies (Note 13)
Perpetual convertible preferred shares	125,000			125,000
Common stock subject to redemption	105,745			20,565
Noncontrolling interests subject to redemption; 555,602 and 554,110 units as of March 31, 2020 and December 31, 2019 respectively.	4,831			4,831
Stockholders’ equity:
Common stock, $0.001 par value; 800,000,000 shares authorized; 229,671,555 and 227,853,720 shares outstanding in the aggregate as of March 31, 2020 and December 31, 2019 _(1), respectively	230			228
Additional paid-in capital	1,992,717			2,060,604
Cumulative distributions	(753,129		)	(715,792		)
Accumulated earnings	154,049			153,312
Accumulated other comprehensive loss	(48,993		)	(21,875		)
Total stockholders’ equity	1,344,874			1,476,477
Noncontrolling interests	237,165			245,040
Total equity	1,582,039			1,721,517
Total liabilities and equity	$	4,165,929		$	4,175,502

(1) See Note 9 , Equity , for the number of shares outstanding of each class of common stock as of March 31, 2020 .

See accompanying notes.

Table of Contents

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except share and per share amounts)



	Three Months Ended March 31,
	2020			2019
Revenue:
Rental income	$	95,728		$	76,485
Expenses:
Property operating expense	14,971			11,516
Property tax expense	9,548			7,890
Property management fees to non-affiliates	909			916
General and administrative expenses	7,665			4,533
Corporate operating expenses to affiliates	625			274
Depreciation and amortization	41,148			34,777
Total expenses	74,866			59,906
Income before other income and (expenses)	20,862			16,579
Other income (expenses):
Interest expense	(19,961		)	(13,807		)
Other income, net	2,700			1,791
Loss from investment in unconsolidated entities	(627		)	(648		)
Management fee revenue from affiliates	—			4,741
Net income	2,974			8,656
Distributions to redeemable preferred shareholders	(2,047		)	(2,047		)
Net income attributable to noncontrolling interests	(111		)	(1,197		)
Net income attributable to controlling interest	816			5,412
Distributions to redeemable noncontrolling interests attributable to common stockholders	(79		)	(79		)
Net income attributable to common stockholders	$	737		$	5,333
Net income attributable to common stockholders per share, basic and diluted	$	—		$	0.03
Weighted average number of common shares outstanding, basic and diluted	229,810,621			168,505,898
Cash distributions declared per common share	$	0.14		$	0.17

See accompanying notes.

Table of Contents

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited; in thousands)



	Three Months Ended March 31,
	2020			2019
Net income	$	2,974		$	8,656
Other comprehensive income (loss):
Equity in other comprehensive (loss) income of unconsolidated joint venture	—			(89		)
Change in fair value of swap agreements	(30,826		)	(8,048		)
Total comprehensive (loss) income	(27,852		)	519
Distributions to redeemable preferred shareholders	(2,047		)	(2,047		)
Distributions to redeemable noncontrolling interests attributable to common stockholders	(79		)	(79		)
Comprehensive loss attributable to noncontrolling interests	3,596			211
Comprehensive loss attributable to common stockholders	$	(26,382	)	$	(1,396	)

See accompanying notes.

Table of Contents

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited; in thousands, except share data)



	Common Stock				Additional Paid-In Capital			Cumulative Distributions			Accumulated Income (Deficit)		Accumulated Other Comprehensive (Loss) Income			Total Stockholders’ Equity			Non- controlling Interests			Total Equity
	Common Stock
	Shares		Amount
Balance as of December 31, 2018	174,278,341		$	174	$	1,556,770		$	(570,977	)	$	128,525	$	(2,409	)	$	1,112,083		$	232,203		$	1,344,286
Deferred equity compensation	7,336		—		75			—			—		—			75			—			75
Cash distributions to common stockholders	—		—		—			(21,803		)	—		—			(21,803		)	—			(21,803		)
Issuance of shares for distribution reinvestment plan	695,872		1		6,672			(6,673		)	—		—			—			—			—
Reclassification of common stock subject to redemption	—		—		(6,673		)	—			—		—			(6,673		)	—			(6,673		)
Distributions to noncontrolling interests	—		—		—			—			—		—			—			(4,585		)	(4,585		)
Distributions to noncontrolling interests subject to redemption	—		—		—			—			—		—			—			(13		)	(13		)
Offering costs	—		—		(9		)	—			—		—			(9		)	—			(9		)
Net income	—		—		—			—			5,333		—			5,333			1,197			6,530
Other comprehensive loss	—		—		—			—			—		(6,729		)	(6,729		)	(1,408		)	(8,137		)
Balance as of March 31, 2019	174,981,549		$	175	$	1,556,835		$	(599,453	)	$	133,858	$	(9,138	)	$	1,082,277		$	227,394		$	1,309,671

Balance as of December 31, 2019	227,853,720		228		2,060,604			(715,792		)	153,312		(21,875		)	1,476,477			245,040			1,721,517
Gross proceeds from issuance of common stock	433,328		—		4,141			—			—		—			4,141			—			4,141
Deferred equity compensation	17,836		—		984			—			—		—			984			—			984
Cash distributions to common stockholders	—		—		—			(23,627		)	—		—			(23,627		)	—			(23,627		)
Issuance of shares for distribution reinvestment plan	1,297,656		1		12,116			(7,962		)	—		—			4,155			—			4,155
Repurchase of common stock	(548,312	)	—		(5,110		)	—			—		—			(5,110		)	—			(5,110		)
Reclass of common stock subject to redemption	—		—		(85,180		)	—			—		—			(85,180		)	—			(85,180		)
Issuance of stock dividend for noncontrolling interest	—		—		—			—			—		—			—			802			802
Issuance of stock dividends	617,327		1		5,766			(5,748		)	—		—			19			—			19
Distributions to noncontrolling interest	—		—		—			—			—		—			—			(5,069		)	(5,069		)
Distributions to noncontrolling interests subject to redemption	—		—		—			—			—		—			—			(11		)	(11		)
Offering costs	—		—		(604		)	—			—		—			(604		)	—			(604		)
Net income	—		—		—			—			737		—			737			111			848
Other comprehensive loss	—		—		—			—			—		(27,118		)	(27,118		)	(3,708		)	(30,826		)
Balance as of March 31, 2020	229,671,555		$	230	$	1,992,717		$	(753,129	)	$	154,049	$	(48,993	)	$	1,344,874		$	237,165		$	1,582,039

See accompanying notes.

Table of Contents

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)



	Three Months Ended March 31,
	2020			2019
Operating Activities:
Net income	$	2,974		$	8,656
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of building and building improvements	22,673			14,766
Amortization of leasing costs and intangibles, including ground leasehold interests and leasing costs	18,475			20,376
Amortization of below market leases, net	(763		)	(915		)
Amortization of deferred financing costs and debt premium	632			733
Amortization of swap interest	32			39
Deferred rent	(3,761		)	(1,954		)
Deferred rent, ground lease	510			—
Gain on fair value of earn-out	(2,581		)	—
Loss from investment in unconsolidated entities	627			648
Loss from investments	136			293
Stock-based compensation	984			75
Performance distribution allocation (non-cash)	—			(1,920		)
Change in operating assets and liabilities:
Deferred leasing costs and other assets	(4,010		)	(1,533		)
Restricted reserves	190			181
Accrued expenses and other liabilities	4,364			(3,106		)
Due to affiliates, net	(928		)	4,717
Net cash provided by operating activities	39,554			41,056
Investing Activities:
Acquisition of properties, net	(16,584		)	—
Real estate acquisition deposits	1,047			500
Reserves for tenant improvements	(330		)	—
Payments for construction in progress	(12,587		)	(7,821		)
Distributions of capital from investment in unconsolidated entities	2,151			1,779
Improvements to real estate	—			(47		)
Purchase of investments	(810		)	—
Net cash used in investing activities	(27,113		)	(5,589		)
Financing Activities:
Proceeds from borrowings - KeyBank Loans	90,000			—
Principal amortization payments on secured indebtedness	(1,722		)	(1,619		)
Offering costs	(303		)	—
Repurchase of common stock	(96,520		)	—
Issuance of common stock, net of discounts and underwriting costs	4,699			—
Payment of offering costs - preferred shares	—			(9		)
Distributions to noncontrolling interests	(4,362		)	(3,469		)
Distributions to preferred units subject to redemption	(2,047		)	(2,047		)
Distributions to common stockholders	(19,853		)	(25,280		)
Net cash used in financing activities	(30,108		)	(32,424		)

Table of Contents



	Three Months Ended March 31,
	2020			2019
Net (decrease) increase in cash, cash equivalents and restricted cash	$	(17,667	)	$	3,043
Cash, cash equivalents and restricted cash at the beginning of the period	113,260			64,285
Cash, cash equivalents and restricted cash at the end of the period	$	95,593		$	67,328
Supplemental Disclosures of Cash Flow Information:
Supplemental Disclosures of Significant Non-Cash Transactions:
Decrease in fair value swap agreement	$	(30,826	)	$	(8,079	)
Distributions payable to common stockholders	$	12,692		$	6,322
Distributions payable to noncontrolling interests	$	1,753		$	1,609
Common stock issued pursuant to the distribution reinvestment plan	$	12,117		$	6,673
Common stock redemptions funded subsequent to period-end	$	5,238		$	—
Issuance of stock dividends	$	5,747		$	—
Mortgage debt assumed in conjunction with the acquisition of real estate assets plus a premium of $109	$	18,884		$	—
Payable for construction in progress	$	15,919		$	2,222
Operating lease right-of-use assets obtained in exchange for lease liabilities upon adoption of ASC 842 on January 1, 2019	$	—		$	27,573

See accompanying notes.

Table of Contents

GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


1.	Organization

Griffin Capital Essential Asset REIT, Inc. (“GCEAR”), is a self-managed 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. GCEAR’s year-end date is December 31.

On December 14, 2018, GCEAR, Griffin Capital Essential Asset Operating Partnership II, L.P. (the “GCEAR II Operating Partnership”), GCEAR’s wholly-owned subsidiary Globe Merger Sub, LLC (“Merger Sub”), the entity formerly known as Griffin Capital Essential Asset REIT, Inc. (“EA-1”), and Griffin Capital Essential Asset Operating Partnership, L.P. (the “EA-1 Operating Partnership”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). On April 30, 2019, pursuant to the Merger Agreement, (i) EA-1 merged with and into Merger Sub, with Merger Sub surviving as GCEAR’s direct, wholly-owned subsidiary (the “Company Merger”) and (ii) the GCEAR II Operating Partnership merged with and into the EA-1 Operating Partnership (the “Partnership Merger” and, together with the Company Merger, the “Mergers”), with the EA-1 Operating Partnership (and now known as the “Current Operating Partnership”) surviving the Partnership Merger. In addition, on April 30, 2019, following the Mergers, Merger Sub merged into GCEAR. In connection with the Mergers, the Company converted EA-1’s Series A cumulative perpetual convertible preferred stock into GCEAR’s newly created Series A cumulative perpetual convertible preferred stock (the “Series A Preferred Shares”). Also on April 30, 2019, the Company converted each EA-1 Operating Partnership unit outstanding into 1.04807 Class E units in the Current Operating Partnership and each unit outstanding in the GCEAR II Operating Partnership converted into one unit of like class in the Current Operating Partnership (the “OP Units”). Griffin Capital Real Estate Company, LLC (“GRECO”) is the Company's subsidiary and is the entity through which the Company conducts advisory, asset management, and property management businesses.

In addition, on December 14, 2018, EA-1 and the EA-1 Operating Partnership entered into a series of transactions, agreements, and amendments to EA-1’s existing agreements and arrangements with EA-1’s former sponsor, Griffin Capital Company, LLC (“GCC”), and Griffin Capital, LLC (“GC LLC”), pursuant to which GCC and GC LLC contributed all of the membership interests of Griffin Capital Real Estate Company, LLC (“GRECO”) (including the GRECO employees) and certain assets related to the business of GRECO to the EA-1 Operating Partnership (the "Self-Administration Transaction). As a result of the Self-Administration Transaction, EA-1 became self-managed and acquired the advisory, asset management and property management business of GRECO. In connection with the Mergers, many of the agreements and amendments entered into by EA-1 as part of the Self-Administration Transaction were assumed by GCEAR pursuant to the Mergers.

In connection with the Mergers, GCEAR was the legal acquirer and EA-1 was the accounting acquirer for financial reporting purposes, as discussed in Note 3, Real Estate . T hus, the financial information set forth herein subsequent to the Mergers reflects results of the combined entity, and the financial information set forth herein prior to the Mergers reflects EA-1’s results. For this reason, period to period comparisons may not be meaningful.

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

On September 20, 2017, GCEAR commenced a follow-on offering of up to $2.2 billion of shares (the “Follow-On Offering”), consisting of up to $2.0 billion of shares in GCEAR’s primary offering and $0.2 billion of shares pursuant to its distribution reinvestment plan ("DRP"). Since September 20, 2017, the Company had issued 10,142,991 shares of common stock for aggregate gross proceeds of approximately $96.9 million in its offerings. See Note 9 Equity , for the status of the Follow-On Offering and DRP.

The Current Operating Partnership owns, directly or indirectly, all of the properties that the Company has acquired. As of March 31, 2020 , the Company owned approximately 87.8% of the OP Units of the Current Operating Partnership. As a result of the contribution of five properties to the Company and the Self-Administration Transaction, the former sponsor and certain of its affiliates owned approximately 10.6% of the limited partnership units of the Current Operating Partnership, including approximately 2.4 million units owned by the Company’s Executive Chairman and Chairman of the Board, Kevin A. Shields, as of March 31, 2020 . The remaining approximately 1.6% OP Units are owned by unaffiliated third parties. The Current Operating Partnership may conduct certain activities through one or more of the Company’s taxable REIT subsidiaries, which are wholly-owned subsidiaries of the Current Operating Partnership.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)

1. Organization (continued)

As of March 31, 2020 , the Company had issued 283,199,815 shares of common stock since November 9, 2009. The Company has received aggregate gross offering proceeds of approximately $2.8 billion from the sale of shares in its various private offerings, public offerings, and DRP offerings (shares and gross offering proceeds include EA-1 amounts). The Company also issued approximately 43,772,611 shares of its common stock upon the consummation of the merger of Signature Office REIT, Inc. in June 2015. There were 229,671,555 shares of common stock outstanding as of March 31, 2020 , including shares issued pursuant to the DRP, less shares redeemed pursuant to the share redemption program ("SRP") and self-tender offer. As of March 31, 2020 and December 31, 2019 , the Company had issued approximately $305.8 million and $293.7 million in shares pursuant to the DRP, respectively. As of March 31, 2020 , $105.7 million in shares submitted for redemption subject to the Company's quarterly cap on aggregate redemptions are classified on the consolidated balance sheet as common stock subject to redemption.


2.	Basis of Presentation and Summary of Significant Accounting Policies

There have been no significant changes to the Company’s accounting policies since the Company filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2019 . For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC.

The accompanying unaudited consolidated financial statements of the Company are prepared by management on the accrual basis of accounting and in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and in conjunction with rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited consolidated financial statements include accounts and related adjustments, which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim period. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 . These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 . In addition, see the risk factors identified in Part II, Item 1A of this Form 10-Q and in the “Risk Factors” section of the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

The consolidated financial statements of the Company include all accounts of the Company, the Current Operating Partnership, and its subsidiaries. Intercompany transactions are not shown on the consolidated statements. However, each property-owning entity is a wholly-owned subsidiary which is a special purpose entity ("SPE"), whose assets and credit are not available to satisfy the debts or obligations of any other entity, except to the extent required with respect to any co-borrower or guarantor under the same credit facility.

Use of Estimates

The preparation of the unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.

Per Share Data

The Company reports earnings per share for the period as (1) basic earnings per share computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period, and (2) diluted earnings per share computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding, including common stock equivalents. As of March 31, 2020 and December 31, 2019 , there were no material common stock equivalents that would have a dilutive effect on earnings (loss) per share for common stockholders.

During the quarter ended March 31, 2020 , the Company retroactively adjusted the number of common shares outstanding in accordance with ASC 260-10, Earnings Per Share ("ASC 260-10"). ASC 260-10 requires the computations of basic and diluted earnings per share to be adjusted retroactively for all periods presented to reflect the change in capital structure if the number of common shares outstanding increases as a result of a stock dividend or stock split or decreases as a result of a reverse stock split. If changes in common stock resulting from stock dividends, stock splits, or reverse stock splits occur after the close of the period but before the consolidated financial statements are issued or are available to be issued, the per share computations for those and any prior period consolidated financial statements presented shall be based on the new number of shares.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


2.	Basis of Presentation and Summary of Significant Accounting Policies (continued)

Segment Information

ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive information about a public entity’s reportable segments. The Company internally evaluates all of the properties and interests therein as one reportable segment.

Goodwill

Goodwill represents the excess of consideration paid over the fair value of underlying identifiable net assets of business acquired. The Company's goodwill has an indeterminate life and is not amortized, but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company takes a qualitative approach to consider whether an impairment of goodwill exists prior to quantitatively determining the fair value of the reporting unit in step one of the impairment test. The Company performs its annual assessment on October 1st.

Recently Issued Accounting Pronouncements

Changes to GAAP are established by the FASB in the form of ASUs to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. Other than the ASUs discussed below, the FASB has not recently issued any other ASUs that the Company expects to be applicable and have a material impact on the Company's financial statements.

Adoption of New Accounting Pronouncements

During the first quarter of 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

3. Real Estate

As of March 31, 2020 , the Company’s real estate portfolio consisted of 100 properties in 25 states consisting substantially of office, warehouse, and manufacturing facilities and one land parcel held for future development with a combined acquisition value of approximately $4.2 billion , including the allocation of the purchase price to above- and below-market lease valuation.

Depreciation expense for buildings and improvements for the three months ended March 31, 2020 was $22.7 million . Amortization expense for intangibles, including, but not limited to, tenant origination and absorption costs for the three months ended March 31, 2020 was $18.5 million .

2020 Acquisitions

The purchase price and other acquisition items for the property acquired during the three months ended March 31, 2020 are shown below:

Property

Location

Tenant/Major Lessee

Acquisition Date

Purchase Price

Square Feet

Acquisition Fees and Expenses

Year of Lease Expiration

Pepsi Bottling Ventures

North Carolina

PepsiCo

2/5/2020

$34,937

526,320

$386

2032

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)

Real Estate - Valuation and Purchase Price Allocation

The Company allocates the purchase price to the relative fair value of the tangible assets of a property by valuing the property as if it were vacant. This “as-if vacant” value is estimated using an income, or discounted cash flow, approach that relies upon Level 3 inputs, which are unobservable inputs based on the Company's review of the assumptions a market participant would use. These Level 3 inputs include discount rates, capitalization rates, market rents and comparable sales data for similar properties. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. In calculating the “as-if vacant” value for the acquisition completed during the three months ended March 31, 2020 , the Company used a discount rate of 5.50% to 6.25% .

In determining the fair value of intangible lease assets or liabilities, the Company also considers Level 3 inputs. Acquired above and below-market leases are valued based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases, if applicable. The estimated fair value of acquired in-place at-market tenant leases are the costs that would have been incurred to lease the property to the occupancy level of the property at the date of acquisition. Such estimates include the value associated with leasing commissions, legal and other costs, as well as the estimated period necessary to lease such property that would be incurred to lease the property to its occupancy level at the time of its acquisition. Acquisition costs associated with asset acquisitions are capitalized during the period they are incurred.

The following table summarizes the purchase price allocation of the property acquired during the three months ended March 31, 2020 .



Acquisition	Land Value		Building		Improvements		Tenant origination and absorption costs		In-place lease valuation - (below) market			Debt discount (premium)			Total ⁽¹⁾
Pepsi Bottling Ventures	$	3,407	$	26,813	$	954	$	4,970	$	(712	)	$	(109	)	$	35,323


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

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)

3. Real Estate (continued)

Intangibles

The Company allocated a portion of the acquired and contributed real estate asset value to in-place lease valuation, tenant origination and absorption cost, and other intangibles, net of the write-off of intangibles, as of March 31, 2020 and December 31, 2019 :



	March 31, 2020			December 31, 2019
In-place lease valuation (above market)	$	44,012		$	44,012
In-place lease valuation (above market) - accumulated amortization	(34,011		)	(33,322		)
In-place lease valuation (above market), net	10,001			10,690

Ground leasehold interest (below market)	2,254			2,254
Ground leasehold interest (below market) - accumulated amortization	(170		)	(164		)
Ground leasehold interest (below market), net	2,084			2,090
Intangible assets, net	$	12,085		$	12,780

In-place lease valuation (below market)	$	(68,335	)	$	(67,622	)
Land Leasehold interest (above market)	(3,072		)	(3,073		)
In-place lease valuation & land leasehold interest - accumulated amortization	40,420			38,890
Intangible liabilities, net	$	(30,987	)	$	(31,805	)

Tenant origination and absorption cost	$	749,743		$	744,773
Tenant origination and absorption cost - accumulated amortization	(371,971		)	(354,379		)
Tenant origination and absorption cost, net	$	377,772		$	390,394

The following table sets forth the estimated annual amortization (income) expense for in-place lease valuation, net, tenant origination and absorption costs, ground leasehold improvements, and other leasing costs as of March 31, 2020 for the next five years:



Year	In-place lease valuation, net			Tenant origination and absorption costs		Ground leasehold interest			Other leasing costs
Remaining 2020	$	(1,386	)	$	46,667	$	(218	)	$	3,994
2021	$	(2,119	)	$	57,989	$	(290	)	$	5,923
2022	$	(2,519	)	$	54,886	$	(290	)	$	5,911
2023	$	(2,466	)	$	50,084	$	(290	)	$	5,783
2024	$	(1,649	)	$	37,724	$	(291	)	$	5,514
2025	$	(1,182	)	$	27,447	$	(290	)	$	5,397

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)

3. Real Estate (continued)

Restricted Cash

In conjunction with the acquisition of certain assets, as required by certain lease provisions or certain lenders in conjunction with an acquisition or debt financing, or credits received by the seller of certain assets, the Company assumed or funded reserves for specific property improvements and deferred maintenance, re-leasing costs, and taxes and insurance, which are included on the consolidated balance sheets as restricted cash. Additionally, an ongoing replacement reserve is funded by certain tenants pursuant to each tenant’s respective lease as follows:



	Balance as of
	March 31, 2020		December 31, 2019
Cash reserves ⁽¹⁾	$	34,087	$	48,129
Restricted Lockbox	10,677		10,301
Total	$	44,764	$	58,430

^{(1) Approximately} ^{$13.3 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.}

4. Investments in Unconsolidated Entities

Heritage Commons X, LTD

In June 2018, the Company, through an SPE, wholly owned by the Current Operating Partnership, formed a joint venture (the "Heritage Common X") for the construction and ownership of a four-story, Class "A" office building with a net rentable area of approximately 200,000 square feet located in Fort Worth, Texas (the "Heritage Commons Property"). The Heritage Commons Property was completed in April 2019 and is 100% leased to Mercedes-Benz Financial Services USA.

On July 17, 2019, Heritage Common X sold the Heritage Trace Parkway property located in Fort Worth, TX. The remaining balance as of March 31, 2020 represents approximately $0.4 million of escrow holdback deposit.

Digital Realty Trust, Inc.

In September 2014, the Company, through an SPE, wholly owned by the Current Operating Partnership, acquired an 80% interest in a joint venture with an affiliate of Digital Realty Trust, Inc. for $68.4 million , which was funded with equity proceeds raised in the Company's public offerings. The gross acquisition value of the property was $187.5 million , plus closing costs, which was partially financed with debt of $102.0 million . The joint venture was created for purposes of directly or indirectly acquiring, owning, financing, operating and maintaining a data center facility located in Ashburn, Virginia (the "Property"). The Property is approximately 132,300 square feet and consists of certain data processing and communications equipment that is fully leased to a social media company and a financial services company with an average remaining lease term of approximately three years .

The interests discussed above are deemed to be variable interests in variable interest entities ("VIE") and, based on an evaluation of the variable interests against the criteria for consolidation, the Company determined that it is not the primary beneficiary of the investments, as the Company does not have power to direct the activities of the entities that most significantly affect their performance. As such, the interest in the VIEs are recorded using the equity method of accounting in the accompanying consolidated financial statements. Under the equity method, the investments in the unconsolidated entities are stated at cost and adjusted for the Company’s share of net earnings or losses and reduced by distributions. Equity in earnings of real estate ventures is generally recognized based on the allocation of cash distributions upon liquidation of the investment at book value in accordance with the operating agreements. The Company's maximum exposure to losses associated with its unconsolidated investments is primarily limited to its carrying value in the investments.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)

4. Investments in Unconsolidated Entities (continued)

As of March 31, 2020 , the balance of the investments are shown below:



	Digital Realty Joint Venture			Heritage Common X		Total
Balance as of December 31, 2019	$	10,584		$	444	$	11,028
Net (loss)	(627		)	—		(627		)
Distributions	(2,151		)	—		(2,151		)
March 31, 2020	$	7,806		$	444	$	8,250


5 .	Debt

As of March 31, 2020 and December 31, 2019 , the Company’s debt consisted of the following:



	March 31, 2020			December 31, 2019			Contractual Interest Rate ⁽¹⁾	Loan Maturity	Effective Interest Rate ⁽²⁾
HealthSpring Mortgage Loan	$	20,595		$	20,723		4.18%	April 2023	4.61%
Midland Mortgage Loan	99,733			100,249			3.94%	April 2023	4.12%
Emporia Partners Mortgage Loan	1,987			2,104			5.88%	September 2023	5.97%
Samsonite	20,912			21,154			6.08%	September 2023	5.13%
Highway 94 loan	15,383			15,610			3.75%	August 2024	4.74%
Pepsi Bottling Ventures Loan	18,855			—			3.69%	October 2024	3.91%
AIG Loan II	126,970			126,970			4.15%	November 2025	4.92%
BOA Loan	375,000			375,000			3.77%	October 2027	3.91%
BOA/KeyBank Loan	250,000			250,000			4.32%	May 2028	4.14%
AIG Loan	105,298			105,762			4.96%	February 2029	5.08%
Total Mortgage Debt	1,034,733			1,017,572
Revolving Credit Facility ⁽³⁾	301,500			211,500			LIBO Rate + 1.45%	June 2023	3.15%
2023 Term Loan	200,000			200,000			LIBO Rate + 1.40%	June 2023	3.08%
2024 Term Loan	400,000			400,000			LIBO Rate + 1.40%	April 2024	3.07%
2026 Term Loan	150,000			150,000			LIBO Rate + 1.75%	April 2026	3.39%
Total Debt	2,086,233			1,979,072
Unamortized Deferred Financing Costs and Discounts, net	(9,416		)	(9,968		)
Total Debt, net	$	2,076,817		$	1,969,104


(1)	Including the effect of the interest rate swaps agreements with a total notional amount of $750.0 million , the weighted average interest rate as of March 31, 2020 was 3.66% for both the Company’s fixed-rate and variable-rate debt combined and 3.62% for the Company’s fixed-rate debt only.


(2)	Reflects the effective interest rate as of March 31, 2020 and includes the effect of amortization of discounts/premiums and deferred financing costs.


(3)	The LIBO rate as of March 2, 2020 (effective date) was 1.58% . 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.

Second Amended and Restated Credit Agreement

On April 30, 2019, the Company, through the Current Operating Partnership, entered into that certain second amended and restated credit agreement (the "Second Amended and Restated Credit Agreement") related to a revolving credit facility (the "Revolving Credit Facility") and three term loans described below (the "Term Loans" and collectively with the Revolving Credit Facility, the "KeyBank Loans") with a syndicate of lenders, under which KeyBank National Association ("KeyBank") serves as administrative agent.

The KeyBank Loans have an interest rate calculated based on London Interbank Offered Rate (LIBOR) plus the applicable LIBOR margin, as provided in the Second Amended and Restated Credit Agreement, or the Base Rate plus the applicable base rate margin, as provided in the agreement. The applicable LIBOR margin and base rate margin are dependent on the consolidated leverage ratio of the Current Operating Partnership, the Company, and the Company's subsidiaries, as

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


5.	Debt (continued)

disclosed in the periodic compliance certificate provided to our administrative agent each quarter. If the Current Operating Partnership obtains an investment grade rating of its senior unsecured long term debt from Standard & Poor's Rating Services, Moody's Investors Service, Inc., or Fitch, Inc., the applicable LIBOR margin and base rate margin will be dependent on such rating.

The Second Amended and Restated Credit Agreement relating to the Revolving Credit Facility provides that the Current Operating Partnership must maintain a pool of unencumbered real properties (each a "Pool Property" and collectively the "Pool Properties") that meet certain requirements contained in the Second Amended and Restated Credit Agreement. The agreement sets forth certain covenants relating to the Pool Properties, including, without limitation, the following:


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


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


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


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


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


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

Borrowing availability under the Second Amended and Restated Credit Agreement is limited to the lesser of (i) an unsecured leverage ratio of no greater than 60% , or (ii) an unsecured interest coverage ratio of no less than 2.00 :1.00.

Guarantors of the KeyBank Loans include us, each special purpose entity that owns a Pool Property, and each of the Current Operating Partnership other subsidiaries which owns a direct or indirect equity interest in a special purpose entity that owns a Pool Property.

In addition to customary representations, warranties, covenants, and indemnities, the KeyBank Loans require the Current Operating Partnership to comply with the following at all times, which will be tested on a quarterly basis:


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

•

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


•	upon consummation, if ever, of an initial public offering, a minimum consolidated tangible net worth of 75% of the Company's consolidated tangible net worth plus 75% of net future equity issuances (including OP Units in the Current Operating Partnership) should we publicly list our shares;


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


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


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

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


5.	Debt (continued)


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


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


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

Furthermore, the activities of the Current Operating Partnership, the Company, and the Company's subsidiaries must be focused principally on the acquisition, operation, and maintenance of income-producing office and industrial real estate properties. The Second Amended and Restated Credit Agreement contains certain restrictions with respect to the investment activities of the Current Operating Partnership, including, without limitation, the following: (i) unimproved land may not exceed 5% of total asset value; (ii) developments that are pre-leased assets under development may not exceed 20% of total asset value; (iii) investments in unconsolidated affiliates may not exceed 10% of total asset value; (iv) investments in mortgage notes receivable may not exceed 15% of total asset value; and (v) leased assets under renovation may not exceed 10% of total asset value. These investment limitations cannot exceed 25% in the aggregate, based on total asset value, as defined in the Second Amended and Restated Credit Agreement.

Pepsi Bottling Ventures Mortgage Loan

On February 5, 2020, as part of the acquisition of the Pepsi Bottling Ventures ("PBV") property, the Company assumed a $18.9 million mortgage loan ("PBV Mortgage Loan") from State Farm Life Insurance Company, as participating holder of the note. The PBV Mortgage Loan matures on October 1, 2024, has a fixed interest rate of 3.69% , and requires monthly payments of principal and interest. The PBV Mortgage Loan is secured by a deed of trust on the PBV property.

Debt Covenant Compliance

Pursuant to the terms of the Company's mortgage loans and the KeyBank Loans, the Current Operating Partnership, in consolidation with the Company, is subject to certain loan compliance covenants. The Company was in compliance with all of its debt covenants as of March 31, 2020 .


6.	Interest Rate Contracts

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both business operations and economic conditions. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by expected cash payments principally related to borrowings and interest rates. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company does not use derivatives for trading or speculative purposes.

Derivative Instruments

On March 10, 2020, the Company entered into three interest rate swap agreements to hedge variable cash flows associated with LIBOR. The swap agreements became effective on March 10, 2020, and have a term of approximately five and half years with notional amounts of $150.0 million , $100.0 million and $75.0 million .

The Company has entered into interest rate swap agreements to hedge the variable cash flows associated with certain existing or forecasted LIBOR based variable-rate debt, including the Company's KeyBank Loans. The change in the fair value of derivatives designated and qualifying as cash flow hedges is initially recorded in accumulated other comprehensive income ("AOCI") and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


6.	Interest Rate Contracts (continued)

Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt.

The following table sets forth a summary of the interest rate swaps at March 31, 2020 and December 31, 2019 :



				Fair Value ⁽¹⁾						Current Notional Amounts
Derivative Instrument	Effective Date	Maturity Date	Interest Strike Rate	March 31, 2020			December 31, 2019			March 31, 2020		December 31, 2019
Assets/(Liabilities):
Interest Rate Swap	7/9/2015	7/1/2020	1.69%	$	(1,048	)	$	(43	)	$	425,000	$	425,000
Interest Rate Swap	3/10/2020	7/1/2025	0.83%	(1,761		)	—			150,000		—
Interest Rate Swap	3/10/2020	7/1/2025	0.84%	(1,222		)	—			100,000		—
Interest Rate Swap	3/10/2020	7/1/2025	0.86%	(992		)	—			75,000		—
Interest Rate Swap	7/1/2020	7/1/2025	2.82%	(14,647		)	(7,038		)	125,000		125,000
Interest Rate Swap	7/1/2020	7/1/2025	2.82%	(11,744		)	(5,651		)	100,000		100,000
Interest Rate Swap	7/1/2020	7/1/2025	2.83%	(11,753		)	(5,665		)	100,000		100,000
Interest Rate Swap	7/1/2020	7/1/2025	2.84%	(11,837		)	(5,749		)	100,000		100,000
Total				$	(55,004	)	$	(24,146	)	$	1,175,000	$	850,000


(1)	The Company records all derivative instruments on a gross basis in the consolidated balance sheets, and accordingly, there are no offsetting amounts that net assets against liabilities. As of March 31, 2020 , derivatives in a liability position are included in the line item "Interest rate swap liability", in the consolidated balance sheets at fair value.

The following table sets forth the impact of the interest rate swaps on the consolidated statements of operations for the periods presented:



	Three Months Ended March 31,
	2020			2019
Interest Rate Swap in Cash Flow Hedging Relationship:
Amount of (loss) recognized in AOCI on derivatives	$	(30,869	)	$	(7,209	)
Amount of loss (gain) reclassified from AOCI into earnings under “Interest expense”	$	42		$	(870	)
Total interest expense presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded	$	19,961		$	13,807

During the twelve months subsequent to March 31, 2020 , the Company estimates that an additional $11.0 million of its income will be recognized from AOCI into earnings.

Certain agreements with the derivative counterparties contain a provision provided that if the Company defaults on any of the Company's indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender within a specified time period, then the Company could also be declared in default on its derivative obligations.

As of March 31, 2020 and December 31, 2019 , the fair value of interest rate swaps that were in a net liability position, which excludes any adjustment for nonperformance risk related to these agreements, was approximately $55.0 million and $24.1 million , respectively. As of March 31, 2020 and December 31, 2019 , the Company had not posted any collateral related to these agreements.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


7.	Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following as of March 31, 2020 and December 31, 2019 :



	March 31, 2020		December 31, 2019
Prepaid tenant rent	$	20,871	$	20,510
Accrued CIP	15,919		16,596
Interest payable	12,215		12,264
Real estate taxes payable	11,788		13,385
Deferred compensation	7,170		9,209
Property operating expense payable	5,751		7,752
Other liabilities	24,974		16,673
Total	$	98,688	$	96,389


8 .	Fair Value Measurements

The Company is required to disclose fair value information about all financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicable to estimate fair value. The Company measures and discloses the estimated fair value of financial assets and liabilities utilizing a fair value hierarchy that distinguishes between data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. This hierarchy consists of three broad levels, as follows: (i) quoted prices in active markets for identical assets or liabilities, (ii) "significant other observable inputs," and (iii) "significant unobservable inputs." "Significant other observable inputs" can include quoted prices for similar assets or liabilities in active markets, as well as inputs that are observable for the asset or liability, such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. "Significant unobservable inputs" are typically based on an entity’s own assumptions, since there is little, if any, related market activity. In instances in which the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level of input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. There were no transfers between the levels in the fair value hierarchy during the three months ended March 31, 2020 and the year ended December 31, 2019 .

The following tables set forth the assets and liabilities that the Company measures at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2020 and December 31, 2019 :



Assets/(Liabilities)	Total Fair Value			Quoted Prices in Active Markets for Identical Assets and Liabilities		Significant Other Observable Inputs			Significant Unobservable Inputs
March 31, 2020
Interest Rate Swap Liability	$	(55,004	)	$	—	$	(55,004	)	$	—
Earn-out Liability (due to affiliates)	$	(338	)	$	—	$	—		$	(338	)
Corporate Owned Life Insurance Asset	$	1,785		$	—	$	1,785		$	—
Mutual Funds Asset	$	6,570		$	6,570	$	—		$	—
Deferred Compensation Liability	$	(7,170	)	$	—	$	(7,170	)	$	—

December 31, 2019
Interest Rate Swap Liability	$	(24,146	)	$	—	$	(24,146	)	$	—
Earn-out Liability (due to affiliates)	$	(2,919	)	$	—	$	—		$	(2,919	)
Corporate Owned Life Insurance Asset	$	2,134		$	—	$	2,134		$	—
Mutual Funds Asset	$	6,983		$	6,983	$	—		$	—
Deferred Compensation Liability	$	(9,209	)	$	—	$	(9,209	)	$	—

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted)


8.	Fair Value Measurements (continued)

Earn-outs

In addition, the Current Operating Partnership will pay GCC in cash earn-out consideration ("Cash Earn-Out") equal to (i) 37.25% of the amounts received by the Company's advisor as advisory fees pursuant to the Company's advisory agreement with respect to the incremental common equity invested in the Company's follow-on public offering from April 30, 2019 through the termination of the Company's follow-on public offering, plus (ii) 37.25% of the amounts that would have been received by the Company's advisor as performance distributions pursuant to the Current Operating Partnership agreement of the Current Operating Partnership with respect to assets acquired by the Company from April 30, 2019 through the termination of the follow-on public offering. The Cash Earn-Out consideration will accrue on an ongoing basis and be paid quarterly; provided that such cash earn-out consideration will in no event exceed an amount equal to 2.5% of the aggregate dollar amount of common equity invested in the Company pursuant to its follow-on public offering from April 30, 2019 through the termination of such follow-on public offering.

The Company estimates the fair value of the Cash Earn-Out liability using a discounted cash flow. The estimate requires the Company to make various assumptions about future equity raised, capitalization rates and annual net operating income growth. The liability is considered a Level 3 input in the fair value hierarchy. During the three months ended March 31, 2020 , the Company recorded an adjustment of approximately $2.6 million , which is included in "Other income, net" on the consolidated statement of operations as a reduction of the Company's liability. As of March 31, 2020 , the fair value of the liability was estimated to be $0.3 million and no payments on the estimated liability have occurred.

Financial Instruments Disclosed at Fair Value

Financial instruments as of March 31, 2020 and December 31, 2019 consisted of cash and cash equivalents, restricted cash, accounts receivable, accrued expenses and other liabilities, and mortgage payable and other borrowings, as defined in Note 5, Debt . With the exception of the mortgage loans in the table below, the amounts of the financial instruments presented in the consolidated financial statements substantially approximate their fair value as of March 31, 2020 and December 31, 2019 . The fair value of the six mortgage loans in the table below is estimated by discounting each loan’s principal balance over the remaining term of the mortgage using current borrowing rates available to the Company for debt instruments with similar terms and maturities. The Company determined that the mortgage debt valuation in its entirety is classified in Level 2 of the fair value hierarchy, as the fair value is based on current pricing for debt with similar terms as the in-place debt.



	March 31, 2020				December 31, 2019
	Fair Value		Carrying Value ⁽¹⁾		Fair Value		Carrying Value ⁽¹⁾
AIG Loan	$	99,985	$	105,298	$	101,663	$	105,762
Midland	$	98,042	$	99,733	$	99,318	$	100,249
Highway 94 loan	$	14,747	$	15,383	$	15,101	$	15,610
BOA	$	352,959	$	375,000	$	369,343	$	375,000
AIG Loan II	$	117,805	$	126,970	$	122,258	$	126,970
BOA/KeyBank Loan	$	256,581	$	250,000	$	264,101	$	250,000


(1)	The carrying values do not include the debt premium/(discount) or deferred financing costs as of March 31, 2020 and December 31, 2019 . See Note 5 , Debt , for details.


9 .	Equity

Classes

Class T shares, Class S shares, Class D shares, Class I shares, Class A shares, Class AA shares, Class AAA shares and Class E shares vote together as a single class, and each share is entitled to one vote on each matter submitted to a vote at a meeting of the Company's stockholders; provided that with respect to any matter that would only have a material adverse effect on the rights of a particular class of common stock, only the holders of such affected class are entitled to vote .

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


9.	Equity (continued)

As of March 31, 2020 , there were 553,622 shares of Class T common stock, 1,798 shares of Class S common stock, 40,549 shares of Class D common stock, 1,899,735 shares of Class I common stock, 24,223,758 shares of Class A common stock, 47,066,472 shares of Class AA common stock, 950,852 shares of Class AAA common stock, and 154,934,769 shares of Class E common stock outstanding.

Common Equity

As of March 31, 2020 , the Company had received aggregate gross offering proceeds of approximately $2.8 billion from the sale of shares in the private offering, the public offerings, and the DRP offerings, as discussed in Note 1, Organization . The Company also issued approximately 43,772,611 shares of its common stock upon the consummation of the merger of Signature Office REIT, Inc. in June 2015 and 174,981,547 Class E shares (in exchange for all outstanding shares of EA-1's common stock at the time of the Mergers) in April 2019 upon the consummation of the Mergers. As of March 31, 2020 , there were 229,671,555 shares outstanding, including shares issued pursuant to the DRP, less shares redeemed pursuant to the SRP and the self-tender offer, which occurred in May 2019.

Temporary Suspension of Follow-On Offering, SRP and DRP

In connection with a potential strategic transaction, on February 26, 2020, the Company’s Board approved the temporary suspension of (i) the primary portion of the Company’s Follow-On Offering, effective February 27, 2020; (ii) the Company’s SRP, effective March 28, 2020; and (iii) the Company’s 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 were honored in accordance with the terms of the SRP, and the SRP officially was suspended as of March 28, 2020. The DRP was officially suspended as of March 8, 2020. 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.

Distribution Reinvestment Plan (DRP)

The Company has adopted the DRP, which allows stockholders to have dividends and other distributions otherwise distributable to them invested in additional shares of common stock. No sales commissions or dealer manager fees will be paid on shares sold through the DRP, but the DRP shares will be charged the applicable distribution fee payable with respect to all shares of the applicable class. The purchase price per share under the DRP is equal to the net asset value ("NAV") per share applicable to the class of shares purchased, calculated as of the distribution date. The Company may amend or terminate the DRP for any reason at any time upon 10 days' prior written notice to stockholders, which may be provided through the Company's filings with the SEC.

As of March 31, 2020 and December 31, 2019 , the Company had issued approximately $305.8 million and $293.7 million in shares pursuant to the DRP, respectively. As of March 31, 2020 , $105.7 million in shares submitted for redemption were subject to the Company's quarterly cap on aggregate redemptions are classified on the consolidated balance sheet as common stock subject to redemption.

Share Redemption Program (SRP)

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

On November 7, 2019, Board amended and restated the SRP, effective as of December 12, 2019, in order to (i) provide for redemption sought upon a stockholder’s determination of incompetence or incapacitation; (ii) clarify the circumstances under

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


9.	Equity (continued)

which a determination of incompetence or incapacitation will entitle a stockholder to such redemption; and (iii) make certain other clarifying changes.

Under the SRP, the Company will redeem shares as of the last business day of each quarter. The redemption price will be equal to the NAV per share for the applicable class generally on the 13th day of the month prior to quarter end. Redemption requests must be received by 4:00 p.m. (Eastern time) on the second to last business day of the applicable quarter. Redemption requests exceeding the quarterly cap will be filled on a pro rata basis. With respect to any pro rata treatment, redemption requests following the death or qualifying disability of a stockholder will be considered first, as a group, followed by requests where pro rata redemption would result in a stockholder owning less than the minimum balance of $2,500 of shares of the Company's common stock, which will be redeemed in full to the extent there are available funds, with any remaining available funds allocated pro rata among all other redemption requests. All unsatisfied redemption requests must be resubmitted after the start of the next quarter, or upon the recommencement of the SRP, as applicable.

There are several restrictions under the SRP. Stockholders generally have to hold their shares for one year before submitting their shares for redemption under the program; however, the Company will waive the one-year holding period in the event of the death or qualifying disability of a stockholder. Shares issued pursuant to the DRP are not subject to the one-year holding period. In addition, the SRP generally imposes a quarterly cap on aggregate redemptions of the Company's shares equal to a value of up to 5% of the aggregate NAV of the outstanding shares as of the last business day of the previous quarter, subject to the further limitations as indicated in the August 8, 2019 amendments discussed above.

As the value on the aggregate redemptions of the Company's shares is outside the Company's control, the 5% quarterly cap is considered to be temporary equity and is presented as the common stock subject to redemption on the accompanying consolidated balance sheets. As of March 31, 2020 , the quarterly cap was approximately $105.7 million .

The following table summarizes share redemption (excluding the self-tender offer) activity during the three months ended March 31, 2020 and 2019 :



	Three Months Ended March 31,
	2020		2019
Shares of common stock redeemed	548,312		—
Weighted average price per share	$	9.32	$	—

Since July 31, 2014 and through March 31, 2020 , the Company had redeemed 24,778,877 shares (excluding the self-tender offer) of common stock for approximately $233.8 million at a weighted average price per share of $9.44 pursuant to the SRP. Since July 31, 2014 and through December 31, 2019, the Company had honored all outstanding redemption requests. During the three months ended September 30, 2019, redemption requests for Class E shares exceeded the quarterly 5% per share class limitation by 2,872,488 shares or approximately $27.4 million . The Class E shares not redeemed during that quarter, or 25% of the shares submitted, were treated as redemption requests for the quarter ended December 31, 2019. All outstanding requests for the quarter ended September 30, 2019 and all new requests for the quarter ended December 31, 2019 were honored on January 2, 2020. For the first quarter of 2020, only those redemptions sought upon a stockholder's death, qualifying disability, or determination of incompetence or incapacitation were honored in accordance with the terms of the SRP, and the SRP officially was suspended as of March 28, 2020 for regular redemptions and subsequent redemptions for death, qualifying disability, or determination of incompetence or incapacitation after those honored in the first quarter of 2020 . During the three months ended March 31, 2020, the Company received regular redemption requests (other than those due to death, disability or incapacitation) for 4,664,765 shares of common stock that were not redeemed due to the suspension of the SRP.

Issuance of Restricted Stock Units to Executive Officers and Employees

On January 15, 2020, the Company issued 589,248 RSUs to Company employees, including officers, under the Griffin Capital Essential Asset REIT, Inc. Employee and Director Long-Term Incentive Plan ("LTIP"). Each RSU represents a contingent right to receive one share of the Company’s Class E Common Stock when settled in accordance with the terms of the respective Restricted Stock Unit Award Agreement and will vest in equal, 25% installments on each of December 31, 2020, 2021, 2022, and 2023 provided that the employee continuously be employed by the Company on each such date, subject to

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


9.	Equity (continued)

certain accelerated vesting provisions as provided in the respective Restricted Stock Unit Award Agreement. The fair value of grants issued was approximately $5.5 million . Total forfeited shares during the three months ended March 31, 2020 were 535 .


10 .	Noncontrolling Interests

Noncontrolling interests represent limited partnership interests in the Current Operating Partnership in which the Company is the general partner. General partnership units and limited partnership units of the Current Operating Partnership were issued as part of the initial capitalization of the EA-1 Operating Partnership and GCEAR II Operating Partnership, in conjunction with members of management's contribution of certain assets, other contributions, and in connection with the Self-Administration Transaction as discussed in Note 1, Organization .

As of March 31, 2020 , noncontrolling interests were approximately 12.20% of total shares and 12.03% of weighted average shares outstanding (both measures assuming OP Units were converted to common stock). The Company has evaluated the terms of the limited partnership interests in the Current Operating Partnership, and as a result, has classified limited partnership interests issued in the initial capitalization, in conjunction with the contributed assets and in connection with the Self-Administration Transaction, as noncontrolling interests, which are presented as a component of permanent equity, except as discussed below.

The Company evaluates individual noncontrolling interests for the ability to recognize the noncontrolling interest as permanent equity on the consolidated balance sheets at the time such interests are issued and on a continual basis. Any noncontrolling interest that fails to qualify as permanent equity has been reclassified as temporary equity and adjusted to the greater of (a) the carrying amount or (b) its redemption value as of the end of the period in which the determination is made.

As of March 31, 2020 , the limited partners of the Current Operating Partnership owned approximately 31.9 million OP Units, which were issued to affiliated parties and unaffiliated third parties in exchange for certain properties, and in connection with the Self-Administration Transaction and other services. Approximately 20.4 million OP Units issued to affiliates have a mandatory hold period until December 2020 and have no voting rights until the units are converted to common shares. In addition, 0.2 million OP Units were issued to unaffiliated third parties unrelated to property contributions. To the extent the contributors should elect to redeem all or a portion of their Current Operating Partnership units, pursuant to the terms of the respective contribution agreement, such redemption shall be at a per unit value equivalent to the price at which the contributor acquired its OP Units in the respective transaction.

The limited partners of the Current Operating Partnership, other than those related to the Will Partners REIT, LLC ("Will Partners" property) contribution, will have the right to cause the general partner of the Current Operating Partnership, the Company, to redeem their OP Units for cash equal to the value of an equivalent number of shares, or, at the Company’s option, purchase their OP Units by issuing one share of the Company’s common stock for the original redemption value of each limited partnership unit redeemed. The Company has the control and ability to settle such requests in shares. These rights may not be exercised under certain circumstances which could cause the Company to lose its REIT election. There were no redemptions during the three months ended March 31, 2020 and 6,000 units redeemed during the year ended December 31, 2019 .

The following summarizes the activity for noncontrolling interests recorded as equity for the three months ended March 31, 2020 and year ended December 31, 2019 :



	Three Months Ended March 31, 2020			Year Ended December 31, 2019
Beginning balance	$	245,040		$	232,203
Contributions/issuance of noncontrolling interests	—			30,039
Issuance of stock dividend for noncontrolling interest	802			1,861
Distributions to noncontrolling interests	(5,069		)	(19,716		)
Allocated distributions to noncontrolling interests subject to redemption	(11		)	(42		)
Net income	111			3,749
Other comprehensive (loss)	(3,708		)	(3,054		)
Ending balance	$	237,165		$	245,040

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


10.	Noncontrolling Interests (continued)

Noncontrolling interests subject to redemption

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


11 .	Related Party Transactions

Summarized below are the related party costs incurred by the Company for the three months ended March 31, 2020 and 2019 , respectively, and any related amounts payable and receivable as of March 31, 2020 and December 31, 2019 :



	Incurred for the Three Months Ended				Payable as of
	March 31,				March 31,		December 31,
	2020		2019		2020		2019
Expensed
Costs advanced by the advisor	$	627	$	298	$	1,185	$	1,164
Consulting fee - shared services	625		562		504		441
Capitalized
Leasing commissions	—		1,791		—		—
Assumed through Self- Administration Transaction/Mergers
Earn-out	—		—		338		2,919
Stockholder Servicing Fee	—		—		4,083		4,994
Other
Distributions	4,009		3,512		1,361		1,365
Total	$	5,261	$	6,163	$	7,471	$	10,883



	Incurred for the Three Months Ended				Receivable as of
	March 31,				March 31, 2020		December 31, 2019
	2020		2019		2020		2019
Assets Assumed through the Self-Administration Transaction
Cash to be received from an affiliate related to deferred compensation and other payroll costs	$	—	$	658	$	—	$	—
Other fees	—		—		51		352
Due from GCC
Reimbursable Expense Allocation	16		—		4		4
Payroll/Expense Allocation	99		112		580		—
Due from Affiliates
Payroll/Expense Allocation	—		—		—		481
Other Fees	—		5,693		—		—
Total	$	115	$	6,463	$	635	$	837

Dealer Manager Agreement

GCEAR entered into a dealer manager agreement and associated form of participating dealer agreement (the "Dealer Manager Agreement") with the dealer manager. The terms of the Dealer Manager Agreement are substantially similar to the terms of the dealer manager agreement from GCEAR's IPO, except as it relates to the share classes offered and the fees to be received by the dealer manager.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


11.	Related Party Transactions (continued)

Distribution Fees

Subject to Financial Industry Regulatory Authority, Inc.'s limitations on underwriting compensation, under the Dealer Manager Agreement the Company will pay the dealer manager a distribution fee for ongoing services rendered to stockholders by participating broker-dealers or broker-dealers servicing investors’ accounts, referred to as servicing broker-dealers. The fee accrues daily and is paid monthly in arrears and is calculated based on the average daily NAV for the applicable month (the “Average NAV”).

Conflicts of Interest

Affiliated Dealer Manager

Since Griffin Capital Securities, LLC, the Company's dealer manager, is an affiliate of the Company's former sponsor, the Company does not have the benefit of an independent due diligence review and investigation of the type normally performed by an unaffiliated, independent underwriter in connection with the offering of securities. The Company's dealer manager is also serving as the dealer manager for Griffin-American Healthcare REIT III, Inc. ("GAHR III") and Griffin-American Healthcare REIT IV, Inc. ("GAHR IV"), each of which are publicly-registered, non-traded REITs, as wholesale marketing agent for Griffin Institutional Access Real Estate Fund (“GIA Real Estate Fund”) and Griffin Institutional Access Credit Fund ("GIA Credit Fund") both of which are non-diversified, closed-end management investment companies that are operated as interval funds under the 1940 Act, and as dealer manager for various private offerings, which will result in competing demands for the Company's dealer manager's time and efforts relating to the distribution of the Company's shares.

Administrative Services Agreement

In connection with the Mergers, the Company assumed, as the successor of EA-1 and the EA-1 Operating Partnership, an Administrative Services Agreement (the "Administrative Services Agreement"), pursuant to which GCC and GC LLC continue to provide office space and certain operational and administrative services at cost to the Company's Current Operating Partnership, Griffin Capital Essential Asset TRS, Inc., and GRECO, which may include, without limitation, the shared information technology, human resources, legal, due diligence, marketing, customer service, events, operations, accounting and administrative support services set forth in the Administrative Services Agreement. The Company pays GCC a monthly amount based on the actual costs anticipated to be incurred by GCC for the provision of such office space and services until the Company elects to provide such space and/or services for itself or through another provider, which amount is initially $187,167 per month, based on an approved budget. Such costs are reconciled quarterly and a full review of the costs will be performed at least annually. In addition, the Company will directly pay or reimburse GCC for the actual cost of any reasonable third-party expenses incurred in connection with the provision of such services.

Certain Conflict Resolution Procedures

Every transaction that the Company enters into with the Company's dealer manager or its affiliates is subject to an inherent conflict of interest. The Board may encounter conflicts of interest in enforcing the Company's rights against any affiliate in the event of a default by or disagreement with an affiliate or in invoking powers, rights or options pursuant to any agreement between the Company and the Company's dealer manager or any of its affiliates. In order to reduce or eliminate certain potential conflicts of interest, the Company addresses any conflicts of interest in two distinct ways:

First, the Company's Nominating and Corporate Governance Committee considers and acts on any conflicts-related matter required by the Company's charter or otherwise permitted by the Maryland General Corporation Law ("MGCL") where the exercise of independent judgment by any of the Company's directors (who is not an independent director) could reasonably be compromised, including approval of any transaction involving the Company's dealer manager and its affiliates.

Second, the Company's charter contains, or the Company is otherwise subject to, a number of restrictions relating to (1) transactions the Company enters into with the Company's dealer manager and its affiliates, (2) certain future offerings, and (3) allocation of investment opportunities among affiliated entities. These restrictions include, among others, the following:

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


11.	Related Party Transactions (continued)

•

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 that the transaction is fair and reasonable to the Company. Notwithstanding the foregoing, the Company has agreed that the Company will not acquire properties in which the Company's former sponsor, or its affiliates, owns an economic interest.

•

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.


12.	Operating Leases

Lessor

The Company leases commercial and industrial space to tenants primarily under non-cancelable operating leases that generally contain provisions for minimum base rents plus reimbursement for certain operating expenses. Total minimum lease payments are recognized in rental income on a straight-line basis over the term of the related lease and estimated reimbursements from tenants for real estate taxes, insurance, common area maintenance and other recoverable operating expenses are recognized in rental income in the period that the expenses are incurred.

The Company recognized $76.8 million and $60.9 million of lease income related to operating lease payments for the three months ended March 31, 2020 and 2019, respectively.

The following table sets forth the undiscounted cash flows for future minimum base rents to be received under operating leases as of March 31, 2020 . The Company's current leases have expirations ranging from 2020 to 2044.



	As of March 31, 2020
Remaining 2020	$	218,509
2021	303,655
2022	305,919
2023	292,030
2024	251,518
Thereafter	1,120,512
Total	$	2,492,143

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


12.	Operating Leases (continued)

The future minimum base rents in the table above excludes tenant reimbursements of operating expenses, amortization of adjustments for deferred rent receivables and the amortization of above/below-market lease intangibles.

Lessee

As of March 31, 2020 , the Company leased three parcels of land located in Arizona under long-term ground leases with expiration dates of September 2102, December 2095, and September 2102 with no options to renew. The Company leases office space as part of conducting day-to-day business in Chicago. The Company's office space lease has a remaining lease term of approximately six years and no option to renew.

The Company incurred operating lease costs of approximately $0.9 million , and $0.6 million for the three months ended March 31, 2020 and 2019 respectively, which are included in "Property Operating Expense" in the accompanying consolidated statement of operations. Total cash paid for amounts included in the measurement of operating lease liabilities was $0.4 million and $0.3 million for the three months ended March 31, 2020 and 2019 respectively.



Lease Term and Discount Rate	As of March 31, 2020
Weighted-average remaining lease term in years.	80.7
Weighted-average discount rate ⁽¹⁾	4.98	%

(1) Because the rate implicit in each of the Company's leases was not readily determinable, the Company used an incremental borrowing rate. In determining the Company's incremental borrowing rate for each lease, the Company considered recent rates on secured borrowings, observable risk-free interest rates and credit spreads correlating to the Company's creditworthiness, the impact of collateralization and the term of each of the Company's lease agreements.

Maturities of lease liabilities as of March 31, 2020 were as follows:



	March 31, 2020
Remaining 2020	$	1,222
2021	1,632
2022	1,675
2023	1,741
2024	1,776
Thereafter	286,739
Total undiscounted lease payments	294,785
Less: imputed interest	(249,611		)
Total lease liabilities	$	45,174


13.	Commitments and Contingencies

Litigation

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


14.	Declaration of Distributions

During the quarter ended March 31, 2020, the Company paid cash distributions in the amount of $0.001502732 per day, per Class E share, Class T share, Class S share, Class D share, Class I share, Class A share, Class AA share and Class AAA share of common stock for stockholders of such classes as of the close of business on each day during the period from January 1, 2020 through March 31, 2020. Such distributions were paid on a monthly basis, on or about the first day of the month, for the month then-ended.

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GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited; dollars in thousands unless otherwise noted and excluding per share amounts)


14.	Declarations of Distributions (continued)

During the quarter ended March 31, 2020, the Company paid stock distributions at a monthly rate of $0.008333333 worth of shares per Class E share, Class T share, Class S share, Class D share, Class I share, Class A share, Class AA share and Class AAA share of common stock, $0.001 par value per share, (equivalent to a $0.10 per share annualized stock distribution), for stockholders of record at the close of business on February 3, 2020, March 2, 2020, and April 1, 2020. The Company paid such stock distributions on February 3, 2020, March 2, 2020, and April 1,2020, respectively.

On March 30, 2020, the Board elected to change from a quarterly to a monthly declaration of distributions commencing in April 2020 in order to give the Board maximum flexibility due to the current review of a strategic transaction and to monitor and evaluate the situation related to the financial impact of the outbreak of the novel strain of coronavirus ("COVID-19"). As noted elsewhere, the Company is continuing to closely monitor the impact of the COVID-19 outbreak and believes it is prudent to enact a more conservative cash management strategy due to the current environment. In light of these considerations, on March 30, 2020, the Board declared a cash distribution for the month of April 2020, at a rate based on 366 days in the calendar year, of $0.000956284 per day ( $0.35 per share annualized), subject to adjustments for class-specific expenses, per Class E share, Class T share, Class S share, Class D share, Class I share, Class A share, Class AA share and Class AAA share of common stock, for stockholders of record at the close of each business day for the period commencing on April 1, 2020 and ending on April 30, 2020. The Company paid such distributions to each stockholder of record on or about May 1, 2020.


15 .	Subsequent Events

Cash Distributions

On April 28, 2020, the Board a declared cash distributions for the month of May 2020, at a rate based on 366 days in the calendar year, of $0.000956284 per day ( $0.35 per share annualized), subject to adjustments for class-specific expenses, per Class E share, Class T share, Class S share, Class D share, Class I share, Class A share, Class AA share and Class AAA share of common stock, for stockholders of record at the close of each business day for the period commencing on May 1, 2020 and ending on May 31, 2020. The Company will pay such distributions to each stockholder of record at such time in June 2020 as determined by the Registrant’s Chief Executive Office.

On May 1, 2020, the Company paid a cash distribution for the month of April 2020, at a rate based on 366 days in the calendar year, of $0.000956284 per day ( $0.35 per share annualized), subject to adjustments for class-specific expenses, per Class E share, Class T share, Class S share, Class D share, Class I share, Class A share, Class AA share and Class AAA share of common stock, for stockholders of record at the close of each business day for the period commencing on April 1, 2020 and ending on April 30, 2020.

COVID -19

Subsequent to March 31, 2020, the global and U.S. economies continue to be severely impacted by the outbreak of COVID-19. The consequences of the outbreak and its impact on the economy continue to evolve and the full extent of the impact is uncertain as of the date of this filing. The extent to which the COVID-19 outbreak impacts the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact.

In recent months, the Company has taken certain affirmative steps which the Company believes helps to position the Company in a manner that will assist the Company in withstanding the current uncertainty relating to the COVID-19 outbreak, including the following:


•	Proactively communicating with the Company's tenants and property managers to ensure lines of communication remain open related to operations and safety protocols prior to and related to decisions to return to work in accordance with various jurisdictional guidelines;


•	Monitoring the near-term solvency and liquidity of the Company's tenants and the extent to which COVID-19 may impact their business;


•	Regularly communicating with KeyBank regarding availability under the Company's Revolving Credit Facility, which affords the Company with substantial current liquidity;


•	Entering into a series of interest rate swaps, effectively fixing our rate on $325 million of term debt at a rate sufficiently below the Company's weighted average interest rate;


•	Switching distribution declarations from a quarterly basis to a monthly basis in order to maintain maximum flexibility to monitor and evaluate the situation related to the financial impact of COVID-19;


•	Revising the Company's distribution rate to equal an annualized rate of $0.35 per share, subject to adjustments for class-specific expenses;


•	Continuing to closely monitor the Company's cash flow projections and actively updating its projections based upon current information, as well as testing for future contingencies;


•	Adding seven unencumbered assets to the Company's revolver pool to increase liquidity by an additional $200 million and, in April 2020, withdrawing $125 million from the Company's Revolving Credit Facility for potential upcoming capital expenditure requirements and to provide the Company with a flexible conservative cash management strategy; and


•	Continuing to evaluate a potential strategic transaction, as well as monitoring market opportunities that could enhance our long-term value and performance.

The Company is currently working with certain tenants that have requested rent relief due to the impact of the COVID-19 outbreak to determine appropriate lease concessions. To date, no lease concessions have been granted. On April 10, 2020, the FASB issued a Staff Q&A to respond to some frequently asked questions about accounting for lease concessions related to the effects of the outbreak of COVID-19. Consequently, for concessions related to the effects of the COVID-19 outbreak, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance to those contracts. Entities may make the elections for any lessor-provided concessions related to the effects of the COVID-19 outbreak (e.g., deferrals of lease payments, cash payments made to the lessee, reduced future lease payments) as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. The Company will continue to evaluate the impact of lease concessions and the appropriate accounting for those concessions. See “Item 1A. Risk Factors” within “Part II - Other Information” of this quarterly report on Form 10-Q for a discussion about risks that COVID-19 directly or indirectly may pose to the Company's business.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the Company’s consolidated financial statements and the notes thereto contained in Part I of this Quarterly Report on Form 10-Q, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations, Consolidated Financial Statements, and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 . See also “Cautionary Note Regarding Forward Looking Statements” preceding Part I. As used herein, “we,” “us,” and “our” mean EA-1 and one or more of EA-1’s subsidiaries for periods prior to the Mergers, and GCEAR and one or more of GCEAR’s subsidiaries for periods following the Mergers.

In connection with the Mergers, we were the legal acquirer and EA-1 was the accounting acquirer for financial reporting purposes, as discussed in Note 3, 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, self-managed, 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 of March 31, 2020 , we have 44 employees. GRECO is our subsidiary and is the entity through which we conduct our advisory, asset management, and property management businesses. The Current Operating Partnership owns, directly or indirectly, all of the properties that we have acquired

As of March 31, 2020 , our real estate portfolio consisted of 100 properties in 25 states and 116 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 March 31, 2020 was approximately $281.1 million with approximately 56.8% 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 89.0% leased as of March 31, 2020 , with a weighted average remaining lease term of 7.3 years, weighted average annual rent increases of approximately 2.2% , and a debt to total real estate acquisition value of 50.9% as defined in our credit agreement.

COVID-19

We are closely monitoring the impact of the COVID-19 outbreak on all aspects of our business and geographies, including how it will impact our tenants and business partners. While we did not incur significant disruptions during the three months ended March 31, 2020 from the COVID-19 outbreak, we are unable to predict the impact that the COVID-19 outbreak will have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the outbreak, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the outbreak and containment measures, among others. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. Certain states and cities, including those where we own properties and where our principal place of business is located, have instituted similar measures, including “shelter in place” rules, and restrictions on the types of business that may continue to operate. We cannot predict when restrictions currently in place will expire. As a result, the COVID-19 outbreak is negatively impacting almost every industry directly or indirectly, including industries in which the Company and our tenants operate.

We cannot predict the impact that the COVID-19 outbreak will have on our tenants and other business partners; however, any material effect on these parties could adversely impact us. As of May 11, 2020, we received April and May rent payments

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from approximately 98% and 96% of our portfolio, respectively. In addition, we received certain short-term rent relief requests, most often in the form of rent deferral requests, or requests for further discussion from tenants, from approximately 10.6% of our portfolio, as measured by net rents. We believe some of these requests are opportunistic in nature and may not be as a result of a direct financial need due to the outbreak. Not all tenant requests will ultimately result in lease concessions. April and May collections and rent relief requests to-date may not be indicative of collections or requests in any future period.

Our primary focus continues to be protecting the health and well-being of our employees and to ensure that there is limited operational disruption as a result of the COVID-19 outbreak. Some of the primary steps we have taken to accomplish these objectives were: (1) initially instituting elective telework arrangements and then following with mandatory telework arrangements with minor exceptions for certain “essential” business functions, (2) capital investment in technology solutions and hardware, as necessary, to allow for a fully remote workforce, (3) mandatory self-quarantines where necessary, (4) recommendations and FAQs to all employees regarding best practices to avoid infection, as well as steps to take in the event of an infection, (5) temporary prohibition of business travel, other than essential business travel approved by management, and (6) creation of an internal COVID-19 task force that meets weekly to discuss additional safety measures to ensure the safe return of our employees to the office, which plans will be finalized in accordance with applicable local guidelines, when such guidelines are established.

For further discussion regarding risks that COVID-19 directly or indirectly may pose to our business, refer to “Item 1A. Risk Factors” within “Part II - Other Information” of this quarterly report on Form 10-Q.

NAV and NAV per Share Calculation

Our Board, including a majority of our independent directors, has adopted valuation procedures, as amended from time to time, that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV. As a public company, we are required to issue financial statements generally based on historical cost in accordance with GAAP as applicable to our financial statements. To calculate our NAV for the purpose of establishing a purchase and redemption price for our shares, we have adopted a model, as explained below, which adjusts the value of certain of our assets from historical cost to fair value. As a result, our NAV may differ from the amount reported as stockholder’s equity on the face of our financial statements prepared in accordance with GAAP. When the fair value of our assets and liabilities are calculated for the purposes of determining our NAV per share, the calculation is generally in accordance with GAAP principles set forth in ASC 820, Fair Value Measurements and Disclosures. However, our valuation procedures and our NAV are not subject to GAAP and will not be subject to independent audit. Our NAV may differ from equity reflected on our audited financial statements, even if we are required to adopt a fair value basis of accounting for GAAP financial statement purposes in the future. Furthermore, no rule or regulation requires that we calculate NAV in a certain way. Although we believe our NAV calculation methodologies are consistent with standard industry practices, there is no established guidance among public REITs, whether listed or not, for calculating NAV in order to establish a purchase and redemption price. As a result, other public REITs may use different methodologies or assumptions to determine NAV.

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. Due to the general lack of any purchases or sales of our common stock at this time, and the current levels of economic volatility and uncertainty in the global markets, we have determined that publishing a daily updated estimate of NAV per share is neither necessary nor appropriate at this time. Prior to arriving at this determination, we solicited and considered input from our various third-party valuation providers. As a result, after March 31, 2020, we have ceased publishing a daily updated estimate of our NAV per share. We intend to continue our internal procedures for calculating NAV per share and will continue to publish updated estimates of our NAV per share on a quarterly basis, with the first updated estimates of our NAV per share likely to be disclosed on or around June 30, 2020.

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

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

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

We will include the fair value of our liabilities as part of our NAV calculation. Our liabilities include, without limitation, property-level mortgages, 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 March 31, 2020 and December 31, 2019 , calculated in accordance with our valuation procedures (in thousands, except share and per share amounts):



	March 31, 2020			December 31, 2019
Gross Real Estate Asset Value	$	4,431,973		$	4,348,529
Investments in Unconsolidated Entities	2,652			7,549
Management Comp. Value	230,000			230,000
Interest Rate Swap (Unrealized Gain/Loss)	(56,651		)	(25,888		)
Perpetual Convertible Preferred Stock	(125,000		)	(125,000		)
Other Assets (Liabilities), net	38,293			60,500
Total Debt at Fair Value ⁽¹⁾	(2,086,121		)	(1,978,361		)
NAV	$	2,435,146		$	2,517,329

Total Shares Outstanding	261,935,169			269,752,377
NAV per share	$	9.30		$	9.33

(1) Amount excludes our March 31, 2020 fair value adjustment, as the value is received subsequent to our daily NAV posting.

Our independent valuation firm utilized the discounted cash flow approach for 96 properties and the direct capitalization approach for two properties in our portfolio with a weighted average of approximately 7.3 years remaining on their existing leases. Since McKesson II and Pepsi Bottling Ventures were acquired in September 2019 and February 2020, respectively, 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%	5.42%
Cash Flow Discount Rate (discounted cash flow approach)	6.00%	11.75%	7.60%
Terminal Capitalization Rate (discounted cash flow approach)	5.25%	9.75%	6.90%

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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 December 31, 2019 before share/unit sale/redemption activity	$	3,973		$	17		$	244		$	14,490		$	1,518,700		$	682,244		$	297,661		$	2,517,329
Fund level changes to NAV
Unrealized gain on net assets	123			—			8			435			38,598			17,880			7,958			65,002
Interest Rate Swap (Unrealized Gain)	(60		)	—			(4		)	(211		)	(18,262		)	(8,461		)	(3,765		)	(30,763		)
Dividend accrual	(70		)	—			(5		)	(287		)	(24,993		)	(11,646		)	(5,158		)	(42,159		)
Class specific changes to NAV
Stockholder servicing fees/distribution fees	(12		)	—			—			—			—			(1,042		)	(8		)	(1,062		)
NAV as of March 31, 2020 before share/unit sale/redemption activity	3,954			17			243			14,427			1,514,043			678,975			296,688			2,508,347

Unit sale/redemption activity- Dollars
Amount sold	1,381			—			139			3,316			11,309			6,372			802			23,319
Amount redeemed and to be paid	(127		)	—			—			—			(80,460		)	(15,933		)	—			(96,520		)
NAV as of March 31, 2020	$	5,208		$	17		$	382		$	17,743		$	1,444,892		$	669,414		$	297,490		$	2,435,146

NAV 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
Shares/units sold	146,152			8			14,688			351,253			1,228,896			684,374			85,775			2,511,146
Shares/units redeemed	(13,471		)				—			—			(8,605,302		)	(1,709,581		)	—			(10,328,354		)
Shares/units outstanding as of March 31, 2020	553,623			1,800			40,548			1,889,235			155,197,725			72,307,551			31,944,687			261,935,169

NAV per share as of December 31, 2019	$	9.44		$	9.43		$	9.42		$	9.42		$	9.34		$	9.30
Change in NAV per share/unit	(0.03		)	(0.03		)	(0.03		)	(0.03		)	(0.03		)	(0.04		)
NAV per share as of March 31, 2020	$	9.41		$	9.40		$	9.39		$	9.39		$	9.31		$	9.26

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

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Revenue Concentration

No lessee or property, based on net rents for the 12-month period subsequent to March 31, 2020 , pursuant to the respective in-place leases, was greater than 3.6% as of March 31, 2020 .

The percentage of net rents for the 12-month period subsequent to March 31, 2020 by state, based on the respective in-place leases, is as follows (dollars in thousands):



State	Net Rent ⁽¹⁾ (unaudited)		Number of Properties	Percentage of Net Rent
Texas	$	30,919	11	11.0	%
California	30,177		7	10.7
Ohio	25,278		11	9.0
Arizona	25,030		8	8.9
Georgia	23,551		5	8.4
Illinois	22,711		9	8.1
New Jersey	17,411		5	6.2
Colorado	14,198		5	5.1
North Carolina	13,107		6	4.7
South Carolina	10,985		3	3.9
All Others ⁽²⁾	67,749		30	24.0
Total	$	281,116	100	100.0	%

(1)

Net rent is based on (a) the contractual base rental payments assuming the lease requires the tenant to reimburse us for certain operating expenses or the property is self-managed by the tenant and the tenant is responsible for all, or substantially all, of the operating expenses; or (b) contractual rent payments less certain operating expenses that are our responsibility for the 12-month period subsequent to March 31, 2020 and includes assumptions that may not be indicative of the actual future performance of a property, including the assumption that the tenant will perform its obligations under its lease agreement during the next 12 months.


(2)	All others account for less than 3.8% of total net rent on an individual basis.

The percentage of net rent for the 12-month period subsequent to March 31, 2020 , by industry, based on the respective in-place leases, is as follows (dollars in thousands):



Industry ⁽¹⁾	Net Rent (unaudited)		Number of Lessees	Percentage of Net Rent
Capital Goods	$	38,685	19	13.8	%
Health Care Equipment & Services	27,012		10	9.6
Insurance	23,410		10	8.3
Consumer Services	22,047		9	7.8
Retailing	21,603		7	7.7
Technology Hardware & Equipment	18,598		7	6.6
Diversified Financials	18,478		5	6.6
Telecommunication Services	18,409		5	6.5
Consumer Durables & Apparel	14,963		6	5.3
Energy	14,440		4	5.1
All others ⁽²⁾	63,471		34	22.7
Total	$	281,116	116	100.0	%


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


(2)	All others account for less than 5.0% of total net rents on an individual basis.

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The percentage of net rent for the 12-month period subsequent to March 31, 2020 , 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	$	9,859	3.5	%
Wood Group Mustang, Inc.	$	9,648	3.4	%
Southern Company Services, Inc.	$	8,736	3.1	%
McKesson Corporation	$	8,636	3.1	%
LPL Holdings, Inc.	$	8,177	2.9	%
State Farm	$	7,204	2.6	%
Digital Globe, Inc.	$	7,128	2.5	%
Restoration Hardware	$	7,004	2.5	%
Wyndham Hotel Group, LLC	$	6,967	2.5	%
SB U.S. LLC	$	6,033	2.1	%

The tenant lease expirations by year based on net rent for the 12-month period subsequent to March 31, 2020 are as follows (dollars in thousands):



Year of Lease Expiration ⁽¹⁾	Net Rent (unaudited)		Number of Lessees	Approx. Square Feet	Percentage of Net Rent
Remaining 2020	$	136	1	30,100	—	%
2021	7,619		8	1,046,900	2.7
2022	12,005		5	964,400	4.3
2023	23,137		10	1,378,200	8.2
2024	44,535		15	3,851,500	15.8
2025	37,479		21	2,958,200	13.3
>2026	156,205		56	14,054,400	55.7
Vacant	—		—	3,054,300	—
Total	$	281,116	116	27,338,000	100.0	%

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

Critical Accounting Policies and Estimates

We have established accounting policies which conform to GAAP in the United States as contained in the FASB ASC. The preparation of our consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. If our judgment or interpretation of the facts and circumstances relating to the various transactions had been different, it is possible that different estimates would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may use different estimates and assumptions that may impact the comparability of our financial condition and results of operations to those companies.

For further information about our critical accounting policies, refer to our consolidated financial statements and notes thereto for the year ended December 31, 2019 included in our Annual Report on Form 10-K filed with the SEC.

Recently Issued Accounting Pronouncements

See Note 2 , Basis of Presentation and Summary of Significant Accounting Policies , to the consolidated financial statements.

Results of Operations

Overview

Our ability to re-lease space subject to expiring leases will impact our results of operations and is affected by economic and competitive conditions in our markets. Leases that comprise approximately 2.4% of our base rental revenue will expire during the period from April 1, 2020 to March 31, 2021 . We assume, based upon internal renewal probability estimates, that

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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 April 1, 2020 to March 31, 2021 , thereby resulting in revenue that may differ from the current in-place rents.

We are not aware of any other material trends or uncertainties, other than national economic conditions affecting real estate in general, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operations of properties other than those listed in Part I, Item 1A. Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A, Risk Factors included in this current report.

Same Store Analysis

For the three months ended March 31, 2020 , our "Same Store" portfolio consisted of 72 properties, encompassing approximately 19.5 million square feet, with an acquisition value of $2.9 billion and net rents of $198.4 million (for the three-month period subsequent to March 31, 2020). Our "Same Store" portfolio includes properties which were held for a full period for all periods presented. The following table provides a comparative summary of the results of operations for the 72 properties for the three months ended March 31, 2020 and 2019 (dollars in thousands):



	Three Months Ended March 31,				Increase/(Decrease)			Percentage Change
	2020		2019		Increase/(Decrease)			Percentage Change
Rental income	$	69,415	$	73,989	$	(4,574	)	(6	)%
Property operating expense	$	12,835	$	11,133	$	1,702		15	%
Property tax expense	$	7,992	$	7,481	$	511		7	%
Depreciation and amortization	$	26,492	$	29,766	$	(3,274	)	(11	)%
Interest expense	$	2,027	$	2,110	$	(83	)	(4	)%

Rental Income

The decrease in rental income of approximately $4.6 million compared to the same period a year ago primarily is a result of (1) approximately $4.6 million in expiring leases, (2) approximately $2.1 million of accelerated amortization of intangibles in the current period and terminated leases; offset by (3) an approximately $1.9 million in current quarter leasing activity and amendments to existing leases.

Property Operating Expense

The increase in property operating expense of approximately $1.7 million compared to the same period a year ago is primarily the result of two vacated properties that were tenant managed and now are managed by us.

Property Tax Expense

The increase in property tax expense of approximately $0.5 million compared to the same period a year ago is primarily the result of refunds in the prior period.

Depreciation and Amortization

The decrease in depreciation and amortization of approximately $3.3 million is due to (1) $4.6 million primarily as a result of early lease terminations/changes in useful life in the prior year and assets fully depreciated subsequent to March 31, 2019; offset by (2) $0.6 million in additions to fixed assets as the result of tenant improvements placed in service subsequent to March 31, 2019.

Portfolio Analysis

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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.

Comparison of the Three Months Ended March 31, 2020 and 2019

The following table provides summary information about our results of operations for the three months ended March 31, 2020 and 2019 (dollars in thousands):



	Three Months Ended March 31,				Increase/(Decrease)			Percentage Change
	2020		2019		Increase/(Decrease)			Percentage Change
Rental income	$	95,728	$	76,485	$	19,243		25	%
Property operating expense	14,971		11,516		3,455			30	%
Property tax expense	9,548		7,890		1,658			21	%
Property management fees to non-affiliates	909		916		(7		)	(1	)%
General and administrative expenses	7,665		4,533		3,132			69	%
Corporate operating expenses to affiliates	625		274		351			128	%
Depreciation and amortization	41,148		34,777		6,371			18	%
Interest expense	19,961		13,807		6,154			45	%

Rental Income

The increase in rental income of approximately $19.2 million compared to the same period a year ago is primarily the result of (1) approximately $26.3 million as a result of the Mergers and two properties acquired subsequent to August 2019, (2) approximately $1.9 million in current quarter leasing activity and amendments to existing leases; offset by (3) approximately $4.6 million in expiring leases; (4) approximately $2.1 million of accelerated amortization of intangibles in the current period and terminated leases, and (5) approximately $2.5 million related to two properties sold subsequent to March 31, 2019.

Property Operating Expense

The increase in property operating expense of approximately $3.5 million compared to the same period a year ago is primarily the result of (1) approximately $2.2 million primarily related to the Mergers and two properties acquired subsequent to March 31, 2019, (2) approximately $1.6 million related to two vacated properties that were tenant managed; offset by (3) approximately $0.3 million related to one property sold subsequent to March 31, 2019.

Property Tax Expense

The increase in property tax expense of approximately $1.7 million compared to the same period a year ago is primarily the result of (1) approximately $1.4 million related to the Mergers, (2) approximately $0.5 million related to refunds in prior period; offset by (3) approximately $0.4 million related to property taxes on two properties sold subsequent to March 31, 2019.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2020 increased by approximately $3.1 million compared to the same period a year ago primarily due to an increase of (1) approximately $1.3 million in corporate payroll as a result of the Self-Administration Transaction (see Note 1, Organization , for details), (2) approximately $0.9 million in restricted stock unit expense as a result of RSUs issued in May 2019 and January 2020, and (3) approximately $0.6 million in professional fees, primarily audit and tax fees related to the Mergers.

Corporate Operating Expenses to Affiliates

Corporate operating expenses to affiliates for the three months ended March 31, 2020 increased by approximately $0.4 million mainly due to estimated amounts owed per the Administrative Services Agreement. See Note 11, Related Party Transactions for details.

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Depreciation and Amortization

Depreciation and amortization for the three months ended March 31, 2020 increased by approximately $6.4 million as a result of approximately (1) $14.7 million related to the Mergers, and properties acquired during 2019 and 2020 (2) approximately $0.5 million in fixed asset additions in the current year; offset by (3) approximately $5.3 million in fully depreciated or sold assets during the first quarter of 2020 and 2019, and (4) approximately $4.2 million in amortization of the management contract intangible in prior period.

Interest Expense

The increase of approximately $6.2 million in interest expense as compared to the same period in the prior year is primarily the result of (1) approximately $4.1 million as a result of the assumption of the AIG Loan II and BofA/KeyBank Loans and write offs of deferred financing costs related to the Mergers, and (2) approximately $2.3 million related to an increase in borrowing from our revolver of approximately $301.5 million as of March 31, 2020 compared to $0.1 million in the prior period.

Funds from Operations and Adjusted Funds from Operations

Our management believes that historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient.

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

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

Additionally, we use Adjusted Funds from Operations (“AFFO”) as a non-GAAP financial measure to evaluate our operating performance. AFFO excludes non-routine and certain non-cash items such as revenues in excess of cash received, amortization of stock-based compensation net, deferred rent, amortization of in-place lease valuation, acquisition-related costs, financed termination fee, net of payments received, gain or loss from the extinguishment of debt, unrealized gains (losses) on derivative instruments and dead deal costs. FFO and AFFO have been revised to include amounts available to both common stockholders and limits partners for all periods presented.

AFFO is a measure used among our peer group, which includes daily NAV REITs. We also believe that AFFO is a recognized measure of sustainable operating performance by the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies.

Management believes that AFFO is a beneficial indicator of our ongoing portfolio performance and ability to sustain our current distribution level. More specifically, AFFO isolates the financial results of our operations. AFFO, however, is not

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considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings. Further, since the measure is based on historical financial information, AFFO for the period presented may not be indicative of future results or our future ability to pay our dividends. By providing FFO and AFFO, we present information that assists investors in aligning their analysis with management’s analysis of long-term operating activities.

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

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

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Our calculation of FFO and AFFO is presented in the following table for the three months ended March 31, 2020 and 2019 (dollars in thousands, except per share amounts):



	Three Months Ended March 31,
	2020			2019
Net income	$	2,974		$	8,656
Adjustments:
Depreciation of building and improvements	22,673			14,767
Amortization of leasing costs and intangibles	18,547			20,003
Equity interest of depreciation of building and improvements - unconsolidated entities	723			671
Equity interest of amortization of intangible assets - unconsolidated entities	1,158			1,158
FFO	46,075			45,255
Distribution to redeemable preferred shareholders	(2,047		)	(2,047		)
FFO attributable to common stockholders and limited partners	$	44,028		$	43,208
Reconciliation of FFO to AFFO:
FFO attributable to common stockholders and limited partners	$	44,028		$	43,208
Adjustments:
Revenues in excess of cash received, net	(3,761		)	(1,954		)
Amortization of share-based compensation	984			—
Deferred rent - ground lease	516			293
Unrealized gains on investments	136			—
Amortization of above/(below) market rent, net	(763		)	(914		)
Amortization of debt premium/(discount), net	104			7
Amortization of ground leasehold interests	(72		)	7
Non-cash earn-out adjustment	(2,581		)	—
Financed termination fee payments received	1,500			—
Company's share of revenues in excess of cash received (straight-line rents) - unconsolidated entity	234			95
Company's share of amortization of above market rent - unconsolidated entity	924			924
Dead deal costs	50			—
Performance fee adjustment	—			(1,921		)
Implementation of lease accounting guidance	—			(2,052		)
AFFO available to common stockholders and limited partners	$	41,299		$	37,693
FFO per share, basic and diluted	$	0.17		$	0.22
AFFO per share, basic and diluted	$	0.16		$	0.19

Weighted-average common shares outstanding - basic EPS	229,810,621			168,505,898
OP Units	31,944,678			27,222,065
Weighted-average common shares outstanding - basic FFO/AFFO	261,755,299			195,727,963

Liquidity and Capital Resources

Long-Term Liquidity and Capital Resources

On a long-term basis, our principal demands for funds will be for the payment of operating and capital expenses, including costs associated with re-leasing a property, distributions, including preferred equity distributions and redemptions, and for the payment of debt service on our outstanding indebtedness, including repayment of our Second Amended and Restated Credit Agreement, and property secured mortgage loans. Generally, cash needs for items, other than property acquisitions, will be met from funds from operations and our Revolving Credit Facility. After a purchase contract is executed 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.

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COVID-19

The COVID-19 outbreak continues to significantly adversely impact global commercial activity and has contributed to significant volatility in financial markets. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 outbreak. Nevertheless, the COVID-19 outbreak presents material uncertainty and risk with respect to our performance and financial results, such as the potential negative impact on occupancy at our properties, financing arrangements, increased costs of operations, changes in law and/or regulations, and uncertainty regarding government and regulatory policy.

While the long-term impact of the COVID-19 outbreak to our business is not yet known, our management believes we are well positioned from a liquidity perspective with $191.7 million of immediate liquidity as of March 31, 2020, consisting of $140.9 million undrawn on our Revolving Credit Facility and $50.8 million of cash on hand. In April 2020, we borrowed an additional $125.0 million from our Revolving Credit Facility for potential upcoming capital expenditure requirements and to provide us with a flexible conservative cash management position. See “Item 1A. Risk Factors” within “Part II - Other Information” of this quarterly report on Form 10-Q for a discussion about risks that COVID-19 directly or indirectly may pose to our business.

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.

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 were honored in accordance with the terms of the SRP, and the SRP was officially suspended as of March 28, 2020 for regular redemptions and subsequent redemptions for death, qualifying disability, or determination of incompetence or incapacitation after those honored in the first quarter of 2020. The DRP was officially suspended as of March 8, 2020. 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.

Distribution Rate

On February 27, 2020, we disclosed that our Board was evaluating a strategic transaction. Shortly after our announcement, the rate of the COVID-19 virus began to materially increase in the United States, leading to widespread market volatility and economic uncertainty. During this period, we have focused on ensuring the health and safety of our employees while continuing to actively manage our real estate portfolio.

We remain focused on the future prospects of our Company. In addition to the previously disclosed strategic transaction, the current market environment may present compelling investment opportunities which could serve to enhance our long-term value and performance. Our ability to react quickly and effectively to these opportunities will be closely tied to our cash on hand and access to additional liquidity.

For these reasons, our Board decided that it is prudent to limit the annualized distribution rate to $0.35/share, all-cash, subject to adjustments for class-specific expenses. This change commenced with distributions during the month of April 2020, and paid in early May 2020.

Second Amended and Restated Credit Agreement

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

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

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

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

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

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

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

LIBOR is expected to be discontinued after 2021. As of March 31, 2020 , our KeyBank Loans and $750.0 million in notional value of derivatives are indexed to LIBOR which mature after 2021. The agreement governing our KeyBank Loans provides procedures for determining a replacement or alternative base rate in the event that LIBOR is discontinued. However, there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR. 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 March 31, 2020 , the remaining capacity pursuant to the Revolving Credit Facility was $140.9 million .

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Derivative Instruments

As discussed in Note 6 , Interest Rate Contracts, to the consolidated financial statements, we entered into interest rate swap agreements to hedge the variable cash flows associated with certain existing or forecasted, LIBOR-based variable-rate debt, including our Second Amended and Restated Credit Agreement. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income ("AOCI") and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of debt. The ineffective portion of the change in the fair value of the derivatives is recognized directly in earnings.

The following table sets forth a summary of the interest rate swaps at March 31, 2020 and December 31, 2019 (dollars in thousands):



				Fair Value ⁽¹⁾						Current Notional Amounts
Derivative Instrument	Effective Date	Maturity Date	Interest Strike Rate	March 31, 2020			December 31, 2019			March 31, 2020		December 31, 2019
Assets/(Liabilities):
Interest Rate Swap	7/9/2015	7/1/2020	1.69%	$	(1,048	)	$	(43	)	$	425,000	$	425,000
Interest Rate Swap	3/10/2020	7/1/2025	0.83%	(1,761		)	—			150,000		—
Interest Rate Swap	3/10/2020	7/1/2025	0.84%	(1,222		)	—			100,000		—
Interest Rate Swap	3/10/2020	7/1/2025	0.86%	(992		)	—			75,000		—
Interest Rate Swap	7/1/2020	7/1/2025	2.82%	(14,647		)	(7,038		)	125,000		125,000
Interest Rate Swap	7/1/2020	7/1/2025	2.82%	(11,744		)	(5,651		)	100,000		100,000
Interest Rate Swap	7/1/2020	7/1/2025	2.83%	(11,753		)	(5,665		)	100,000		100,000
Interest Rate Swap	7/1/2020	7/1/2025	2.84%	(11,837		)	(5,749		)	100,000		100,000
Total				$	(55,004	)	$	(24,146	)	$	1,175,000	$	850,000


(1)	We record all derivative instruments on a gross basis in the consolidated balance sheets, and accordingly, there are no offsetting amounts that net assets against liabilities. As of March 31, 2020 , derivatives in a liability position are included in the line item "Interest rate swap liability," in the consolidated balance sheets at fair value.

Perpetual Convertible Preferred Shares

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

Pursuant to the Purchase Agreement, the Purchaser has agreed to purchase an additional 5,000,000 Series A Preferred Shares at a later date for an additional purchase price of $125 million subject to approval by the Purchaser’s internal investment committee and the satisfaction of the conditions in the Purchase Agreement, including, but not limited to, the execution of an Ownership Limit Exemption Agreement. Pursuant to the Purchase Agreement, the Purchaser is generally restricted from transferring the Series A Preferred Shares or the economic interest in the Series A Preferred Shares for a period of five years from the closing date.

Distributions for Perpetual Convertible Preferred Shares

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


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

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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.

Other Potential Future Sources of Capital

Other potential future sources of capital include proceeds from potential private or public offerings of our stock or OP Units of our Current Operating Partnership, proceeds from secured or unsecured financings from banks or other lenders, including debt assumed in a real estate acquisition transaction, proceeds from the sale of properties and undistributed funds from operations. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures. To the extent we are not able to secure additional financing in the form of a credit facility or other third party source of liquidity, we will be heavily dependent upon our current financing and income from operations.

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of March 31, 2020 (in thousands):



	Payments Due During the Years Ending December 31,
	Total		2020		2021-2022		2023-2024		Thereafter
Outstanding debt obligations ⁽¹⁾	$	2,086,233	$	5,462	$	19,982	$	796,579	$	1,264,210
Interest on outstanding debt obligations ⁽²⁾	431,934		57,070		150,216		115,090		109,558
Interest rate swaps ⁽³⁾	26,669		2,348		10,616		10,616		3,089
Ground lease obligations	296,135		1,133		3,062		3,833		288,107
Total	$	2,840,971	$	66,013	$	183,876	$	926,118	$	1,664,964


(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 March 31, 2020 . Projected interest payments on the Revolving Credit Facility and Term Loan are based on the contractual interest rates in effect at March 31, 2020 .


(3)	The interest rate swaps contractual commitment was calculated based on the swap rate less the LIBOR as of March 31, 2020 .

Short-Term Liquidity and Capital Resources

We expect to meet our short-term operating liquidity requirements with operating cash flows generated from our properties and draws from our KeyBank Loans.

Our cash, cash equivalents and restricted cash balances decrease d by approximately $20.7 million during the three months ended March 31, 2020 compared to the same period a year ago and were primarily used in or provided by the following (in thousands):



	Three Months Ended March 31,
	2020			2019			Change
Net cash provided by operating activities	$	39,554		$	41,056		$	(1,502	)
Net cash used in investing activities	$	(27,113	)	$	(5,589	)	$	(21,524	)
Net cash used in financing activities	$	(30,108	)	$	(32,424	)	$	2,316

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 three months ended March 31, 2020 , we generated $39.6 million in cash from operating activities compared to $41.1 million for the three months ended March 31, 2019. Net cash provided by operating activities before changes in operating assets and liabilities for three months ended March 31, 2020 decreased by approximately $0.9 million to approximately $39.9 million compared to approximately $ 40.8 million for the three months ended March 31, 2019.

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Investing Activities. Cash provided by investing activities for the three months ended March 31, 2020 and 2019 consisted of the following (in thousands):



	Three Months Ended March 31,
	2020			2019			Increase (decrease)
Sources of cash provided by investing activities:
Real estate acquisition deposits	$	1,047		$	500		$	547
Distributions of capital from investment in unconsolidated entities	2,151			1,779			372
Purchase of investments	(810		)	—			(810		)
Total sources of cash provided by investing activities	$	2,388		$	2,279		$	109
Uses of cash for investing activities:
Acquisition of properties, net	$	(16,584	)	$	—		$	(16,584	)
Payments for construction in progress	(12,587		)	(7,821		)	(4,766		)
Reserves for tenant improvements	(330		)	—			(330		)
Improvements to real estate	—			(47		)	47
Total uses of cash provided by investing activities	$	(29,501	)	$	(7,868	)	$	(21,633	)
Net cash provided by investing activities	$	(27,113	)	$	(5,589	)	$	(21,524	)

Financing Activities . Cash used in financing activities for the three months ended March 31, 2020 and 2019 consisted of the following (in thousands).



	Three Months Ended March 31,
	2020			2019			Increase (decrease)
Sources of cash provided by financing activities:
Proceeds from borrowings - KeyBank Loans	$	90,000		$	—		$	90,000
Issuance of common stock, net of discounts and underwriting costs	4,699			—			4,699
Total sources of cash provided by financing activities	$	94,699		$	—		$	94,699
Uses of cash provided by financing activities:
Principal amortization payments on secured indebtedness	$	(1,722	)	$	(1,619	)	$	(103	)
Offering costs	(303		)	—			(303		)
Repurchase of common stock	(96,520		)	—			(96,520		)
Distributions to noncontrolling interests	(4,362		)	(3,469		)	(893		)
Distributions to preferred units subject to redemption	(2,047		)	(2,047		)	—
Distributions to common stockholders	(19,853		)	(25,280		)	5,427
Payment of offering costs - preferred shares	—			(9		)	9
Total sources of cash used by financing activities	$	(124,807	)	$	(32,424	)	$	(92,383	)
Net cash used by financing activities	$	(30,108	)	$	(32,424	)	$	2,316

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;

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• 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.

Distributions may be funded with operating cash flow from our properties, any future public offerings, or a combination thereof. To the extent that we do not have taxable income, distributions paid will be considered a return of capital to stockholders. The following table shows distributions paid, and cash flow provided by operating activities during the three months ended March 31, 2020 and year ended December 31, 2019 (dollars in thousands):



	Three Months Ended March 31, 2020					Year Ended December 31, 2019
Distributions paid in cash — noncontrolling interests	$	4,362				$	16,865
Distributions paid in cash — common stockholders	19,853					90,116
Distributions paid in cash — preferred stockholders	2,047					8,188
Distributions of DRP	12,117					41,060
Total distributions	$	38,379	⁽¹⁾			$	156,229
Source of distributions ⁽²⁾
Paid from cash flows provided by operations	$	26,262		68	%	$	115,169	74	%
Offering proceeds from issuance of common stock pursuant to the DRP	12,117			32	%	41,060		26	%
Total sources	$	38,379	⁽³⁾	100	%	$	156,229	100	%

Net cash provided by operating activities	$	39,554				$	160,849


(1)	Distributions are paid on a monthly basis in arrears. Distributions for all record dates of a given month are paid on or about the first business day of the following month. Total cash distributions declared but not paid as of March 31, 2020 were $12.3 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 three months ended March 31, 2020 , we paid and declared cash distributions of approximately $31.6 million to common stockholders including shares issued pursuant to the DRP and approximately $4.4 million to the limited partners of our Current Operating Partnership, as compared to FFO, attributable to common stockholders and limited partners and AFFO available to common stockholders and limited partners for the three months ended March 31, 2020 of approximately $44.0 million and $41.3 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 March 31, 2020 , we paid approximately $776.8 million of cumulative distributions (excluding preferred distributions), including approximately $305.9 million reinvested through our DRP, as compared to net cash provided by operating activities of approximately $490.2 million .

Off-Balance Sheet Arrangements

As of March 31, 2020 , we had approximately $8.2 million in an outstanding letter of credit which is not reflected on our balance sheet.

Subsequent Events

See Note 15 , Subsequent Events , to the consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risks include risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market-sensitive instruments. We expect that the primary market risk to

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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.

On March 10, 2020, we entered into three interest rate swap agreements to hedge variable cash flows associated with LIBOR. Three interest rate swaps became effective on March 10, 2020, and have a term of approximately five and half years with notional amounts of $150.0 million, $100.0 million and $75.0 million.

As of March 31, 2020 , our debt consisted of approximately $1.8 billion in fixed rate debt (including the interest rate swaps) and approximately $301.5 million in variable rate debt (excluding unamortized deferred financing cost and discounts, net, of approximately $9.4 million ). As of December 31, 2019 , our debt consisted of approximately $1.4 billion in fixed rate debt (including the effect of interest rate swaps) and approximately $536.5 million in variable rate debt (excluding unamortized deferred financing cost and discounts, net, of approximately $10.0 million ). Changes in interest rates have different impacts on the fixed and variable rate debt. A change in interest rates on fixed rate debt impacts its fair value but has no effect on interest incurred or cash flows. A change in interest rates on variable rate debt could affect the interest incurred and cash flows and its fair value.

Our future earnings and fair values relating to variable rate financial instruments are primarily dependent upon prevalent market rates of interest, such as LIBOR. However, our interest rate swap agreements are intended to reduce the effects of interest rate changes. The effect of an increase of 100 basis points in interest rates, assuming a LIBOR floor of 0%, on our variable-rate debt, including our KeyBank Loans, 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 $5.0 million annually.

Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, management, with the participation of our principal executive and principal financial officers, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Securities and Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

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 March 31, 2020 , the effectiveness of our internal control over financial reporting using the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of

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the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of March 31, 2020 .

There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the SEC on March 3, 2020. Other than the addition of the text below, there have been no material changes from risk factors previously disclosed in our most recent Annual Report on Form 10-K.

The current outbreak of COVID-19, and the future outbreak of other highly infectious or contagious diseases, could adversely impact or disrupt our financial condition, results of operations, cash flows, and performance.

The current outbreak of COVID-19 has had, and another outbreak in the future could have, repercussions across regional and global economies and financial markets. The COVID-19 outbreak in many countries had a significant adverse impact on global economic activity and has contributed to significant volatility and negative pressure in financial markets. As a result, the COVID-19 outbreak is negatively impacting almost every industry in the United States directly or indirectly, which could result in a general decline in rents and an increased incidence of defaults under existing leases. The extent to which federal, state or local governmental authorities grant rent relief or other relief or enact amnesty programs applicable to our tenants in response to the COVID-19 outbreak may exacerbate the negative impacts that a slow down or recession could have on us. The significance, extent, and duration of the overall operational and financial impact of the COVID-19 outbreak on our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the actions taken to contain the outbreak or mitigate its impact, and the direct and indirect economic effects of the outbreak and future containment measures, among others. If we cannot operate our properties so as to meet our financial expectations, because of these or other risks, we may be prevented from growing the values of our real estate properties, and our financial condition, including our NAV per share, results of operations, cash flows, performance, or our ability to satisfy our debt obligations or to maintain our level of distributions to our stockholders may be adversely impacted or disrupted.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share Redemption Program

The Company has adopted the SRP that enables stockholders to sell their stock to the Company 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

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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.

During the quarter ended March 31, 2020 , we redeemed shares as follows:



For the Month Ended	Total Number of Shares repurchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
January 31, 2020	—		$	—	^—
February 29, 2020	—		$	—	^—
March 31, 2020	548,312	⁽¹⁾	$	9.32	⁽²⁾


(1)	534,100 shares redeemed during the quarter ended March 31, 2020 , were related to stockholder's death, qualifying disability or determination of incompetence or incapacitation. The remaining shares were missed/correction of the previous quarter redemption requests.


(2)	A description of the maximum number of shares that may be purchased under our 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 were honored in accordance with the terms of the SRP, and the SRP was officially suspended as of March 28, 2020 for regular redemptions and subsequent redemptions for death, qualifying disability, or determination of incompetence or incapacitation after those honored in the first quarter of 2020 . The DRP was officially suspended as of March 8, 2020. 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.

Since July 31, 2014, and through March 31, 2020 , we redeemed 24,778,877 shares (excluding the self-tender offer) of common stock for approximately $233.8 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 outstanding redemption requests. During the three months ended September 30, 2019, redemption requests for Class E shares exceeded the quarterly 5% per share class limitation by 2,872,488 shares or approximately $27.4 million. The Class E shares not redeemed during that quarter, or 25% of the shares submitted, were treated as redemption requests for the quarter ended December 31, 2019. All outstanding requests for the quarter ended September 30, 2019 and all new requests for the quarter ended December 31, 2019 were honored on January 2, 2020.

For the first quarter of 2020, only those redemptions sought upon a stockholder's death, qualifying disability, or determination of incompetence or incapacitation were honored in accordance with the terms of the SRP, and the SRP officially was suspended as of March 28, 2020 for regular redemptions and subsequent redemptions for death, qualifying disability, or determination of incompetence or incapacitation after those honored in the first quarter of 2020. During the three months ended March 31, 2020, we received regular redemption requests (other than those due to death, disability or incapacitation) for 4,664,765 shares of common stock that were not redeemed due to the suspension of the SRP.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION


(a)	During the quarter ended March 31, 2020 , there was no information required to be disclosed in a report on Form 8-K which was not disclosed in a report on Form 8-K.


(b)	During the quarter ended March 31, 2020 , there were no material changes to the procedures by which security holders may recommend nominees to the Board.

ITEM 6. EXHIBITS

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The exhibits required to be filed with this report are set forth on the Exhibit Index hereto and incorporated by reference herein.

EXHIBIT INDEX

The following exhibits are included in this Quarterly Report on Form 10-Q for the period ended March 31, 2020 (and are numbered in accordance with Item 601 of Regulation S-K).



Exhibit No.		Description
10.1*		Form of Time-Based Restricted Stock Unit Agreement (Employees)
10.2*		Form of Time-Based Restricted Stock Unit Agreement (NEOs)
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 March 31, 2020 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive Loss (unaudited), (iv) Consolidated Statements of Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited) and (vi) Notes to Consolidated Financial Statements (unaudited).
*		Filed herewith.
**		Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		GRIFFIN CAPITAL ESSENTIAL ASSET REIT, INC. (Registrant)
Dated:	May 11, 2020	By:	/s/ Javier F. Bitar
			Javier F. Bitar
			On behalf of the Registrant and as Chief Financial Officer and Treasurer (Principal Financial Officer)

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Part I. Financial Information Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk Item 4. Controls and Procedures Part II. Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

10.1* Form of Time-Based Restricted Stock Unit Agreement (Employees) 10.2* Form of Time-Based Restricted Stock Unit Agreement (NEOs) 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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company