10-Q 1 hgr_0331201810-q.htm HINES GLOBAL REIT 03.31.2018 10-Q Document

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-Q

(Mark One)
 
þ 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
or

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: 000-53964
 

 Hines Global REIT, Inc.
(Exact name of registrant as specified in its charter)
Maryland
26-3999995
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
2800 Post Oak Boulevard
 
Suite 5000
 
Houston, Texas
77056-6118
(Address of principal executive offices)
(Zip code)

(888) 220-6121
(Registrant’s telephone number, including area code)
 
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 þ No 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ   No 


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

Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer þ 
(Do not check if a smaller reporting company)
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No þ 
 
 
As of May 7, 2018, approximately 272.7 million shares of the registrant’s common stock were outstanding.

 



TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
 
 
Item 1.
Condensed Consolidated Financial Statements (Unaudited):
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
PART II – OTHER INFORMATION
 
 
Item 1. 
Item 1A. 
Item 2.
Item 3. 
Item 4. 
Item 5. 
Item 6.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

HINES GLOBAL REIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
March 31, 2018
 
December 31, 2017
 
(In thousands, except per share amounts)
ASSETS
 
 
 
Investment property, net
$
2,707,565

 
$
2,689,276

Cash and cash equivalents
118,512

 
401,326

Restricted cash
24,496

 
16,884

Derivative instruments

 
1

Tenant and other receivables, net
71,745

 
73,341

Intangible lease assets, net
393,895

 
406,257

Deferred leasing costs, net
106,062

 
107,789

Deferred financing costs, net
1,005

 
1,225

Other assets
34,255

 
30,098

Total assets
$
3,457,535

 
$
3,726,197

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued expenses
$
87,950

 
$
105,151

Due to affiliates
6,538

 
10,252

Intangible lease liabilities, net
65,612

 
69,566

Other liabilities
27,192

 
27,586

Distributions payable
14,795

 
303,131

Notes payable, net
1,932,175

 
1,834,953

Total liabilities
2,134,262

 
2,350,639

 
 
 
 
Commitments and contingencies (Note 10)

 

 
 
 
 
Equity:
 
 
 
Stockholders’ equity:
 
 
 
Preferred shares, $.001 par value; 500,000 preferred shares authorized, none issued or outstanding as of March 31, 2018 and December 31, 2017

 

Common stock, $.001 par value; 1,500,000 shares authorized, 273,109 and 274,255 issued and outstanding as of March 31, 2018 and December 31, 2017, respectively
273

 
274

Additional paid-in capital
2,461,395

 
2,471,004

Accumulated distributions in excess of earnings
(1,021,393
)
 
(968,158
)
Accumulated other comprehensive income (loss)
(119,258
)
 
(128,869
)
Total stockholders’ equity
1,321,017

 
1,374,251

Noncontrolling interests
2,256

 
1,307

Total equity
1,323,273

 
1,375,558

Total liabilities and equity
$
3,457,535

 
$
3,726,197


See notes to the condensed consolidated financial statements.

1


HINES GLOBAL REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2018 and 2017
(UNAUDITED)
 
Three Months Ended March 31,
 
2018
 
2017
 
(In thousands, except per share amounts)
Revenues:
 
 
 
Rental revenue
$
79,892

 
$
100,333

Other revenue
4,607

 
6,033

Total revenues
84,499

 
106,366

Expenses:
 

 
 

Property operating expenses
21,532

 
20,471

Real property taxes
10,355

 
12,641

Property management fees
1,767

 
2,192

Depreciation and amortization
33,998

 
37,609

Acquisition related expenses

 
60

Asset management and acquisition fees
8,859

 
9,366

General and administrative expenses
2,902

 
3,146

Total expenses
79,413

 
85,485

Income (loss) before other income (expenses) and benefit (provision) for income taxes
5,086

 
20,881

Other income (expenses):
 

 
 

Gain (loss) on derivative instruments
351

 
(12
)
Gain on sale of real estate investments
19

 
85,188

Foreign currency gains (losses)
(1,220
)
 
6,619

Interest expense
(14,999
)
 
(14,684
)
Other income (expenses)
263

 
102

Income (loss) before benefit (provision) for income taxes
(10,500
)
 
98,094

Benefit (provision) for income taxes
317

 
848

Net income (loss)
(10,183
)
 
98,942

Net (income) loss attributable to noncontrolling interests
3

 
(35,365
)
Net income (loss) attributable to common stockholders
$
(10,180
)
 
$
63,577

Basic and diluted income (loss) per common share
$
(0.04
)
 
$
0.23

Distributions declared per common share
$
0.16

 
$
0.16

Weighted average number of common shares outstanding
273,352

 
277,638

Net comprehensive income (loss):
 

 
 

Net income (loss)
$
(10,183
)
 
$
98,942

Other comprehensive income (loss):
 

 
 

Foreign currency translation adjustment
9,655

 
27,787

Net comprehensive income (loss)
(528
)
 
126,729

Net comprehensive (income) loss attributable to noncontrolling interests
(41
)
 
(38,669
)
Net comprehensive income (loss) attributable to common stockholders
$
(569
)
 
$
88,060


See notes to the condensed consolidated financial statements.

2


HINES GLOBAL REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months Ended March 31, 2018 and 2017
(UNAUDITED)
(In thousands)
 
Common Shares
 
Amount
 
Additional Paid-in Capital
 
Accumulated Distributions in Excess of Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders’ Equity
 
Noncontrolling Interests
Balance as of
January 1, 2018
274,255

 
$
274

 
$
2,471,004

 
$
(968,158
)
 
$
(128,869
)
 
$
1,374,251

 
$
1,307

Cumulative effect of accounting changes

 

 

 
1,365

 

 
1,365

 
898

Issuance of common shares
2,512

 
3

 
22,611

 

 

 
22,614

 

Contribution from noncontrolling interest

 

 

 

 

 

 
70

Distributions declared

 

 

 
(44,420
)
 

 
(44,420
)
 
(60
)
Redemption of common shares
(3,658
)
 
(4
)
 
(32,191
)
 

 

 
(32,195
)
 

Issuer costs

 

 
(29
)
 

 

 
(29
)
 

Net income (loss)

 

 

 
(10,180
)
 

 
(10,180
)
 
(3
)
Foreign currency translation adjustment

 

 

 

 
9,611

 
9,611

 
44

Balance as of
March 31, 2018
273,109

 
$
273

 
$
2,461,395

 
$
(1,021,393
)
 
$
(119,258
)
 
$
1,321,017

 
$
2,256

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Shares
 
Amount
 
Additional Paid-in Capital
 
Accumulated Distributions in Excess of Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders’ Equity
 
Noncontrolling Interests
Balance as of
January 1, 2017
277,331

 
$
277

 
$
2,507,186

 
$
(821,500
)
 
$
(199,929
)
 
$
1,486,034

 
$
22,201

Issuance of common shares
2,255

 
2

 
22,940

 

 

 
22,942

 

Contribution from noncontrolling interest

 

 

 

 

 

 
33

Distributions declared

 

 

 
(44,497
)
 

 
(44,497
)
 
(2,804
)
Redemption of CPECs

 

 

 

 

 

 
(52,552
)
Redemption of common shares
(1,998
)
 
(1
)
 
(27,261
)
 

 

 
(27,262
)
 

Issuer costs

 

 
(16
)
 

 

 
(16
)
 

Net income (loss)

 

 

 
63,577

 

 
63,577

 
35,365

Foreign currency translation adjustment

 

 

 

 
19,499

 
19,499

 
(19
)
Foreign currency translation adjustment reclassified into earnings

 

 

 

 
4,984

 
4,984

 
3,323

Balance as of
March 31, 2017
277,588

 
$
278

 
$
2,502,849

 
$
(802,420
)
 
$
(175,446
)
 
$
1,525,261

 
$
5,547


See notes to the condensed consolidated financial statements.

3


HINES GLOBAL REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2018 and 2017
(UNAUDITED)
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES:
(In thousands)
Net income (loss)
$
(10,183
)
 
$
98,942

Adjustments to reconcile net income (loss) to net cash from operating activities:
 
 
 
Depreciation and amortization
37,834

 
43,269

Foreign currency (gains) losses
1,220

 
(6,619
)
(Gain) on the sale of real estate investments
(19
)
 
(85,188
)
(Gain) loss on derivative instruments
(351
)
 
12

Changes in assets and liabilities:
 
 
 
Change in other assets
(3,351
)
 
(5,431
)
Change in tenant and other receivables
4,208

 
12,931

Change in deferred leasing costs
(3,869
)
 
(17,578
)
Change in accounts payable and accrued expenses
(21,780
)
 
3,636

Change in other liabilities
(692
)
 
(4,621
)
Change in due to affiliates
(3,655
)
 
(10,534
)
Net cash (used in) from operating activities
(638
)
 
28,819

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Proceeds from the sale of real estate investments

 
299,242

Capital expenditures at operating properties and developments
(11,795
)
 
(8,376
)
Investments in real estate loans receivable

 
(158
)
Proceeds from collection of real estate loans receivable

 
56

Net cash (used in) from investing activities
(11,795
)
 
290,764

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Contribution from noncontrolling interest
70

 

Redemption of common shares
(32,904
)
 
(19,855
)
Payments of issuer costs
(47
)
 
(18
)
Distributions paid to stockholders and noncontrolling interests
(310,204
)
 
(30,301
)
Redemption of CPEC

 
(52,552
)
Proceeds from notes payable
109,000

 
38,000

Payments on notes payable
(29,844
)
 
(162,701
)
Change in security deposit liability
(14
)
 
(74
)
Deferred financing costs paid
(9
)
 
(163
)
Net cash used in financing activities
(263,952
)
 
(227,664
)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
1,183

 
1,599

Net change in cash, cash equivalents, and restricted cash
(275,202
)
 
93,518

Cash, cash equivalents, and restricted cash, beginning of period
418,210

 
156,724

Cash, cash equivalents, and restricted cash, end of period
$
143,008

 
$
250,242


See notes to the condensed consolidated financial statements.

4


HINES GLOBAL REIT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2018 and 2017

1.  ORGANIZATION

The accompanying interim unaudited condensed consolidated financial information has been prepared according to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted according to such rules and regulations. For further information, refer to the financial statements and footnotes for the year ended December 31, 2017 included in Hines Global REIT, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017. In the opinion of management, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly and in conformity with GAAP the financial position of Hines Global REIT, Inc. as of March 31, 2018, the results of operations for the three months ended March 31, 2018 and 2017 and cash flows for the three months ended March 31, 2018 and 2017 have been included.  The results of operations for such interim periods are not necessarily indicative of the results for the full year.

Hines Global REIT, Inc. (the “Company”), was formed as a Maryland corporation on December 10, 2008 under the General Corporation Law of the state of Maryland for the purpose of engaging in the business of investing in and owning commercial real estate properties and other real estate investments. The Company conducts most of its operations through Hines Global REIT Properties, LP (the “Operating Partnership”) and subsidiaries of the Operating Partnership. The Company operates in a manner to qualify as a real estate investment trust (“REIT”) for federal income tax purposes. The business of the Company is managed by Hines Global REIT Advisors LP (the “Advisor”), an affiliate of Hines Interests Limited Partnership (“Hines”), pursuant to the Advisory Agreement between the Company, the Advisor and the Operating Partnership (the “Advisory Agreement”).

The Company raised the equity capital for its real estate investments through two public offerings from August 5, 2009 through April 11, 2014. The Company continues to offer up to $500.0 million of shares of its common stock under its distribution reinvestment plan, pursuant to an offering which commenced on April 24, 2014 (the “DRP Offering”). Collectively, through its public offerings, the Company has raised gross offering proceeds of approximately $3.1 billion, including the DRP Offering, all of which have been invested in the Company’s real estate portfolio.

By the end of 2015, the Company completed its investment of the proceeds raised through its public offerings. Since its inception, the Company has owned interests in 45 properties, 11 of which were sold as of March 31, 2018. As a result, the Company owned interests in 34 properties, which consisted of the following:

Domestic office investments (9 investments)
Domestic other investments (5 investments)
International office investments (9 investments)
International other investments (11 investments)

The Company has concentrated its efforts on actively managing its assets and exploring a variety of strategic opportunities focused on enhancing the composition of its portfolio and its total return potential for its stockholders. On April 23, 2018, in connection with its review of potential strategic alternatives available to the Company, the Company’s board of directors determined that it is in the best interest of the Company and its stockholders to sell all or substantially all of the Company’s properties and assets and for the Company to liquidate and dissolve pursuant to a plan of liquidation and dissolution (the “Plan of Liquidation”). The principal purpose of the liquidation is to provide liquidity to the Company’s stockholders by selling the Company’s assets, paying its debts and distributing the net proceeds from liquidation to the Company’s stockholders. Pursuant to Maryland law and the Company’s charter, the Plan of Liquidation must be approved by the affirmative vote of the holders of at least a majority of the shares of the Company’s common stock outstanding and entitled to vote thereon. If the Plan of Liquidation is approved by the Company’s stockholders and the sale of all or substantially all of the Company’s assets is completed as expected, the Company expects to make one or more liquidating distributions to its stockholders during the period of the liquidation process and to make the final liquidating distribution to its stockholders on or before a date that is within 24 months after stockholder approval of the Plan of Liquidation. There can be no assurances regarding the amounts of any liquidation distributions or the timing thereof.



5


Consolidated VIEs

The WaterWall Place JV was determined to be a variable interest entity (“VIE”) in which the Company is the primary beneficiary and the Company has consolidated this joint venture accordingly. A summary of the assets and liabilities of this consolidated VIE, as well as the maximum loss exposure of the Company from this consolidated VIE, is as follows (in thousands):

 
March 31, 2018
 
December 31, 2017
Maximum risk of loss (1)
$
9,715

 
$
9,535

Assets held by VIEs
$
57,510

 
$
59,112

Assets held as collateral for debt
$
57,510

 
$
59,112

Liabilities held by VIEs
$
46,363

 
$
48,222


(1)
Represents the Company's contributions, net of distributions, made to the consolidated VIE.

Restrictions on the use of a VIE’s assets are significant because they serve as collateral for such VIE’s debt, and the Company is generally required to obtain its partners’ approval in accordance with the respective joint venture agreements for any major transactions. Transactions with the WaterWall Place JV on the Company’s consolidated financial statements primarily relate to operating distributions received from the WaterWall Place JV. The Company and its partners are subject to the provisions of the joint venture agreement for the WaterWall Place JV, which includes provisions for when additional contributions may be required. This activity is eliminated in consolidation of the VIE, but increases, or decreases in the case of distributions received, the Company’s maximum risk of loss.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Described below are certain of the Company’s significant accounting policies. The disclosures regarding several of the policies have been condensed or omitted in accordance with interim reporting regulations specified by Form 10-Q. Please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 for a complete listing of all of its significant accounting policies.

Tenant and Other Receivables

Tenant and other receivables are shown at cost in the condensed consolidated balance sheets, net of allowance for doubtful accounts of $4.4 million and $3.8 million at March 31, 2018 and December 31, 2017, respectively.

Other Assets

Other assets included the following (in thousands):
 
 
March 31, 2018
 
December 31, 2017
Prepaid expenses
 
$
5,216

 
$
3,021

Deferred tax assets
 
28,630

 
26,670

Other
 
409

 
407

Other assets
 
$
34,255

 
$
30,098



6


Revenue Recognition
 
Rental payments are generally paid by the tenants prior to the beginning of each month or quarter to which they relate. As of March 31, 2018 and December 31, 2017, respectively, the Company recorded liabilities of $19.8 million and $16.7 million related to prepaid rental payments, which were included in other liabilities in the accompanying condensed consolidated balance sheets. The Company recognizes rental revenue on a straight-line basis over the life of the lease, including rent holidays, if any. Straight-line rent receivable was $53.8 million and $53.9 million as of March 31, 2018 and December 31, 2017, respectively. Straight-line rent receivable consists of the difference between the tenants’ rents calculated on a straight-line basis from the date of acquisition or lease commencement over the remaining terms of the related leases and the tenants’ actual rents due under the lease agreements and is included in tenant and other receivables in the accompanying consolidated balance sheets. Revenues associated with operating expense recoveries are recognized in the period in which the expenses are incurred based upon the tenant lease provisions. Revenues relating to lease termination fees are recognized on a straight-line basis amortized from the time that a tenant’s right to occupy the leased space is modified through the end of the revised lease term.

Other revenues consist primarily of parking revenue and tenant reimbursements related to utilities, insurance, and other operating expenses. Parking revenue represents amounts generated from contractual and transient parking and is recognized in accordance with contractual terms or as services are rendered. Other revenues relating to tenant reimbursements are recognized in the period in which the expense is incurred.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09 to provide guidance on recognizing revenue from contracts with customers. This ASU’s core objective is for an entity to recognize revenue based on the consideration it expects to receive in exchange for goods or services. The amendments also replace prior guidance regarding the recognition of revenue from sales of real estate, except for revenue from sales that are part of a sale-leaseback transaction. Subsequent to ASU 2014-09, the FASB has issued multiple ASUs clarifying multiple aspects of the new revenue recognition standard, which include the deferral of the effective date by one year, and additional guidance for partial sales of non-financial assets.

Expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that are subject to this pronouncement. Rental income from leasing arrangements is specifically excluded from ASU 2014-09, and will be evaluated by the Company in its adoption of the lease accounting standard, ASU 2016-02 (described below under “New Accounting Pronouncements”). The Company has adopted ASC 606 using the modified retrospective approach effective January 1, 2018. The Company has identified its revenue streams and finalized its evaluation of the impact on its consolidated financial statements and internal accounting processes and determined that accounting for contracts for the sale of real estate will be the primary customer contracts under the scope of ASC 606. The agreement for the sale of The Brindleyplace Project in February 2017 contained certain rent adjustments that the Company has determined do not constitute a separate performance obligation from the performance obligation of title transfer of The Brindleyplace Project. As such, the Company has performed an analysis of the estimated consideration related to the rent adjustments and recognized the cumulative effect by increasing beginning retained earnings by approximately $2.3 million upon adoption in January 2018. In addition, the Company has evaluated controls around the implementation of this ASU and has concluded there was no significant impact on our control structure.

In January 2017, the FASB issued ASU 2017-01 to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company expects that most of its real estate transactions completed after the Company’s adoption of this guidance will be accounted for using the asset acquisition guidance and, accordingly, acquisition fees and expenses related to those acquisitions will be capitalized. The Company adopted ASU 2017-01 on January 1, 2018.

New Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02 which will require companies that lease assets to recognize on the balance sheet the right-of-use assets and related lease liabilities. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The accounting under ASU 2016-02 by companies that own the assets leased by the lessee (the lessor) will remain largely unchanged from current GAAP. The guidance is effective for public entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted.


7


In January 2018, the FASB issued an exposure draft (“2018 Exposure Draft”) which, if adopted as written, would allow lessors to account for lease and non-lease components by class of underlying assets, as a single lease component if certain criteria are met. Also, the 2018 Exposure Draft indicates that companies may be permitted to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption in lieu of the modified retrospective approach and provides other optional practical expedients.

The Company is in the process of evaluating the impact that the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements relating to its lessor leases and other lessee leases, if any. Within our lessor leases, we are entitled to receive tenant reimbursements for operating expenses such as real estate taxes, insurance and common area maintenance, of which it expects to account for these lease and non-lease components as a single lease component since the timing and pattern of transfer is the same in accordance with the 2018 Exposure Draft. The Company has currently identified certain areas the Company believes may be impacted by the adoption of ASU 2016-02, which include:

The Company has ground lease agreements in which the Company is the lessee for land underneath New City and the properties in the Poland Logistics Portfolio that the Company currently accounts for as operating leases. Upon adoption of ASU 2016-02, the Company will record any rights and obligations under these leases as an asset and liability at fair value in the Company’s consolidated balance sheets.

Determination of costs to be capitalized associated with leases. ASU 2016-02 will limit the capitalization associated with certain costs to costs that are a direct result of obtaining a lease.


3. INVESTMENT PROPERTY
 
Investment property consisted of the following amounts as of March 31, 2018 and December 31, 2017 (in thousands):

 
March 31, 2018
 
December 31, 2017
Buildings and improvements
$
2,288,189

 
$
2,255,267

Less: accumulated depreciation
(253,543
)
 
(237,767
)
Buildings and improvements, net
2,034,646

 
2,017,500

Land
672,919

 
671,776

Investment property, net
$
2,707,565

 
$
2,689,276


Recent Dispositions of Real Estate Investments

The Company sold its interests in six properties during the year ended December 31, 2017. The aggregate sale price of these properties was approximately $1.0 billion and the Company recorded aggregate gains of $364.3 million on the sales of these properties. The Company did not dispose of any properties during the three months ended March 31, 2018. Additionally, in April 2018, the Company sold One Westferry Circus. See Note 11 — Subsequent Events for additional information regarding the sale in April 2018.

As of March 31, 2018, the cost basis and accumulated amortization related to lease intangibles were as follows (in thousands):

 
Lease Intangibles
 
 
 
Out-of-Market
Lease Assets
 
Out-of-Market
Lease Liabilities
 
In-Place Leases
 
 
Cost
$
652,711

 
$
66,116

 
$
(107,984
)
Less: accumulated amortization
(284,353
)
 
(40,579
)
 
42,372

Net
$
368,358

 
$
25,537

 
$
(65,612
)


8


As of December 31, 2017, the cost basis and accumulated amortization related to lease intangibles were as follows (in thousands):

 
Lease Intangibles
 
 
 
Out-of-Market
Lease Assets
 
Out-of-Market
Lease Liabilities
 
In-Place Leases
 
 
Cost
$
662,854

 
$
69,510

 
$
(108,043
)
Less: accumulated amortization
(283,774
)
 
(42,333
)
 
38,477

Net
$
379,080

 
$
27,177

 
$
(69,566
)

Amortization expense of in-place leases was $18.3 million and $20.5 million for the three months ended March 31, 2018 and 2017, respectively. Net amortization of out-of-market leases resulted in an increase to rental revenue of $2.2 million for the three months ended March 31, 2018 and a decrease to rental revenue of $0.4 million for the three months ended March 31, 2017.

Anticipated amortization of in-place leases and out-of-market leases, net, for the period from April 1, 2018 through December 31, 2018 and for each of the years ending December 31, 2019 through December 31, 2022 are as follows (in thousands):

 
In-Place
Leases
 
Out-of-Market
Leases, Net
April 1, 2018 through December 31, 2018
$
35,962

 
$
(1,529
)
2019
41,196

 
(3,141
)
2020
34,420

 
(3,231
)
2021
23,552

 
(851
)
2022
18,596

 
(1,577
)

Leases
 
The Company has entered into non-cancelable lease agreements with tenants for space. As of March 31, 2018, the approximate fixed future minimum rentals for the period from April 1, 2018 through December 31, 2018, for each of the years ending December 31, 2019 through December 31, 2022 and for the period thereafter are as follows (in thousands):

 
Fixed Future Minimum Rentals
April 1, 2018 through December 31, 2018
$
197,405

2019
252,116

2020
225,353

2021
183,173

2022
157,441

Thereafter
617,924

Total
$
1,633,412


During the three months ended March 31, 2018 and 2017, the Company did not earn more than 10% of its total rental revenue from any individual tenant.


9


4. DEBT FINANCING
 
As of March 31, 2018 and December 31, 2017, the Company had approximately $1.9 billion and $1.8 billion of principal outstanding, respectively, with a weighted average years to maturity of 1.5 years and 1.7 years, respectively, and a weighted average interest rate of 3.0% and 2.8%, respectively. The following table describes the Company’s debt outstanding at March 31, 2018 and December 31, 2017 (in thousands, except percentages):
Description
 
Origination or Assumption Date
 
Maturity Date
 
Interest Rate Description
 
Interest Rate as of March 31, 2018
 
Principal Outstanding at March 31, 2018
 
Principal Outstanding at December 31, 2017
Secured Mortgage Debt
 
 
 
 
 
 
 
 
 
 
 
 
100 Brookes
 
7/13/2012
 
1/31/2018
(1) 
Variable
 
 N/A

 
$

 
$
28,098

Poland Logistics Portfolio
 
8/2/2012
 
6/28/2019
 
Variable, subject to interest rate cap
 
2.00
%
 
72,851

 
71,183

Minneapolis Retail Center
 
8/2/2012
 
8/10/2019
 
Fixed
 
3.50
%
 
65,500

 
65,500

825 Ann
 
11/16/2012
 
11/20/2018
 
Variable, subject to interest rate cap
 
2.53
%
 
62,218

 
63,247

465 Victoria
 
2/28/2013
 
12/3/2018
 
Variable, subject to interest rate cap
 
3.06
%
 
40,853

 
41,528

New City
 
3/28/2013
 
4/18/2018
(2) 
Variable
 
2.30
%
 
82,546

 
80,831

One Westferry Circus
 
5/9/2013
 
5/5/2020
(3) 
Fixed
 
3.30
%
 
67,238

 
64,757

The Campus at Playa Vista
 
5/14/2013
 
12/1/2018
 
Variable
 
3.07
%
 
150,000

 
150,000

Perspective Défense
 
6/21/2013
 
7/25/2019
 
Variable, subject to interest rate cap
 
2.17
%
 
86,247

 
83,853

Fiege Mega Centre
 
10/18/2013
 
10/31/2018
 
Variable, subject to interest rate cap
 
1.37
%
 
27,574

 
26,898

25 Cabot Square
 
3/26/2014
 
3/26/2020
 
Fixed
 
3.50
%
 
173,349

 
166,951

Simon Hegele Logistics
 
4/28/2014
 
6/15/2019
 
Fixed
 
1.90
%
 
42,988

 
41,904

818 Bourke
 
10/31/2014
 
10/31/2019
 
Variable, subject to interest rate cap
 
2.58
%
 
64,495

 
65,562

The Summit
 
3/4/2015
 
4/1/2022
 
Variable
 
3.22
%
 
170,000

 
170,000

Harder Logistics Portfolio
 
4/1/2015
 
2/28/2021
 
Variable, subject to interest rate cap
 
0.95
%
 
83,057

 
81,068

Other Notes Payable
 
 
 
 
 
 
 
 

 
 
 
 
JPMorgan Chase Revolving Credit Facility - Revolving Loan
 
4/13/2012
 
6/29/2019
 
Variable
 
3.37
%
(4) 
208,000

 
99,000

JPMorgan Chase Revolving Credit Facility - Term Loan
 
5/22/2013
 
6/29/2019
 
Variable
 
3.33
%
 
495,000

 
495,000

WaterWall Place Loan
 
6/29/2012
 
5/8/2018
(5) 
Variable
 
3.27
%
 
44,897

 
44,897

Total Principal Outstanding
 
 
 
 
 
 
 
$
1,936,813

 
$
1,840,277

Unamortized Deferred Financing Fees
 
 
 
 
 
 
 
 
 
$
(4,638
)
 
$
(5,324
)
Notes Payable, net
 
 
 
 
 
 
 
$
1,932,175

 
$
1,834,953


(1)
In January 2018, the Company paid off the secured mortgage loan related to 100 Brookes in full.

(2)
In April 2018, the loan was amended and the maturity date was extended to March 18, 2021.

(3)
The Company paid off the secured mortgage loan in full with proceeds from the sale of the property in April 2018.

(4)
Represents the weighted average interest rate as of March 31, 2018

(5)
In May 2018, the loan was amended and the maturity date was extended to November 8, 2018.



10


The variable-rate debt has interest rates ranging from LIBOR, EURIBOR or the BBSY screen rate plus 0.65% to 2.50% per annum. As of March 31, 2018, $309.0 million of the Company’s variable-rate debt was capped at strike rates ranging from 1.5% to 3.25%. Additionally, as of December 31, 2017, $401.9 million of our variable rate debt was capped at strike rates ranging from 1.5% to 3.25%.

JPMorgan Chase Revolving Credit Facility

For the period from January 2018 through March 2018, the Company borrowed approximately $109.0 million under its revolving credit facility with JPMorgan Chase Bank, National Association (the “Revolving Credit Facility”). From April 1, 2018 through May 11, 2018, the Company made additional payments of $56.0 million under the Revolving Credit Facility. The additional payments resulted in an outstanding principal balance of $647.0 million on the Revolving Credit Facility as of May 11, 2018. The Revolving Credit Facility had a maximum borrowing capacity of $920.0 million as of March 31, 2018.

Financial Covenants

The Company's mortgage agreements and other loan documents for the debt described in the table above contain customary events of default, with corresponding grace periods, including payment defaults, cross-defaults to other agreements and bankruptcy-related defaults, and customary covenants, including limitations on liens and indebtedness and maintenance of certain financial ratios. In addition, the Company has executed customary recourse carve-out guarantees of certain obligations under its mortgage agreements and the other loan documents. The Company is not aware of any instances of noncompliance with financial covenants on any of its loans as of March 31, 2018.

Principal Payments on Debt
 
The Company is required to make the following principal payments on its outstanding notes payable for the period from April 1, 2018 through December 31, 2018, for each of the years ending December 31, 2019 through December 31, 2022 and for the period thereafter (in thousands):

 
Payments due by Year
 
April 1, 2018 through December 31, 2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
Principal payments
$
412,527

(1) 
$
1,032,915

 
$
241,886

(2) 
$
79,485

 
$
170,000

 
$


(1)
In April 2018, the secured mortgage loan related to New City was amended and the maturity date was extended to March 18, 2021.

(2)
In April 2018, the Company paid off the secured mortgage loan related to One Westferry Circus in full, upon the sale of the property.


5.  DISTRIBUTIONS

The Company has declared distributions for the months of January 2017 through December 2017 at an amount equal to $0.65 per share, per year. For the months of January 2018 through June 2018, the Company declared distributions at an amount equal to $0.0541667 per share, per month ($0.65 per share on an annualized basis). Of this amount, $0.02 of the per share, per month distribution will be designated by the Company as a return of a portion of the stockholders’ invested capital and, as such, will reduce the stockholders’ remaining investment in the Company.

Additionally, on December 29, 2017, the Company declared a distribution to stockholders of $1.05 (the “Special Distribution”) per share that was paid in cash to all stockholders of record as of December 30, 2017 in January 2018. This distribution has been designated by the Company as a special distribution, which represents a return of a portion of the stockholders’ invested capital from sales of investment property and, as such, will reduce their remaining investment in the Company. The Special Distribution represents a portion of the net proceeds received from the strategic sale of six assets during 2017. The Special Distribution was not subject to reinvestment pursuant to the Company’s dividend reinvestment plan.

11



The table below outlines the Company’s total distributions declared to stockholders and noncontrolling interests for each of the quarters ended during 2018 and 2017, including the breakout between the distributions declared in cash and those reinvested pursuant to the Company’s distribution reinvestment plan (in thousands). The Company declared distributions to the Company’s stockholders as of daily record dates through December 2017, and as of monthly record dates from January 2018 to May 2018 and aggregates and pays such distributions monthly.
 
 
Stockholders
 
Noncontrolling Interests
 
Distributions for the three months ended
 
Cash Distributions
 
Distributions Reinvested
 
Total Declared
 
Total Declared
 
2018
 
 
 
 
 
 
 
 
 
March 31, 2018
 
$
22,126

 
$
22,294

 
$
44,420

 
$
60

 
Total
 
$
22,126

 
$
22,294

 
$
44,420

 
$
60

 
2017
 

 
 
 
 
 
 
 
December 31, 2017
 
$
310,078

(1) 
$
22,890

 
$
332,968

 
$
1,064

 
September 30, 2017
 
22,224

 
23,031

 
45,255

 
1,786

 
June 30, 2017
 
21,935

 
22,953

 
44,888

 
21,053

(2) 
March 31, 2017
 
21,614

 
22,883

 
44,497

 
2,804

 
Total
 
$
375,851

 
$
91,757

 
$
467,608

 
$
26,707

 

(1)
Includes $288.0 million related to the Special Distribution described above.

(2)
For the three months ended June 30, 2017, distributions declared to the noncontrolling interests included a distribution totaling $21.0 million to the Company’s JV partner in the Aviva Coral Gables JV, as a result of the sale of Aviva Coral Gables.



6.  RELATED PARTY TRANSACTIONS

The table below outlines fees and expense reimbursements incurred that are payable to Hines and its affiliates for the periods indicated below (in thousands):
 
Incurred
 
 
 
 
 
Three Months Ended March 31,
 
Unpaid as of
Type and Recipient
2018
 
2017
 
March 31, 2018
 
December 31, 2017
Issuer Costs- the Advisor
$
29

 
$
16

 
$
9

 
$
26

Asset Management Fee- the Advisor and affiliates of Hines
$
8,859

 
$
9,366

 
2,704

 
2,430

Disposition Fee- the Advisor
$

 
$
1,839

 

 
2,585

Other (1) 
$
1,467

 
$
1,407

 
947

 
1,952

Property Management Fee- Hines
$
1,531

 
$
1,835

 
167

 
146

Development/Construction Management Fee- Hines
$
483

 
$
198

 
662

 
207

Leasing Fee- Hines
$
306

 
$
362

 
1,718

 
2,129

Expense Reimbursement- Hines (with respect to management and operations of the Company’s properties)
$
2,447

 
$
2,858

 
331

 
777

Due to Affiliates
 
 
 
 
$
6,538

 
$
10,252


(1)
Includes amounts the Advisor paid on behalf of the Company such as general and administrative expenses.  These amounts are generally reimbursed to the Advisor during the month following the period in which they are incurred.


12


7.  FAIR VALUE MEASUREMENTS

Financial Instruments Fair Value Disclosures
 
As of March 31, 2018, the Company estimated that the fair value of its notes payable, which had a book value of $1.9 billion, was $1.9 billion. As of December 31, 2017, the Company estimated that the fair value of its notes payable, which had a book value of $1.8 billion, was $1.8 billion. Management has utilized market information as available or present value techniques to estimate the amounts required to be disclosed. Although the Company has determined the majority of the inputs used to value its notes payable fall within Level 2 of the fair value hierarchy, the credit quality adjustments associated with its fair value of notes payable utilize Level 3 inputs. However, as of March 31, 2018, the Company has assessed the significance of the impact of the credit quality adjustments on the overall valuations of its fair market value of notes payable and has determined that they are not significant. As a result, the Company has determined these financial instruments utilize Level 2 inputs. Since such amounts are estimates that are based on limited available market information for similar transactions, there can be no assurance that the disclosed values could be realized.

Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, restricted cash, distributions receivable, tenant and other receivables, accounts payable and accrued expenses, other liabilities, due to affiliates and distributions payable.  The carrying value of these items reasonably approximates their fair value based on their highly-liquid nature and/or short-term maturities. Due to the short-term nature of these instruments, Level 1 and Level 2 inputs are utilized to estimate the fair value of these financial instruments.

Financial Instruments Measured on a Nonrecurring Basis

Certain long-lived assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments (i.e., impairments) in certain circumstances. The inputs associated with the valuation of long-lived assets are generally included in Level 3 of the fair value hierarchy.  

Impairment of Investment Property

Investment properties are reviewed for impairment at each reporting period if events or changes in circumstances indicate that the carrying amount may not be recoverable. No investment properties were impaired during the three months ended March 31, 2018. For the year ended December 31, 2017, the Company determined that one of its properties was impaired as a result of deteriorating market conditions.

The changes in assumptions resulted in the net book value of the assets exceeding the projected undiscounted cash flows for the property. As a result, the assets were written down to fair value. The following table summarizes activity for the Company’s assets measured at fair value, on a non-recurring basis as of December 31, 2017 (in thousands).  
 
 
Basis of Fair Value Measurements
As of
 
Description
 
Fair Value of Assets
 
Quoted Prices
In Active
Markets for
Identical Items
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Impairment
Loss
December 31, 2017
 
Investment property
 
$
25,700

 
$

 
$

 
$
25,700

 
$
7,124


The Company’s estimated fair value of the investment property was based on a comparison of recent market activity and discounted cash flow models, which include estimates of property-specific inflows and outflows over a specific holding period.  Significant unobservable quantitative inputs used in determining the fair value of the investment property for the period ended December 31, 2017 include: a discount rate of 9.0%; a capitalization rate of 7.5%; stabilized occupancy rate of 92.5%; and a current market rental rate of $28.00 per square foot.  These inputs are based on the location, type and nature of each property, current and anticipated market conditions, and management’s knowledge and expertise in real estate.



13


8. REPORTABLE SEGMENTS

The Company’s investments in real estate are geographically diversified and management evaluates the operating performance of each at an individual investment level and considers each investment to be an operating segment. The Company has aggregated all of its operating segments into four reportable segments based on the location of the segment and the underlying asset class. Management has aggregated the Company's investments that are not office properties in “other” based on the geographic location of the investment, due to the Company's ownership of interests in various different types of investments that do not stand alone as their own reportable segment. The Company’s reporting segments consist of the following, based on the Company’s investments as of March 31, 2018:

Domestic office investments (9 investments)
Domestic other investments (5 investments)
International office investments (9 investments)
International other investments (11 investments)

The tables below provide additional information related to each of the Company’s segments, geographic location and a reconciliation to the Company’s net loss, as applicable. “Corporate-Level Accounts” includes amounts incurred by the corporate-level entities which are not allocated to any of the reportable segments (all amounts other than percentages are in thousands).

 
Three Months Ended March 31,
 
2018
 
2017
Total Revenue
 
 
 
Domestic office investments
$
32,662

 
$
44,095

Domestic other investments
20,104

 
24,796

International office investments
21,509

 
24,343

International other investments
10,224

 
13,132

Total Revenue
$
84,499

 
$
106,366


For the three months ended March 31, 2018 and 2017 the Company’s total revenue was attributable to the following countries:

 
Three Months Ended March 31,
 
2018
 
2017
Total Revenue
 
 
 
United States
63
%
 
65
%
United Kingdom
10
%
 
12
%
Australia
9
%
 
8
%
Germany
6
%
 
6
%
Poland
7
%
 
5
%
Russia
3
%
 
3
%
France
2
%
 
1
%


14


For the three months ended March 31, 2018 and 2017, the Company’s property revenues in excess of expenses by segment was as follows (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Property revenues in excess of expenses (1)
 
 
 
Domestic office investments
$
20,902

 
$
27,934

Domestic other investments
11,439

 
15,645

International office investments
11,232

 
17,967

International other investments
7,272

 
9,516

Property revenues in excess of expenses
$
50,845

 
$
71,062


(1)
Revenues less property operating expenses, real property taxes and property management fees.

As of March 31, 2018 and December 31, 2017, the Company’s total assets by segment was as follows (in thousands):
 
March 31, 2018
 
December 31, 2017
Total Assets
 
 
 
Domestic office investments
$
1,141,163

 
$
1,146,312

Domestic other investments
778,785

 
794,558

International office investments
1,063,283

 
1,053,971

International other investments
437,901

 
429,827

Corporate-level accounts
36,403

 
301,529

Total Assets
$
3,457,535

 
$
3,726,197


As of March 31, 2018 and December 31, 2017, the Company’s total assets were attributable to the following countries:
 
March 31, 2018
 
December 31, 2017
Total Assets
 
 
 
United States
58
%
 
59
%
United Kingdom
12
%
 
11
%
Australia
9
%
 
9
%
Germany
7
%
 
7
%
Poland
8
%
 
8
%
France
4
%
 
4
%
Russia
2
%
 
2
%


15


For the three months ended March 31, 2018 and 2017, the reconciliation of the Company’s total property revenues in excess of expenses to the Company’s net income (loss) is as follows (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Reconciliation to property revenues in excess of expenses
 
 
 
Net income (loss)
$
(10,183
)
 
$
98,942

Depreciation and amortization
33,998

 
37,609

Acquisition related expenses

 
60

Asset management and acquisition fees
8,859

 
9,366

General and administrative expenses
2,902

 
3,146

(Gain) loss on derivatives
(351
)
 
12

Gain on sale of real estate investments
(19
)
 
(85,188
)
Foreign currency (gains) losses
1,220

 
(6,619
)
Interest expense
14,999

 
14,684

Other (income) expenses
(263
)
 
(102
)
(Benefit) provision for income taxes
(317
)
 
(848
)
Total property revenues in excess of expenses
$
50,845

 
$
71,062


9. SUPPLEMENTAL CASH FLOW DISCLOSURES

Supplemental cash flow disclosures for the three months ended March 31, 2018 and 2017 (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for interest
$
13,705

 
$
14,124

Cash paid for taxes
$
5,923

 
$
2,515

Supplemental Schedule of Non-Cash Activities
 
 
 
Distributions declared and unpaid
$
14,795

 
$
15,324

Distributions reinvested
$
22,612

 
$
22,943

Shares tendered for redemption
$
10,986

 
$
12,394

Accrued capital additions
$
13,881

 
$
3,329


10. COMMITMENTS AND CONTINGENCIES

The Company may be subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on the Company’s condensed consolidated financial statements.



16


11. SUBSEQUENT EVENTS

One Westferry Circus

In April 2018, the Company sold One Westferry Circus for a contract sales price of £108.6 million (approximately $153.5 million based on an exchange rate of $1.41 per GBP). The Company acquired the property in February 2013 for £82.0 million (approximately $124.6 million based on an exchange rate of $1.51 per GBP as of the transaction date). The purchaser is not affiliated with the Company or its affiliates.




*****


17


Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in Item 1 in this Quarterly Report on Form 10-Q.  The following discussion should also be read in conjunction with our audited consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2017.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as amended. Such statements include statements concerning future financial performance and distributions, future debt and financing levels, acquisitions and investment objectives, payments to Hines Global REIT Advisors Limited Partnership (the “Advisor”), and its affiliates and other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto as well as all other statements that are not historical statements. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.

The forward-looking statements included in this Quarterly Report on Form 10-Q are based on our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, the availability of future financing and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Any of the assumptions underlying forward-looking statements could prove to be inaccurate. 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, pay distributions to our shareholders and maintain the value of any real estate investments and real estate-related investments in which we may hold an interest in the future, may be significantly hindered.


18


The following are some of the risks and uncertainties, which could cause actual results to differ materially from those presented in certain forward-looking statements:
 
 
Whether we will be able to complete the sale of all or substantially all of our assets as expected, including our ability to obtain stockholder approvals required to consummate the Plan of Liquidation;
 
 
Unanticipated difficulties, expenditures or delays relating to our implementation of the Plan of Liquidation, which may reduce or delay our payment of liquidating distributions to our stockholders;
 
 
Risks associated with the potential response of tenants, business partners and competitors to the announcement of the Plan of Liquidation;
 
 
Risks associated with legal proceedings that may be instituted against us and others related to the Plan of Liquidation;
 
 
Competition for tenants, including competition with affiliates of Hines Interests Limited Partnership (“Hines”);
 
 
Our reliance on our Advisor, Hines and affiliates of Hines for our day-to-day operations and the management of our real estate investments, and our Advisor’s ability to attract and retain high-quality personnel who can provide service at a level acceptable to us;
 
 
Risks associated with conflicts of interests that result from our relationship with our Advisor and Hines, as well as conflicts of interests certain of our officers and directors face relating to the positions they hold with other entities;
 
 
The potential need to fund tenant improvements, lease-up costs or other capital expenditures, as well as increases in property operating expenses and costs of compliance with environmental matters or discovery of previously undetected environmentally hazardous or other undetected adverse conditions at our properties;
 
 
The availability and timing of distributions we may pay is uncertain and cannot be assured;
 
 
Our distributions have been paid using cash flows from financing activities, including proceeds from our public offerings, proceeds from debt financings and cash from the waiver of fees, and some or all of the distributions we pay in the future may be paid from similar sources or sources such as cash advances by our Advisor or cash resulting from a deferral or waiver of fees. When we pay distributions from certain sources other than our cash flow from operations, we will have less funds available for the acquisition of properties, and your overall return may be reduced;
 
 
Risks associated with debt and our ability to secure financing;
 
 
Risks associated with adverse changes in general economic or local market conditions, including terrorist attacks and other acts of violence, which may affect the markets in which we and our tenants operate;
 
 
Catastrophic events, such as hurricanes, earthquakes, tornadoes and terrorist attacks; and our ability to secure adequate insurance at reasonable and appropriate rates;
 
 
The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions and make additional investments;
 
 
Changes in governmental, tax, real estate and zoning laws and regulations and the related costs of compliance and increases in our administrative operating expenses, including expenses associated with operating as a public company;
 
 
International investment risks, including the burden of complying with a wide variety of foreign laws and the uncertainty of such laws, the tax treatment of transaction structures, political and economic instability, foreign currency fluctuations, and inflation and governmental measures to curb inflation may adversely affect our operations and our ability to make distributions;
 
 
The lack of liquidity associated with our assets;
 
 
Our ability to continue to qualify as a real estate investment trust (“REIT”) for federal income tax purposes;
 
 

Risks related to the United Kingdom's pending exit from the European Union (“Brexit”), including, but not limited to the decline of revenue derived from, and the market value of, properties located in the United Kingdom and continental Europe; and
 
 

Our ability to refinance or sell properties located in the United Kingdom and continental Europe may be impacted by the economic and political uncertainty following the approval of “Brexit” by a majority of votes in the United Kingdom in June 2016 and the subsequent notice of departure sent by the United Kingdom to the European Union in March 2017.

These risks are more fully discussed in, and all forward-looking statements should be read in light of, all of the factors discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017, and in our Definitive Proxy Statement as filed with the SEC on May 10, 2018.


19


You are cautioned not to place undue reliance on any forward-looking statements included in this Quarterly Report on Form 10-Q. All forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and the risk that actual results will differ materially from the expectations expressed in this Quarterly Report on Form 10-Q may increase with the passage of time. In light of the significant uncertainties inherent in the forward-looking statements included in this Quarterly Report on Form 10-Q, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report on Form 10-Q will be achieved. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. Each forward-looking statement speaks only as of the date of the particular statement, and we do not undertake to update any forward-looking statement.

Executive Summary

Hines Global REIT, Inc. (“Hines Global” and, together with its consolidated subsidiaries, “we”, “us” or the “Company”) was incorporated under the Maryland General Corporation Law on December 10, 2008, primarily for the purpose of investing in a diversified portfolio of quality commercial real estate properties and other real estate investments located throughout the United States and internationally. Hines Global raised the equity capital for its real estate investments through two public offerings from August 2009 through April 2014. Hines Global continues to offer up to $500.0 million of shares of its common stock under its distribution reinvestment plan, pursuant to an offering which commenced on April 24, 2014 (the “DRP Offering”). Hines Global has raised approximately $3.1 billion through its public offerings, including the DRP Offering. Hines Global engaged Hines Securities, Inc. (the “Dealer Manager”), an affiliate of Hines, to serve as the dealer manager for its public offerings.

On February 26, 2018, our board of directors determined a new net asset value (“NAV”) per share of our common stock of $9.04 as of December 31, 2017. This new per share NAV is slightly higher than the previously determined estimated per share NAV of $8.98 as of December 30, 2017. The estimated per share NAV of $8.98 as of December 30, 2017 represented a decrease from the per share NAV of $10.03 as of December 31, 2016, and the decrease was due solely to a special distribution of $1.05 per share declared to stockholders of record as of December 30, 2017. The aggregate value of our real estate property investments as of December 31, 2017 was $4.4 billion, including amounts attributable to noncontrolling interests, which represented a 6.0% net increase when compared to the previously determined value of our assets as of December 31, 2016 (including adjustments for properties disposed during 2017).  This 6.0% net increase resulted from a 1.9% appreciation in the aggregate values of our real estate property investments and 4.1% resulting from the weakening of the U.S. dollar against the Euro, British pound sterling, and Australian dollar. See our Current Report on Form 8-K filed with the SEC on February 27, 2018 for more information on the methodologies used to determine, and the limitations of, our NAV per share.

We have completed our investment phase and have accomplished one of our primary investment objectives of investing in a real estate portfolio that is diversified by asset type, geographic area, lease expirations and tenant industries. As of March 31, 2018, we owned interests in 34 real estate investments which contain, in the aggregate, 14.1 million square feet of leasable space. Our portfolio includes the following investments:

Domestic office investments (9 investments)
Domestic other investments (5 investments)
International office investments (9 investments)
International other investments (11 investments)

Our portfolio is comprised of approximately 59% domestic and 41% international investments (based on our pro rata share of the estimated value of each of the investments) and consists of a variety of real estate asset classes. Our current investment types encompass approximately 66% office, 21% retail, 11% industrial and 2% residential/living (based on our effective interests of the estimated value of each of the investments). We believe that this diversification is directly in-line with our investment strategies of maintaining a well-diversified real estate portfolio and providing additional diversification across currencies.

We have concentrated our efforts on actively managing our assets and exploring a variety of strategic opportunities focused on enhancing the composition of our portfolio and its total return potential for its stockholders. On April 23, 2018, in connection with its review of potential strategic alternatives available to the Company, our board of directors determined that it is in the best interest of the Company and its stockholders to sell all or substantially all of our properties and assets and for the Company to liquidate and dissolve pursuant to a plan of liquidation and dissolution (the “Plan of Liquidation”). The principal purpose of the liquidation to is provide liquidity to our stockholders by selling the Company’s assets, paying its debts and distributing the net proceeds from liquidation to our stockholders. Pursuant to Maryland law and our charter, the Plan of Liquidation must be approved by the affirmative vote of the holders of at least a majority of the shares of our common stock outstanding and entitled to vote thereon. We presently estimate that if the Plan of Liquidation is approved by our stockholders and we are able to successfully implement the Plan of Liquidation, then after the sale of all or substantially all of the Company’s assets and the payment of all of the Company’s outstanding liabilities, we will have made total distributions to our stockholders of approximately $10.00 to $11.00 per share of the

20


Company’s common stock, comprised of three components: (i) the $1.05 per share Special Distribution (defined below under “—Distributions”); (ii) the $0.12 per share Return of Invested Capital Distributions (defined below “—Distributions”); and (iii) the range of liquidating distributions to be made pursuant to the Plan of Liquidation of $8.83 to $9.83 per share of the Company’s common stock, estimated by the Board as of April 23, 2018. We expect to make the final liquidating distribution on or before a date that is within 24 months after stockholder approval of the Plan of Liquidation. However, there can be no assurances regarding the amounts of any liquidating distributions or the timing thereof.

The following table provides additional information regarding each of the properties in which we owned an interest as of March 31, 2018.
Property
 
Location
 
Investment Type
 
Date Acquired/ Net Purchase Price (in millions) (2)
 
Estimated Going-in Capitalization Rate (3)
 
Leasable Square Feet
 
Percent Leased (1)
Domestic Office Investments
 
 
 
 
 
 
 
 
 
 
 
250 Royall
 
Canton, Massachusetts
 
Office
 
9/2011; $57.0
 
9.1%
 
185,171

 
100
%
 
Campus at Marlborough
 
Marlborough, Massachusetts
 
Office
 
10/2011; $103.0
 
8.0%
 
532,246

 
78
%
 
9320 Excelsior
 
Hopkins, Minnesota
 
Office
 
12/2011; $69.5
 
6.2%
 
254,915

 
100
%
 
550 Terry Francois
 
San Francisco, California
 
Office
 
8/2012; $180.0
 
8.2%
 
289,408

 
100
%
 
Riverside Center
 
Boston, Massachusetts
 
Office
 
3/2013; $197.1
 
5.7%
 
509,702

 
88
%
 
The Campus at Playa Vista
 
Los Angeles, California
 
Office
 
5/2013; $216.6
 
5.7%
 
324,955

 
99
%
 
2300 Main
 
Irvine, California
 
Office
 
8/2013; $39.5
 
6.4%
 
132,064

 
100
%
 
55 M Street
 
Washington, D.C.
 
Office
 
12/2013; $140.9
 
4.8%
 
267,915

 
96
%
 
The Summit
 
Bellevue, Washington
 
Office
 
3/2015; $316.5
 
5.6%
 
524,130

 
98
%
 
Total for Domestic Office Investments
 
 
 
 
 
 
 
3,020,506

 
93
%
 

21


Property
 
Location
 
Investment Type
 
Date Acquired/ Net Purchase Price (in millions) (2)
 
Estimated Going-in Capitalization Rate (3)
 
Leasable Square Feet
 
Percent Leased (1)
Domestic Other Investments
 
 
 
 
 
 
 
 

 
 

 
Minneapolis Retail Center
 
Minneapolis, Minnesota
 
Retail
 
8/2012 & 12/2012; $130.6
 
6.5%
 
401,207

 
98
%
 
The Markets at Town Center

Jacksonville, Florida

Retail

7/2013; $135.0

5.9%

317,477


98
%
 
The Avenue at Murfreesboro

Nashville, Tennessee

Retail

8/2013; $163.0

6.4%

766,934


89
%
 
The Rim
 
San Antonio, Texas
 
Retail
 
2/2014, 4/2015, 12/2015 & 12/2016: $285.9
 
5.9%
 
1,055,375

 
92
%
 
WaterWall Place
 
Houston, Texas
 
Residential/Living
 
7/2014; $64.5
 
7.8% (4)
 
316,299

 
89
%
 
Total for Domestic Other Investments
 
 
 
 
 
 
 
2,857,292

 
92
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
International Office Investments
 
 
 
 
 
 
 
 
 
 
 
Gogolevsky 11
 
Moscow, Russia
 
Office
 
8/2011; $96.1
 
8.9%
 
94,240

 
94
%
 
100 Brookes St.
 
Brisbane, Australia
 
Office
 
7/2012; $67.6
 
10.5%
 
105,636

 
0
%
 
465 Victoria
 
Sydney, Australia
 
Office
 
2/2013; $90.8
 
8.0%
 
169,472

 
76
%
 
One Westferry Circus (5)
 
London, England
 
Office
 
2/2013; $124.6
 
7.4%
 
221,019

 
100
%
 
New City
 
Warsaw, Poland
 
Office
 
3/2013; $163.5
 
7.1%
 
484,182

 
83
%
 
825 Ann
 
Brisbane, Australia
 
Office
 
4/2013; $128.2
 
8.0%
 
206,505

 
97
%
 
Perspective Défense
 
Paris, France
 
Office
 
6/2013; $165.8
 
8.5%
 
289,663

 
47
%
 
25 Cabot Square
 
London, England
 
Office
 
3/2014; $371.7
 
6.7%
 
455,712

 
59
%
 
818 Bourke
 
Melbourne, Australia
 
Office
 
10/2014; $135.6
 
7.1%
 
259,007

 
95
%
 
Total for International Office Properties
 
 
 
 
 
 
 
2,285,436

 
74
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
International Other Investments
 
 
 
 
 
 
 
 
 
 
 
FM Logistic
 
Moscow, Russia
 
Industrial
 
4/2011; $70.8
 
11.2%
 
748,578

 
100
%
 
Poland Logistics Portfolio (6)
 
Poland
 
Industrial
 
3/2012 & 10/2012; $157.2
 
8.1%
 
2,365,228

 
93
%
 
Fiege Mega Centre
 
Erfurt, Germany
 
Industrial
 
10/2013; $53.6
 
7.7%
 
952,540

 
100
%
 
Simon Hegele Logistics
 
Forchheim, Germany
 
Industrial
 
6/2014 & 1/2015; $78.9
 
7.5%
 
615,555

 
100
%
 
Harder Logistics Portfolio (7)
 
Germany
 
Industrial
 
4/2015 & 12/2015; $126.5
 
7.3%
 
1,287,065

 
100
%
 
Total for International Other Investments
 
 
 
 
 
 
 
5,968,966

 
97
%
 
Total for All Investments
 
 
 
 
 
 
 
14,132,200

 
92
%
(8) 

(1)
Represents the percentage leased based on the effective ownership of the Operating Partnership in the properties listed. On March 31, 2018, the Company owned a 99.99% interest in the Operating Partnership as its sole general partner. Affiliates of Hines owned the remaining 0.01% interest in the Operating Partnership.

(2)
For acquisitions denominated in a foreign currency, amounts have been translated to U.S. dollars at a rate based on the exchange rate in effect on the acquisition date.

(3)
The estimated going-in capitalization rate is determined as of the date of acquisition by dividing the projected property revenues in excess of expenses for the first fiscal year following the date of acquisition by the net purchase price (excluding closing costs and taxes). Property revenues in excess of expenses includes all projected operating revenues (rental income, tenant reimbursements, parking and any other property-related income) less all projected operating expenses (property operating and maintenance expenses, property taxes, insurance and property management fees).

The projected property revenues in excess of expenses includes assumptions which may not be indicative of the actual future performance of the property, and the actual economic performance of each property for our period of ownership may differ materially from the amounts used in calculating the estimated going-in capitalization rate. These include assumptions, with respect to each property, that in-place tenants will continue to perform under their lease agreements during the 12 months following our acquisition of the property.  In addition, with respect to the Poland Logistics Portfolio,

22


the Minneapolis Retail Center, 465 Victoria, One Westferry Circus, Riverside Center, 825 Ann, the Campus at Playa Vista, The Markets at Town Center, the Avenue at Murfreesboro, 55 M Street, 818 Bourke and The Summit, the projected property revenues in excess of expenses include assumptions concerning estimates of timing and rental rates related to re-leasing vacant space.

(4)
Construction has been completed for this multi-family development property. The estimated going-in capitalization rate is based on the projected revenues in excess of expenses once the property’s operations have stabilized divided by the construction cost of the property. The projected property revenues in excess of expenses includes assumptions which may not be indicative of the actual future performance of the property, and the actual economic performance of the property for our period of ownership may differ materially from the amounts used in calculating the estimated going-in capitalization rate. These include assumptions concerning estimates of timing and rental rates related to leasing vacant space and assumptions that in-place tenants will continue to perform under their lease agreements during the 12 months following stabilization of the property.

(5)
In April 2018, we sold One Westferry Circus, for a contract sales price of £108.6 million (approximately $153.5 million based on an exchange rate of $1.41 per GBP).

(6)
The Poland Logistics Portfolio is comprised of five industrial parks located in Warsaw, Wroclaw and Upper Silesia, Poland.

(7)
The Harder Logistics Portfolio is comprised of three logistic buildings located in Nuremberg, Karlsdorf and Duisburg, Germany.

(8)
This amount represents the percentage leased assuming we own a 100% interest in each of these properties. The percentage leased based on our effective ownership interest in each property is 92%.


Critical Accounting Policies

Each of our critical accounting policies involves the use of estimates that require management to make assumptions that are subjective in nature. Management relies on its experience, collects historical and current market data, and analyzes these assumptions in order to arrive at what it believes to be reasonable estimates. In addition, application of these accounting policies involves the exercise of judgments regarding assumptions as to future uncertainties. Actual results could materially differ from these estimates. A disclosure of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2017 in Management’s Discussion and Analysis of Financial Condition and Results of Operations. There have been no changes to our critical accounting policies during 2018.

Financial Condition, Liquidity and Capital Resources
 
To date, our most significant demands for funds have been related to the purchase of real estate properties and other real estate-related investments. Specifically, we funded $5.1 billion of real estate investments using $3.1 billion of proceeds from our public offerings, including the DRP offering, and debt proceeds. We invested all of the proceeds raised through our public offerings by the end of 2015. As a result, any subsequent real estate investments will be funded using proceeds from the dispositions of other real estate investments and debt proceeds. Other significant demands for funds include the payment of operating expenses, distributions and debt service. Generally, we expect to meet these operating cash needs using cash flows from operating activities and proceeds from sales of assets.

We have not generated sufficient cash flow from operations to fully fund distributions paid. Therefore some or all of our distributions may continue to be paid from other sources, such as proceeds from our debt financings, proceeds from our distribution reinvestment plan, proceeds from the sales of assets, cash advances by our Advisor, and cash resulting from a waiver or deferral of fees. We have not placed a cap on the amount of our distributions that may be paid from any of these other sources.

We believe that the proper use of leverage can enhance returns on real estate investments. As of March 31, 2018, our portfolio was 42% leveraged, based on the most recent appraised values of our real estate investments. At that time, we had $1.9 billion of principal outstanding under our various loan agreements with a weighted average interest rate of 3.0%. Approximately $408.1 million of our loans are maturing during the next year. We generally expect to refinance these loans, but we may repay them using our revolving credit facility with JPMorgan Chase Bank, N.A. (the “Revolving Credit Facility”), proceeds from sales of assets, or other available cash if we are unable to refinance them at satisfactory terms.


23


The discussions below provide additional details regarding our cash flows.

Cash Flows from Operating Activities

Our real estate properties generate cash flow in the form of rental revenues, which are used to pay direct leasing costs, property-level operating expenses and interest payments. Property-level operating expenses consist primarily of salaries and wages of property management personnel, utilities, cleaning, insurance, security and building maintenance costs, property management and leasing fees, and property taxes. Additionally, we make payments for general and administrative expenses, asset management fees, and, in prior periods, acquisition fees and expenses. 

Net cash provided by operating activities decreased by $29.5 million for the three months ended March 31, 2018 as compared to the same period in the prior year primarily due to our dispositions of six properties in 2017, a termination payment received from the largest tenant at 25 Cabot Square during the three months ended March 31, 2017, and a decrease in occupancy at 100 Brookes during the three months ended March 31, 2018.
 
Cash Flows from Investing Activities

Net cash used in investing activities primarily relates to proceeds received from the sales of our real estate investments and capital expenditures at our properties. Net cash from investing activities decreased $302.6 million for the three months ended March 31, 2018 compared to the same period in 2017, primarily due to property sales. We received proceeds of $299.2 million from the sale of one property during the three months ended March 31, 2017. No properties were sold during the three months ended March 31, 2018. The primary factors that contributed to the change between the two periods are summarized below.

2018

We paid $11.8 million in capital expenditures at our operating properties.

2017

We received proceeds of $299.2 million from the sale of The Brindleyplace Project. The Brindleyplace Project was sold for a contract sales price of £260.0 million (approximately $325.1 million based on an exchange rate of $1.25 per GBP as of the transaction date). The Brindleyplace JV acquired the property in July 2010 for £186.2 million (approximately $282.5 million based on an exchange rate of $1.52 per GBP as of the transaction date).
We paid $8.4 million in capital expenditures at our operating properties.

Cash Flows from Financing Activities

Redemptions

As described previously, we ceased offering primary shares pursuant to our public offerings in April 2014. During the three months ended March 31, 2018 and 2017, respectively, we redeemed $32.9 million and $19.9 million in shares of our common stock through our share redemption program. During the three months ended March 31, 2017, we also redeemed $52.6 million of Convertible Preferred Equity Certificates (“CPEC”) held by the non controlling interest owner in the Brindleyplace JV.

Distributions

We have declared distributions of approximately $0.65 per share, per year for 2017. Additionally, we declared a special distribution of $1.05 per share (the “Special Distribution”) ($288.0 million in total) to all stockholders of record as of December 30, 2017, that was paid in January 2018. In addition, our board of directors authorized monthly distributions aggregating $0.325 per share for the six months ending June 30, 2018 and the Board designated an aggregate of $0.12 per share of these distributions as a return of stockholders’ invested capital (the “Return of Invested Capital Distributions”) (such designation is not indicative of the characterization of these distributions for income tax purposes). The Return of Invested Capital Distributions have been paid or will be paid to stockholders of record as of monthly record dates on the first business day of the month following the month to which the distributions relate. From January 2018 through June 2018, we have declared distributions at an amount equal to $0.0541667 per share, per month ($0.65 per share on an annualized basis). Of this amount, $0.02 of the per share, per month distribution will be designated by the Company as a return of a portion of the stockholders’ invested capital and, as such, will reduce the stockholders’ remaining investment in the Company. Distributions are paid monthly on the first business day following the completion of each month to which they relate. All distributions were or will be paid in cash or reinvested in shares of our common stock for those participating in our distribution reinvestment plan. Distributions paid to stockholders (including those reinvested in stock) during the three months ended March 31, 2018 and 2017 were $332.7 million and $44.5 million, respectively.

24



The table below contains additional information regarding distributions declared to our stockholders and noncontrolling interest holders as well as the sources of distribution payments (all amounts are in thousands):

 
 
Stockholders
 
Noncontrolling Interests
 
Distributions funded from Cash Flows From Operating Activities
 
Distributions for the Three Months Ended
 
Cash Distributions
 
Distributions Reinvested
 
Total Declared
 
Total Declared
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2018
 
$
22,126

 
$
22,294

 
$
44,420

 
$
60

 
$

 
%
 
Total
 
$
22,126

 
$
22,294

 
$
44,420

 
$
60

 
$

 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
$
310,078

(1) 
$
22,890

 
$
332,968

 
$
1,064

 
$
2,888

 
1
%
 
September 30, 2017
 
22,224

 
23,031

 
45,255

 
1,786

 
21,091

 
45
%
 
June 30, 2017
 
21,935

 
22,953

 
44,888

 
21,053

 
36,931

(2) 
82
%
(2) 
March 31, 2017
 
21,614

 
22,883

 
44,497

 
2,804

 
28,819

 
64
%
 
Total
 
$
375,851

 
$
91,757

 
$
467,608

 
$
26,707

 
$
89,729

 
85
%
 

(1)
Includes $288.0 million related to the Special Distribution described above.

(2)
These amounts exclude the $21.0 million special distribution paid to the noncontrolling interest partners in the Aviva Coral Gables JV, which were made using proceeds from the sale of Aviva Coral Gables in June 2017.

Our cash flows from operations have been and may continue to be insufficient to fully fund distributions paid to stockholders. We have funded the remaining distributions from proceeds from the sales of our real estate investments in prior periods, and/or cash flows from financing activities.

Debt Financings

We utilize permanent mortgage financing to leverage returns on our real estate investments and use borrowings under our Revolving Credit Facility to provide funding for near-term working capital needs. As mentioned previously, our portfolio was 42% leveraged as of March 31, 2018 (based on the values of our real estate investments) with a weighted average interest rate of 3.0%.

Below is additional information regarding our loan activities for the three months ended March 31, 2018 and 2017. See Note 4 — Debt Financing for additional information regarding our outstanding debt:

2018

We borrowed approximately $109.0 million under our Revolving Credit Facility.
We made a payment of $28.3 million to pay in full the mortgage loan for 100 Brookes in January 2018.
We made payments of $1.6 million on our remaining outstanding mortgage loans.

2017

We borrowed approximately $38.0 million and made payments of $10.0 million under our Revolving Credit Facility.
We made a payment of $151.4 million to pay in full the secured mortgage loan related to the Brindleyplace Project upon the sale of the property in February 2017.
We made payments of $1.3 million on our remaining outstanding mortgage loans.

Results of Operations

Same-store Analysis

The following table presents the property-level revenues in excess of expenses for the three months ended March 31, 2018, as compared to the same period in 2017, by reportable segment. Same-store properties for the three months ended March 31, 2018 include 34 properties that were 92% and 93% leased as of March 31, 2018 and March 31, 2017, respectively (amounts in thousands, except for percentages):

25


 
Three Months Ended March 31,
 
Change
 
2018
 
2017
 
$
 
%
Property revenues in excess of expenses (1)