Investments

Investment in Unconsolidated Entities

HealthSpring Property

On April 10, 2013, a Delaware Statutory Trust (“DST”) affiliated with the Sponsor acquired a two-building, single-story office campus located in Nashville, Tennessee for a purchase price of $36.4 million. The DST was then syndicated for $39.6 million which consisted of mortgage debt of $23.6 million and aggregate equity investment of $16.0 million. The HealthSpring property is leased in its entirety, pursuant to a triple-net lease, to HealthSpring, Inc. (“HealthSpring”), obligating HealthSpring to all costs and expenses to operate and maintain the property, including certain capital expenditures. On the acquisition date, the remaining term was approximately nine years. On April 12, 2013, the Company, through the Operating Partnership, acquired a 10% beneficial ownership interest in the DST, net of a 10% discount associated with offering expenses. Pursuant to the private placement memorandum, the Operating Partnership was provided exchange rights in which it would be able to acquire the beneficial interests of other investors of the DST at fair value.

On April 27, 2016, the Company, through its Operating Partnership, exercised its exchange right and acquired the remaining 90% beneficial ownership interest in the HealthSpring property. The total purchase price of the property was $41.3 million, including the initial 10% interest of the Company. Approximately 70% of the beneficial owners of HealthSpring interests elected to exchange their interest in the DST for operating partnership units, and the remaining 30% elected to redeem their interest for cash. The issuance of approximately $11.9 million in limited partnership units of the operating partnership is included as a component of noncontrolling interest in the Company's permanent equity. The limited partnership units of the operating partnership were based on the Company's net asset valuation as of September 30, 2015, which was the most recent net asset valuation at the time of acquisition. The remaining balance of approximately $27.5 million consists of a mortgage loan of approximately $22.4 million, which was assumed by the Company in conjunction with the exchange, and a cash payment made to the unaffiliated third party investors of approximately $5.0 million. As a result of the acquisition of the remaining 90% interest, the Company consolidated the HealthSpring property as of the acquisition date and recognized a gain of approximately $0.7 million from the re-measurement of its initial 10% interest.

In connection with the acquisition of the HealthSpring property, the Company was assigned and assumed a leasehold estate and the rights to a payment in lieu of taxes agreement (the “PILOT Program”) with the municipalities which own the underlying leased fee estate and subsequently leased the ground to the Company. The ground lease arrangements were put in place to provide the property operator with real estate tax abatements, which are facilitated through the issuance of municipal bonds. Payments on the bonds, which are owned by the Company, are funded solely from the payments on the ground leases, of which the Company is the lessee. Since the payments due from the municipality under the bond arrangement equals the rent payments, no payments are exchanged. The bonds can only be transferred to any successor to the Company, or any affiliate, as a lessee under the lease, including but not limited to any purchaser of the Company’s leasehold interest. Upon termination of the lease, the Company has the option to purchase the land for a nominal amount, which is a bargain purchase option. The bonds, ground lease obligations and purchase options were measured at fair value at acquisition in accordance with ASC 805 and, due to their inseparability, are presented as a component of land on the accompanying consolidated balance sheets.

Digital Realty Trust, Inc.

On September 9, 2014, the Company, through a special purpose entity ("SPE"), wholly-owned by the Operating Partnership, acquired an 80% interest in a joint venture with an affiliate of Digital Realty Trust, Inc. for $68.4 million, which was funded with equity proceeds raised in the Company's Public Offerings. The gross acquisition value of the property was $187.5 million, plus closing costs, which was partially financed with debt of $102.0 million. The joint venture was created for purposes of directly or indirectly acquiring, owning, financing, operating and maintaining a data center facility located in Ashburn, Virginia (the "Property"). The Property is approximately 132,300 square feet and consists of certain data processing and communications equipment that is fully leased to a social media company and a financial services company with an average remaining lease term of approximately six years.

The joint venture currently uses an interest rate swap to manage its interest rate risk associated with its variable rate debt. The interest rate swap is designated as an interest rate hedge of its exposure to the volatility associated with interest rates. As a result of the hedge designation and in satisfying the requirement for cash flow hedge accounting, the joint venture records changes in the fair value in accumulated other comprehensive loss. In conjunction with the investment in the joint venture discussed above, the Company recognized its 80% share, or approximately $0.5 million of other comprehensive loss for the nine months ended September 30, 2016.

The interest discussed above is deemed to be a variable interest in a VIE, and, based on an evaluation of the variable interest against the criteria for consolidation, the Company determined that it is not the primary beneficiary of the investment, as the Company does not have power to direct the activities of the entity that most significantly affect its performance. As such, the interest in the VIE is recorded using the equity method of accounting in the accompanying consolidated financial statements. Under the equity method, the investment in the unconsolidated entity is 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 joint venture agreements.

As of September 30, 2016, the balance of the investments are shown below:



	HealthSpring DST			Digital Realty Joint Venture			Total
Balance December 31, 2015	$	1,291		$	55,572		$	56,863
Other comprehensive loss	—			(456		)	(456		)
Net income (loss)	14			(1,217		)	(1,203		)
Distributions	(85		)	(5,848		)	(5,933		)
Consolidation of equity investment	(1,220		)	—			(1,220		)
Balance September 30, 2016	$	—		$	48,051		$	48,051

Investment in Consolidated Entities

Restoration Hardware Property

Effective June 16, 2014, WRRH Patterson, LLC (an affiliate of Weeks Robinson Properties) and Griffin Capital JVII Patterson, LLC, a wholly-owned SPE of the Operating Partnership, entered into an operating agreement as Managing Member and Investor Member, respectively, for purposes of forming WR Griffin Patterson, LLC ("WR Griffin"). WR Griffin's purpose is to acquire, own, develop, construct, and otherwise invest and manage a development project located in Patterson, California (the "Project") in which a warehouse and distribution facility consisting of approximately 1.5 million square feet was subsequently constructed (the "Restoration Hardware property").

On June 20, 2014, the Company, through WR Griffin, entered into a real estate development agreement with Weeks Robinson Development & Management, LLC ("Weeks Robinson") to develop and construct the Restoration Hardware property. On June 20, 2014, the land on which the property was to be constructed was purchased by WR Griffin for approximately $15.2 million, including closing costs.

The Restoration Hardware property is leased to Restoration Hardware, Inc. and Restoration Hardware Holdings, Inc. as co-tenants (collectively, "Restoration Hardware") pursuant to a 15-year triple-net lease, obligating Restoration Hardware to all costs and expenses to operate and maintain the property, including certain capital expenditures. The lease term commenced upon substantial completion of the project, which occurred on August 15, 2015.

During the construction of the Project, the business and affairs of WR Griffin were managed by the Managing Member. However, all major decisions, as provided in the operating agreement, were approved by both the Managing Member and Investor Member. Additionally, the Managing Member interest, pursuant to the purchase and sale agreement, has been assigned to the Investor Member in exchange for a mandatory redemption fee based on the fair value of the property at completion. The Project was deemed complete during January 2016, at which point the Company paid the $18.1 million mandatory redemption fee to the Managing Member. Upon payment and completion of the Project, the Managing Member transferred all membership interest to the Investor Member, pursuant to the operating agreement. Upon the transfer of the interest, the Managing Member had no further interest in WR Griffin or any of its assets and had no further obligations.