10-Q 1 hgit-10qx03312019.htm HINES GLOBAL 03.31.19 10-Q Document
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
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: 000-55599
 
Hines Global Income Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland
80-0947092
(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 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x 

 
Smaller reporting company x
Emerging growth company x 
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. x

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

Securities registered pursuant to Section 12(b) of the Exchange Act: None.

As of May 1, 2019, approximately 19.0 million shares of the registrant’s Class AX common stock, 19.9 million shares of the registrant’s Class TX common stock, 0.1 million shares of the registrant’s Class IX common stock, 12.5 million shares of the registrant’s Class T common stock, 3.8 million shares of the registrant’s Class D common stock and 1.6 million shares of the registrant’s Class I 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 INCOME TRUST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
March 31, 2019
 
December 31, 2018
 
(in thousands, except per share amounts)
ASSETS
 
 
 
Investment property, net
$
779,575

 
$
787,189

Investments in real estate-related securities
10,799

 
9,599

Cash and cash equivalents
28,413

 
27,138

Restricted cash
8,140

 
9,848

Derivative instruments
44

 
174

Tenant and other receivables, net
11,193

 
8,995

Intangible lease assets, net
51,198

 
90,697

Right-of-use asset, net
33,260

 

Deferred leasing costs, net
15,854

 
13,282

Other assets
3,046

 
1,907

Total assets
$
941,522

 
$
948,829

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued expenses
$
25,447

 
$
26,186

Due to affiliates
23,928

 
26,022

Intangible lease liabilities, net
17,353

 
18,034

Other liabilities
10,545

 
55,391

Derivative instruments
699

 

Distributions payable
2,339

 
2,024

Note payable to affiliate
31,500

 
55,000

Notes payable, net
510,431

 
487,439

Total liabilities
$
622,242

 
$
670,096

 
 
 
 
Commitments and contingencies (Note 11)

 

 
 
 
 
Equity:
 
 
 
Stockholders’ equity:
 
 
 
Preferred shares, $0.001 par value per share; 500,000 preferred shares authorized, none issued or outstanding as of March 31, 2019 and December 31, 2018

 

Common shares, $0.001 par value per share (Note 6)
51

 
44

Additional paid-in capital
424,540

 
371,274

Accumulated distributions in excess of earnings
(102,417
)
 
(91,711
)
Accumulated other comprehensive income (loss)
(2,894
)
 
(874
)
Total stockholders’ equity
319,280

 
278,733

Noncontrolling interests

 

Total equity
319,280

 
278,733

Total liabilities and equity
$
941,522

 
$
948,829

See notes to the condensed consolidated financial statements.

1


HINES GLOBAL INCOME TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2019 and 2018
(UNAUDITED)
 
Three Months Ended March 31,
 
2019
 
2018
 
(in thousands, except per share amounts)
Revenues:
 
 
 
Rental revenue
$
21,451

 
$
16,443

Other revenue
287

 
288

Total revenues
21,738

 
16,731

Expenses:
 
 
 
Property operating expenses
5,536

 
2,826

Real property taxes
2,597

 
2,081

Property management fees
703

 
312

Depreciation and amortization
9,328

 
7,341

Acquisition related expenses
4

 
135

Asset management fees
1,487

 
1,206

Performance participation allocation
1,120

 
1,591

General and administrative expenses
847

 
852

Total expenses
21,622

 
16,344

Other income (expenses):
 
 
 
Gain (loss) on derivative instruments
(1,110
)
 
(2
)
Gain (loss) on investments in real estate-related securities
1,166

 

Gain on sale of real estate

 
14,491

Foreign currency gains (losses)
(69
)
 
(25
)
Interest expense
(4,197
)
 
(2,814
)
Interest income
124

 
12

Income (loss) before benefit (provision) for income taxes
(3,970
)
 
12,049

Benefit (provision) for income taxes
(29
)
 
(673
)
Net income (loss)
(3,999
)
 
11,376

Net (income) loss attributable to noncontrolling interests
(3
)
 
(3
)
Net income (loss) attributable to common stockholders
$
(4,002
)
 
$
11,373

Basic and diluted income (loss) per common share
$
(0.09
)

$
0.29

Weighted average number of common shares outstanding
47,038

 
39,398

 
 
 
 
Comprehensive income (loss):
 
 
 
Net income (loss)
$
(3,999
)
 
$
11,376

Other comprehensive income (loss):


 


Foreign currency translation adjustment
(2,020
)
 
2,716

Comprehensive income (loss)
$
(6,019
)
 
$
14,092

Comprehensive (income) loss attributable to noncontrolling interests
(3
)
 
(3
)
Comprehensive income (loss) attributable to common stockholders
$
(6,022
)
 
$
14,089


See notes to the condensed consolidated financial statements.

2


HINES GLOBAL INCOME TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months Ended March 31, 2019 and 2018
(UNAUDITED)
(In thousands)
Hines Global Income Trust, Inc. Stockholders
 
Common Shares
 
Additional Paid-in Capital
 
Accumulated Distributions in Excess of Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders’ Equity
 
Noncontrolling Interests
 
Shares
 
Amount
 
 
 
 
 
Balance as of January 1, 2019
43,584

 
$
44

 
$
371,274

 
$
(91,711
)
 
$
(874
)
 
$
278,733

 
$

Issuance of common shares
6,109

 
7

 
62,886

 

 

 
62,893

 

Distributions declared

 

 

 
(6,704
)
 

 
(6,704
)
 
(3
)
Redemption of common shares
(362
)
 

 
(4,014
)
 

 

 
(4,014
)
 

Selling commissions, dealer manager fees and distribution and stockholder servicing fees

 

 
(4,366
)
 

 

 
(4,366
)
 

Offering costs

 

 
(1,240
)
 

 

 
(1,240
)
 

Net income (loss)

 

 

 
(4,002
)
 

 
(4,002
)
 
3

Foreign currency translation adjustment

 

 

 

 
(2,020
)
 
(2,020
)
 

Balance as of March 31, 2019
49,331

 
$
51

 
$
424,540

 
$
(102,417
)
 
$
(2,894
)
 
$
319,280

 
$


Hines Global Income Trust, Inc. Stockholders
 
Common Shares
Additional Paid-in Capital
 
Accumulated Distributions in Excess of Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders’ Equity
 
Noncontrolling Interests
 
Shares
 
Amount
 
 
 
 
 
Balance as of January 1, 2018
39,256

 
$
39

 
$
336,761

 
$
(68,193
)
 
$
4,938

 
$
273,545

 
$

Issuance of common shares
308

 

 
2,990

 

 

 
2,990

 

Distributions declared

 

 

 
(5,514
)
 

 
(5,514
)
 
(3
)
Redemption of common shares
(133
)
 

 
(2,032
)
 

 

 
(2,032
)
 

Selling commissions, dealer manager fees and distribution and stockholder servicing fees

 

 
4

 

 

 
4

 

Offering costs

 

 
(17
)
 

 

 
(17
)
 

Net income (loss)

 

 

 
11,373

 

 
11,373

 
3

Foreign currency translation adjustment

 

 

 

 
2,716

 
2,716

 

Balance as of March 31, 2018
39,431

 
$
39

 
$
337,706

 
$
(62,334
)
 
$
7,654

 
$
283,065

 
$


See notes to the condensed consolidated financial statements.

3


HINES GLOBAL INCOME TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2019 and 2018
(UNAUDITED)
 
2019
 
2018
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
(3,999
)
 
$
11,376

Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:
 
 
 
Depreciation and amortization
9,771

 
7,337

Gain on sale of real estate

 
(14,491
)
Foreign currency (gains) losses
69

 
25

(Gain) loss on derivative instruments
1,110

 
2

(Gain) loss on investments in real estate-related securities
(1,166
)
 

Changes in assets and liabilities:
 
 
 
Change in other assets
(35
)
 
381

Change in tenant and other receivables
(2,270
)
 
1,478

Change in deferred leasing costs
(3,029
)
 
(1,540
)
Change in accounts payable and accrued expenses
103

 
(392
)
Change in other liabilities
(2,069
)
 
(508
)
Change in due to affiliates
(4,393
)
 
1,006

Net cash from (used in) operating activities
(5,908
)
 
4,674

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Investments in acquired properties and lease intangibles
(45,471
)
 

Capital expenditures at operating properties
(582
)
 
(3,489
)
Proceeds from sale of real estate

 
37,087

Purchases of real estate-related securities
(3,048
)
 

Proceeds from settlement of real estate-related securities
3,014

 

Net cash from (used in) investing activities
(46,087
)
 
33,598

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of common shares
59,461

 

Redemption of common shares
(3,634
)
 
(1,292
)
Payment of offering costs
(1,306
)
 

Payment of selling commissions, dealer manager fees and distribution and stockholder servicing fees
(1,981
)
 
(789
)
Distributions paid to stockholders and noncontrolling interests
(2,963
)
 
(2,555
)
Proceeds from notes payable
26,715

 

Payments on notes payable
(433
)
 
(420
)
Proceeds from related party note payable
14,000

 
15,500

Payments on related party note payable
(37,500
)
 

Change in security deposit liability
(53
)
 
41

Deferred financing costs paid
(517
)
 
(124
)
Payments related to interest rate contracts
(55
)
 
(10
)
Net cash from (used in) financing activities
51,734

 
10,351

Effect of exchange rate changes on cash, restricted cash and cash equivalents
(172
)
 
267

Net change in cash, restricted cash and cash equivalents
(433
)
 
48,890

Cash, restricted cash and cash equivalents, beginning of period
36,986

 
24,553

Cash, restricted cash and cash equivalents, end of period
$
36,553

 
$
73,443


See notes to the condensed consolidated financial statements.

4


HINES GLOBAL INCOME TRUST INC, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2019 and 2018

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”). In the opinion of management, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly and in conformity with accounting principles generally accepted in the United States of America (“GAAP”) the financial position of Hines Global Income Trust, Inc. as of March 31, 2019 and December 31, 2018, the results of operations for the three months ended March 31, 2019 and 2018 and cash flows for the three months ended March 31, 2019 and 2018 have been included.  The results of operations for such interim periods are not necessarily indicative of the results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted according to such rules and regulations. For further information, refer to the financial statements and footnotes included in Hines Global Income Trust, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018.

Hines Global Income Trust, Inc. (the “Company”), formerly known as Hines Global REIT II, Inc., was incorporated in Maryland on July 31, 2013, to invest in a diversified portfolio of quality commercial real estate properties and other real estate investments throughout the United States and internationally, and to a lesser extent, invest in real-estate related securities. The Company is sponsored by Hines Interests Limited Partnership (“Hines”), a fully integrated global real estate investment and management firm that has acquired, developed, owned, operated and sold real estate for over 60 years. The Company is managed by Hines Global REIT II Advisors LP (the “Advisor”), an affiliate of Hines. The Company conducts substantially all of its operations through Hines Global REIT II Properties, LP (the “Operating Partnership”). An affiliate of the Advisor, Hines Global REIT II Associates LP, owns less than a 1% limited partner interest in the Operating Partnership as of March 31, 2019 and the Advisor also owns the special limited partnership interest in the Operating Partnership. The Company has elected to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2015.

As of March 31, 2019, the Company owned direct real estate investments in ten properties totaling 6.1 million square feet that were 95% leased. The Company raises capital for its investments through public offerings of its common stock. The Company commenced its initial public offering of up to $2.5 billion in shares of its common stock (the “Initial Offering”) in August 2014, and commenced its second public offering of up to $2.5 billion in shares of common stock including $500.0 million of shares offered under its distribution reinvestment plan (the “Follow-On Offering”) in December 2017. As of May 14, 2019, the Company had received gross offering proceeds of $606.8 million from the sale of 61.0 million shares through its public offerings, including shares issued pursuant to its distribution reinvestment plan.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements of the Company included in this Quarterly Report on Form 10-Q include the accounts of Hines Global Income Trust, Inc. and the Operating Partnership (over which the Company exercises financial and operating control). All intercompany balances and transactions have been eliminated in consolidation.

Investments in Real Estate-Related Securities

In the fourth quarter of 2018, the Company made its initial investments in real estate-related securities. These securities consist of common equities, preferred equities and debt investments of publicly traded REITs. The Company has elected to classify these investments as trading securities and carry such investments at fair value. These assets are valued on a recurring basis, which resulted in a realized gain of $63,000 and an unrealized gain of $1.1 million for the three months ended March 31, 2019, both of which are recorded in “gain (loss) on investments in real estate-related securities” in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

5


Tenant and Other Receivables

Tenant and other receivables consists primarily of receivables attributable to straight-line rent and receivables related to base rents and tenant reimbursements. 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. Straight-line rent receivables were $6.9 million and $5.8 million as of March 31, 2019 and December 31, 2018, respectively.

Other Assets

Other assets included the following (in thousands):
 
 
March 31, 2019
 
December 31, 2018
Prepaid insurance
 
$
460

 
$
493

Prepaid property taxes
 
82

 
80

Deferred tax assets (1)
 
775

 
844

Other
 
1,729

(2) 
490

Other assets
 
$
3,046

 
$
1,907


(1)
Includes the effects of a valuation allowance of $1.5 million and $0.8 million as of March 31, 2019 and December 31, 2018, respectively.

(2)
Includes $1.4 million of capitalized acquisition costs related primarily to the acquisition of ABC Westland, which was acquired on May 3, 2019 and discussed in “Note 12—Subsequent Events.”

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02 which requires companies that lease assets to recognize on the balance sheet the right-of-use assets and related lease liabilities (“ASC 842”). The accounting by companies that own the assets leased by the lessee (the lessor) remains largely unchanged from the adoption of ASC 842. The Company adopted ASC 842 beginning January 1, 2019 and is using the modified retrospective approach. No adjustment to opening retained earnings was required.

In July 2018, the FASB issued ASU 2018-11, which allows lessors to account for lease and non-lease components by class of underlying assets, as a single lease component if certain criteria are met. The new standard permits companies to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption in lieu of restating prior periods and provides other optional practical expedients.

On January 1, 2019, the Company elected the following practical expedients:

The transition method in which the application date of January 1, 2019 is the beginning of the reporting period that the Company first applied the new guidance.

The practical expedient package which allows an entity not to reassess (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for any expired or existing leases; (3) initial direct costs for any existing leases.

As an accounting policy election, a lessor may choose not to separate the non-lease components, by class of underlying assets, from the lease components and instead account for both types of components as a single component under certain conditions.

As an accounting policy election, a lessee may choose not to separate the non-lease components, by class of underlying assets, from the lease components and instead account for both types of components as a single component. The Company elected to apply the practical expedient for all of its leases to account for the lease and non-lease components as a single, combined operating lease component.

6


The Company completed its evaluation of the impact that the adoption of ASC 842 will have on the Company’s consolidated financial statements relating to its leases from both the lessee and lessor perspective. Based on the Company’s analysis, the Company identified the following changes to result from its adoption of ASC 842:

Lessor Accounting

The Company is entitled to receive tenant reimbursements for operating expenses for common area maintenance. Based on guidance in these ASUs, such revenue is defined as a non-lease component, which would be accounted for in accordance with ASC 606. However, the Company elected to apply the practical expedient for all of its leases to account for the lease and non-lease components as a single, combined operating lease component.

Capitalization of leasing costs is limited to initial direct costs. Initial direct costs have been defined as incremental costs of a lease that would not have been incurred if the lease had not been obtained. Legal costs are no longer capitalized, but expensed as incurred. There is no change in the Company’s accounting for lease inducements and commissions.

The Company’s existing leases continue to be classified as operating leases, however, leases entered into or modified after January 1, 2019 may be classified as either operating or sales-type leases, based on specific classification criteria. The Company believes all of its leases will continue to be classified as operating leases, and all operating leases will continue to have a similar pattern of recognition as under current GAAP.

Lessee Accounting

The Company has ground lease agreements in which the Company is the lessee for land underneath Bishop’s Square that the Company accounts for as an operating lease. The Company previously recognized an amount related to this ground lease as part of the allocation of the purchase price of Bishop’s Square, which was recorded to intangible lease assets, net. The lease has a remaining term of 763 years. Upon adoption of ASC 842 on January 1, 2019, the Company determined the lease liability is immaterial and reclassified approximately €29.7 million (approximately $33.9 million assuming a rate of $1.14 per EUR as of January 1, 2019, the date of adoption) from intangible lease assets, net to right-of-use asset, net in the Company’s condensed consolidated balance sheets.

New Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, "Changes to the Disclosure Requirements for Fair Value Measurement." This ASU amends and removes several disclosure requirements including the valuation processes for Level 3 fair value measurements. The ASU also modifies some disclosure requirements and requires additional disclosures for changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and requires the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. The Company is currently assessing the impact the adoption of this guidance will have on its financial statements.

7


3. INVESTMENT PROPERTY

Investment property consisted of the following amounts as of March 31, 2019 and December 31, 2018 (in thousands):
 
March 31, 2019
 
December 31, 2018
Buildings and improvements (1)
$
690,730

 
$
693,834

Less: accumulated depreciation
(34,970
)
 
(30,574
)
Buildings and improvements, net
655,760

 
663,260

Land
123,815

 
123,929

Investment property, net
$
779,575

 
$
787,189


(1)
In October 2017, the Company commenced construction at Bishop’s Square to add an additional floor and make various upgrades to the property. The construction was substantially completed in April 2019. Included in buildings and improvements is approximately $15.1 million and $14.5 million of construction-in-progress related to the expansion of Bishop’s Square as of March 31, 2019 and December 31, 2018, respectively.

As of March 31, 2019, the cost basis and accumulated amortization related to lease intangibles are as follows (in thousands):
 
Lease Intangibles
 
In-Place Leases (1)
 
Out-of-Market
Lease Assets
 
Out-of-Market
Lease Liabilities
 
 
 
Cost
$
81,437

 
$
5,261

 
$
(21,998
)
Less: accumulated amortization
(33,211
)
 
(2,289
)
 
4,645

Net
$
48,226

 
$
2,972

 
$
(17,353
)

(1)
The Company adopted ASC 842 beginning January 1, 2019 and reclassified certain assets from Intangible lease assets, net to Right-of-use asset, net in the Company’s condensed consolidated balance sheets. See Note 2—Summary of Significant Accounting Policies for more information on the adoption of ASC 842.

As of December 31, 2018, the cost basis and accumulated amortization related to lease intangibles were as follows (in thousands):
 
Lease Intangibles
 
In-Place Leases
 
Out-of-Market
Lease Assets
 
Out-of-Market
Lease Liabilities
 
 
 
Cost
$
118,585

 
$
5,558

 
$
(22,318
)
Less: accumulated amortization
(31,320
)
 
(2,126
)
 
4,284

Net
$
87,265

 
$
3,432

 
$
(18,034
)

Amortization expense of in-place leases was $4.6 million and $4.0 million for the three months ended March 31, 2019 and 2018, respectively. Net amortization of out-of-market leases resulted in an increase to rental revenue of $0.2 million and $0.2 million for the three months ended March 31, 2019 and 2018, respectively.


8


Anticipated amortization of the Company’s in-place leases and out-of-market leases, net for the period from April 1, 2019 through December 31, 2019 and for each of the years ending December 31, 2020 through December 31, 2023 are as follows (in thousands):
 
In-Place Lease
 
Out-of-Market
Leases, Net
April 1, 2019 through December 31, 2019
$
10,041

 
$
(1,155
)
2020
$
9,963

 
$
(1,263
)
2021
$
6,584

 
$
(1,227
)
2022
$
4,070

 
$
(1,075
)
2023
$
3,741

 
$
(884
)

Leases

The Company’s leases are generally for terms of 15 years or less and may include multiple options to extend the lease term upon tenant election. The Company’s leases typically do not include an option to purchase. Generally, the Company does not expect the value of its real estate assets to be impacted materially at the end of any individual lease term, as the Company is typically able to re-lease the space and real estate assets tend to hold their value over a long period of time. Tenant terminations prior to the lease end date occasionally result in a one-time termination fee based on the remaining unpaid lease payments including variable payments and could be material to the tenant. Many of the Company’s leases have increasing minimum rental rates during the terms of the leases through escalation provisions. In addition, the majority of the Company’s leases provide for variable rental revenues, such as, reimbursements of real estate taxes, maintenance and insurance and may include an amount based on a percentage of the tenants’ sales. Total revenue related to expense reimbursements from tenants for the three months ended March 31, 2019 was $2.9 million which is included in Rental revenue on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company has entered into non-cancelable lease agreements with tenants for space.  As of March 31, 2019, the approximate fixed future minimum rentals for the period from April 1, 2019 through December 31, 2019, for each of the years ending December 31, 2020 through 2023 and thereafter related to the Company’s commercial properties are as follows (in thousands):
 
Fixed Future Minimum Rentals
April 1, 2019 through December 31, 2019
$
40,822

2020
49,441

2021
43,774

2022
35,839

2023
34,023

Thereafter
178,397

Total
$
382,296


During the three months ended March 31, 2019 and 2018, the Company did not earn more than 10% of its revenue from any individual tenant.


9


4. DEBT FINANCING

As of March 31, 2019 and December 31, 2018, the Company had approximately $545.6 million and $545.8 million of debt outstanding, with weighted average years to maturity of 2.8 years and 2.9 years, respectively, and a weighted average interest rate of 2.77% and 2.85%, respectively. The following table provides additional information regarding the Company’s debt outstanding at March 31, 2019 and December 31, 2018 (in thousands):
Description
 
Origination or Assumption Date
 
Maturity Date
 
Maximum Capacity in Functional Currency
 
Interest Rate Description
 
Interest Rate as of March 31, 2019
 
Principal Outstanding at March 31, 2019
 
Principal Outstanding at December 31, 2018
Secured Mortgage Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bishop's Square
 
3/3/2015
 
3/2/2022
 
55,200

 
Euribor + 1.30% (1)
 
1.30%
 
$
61,918

 
$
63,171

Domain Apartments
 
1/29/2016
 
1/29/2020
 
$
34,300

 
Libor + 1.60%
 
4.09%
 
34,300

 
34,300

Cottonwood Corporate Center
 
7/5/2016
 
8/1/2023
 
$
78,000

 
Fixed
 
2.98%
 
73,677

 
74,110

Goodyear Crossing II
 
8/18/2016
 
8/18/2021
 
$
29,000

 
Libor + 2.00%
 
4.49%
 
29,000

 
29,000

Rookwood Commons
 
1/6/2017
 
7/1/2020
 
$
67,000

 
Fixed
 
3.13%
 
67,000

 
67,000

Rookwood Pavilion
 
1/6/2017
 
7/1/2020
 
$
29,000

 
Fixed
 
2.87%
 
29,000

 
29,000

Montrose Student Residences
 
3/24/2017
 
3/23/2022
 
22,605

 
Euribor + 1.85% (2)
 
1.85%
 
25,356

 
25,869

Queen's Court Student Residences
 
12/18/2017
 
12/18/2022
 
£
29,500

 
Libor + 2.00% (3)
 
3.01%
 
38,418

 
37,565

Venue Museum District
 
9/21/2018
 
10/9/2020
 
$
45,000

 
Libor + 1.95% (4)
 
4.44%
 
45,000

 
45,000

Fresh Park Venlo
 
10/3/2018
 
8/15/2023
 
$
75,000

 
Euribor + 1.50% (5)
 
1.50%
 
84,107

 
85,809

Maintal Logistics
 
2/21/2019
 
2/28/2024
 
23,500

 
Euribor + 1.10% (6)
 
1.10%
 
26,360

 

Notes Payable
 
 
 
 
 
 
 
 
 
$
514,136

 
$
490,824

Affiliate Note Payable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Facility with Hines
 
10/2/2017
 
12/31/2019
 
$
75,000

 
Variable
 
4.08%
 
31,500

 
55,000

Total Note Payable to Affiliate
 
 
 
 
 
 
 
 
 
$
31,500

 
$
55,000

Total Principal Outstanding
 
 
 
 
 
 
 
 
 
$
545,636

 
$
545,824

Unamortized discount
 
 
 
 
 
 
 
 
 
(263
)
 
(316
)
Unamortized financing fees
 
 
 
 
 
 
 
 
 
(3,442
)
 
(3,069
)
Total
 
 
 
 
 
 
 
 
 
$
541,931

 
$
542,439


(1)
On the loan origination date, the Company entered into a 2.00% Euribor interest rate cap agreement for the full amount borrowed as an economic hedge against the variability of future interest rates on this borrowing.

(2)
On the loan origination date, the Company entered into a 1.25% Euribor interest rate cap agreement for €17.0 million (approximately $19.0 million assuming a rate of $1.12 per EUR as of March 31, 2019) of the full amount borrowed as an economic hedge against the variability of future interest rates on this borrowing.

(3)
On the loan origination date, the Company entered into a 2.00% LIBOR interest rate cap agreement for £22.1 million (approximately $28.8 million assuming a rate of $1.30 per GBP as of March 31, 2019) of the full amount borrowed as an economic hedge against the variability of future interest rates on this borrowing.

(4)
On the loan origination date, the Company entered into a 3.50% LIBOR interest rate cap agreement for the full amount borrowed as an economic hedge against the variability of future interest rates on this borrowing.

(5)
On the loan origination date, the Company entered into a 2.00% Euribor interest rate cap agreement for €52.5 million (approximately $58.9 million assuming a rate of $1.12 per EUR as of March 31, 2019) as an economic hedge against the variability of future interest rates on this borrowing.

(6)
In February 2019, the Company entered into a secured mortgage loan to fund the acquisition of Maintal Logistics, which was acquired on December 31, 2018. Funding for the acquisition was not required until the loan closed in February 2019. On the loan origination date, the Company entered into a 2.00% Euribor interest rate cap agreement for €16.5 million (approximately $18.5 million assuming a rate of $1.12 per EUR as of March 31, 2019) as an economic hedge against the variability of future interest rates on this borrowing.

10


Hines Credit Facility

During the three months ended March 31, 2019, the Company made draws of $14.0 million and made payments of $37.5 million under its credit facility with Hines (the “Hines Credit Facility”). The Company had $31.5 million outstanding on March 31, 2019. From April 1, 2019 through May 14, 2019, the Company made $18.0 million in additional draws and made $20.0 million in additional payments under the Hines Credit Facility, which resulted in the Company having a $29.5 million outstanding balance under the Hines Credit Facility as of May 14, 2019.

Financial Covenants

The Company’s loan documents for the debt described in the table above contain customary events of default, with corresponding grace periods, including payment defaults, bankruptcy-related defaults, and customary covenants, including limitations on liens and indebtedness and maintenance of certain financial ratios. The Company was in compliance with all of its financial covenants as of March 31, 2019.

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, 2019 through December 31, 2019, for each of the years ending December 31, 2020 through December 31, 2023 and for the period thereafter (in thousands).

 
Payments Due by Year
 
April 1, 2019 through December 31, 2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
Principal payments
$
33,016

 
$
177,385

 
$
31,139

 
$
127,887

 
$
151,168

 
$
25,041


As of May 14, 2019, the Company is required to make $63.8 million in principal payments on its outstanding notes payable that mature through May 2020, $29.5 million of which relates to the Company’s credit facility with Hines. The Company expects to be able to repay with cash on hand or proceeds raised from its current offering, or to be able to refinance the debt terms on the principal outstanding.

5. DERIVATIVE INSTRUMENTS

The Company has entered into several interest rate cap contracts in connection with certain of its secured mortgage loans in order to limit its exposure against the variability of future interest rates on its variable interest rate borrowings.  The Company’s interest rate cap contracts have economically limited the interest rate on the loan to which they relate.  The Company has not designated these derivatives as hedges for accounting purposes. The Company has not entered into a master netting arrangement with its third-party counterparty and does not offset on its condensed consolidated balance sheets the fair value amount recorded for its derivative instruments.

The Company has also entered into foreign currency forward contracts as economic hedges against the variability of foreign exchange rates related to certain cash flows of some of its international investments. These forward contracts fixed the currency exchange rates on each of the investments to which they related. The Company did not designate any of these contracts as fair value or cash flow hedges for accounting purposes.  In December 2018, the Company entered into a €15.0 million foreign currency forward contract with an effective date of December 20, 2018 and a trade date of February 25, 2019, in connection with the funding of the Maintal Logistics acquisition. Additionally, in March 2019, the Company entered into a €46.0 million foreign currency forward contract with an effective date of March 1, 2019 and a trade date of March 20, 2019, in connection with the acquisition of ABC Westland. See Note 12—Subsequent Events for additional information regarding the purchase of ABC Westland.


11


The table below provides additional information regarding the Company’s interest rate contracts (in thousands, except percentages).

Interest Rate Cap Contracts
 
 
 
 
 
 
 
 
Property
 
Effective Date
 
Expiration Date
 
Notional Amount (1)
 
Interest Rate Received
 
Pay Rate /Strike Rate
Bishop’s Square
 
March 3, 2015
 
April 25, 2020
 
$
61,918

 
Euribor
 
2.00
%
Montrose Student Residences
 
March 24, 2017
 
March 23, 2022
 
$
19,017

 
Euribor
 
1.25
%
Queen’s Court Student Residences
 
December 20, 2017
 
December 20, 2020
 
$
28,813

 
LIBOR
 
2.00
%
Venue Museum District
 
September 21, 2018
 
October 9, 2020
 
$
45,000

 
LIBOR
 
3.50
%
Fresh Park Venlo
 
October 8, 2018
 
August 15, 2023
 
$
58,875

 
Euribor
 
2.00
%
Maintal Logistics
 
February 28, 2019
 
February 28, 2024
 
$
18,452

 
Euribor
 
2.00
%

(1)
For notional amounts denominated in a foreign currency, amounts have been translated at a rate based on the rate in effect on March 31, 2019.

The table below provides additional information regarding the Company’s foreign currency forward contracts that are outstanding as of March 31, 2019 (in thousands).

Foreign Currency Forward Contracts
 
 
 
 
 
 
Effective Date
 
Expiration Date
 
Notional Amount
 
Buy/Sell
 
Traded Currency Rate
March 31, 2019
 
April 3, 2019
 
46,000

 
EUR/USD
 
$
1.14


The table below presents the effects of the changes in fair value of the Company’s derivative instruments in the Company’s consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2019 and 2018 (in thousands):
 
 
Gain (Loss) Recorded on Derivative Instruments
 
 
Three months ended March 31,
 
 
2019
 
2018
Derivatives not designated as hedging instruments:
 
 
 
 
   Interest rate caps
 
$
(161
)
 
$
(2
)
   Foreign currency forward contracts
 
(949
)
 

Total gain (loss) on derivatives
 
$
(1,110
)
 
$
(2
)

6. STOCKHOLDERS’ EQUITY

Public Offering

On November 30, 2017, the Company (i) redesignated its issued and outstanding Class A shares of common stock, Class T shares of common stock, Class I shares of common stock and Class J shares of common stock as “Class AX shares,” “Class TX shares,” “Class IX shares” and “Class JX shares,” (collectively, the “IPO Shares”) respectively, and (ii) reclassified the authorized but unissued portion of its common stock into four additional classes of shares of common stock: “Class T shares,” “Class S shares,” “Class D shares,” and “Class I shares.” The Company is offering its shares of common stock in the Follow-On Offering in any combination of Class T shares, Class S shares, Class D shares and Class I shares (collectively, the “Follow-On Offering Shares”). All shares of the Company’s common stock have the same voting rights and rights upon liquidation, although distributions received by the Company’s stockholders are expected to differ due to the distribution and stockholder servicing fees payable with respect to the applicable share classes, which reduce distributions.

The Company complies with the FASB ASC 480 “Distinguishing Liabilities from Equity” which requires, among other things, that financial instruments that represent a mandatory obligation of the Company to repurchase shares be classified as liabilities and reported at settlement value.  When shares are tendered for redemption and approved (or not prohibited) by the board of directors, the Company will reclassify such obligations from equity to an accrued liability based upon their respective

12


settlement values and redeem those shares in the subsequent month pursuant to the Company’s current share redemption program.

Common Stock

As of March 31, 2019 and December 31, 2018, the Company had the following classes of shares of common stock authorized, issued and outstanding (in thousands):
 
March 31, 2019
 
December 31, 2018
 
Shares Authorized
 
Shares Issued
 
Shares Outstanding
 
Shares Authorized
 
Shares Issued
 
Shares Outstanding
Class AX common stock, $0.001 par value per share
40,000
 
19,096
 
19,096
 
40,000
 
19,123
 
19,123
Class TX common stock, $0.001 par value per share
40,000
 
19,929
 
19,929
 
40,000
 
19,969
 
19,969
Class IX common stock, $0.001 par value per share
10,000
 
97
 
97
 
10,000
 
96
 
96
Class JX common stock, $0.001 par value per share
10,000
 
 
 
10,000
 
 
Class T common stock, $0.001 par value per share
350,000
 
6,869
 
6,869
 
350,000
 
2,858
 
2,858
Class S common stock, $0.001 par value per share
350,000
 
 
 
350,000
 
 
Class D common stock, $0.001 par value per share
350,000
 
2,673
 
2,673
 
350,000
 
1,479
 
1,479
Class I common stock, $0.001 par value per share
350,000
 
667
 
667
 
350,000
 
59
 
59

The tables below provide information regarding the issuances and redemptions of each class of the Company’s common stock during the three months ended March 31, 2019 and 2018 (in thousands). There were no Class JX and S shares issued, redeemed or outstanding during the three months ended March 31, 2019.
 
Class AX
 
Class TX
 
Class IX
 
Class T
 
Class D
 
Class I
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
Balance as of January 1, 2019
19,123

 
$
19

 
19,969

 
$
21

 
96

 
$

 
2,858

 
$
3

 
1,479

 
$
1

 
59

 
$

 
43,584

 
$
44

Issuance of common shares
136

 

 
155

 
1

 
1

 

 
4,011

 
4

 
1,198

 
1

 
608

 
1

 
6,109

 
7

Redemption of common shares
(163
)
 

 
(195
)
 

 

 

 

 

 
(4
)
 

 

 

 
(362
)
 

Balance as of March 31, 2019
19,096

 
$
19

 
19,929

 
$
22

 
97

 
$

 
6,869

 
$
7

 
2,673

 
$
2

 
667

 
$
1

 
49,331

 
$
51


 
Class AX
 
Class TX
 
Class IX
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
Balance as of January 1, 2018
19,206

 
$
19

 
19,958

 
$
20

 
92

 
$

 
39,256

 
$
39

Issuance of common shares
145

 

 
162

 

 
1

 

 
308

 

Redemption of common shares
(116
)
 

 
(17
)
 

 

 

 
(133
)
 

Balance as of March 31, 2018
19,235


$
19


20,103


$
20


93

 
$

 
39,431


$
39


Distributions

With the authorization of the Company’s board of directors, the Company declared distributions monthly from January 2019 through April 2019 at a gross distribution rate of $0.05208 per month for each share class (represents an annualized rate of $0.625 per share per year if this rate is declared for an entire year), less any applicable distribution and stockholder servicing fees.

Distributions were made on all classes of the Company’s common stock at the same time. All distributions were paid in cash or reinvested in shares of the Company’s common stock for those participating in the Company’s distribution reinvestment plan and have been paid or issued, respectively, on the first business day following the completion of the month to which they relate. Distributions reinvested pursuant to the Company’s distribution reinvestment plan were reinvested in shares of the same class as the shares on which the distributions were made. Some or all of the cash distributions may be paid from sources other than cash flows from operations.

13


The following table outlines the Company’s total cash distributions declared to stockholders for each of the quarters ended during 2019 and 2018, including the breakout between the distributions declared in cash and those reinvested pursuant to the Company’s distribution reinvestment plan (in thousands).
 
 
Stockholders
Distributions for the Three Months Ended
 
Cash Distributions
 
Distributions Reinvested
 
Total Declared
2019









March 31, 2019

$
3,090


$
3,614


$
6,704

Total

$
3,090


$
3,614


$
6,704

2018
 
 
 
 
 
 
December 31, 2018
 
$
2,765

 
$
3,168

 
$
5,933

September 30, 2018
 
2,617

 
3,034

 
5,651

June 30, 2018
 
2,554

 
2,974

 
5,528

March 31, 2018
 
2,544

 
2,970

 
5,514

Total
 
$
10,480

 
$
12,146

 
$
22,626



The table below outlines the net distributions declared for each class of shares for the three months ended March 31, 2019 and 2018. The net distributions presented below are representative of the gross distribution rate declared by the Company’s board of directors, less any applicable ongoing distribution and stockholder servicing fees.
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Distributions declared per Class AX share, net
 
$
0.16

 
$
0.15

Distributions declared per Class TX share, net
 
$
0.13

 
$
0.13

Distributions declared per Class IX share, net
 
$
0.15

 
$
0.15

Distributions declared per Class T share, net
 
$
0.13

 
$
0.13

Distributions declared per Class S share, net
 
$
0.13

 
$
0.13

Distributions declared per Class D share, net
 
$
0.15

 
$
0.15

Distributions declared per Class I share, net
 
$
0.16

 
$
0.15



14


7. RELATED PARTY TRANSACTIONS

The table below outlines fees and expense reimbursements incurred that are payable by the Company to the Advisor and the Dealer Manager, Hines and its affiliates for the periods indicated below (in thousands):
 
 
Incurred
 
 
 
 
 
 
Three Months Ended March 31,
 
Unpaid as of
Type and Recipient
 
2019
 
2018
 
March 31, 2019
 
December 31, 2018
Selling Commissions- Dealer Manager (1)
 
$
1,170

 
$

 
$

 
$
4

Dealer Manager Fee- Dealer Manager
 
207

 

 

 
3

Distribution & Stockholder Servicing Fees- Dealer Manager
 
2,989

 

 
10,723

 
8,332

Organization and Offering Costs- the Advisor
 
1,240

 
503

 
8,936

 
9,001

Asset Management Fees- the Advisor
 
1,487

 
1,206

 
1,687

 
1,317

Other- the Advisor (2)
 
493

 
392

 
427

 
691

Performance Participation Allocation- the Advisor (3)
 
1,120

 
1,591

 
1,120

 
5,954

Interest expense- Hines and its affiliates (4)
 
437

 
187

 
86

 
151

Property Management Fees- Hines and its affiliates
 
372

 
211

 
188

 
78

Construction Management Fees- Hines and its affiliates
 
67

 
112

 
5

 
28

Leasing Fees- Hines and its affiliates
 
107

 
84

 
330

 
228

Expense Reimbursement- Hines and its affiliates (with respect to management and operations of the Company's properties)
 
814

 
478

 
426

 
235

Total
 
$
10,503

 
$
4,764

 
$
23,928

 
$
26,022

(1)
Some or all of these fees may be reallowed to participating broker dealers rather than being retained by the Dealer Manager.
(2)
Includes amounts the Advisor paid on behalf of the Company such as general and administrative expenses and acquisition-related expenses.  These amounts are generally reimbursed to the Advisor during the month following the period in which they are incurred.
(3)
Through its ownership of the special limited partner interest in the Operating Partnership, the Advisor is entitled to an annual performance participation allocation of 12.5% of the Operating Partnership’s total return. Total return is defined as distributions paid or accrued plus the change in net asset value of the Company’s shares of common stock for the applicable period. This performance participation allocation is subject to the Company earning a 5% total return annually (as defined above), after considering the effect of any losses carried forward from the prior period (as defined in the Operating Partnership agreement). The performance participation allocation accrues monthly and is payable after the completion of each calendar year.
(4)
Includes amounts paid related to the Hines Credit Facility.

8.  FAIR VALUE MEASUREMENTS

Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability, such as interest rates and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input 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.

Financial Instruments Measured on a Recurring Basis

As described in “Note 5 — Derivative Instruments,” the Company entered into several interest rate contracts as economic hedges against the variability of future interest rates on its variable interest rate borrowings. The valuation of these derivative

15


instruments is determined based on assumptions that management believes market participants would use in pricing, using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate contracts have been determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

Although the Company has determined the majority of the inputs used to value its interest rate contracts fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. In adjusting the fair values of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds and guarantees. However, as of March 31, 2019 and 2018, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuations of its derivatives. As a result, the Company has determined its derivative valuations are classified in Level 2 of the fair value hierarchy.

Additionally, as described in “Note 5 — Derivative Instruments,” the Company has entered into foreign currency forward contracts as economic hedges against the variability of foreign exchange rates. The valuation of these forward contracts is determined based on assumptions that management believes market participants would use in pricing, using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including currency exchange rate curves and implied volatilities. The Company has determined its foreign currency forward contracts valuations are classified in Level 2 of the fair value hierarchy, as they are based on observable inputs but are not traded in active markets.

In the fourth quarter of 2018, the Company made its initial investments in real estate-related securities. These securities consist of common equities, preferred equities and debt investments of publicly traded REITs. The Company has elected to classify these investments as trading securities and carry such investments at fair value. In May 2019, the Company made an additional $10.0 million investment in real estate-related securities. The following table summarizes activity for the Company’s assets measured at fair value on a recurring basis.
 
 
Basis of Fair Value Measurements
During the three months ended
 
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)
 
Gain (loss) on real estate-related securities

March 31, 2019
 
Investments in real estate-related securities
 
$
10,799

 
$
10,799

 
$

 
$

 
$
1,166















16


Financial Instruments Fair Value Disclosures

As of March 31, 2019, the Company estimated that the fair value of its notes payable, excluding deferred financing costs, which had a book value of $545.6 million, was $541.0 million. As of December 31, 2018, the Company estimated that the fair value of its notes payable, excluding deferred financing costs, which had a book value of $545.8 million, was $540.3 million. Management has utilized available market information such as interest rate and spread assumptions of notes payable with similar terms and remaining maturities, to estimate the amounts required to be disclosed. Although the Company has determined that 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, the Company has assessed the significance of the impact of the credit quality adjustments on the overall valuations of the fair market value of its notes payable and has determined they are not significant. Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, restricted cash, 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 inputs are utilized to estimate the fair value of the cash and cash equivalents and restricted cash and Level 2 inputs are utilized to estimate the fair value of the remaining financial instruments.

17


9. REPORTABLE SEGMENTS

As described previously, the Company invests the net proceeds from its public offerings into its portfolio of quality commercial real estate properties and other real estate investments throughout the United States and internationally. The Company’s current business consists of owning, operating, acquiring, developing, investing in, and disposing of real estate assets and all of the Company’s consolidated revenues and property operating expenses are from these real estate properties.

Management evaluates the operating performance of each of its real estate properties at an individual investment level and considers each investment to be an operating segment. The Company has aggregated its operating segments into seven reportable segments: domestic office investments, domestic residential/living investments, domestic retail investments, domestic industrial investments, international industrial investments, international office investments, and international residential/living investments.

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

 
Three Months Ended March 31,
 
2019

2018
Total Revenue
 

 
Domestic office investments
$
4,209

 
$
4,028

Domestic residential/living investments
2,732

 
1,214

Domestic retail investments
4,950

 
5,044

Domestic industrial investments
1,087

 
1,980

International industrial investments
4,753

 

International office investments
1,930


2,098

International residential/living investments
2,077


2,367

Total Revenue
$
21,738


$
16,731


For the three months ended March 31, 2019 and 2018, the Company’s total revenue was attributable to the following countries:
 
Three Months Ended March 31,
 
2019
 
2018
Total Revenue
 
 
 
United States
60
%
 
73
%
The Netherlands
18
%
 
%
Ireland
13
%
 
18
%
United Kingdom
5
%
 
9
%
Germany
4
%
 
%


18


For the three months ended March 31, 2019 and 2018, the Company’s property revenues in excess of expenses by segment were as follows (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Property revenues in excess of expenses (1)
 
 
 
Domestic office investments
$
2,896

 
$
2,718

Domestic residential/living investments
1,444

 
774

Domestic retail investments
2,812

 
3,162

Domestic industrial investments
701

 
1,532

International industrial investments
2,578

 

International office investments
947

 
1,602

International residential/living investments
1,524

 
1,724

Property revenues in excess of expenses
$
12,902

 
$
11,512


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

As of March 31, 2019 and December 31, 2018, the Company’s total assets by segment were as follows (in thousands):
 
March 31, 2019
 
December 31, 2018
Total Assets
 
 
 
Domestic office investments
$
128,406

 
$
130,021

Domestic residential/living investments
123,014

 
126,175

Domestic retail investments
198,160

 
199,819

Domestic industrial investments
51,623

 
51,103

International industrial investments
184,043

 
190,001

International office investments
122,260

 
122,471

International residential/living investments
111,139

 
111,803

Corporate-level accounts
22,877

 
17,436

Total Assets
$
941,522

 
$
948,829


As of March 31, 2019 and December 31, 2018, the Company’s total assets were attributable to the following countries:
 
March 31, 2019
 
December 31, 2018
Total Assets
 
 
 
United States
55
%
 
55
%
Ireland
18
%
 
18
%
The Netherlands
15
%
 
15
%
United Kingdom
7
%
 
7
%
Germany
5
%
 
5
%


19


For the three months ended March 31, 2019 and 2018 the Company’s reconciliation of the Company’s property revenues in excess of expenses to the Company’s net income (loss) is as follows (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Reconciliation to property revenue in excess of expenses
 
 
 
Net income (loss)
$
(3,999
)
 
$
11,376

Depreciation and amortization
9,328

 
7,341

Acquisition related expenses
4

 
135

Asset management fees
1,487

 
1,206

Performance participation allocation
1,120

 
1,591

General and administrative expenses
847

 
852

(Gain) loss on derivative instruments
1,110

 
2

(Gain) loss on real estate-related securities
(1,166
)
 

Gain on sale of real estate

 
(14,491
)
Foreign currency (gains) losses
69

 
25

Interest expense
4,197

 
2,814

Interest income
(124
)
 
(12
)
(Benefit) provision for income taxes
29

 
673

Total property revenues in excess of expenses
$
12,902

 
$
11,512



20


10. SUPPLEMENTAL CASH FLOW DISCLOSURES

Supplemental cash flow disclosures for the three months ended March 31, 2019 and 2018 (in thousands):

 
Three Months Ended March 31,
 
2019
 
2018
Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for interest
$
4,074

 
$
2,225

Supplemental Schedule of Non-Cash Investing and Financing Activities
 
 
 
Distributions declared and unpaid
$
2,339

 
$
1,840

Distributions reinvested
$
3,430

 
$
2,990

Shares tendered for redemption
$
1,554

 
$
760

Non-cash net liabilities assumed
$
110

 
$

Offering costs payable to the Advisor
$
1,240

 
$
503

Selling commissions, dealer manager fees and distribution and stockholder servicing fees payable to the Dealer Manager
$
2,989

 
$

Accrued capital additions
$
1,983

 
$
2,151

Accrued acquisition costs
$
1,036

 
$


11. 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.

12. SUBSEQUENT EVENTS

Lodz Urban Logistics

In April 2019, the Company entered into a Purchase and Sale Agreement to purchase Lodz Urban Logistics, an industrial logistics property located in Lodz, Poland. The net contract sales price for Lodz Urban Logistics is expected to be approximately €22.7 million (approximately $25.4 million assuming a rate of $1.12 per Euro as of the contract date), exclusive of transaction costs and closing prorations. The Company expects to fund the acquisition using proceeds from its public offerings, a mortgage secured by the property from a third-party and its credit facility with Hines. The Company expects the closing of this acquisition to occur in June 2019, subject to a number of closing conditions. However, the Company can provide no assurance that this acquisition will close on the expected timeline or at all.

ABC Westland

In May 2019, the Company acquired ABC Westland, an industrial property located in the Hague, the Netherlands. ABC Westland consists of 1,267,278 square feet of net rentable area and is, in the aggregate, 97.5% leased to 46 tenants. The purchase price for ABC Westland was €116.5 million (approximately $130.5 million assuming a rate of $1.12 per EUR on the date of the transaction), exclusive of transaction costs and working capital reserves. In connection with the acquisition of the property, the Company entered into a third-party mortgage loan for the principal sum of approximately €75.0 million (approximately $84.0 million assuming a rate of $1.12 per EUR on the date of the transaction). The mortgage loan has a floating interest rate of Euribor + 1.50% per annum. Repayment of principal is due in quarterly installments on each interest payment date, with the final payment being due on the last interest payment date of February 15, 2024.



*****

21


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, 2018.

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 (the “Securities Act”), 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 II Advisors LP (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.

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 have the opportunity to invest offering and distribution reinvestment plan proceeds to acquire properties or other investments or whether such proceeds will be needed to redeem shares or for other purposes, and if proceeds are available for investment, our ability to make such investments in a timely manner and at appropriate amounts that provide acceptable returns;


Competition for tenants and real estate investment opportunities, including competition with other programs sponsored by or affiliated with Hines Interests Limited Partnership (“Hines”);


Our reliance on our Advisor, Hines and affiliates of Hines for our day-to-day operations and the selection of 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;
 
 
Our ability to complete acquisitions of properties under contract;


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;



22


Our distributions have been paid using cash flows from financing activities, including proceeds from our public offering, as well as cash from the waiver of fees by our Advisor, 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, cash resulting from a waiver or deferral of fees, borrowings and/or proceeds from the offering. When we pay distributions from 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; and
 
 
Our ability to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes.

These risks are more fully discussed in, and all forward-looking statements should be read in light of, all of the risk factors under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.

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.

The Company

Hines Global Income Trust, Inc. (“Hines Global”), formerly known as Hines Global REIT II, Inc., was formed as a Maryland corporation on July 31, 2013, 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 is sponsored by Hines Interests Limited Partnership (“Hines”), a fully integrated global real estate investment and management firm that has acquired, developed, owned, operated and sold real estate for over 60 years. The Company has elected to be taxed as a REIT for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2015.

We raise capital for our investments through public offerings of our common stock. We commenced our initial public offering of up to $2.5 billion in shares of our common stock (the “Initial Offering”) in August 2014 and commenced our second public offering of up to $2.5 billion in shares of common stock including $500.0 million of shares offered under our distribution reinvestment plan (the “Follow-On Offering”) in December 2017. It is our intention to conduct a continuous offering for an indefinite period of time by conducting additional offerings of our shares of common stock following the conclusion of the Follow-On Offering. As of May 14, 2019, we had received gross offering proceeds of $606.8 million from the sale of 61.0 million shares through our public offerings, including shares issued pursuant to our distribution reinvestment plan.

23


Portfolio Highlights

We intend to meet our primary investment objectives by investing in a portfolio of quality commercial real estate properties and other real estate investments that relate to properties that are generally diversified by geographic area, lease expirations and tenant industries. As of March 31, 2019, we owned ten real estate investments consisting of 6.1 million square feet that were 95% leased. The following chart depicts the percentage of our portfolio’s investment types based on the estimated value of each real estate investment as of March 31, 2019 (“Estimated Values”), which are consistent with the values used to determine our net asset value (“NAV”) per share on that date.

chart-14a3d4c9e01a572e9b1.jpg


The following charts depict the location of our real estate investments as of March 31, 2019. Approximately 52% of our portfolio is located throughout the United States and approximately 48% is located internationally, based on the Estimated Values.
hgitassetmap.jpg



24


The following table provides additional information regarding each of our properties and is presented as of March 31, 2019.
Property
 
Location
 
Investment Type
 
Date Acquired/ Net Purchase Price (in millions) (1)
 
Estimated Going-in Capitalization Rate (2)
 
Leasable Square Feet
 
Percent Leased
Bishop’s Square
 
Dublin, Ireland
 
Office
 
3/2015; $103.2
 
6.1%
 
182,370

 
100
%
Domain Apartments
 
Las Vegas, Nevada
 
Residential/Living
 
1/2016; $58.1
 
5.5%
 
331,038

 
95
%
Cottonwood Corporate Center
 
Salt Lake City, Utah
 
Office
 
7/2016; $139.2
 
6.9%
 
487,283

 
99
%
Goodyear Crossing II
 
Phoenix, Arizona
 
Industrial
 
8/2016; $56.2
 
8.5%
 
820,384

 
100
%
Rookwood
 
Cincinnati, Ohio
 
Retail
 
1/2017; $193.7
 
6.0%
 
567,310

 
94
%
Montrose Student Residences
 
Dublin, Ireland
 
Residential/Living
 
3/2017; $40.6
 
5.5%
 
53,835

 
100
%
Queen’s Court Student Residences
 
Reading, United Kingdom
 
Residential/Living
 
10/2017; $65.3
 
6.2%
 
79,115

 
91
%
Venue Museum District
 
Houston, Texas
 
Residential/Living
 
9/2018; $72.9
 
3.9%
 
294,964

 
89
%
Fresh Park Venlo
 
Venlo, Netherlands
 
Industrial
 
10/2018; $136.3
 
6.7%
 
2,863,628

 
92
%
Maintal Logistics
 
Frankfurt, Germany
 
Industrial
 
12/2018; $43.8
 
5.7%
 
386,176

 
96
%
Total for All Investments
 
 
 
 
 
 
 
6,066,103

 
95
%

(1)
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.

(2)
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 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, including the assumption that the tenants will perform under their lease agreements during the 12 months following our acquisition of the properties and assumptions concerning estimates of timing and rental rates related to re-leasing vacant space.


25


NAV and Distributions

We began determining an NAV per share on a monthly basis as of the end of January 2018. Since that time, our NAV per share has increased from $9.69 as of August 31, 2017 to $10.11 as of March 31, 2019 as illustrated in the chart below. Set forth below is additional historical information regarding our NAV per share since February 29, 2016 (the date as of which our board of directors first determined an NAV per share).
distributionandnavcharts001.jpg
1.
Please see our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2019 for additional information concerning the methodology used to determine, and the limitations of, the NAV per share as of March 31, 2019. Please see our Annual Reports on Form 10-K for the years ended December 31, 2018 and December 31, 2017 as well as our Current Reports on Form 8-K for additional information concerning the NAV per share determined as of prior dates.
2.
Our board of directors determined an NAV per share of $9.03 as of February 29, 2016. Prior thereto, $8.92 was considered to be the “net investment value” per share of our common stocks, which was equal to the offering price per share of $10.00 in effect at that time, as arbitrarily determined by our board of directors, net of the applicable selling commissions, dealer manager fees and issuer costs.
Set forth below is information regarding our gross annualized distribution rate, excluding any applicable distribution and stockholder servicing fees, since October 1, 2014 (the date our board first authorized distributions to be declared). As illustrated in the chart below, we increased our gross annualized distribution rate from $0.61 per share to $0.625 per share for the three months ended March 31, 2019.
distributionandnavcharts002.jpg
1.
With the authorization of our board of directors, we declared distributions as of daily record dates and paid them on a monthly basis through December 31, 2017. Beginning in January 2018, we began, and intend to continue, to declare distributions as of monthly record dates and pay them on a monthly basis.

26


2.
We have not generated and we may continue to be unable to generate sufficient cash flows from operations to fully fund distributions. Therefore, some or all of our distributions have been and may continue to be paid, and during the offering phase, are likely to be paid at least partially from other sources, such as proceeds from the sales of assets, proceeds from our debt financings, proceeds from our public offerings, cash advances by our Advisor and/or cash resulting from a waiver or deferral of fees. See “— Financial Condition, Liquidity and Capital Resources” for additional information concerning our distributions.
Performance Summary of Share Classes

The table below discloses the total returns for the classes of shares that are no longer available for investment in our current public offering. The total returns shown reflect the percent change in the NAV per share from the beginning of the applicable period, plus the amount of any distribution per share declared during the period. The total returns shown are calculated assuming reinvestment of distributions pursuant to our DRP, are derived from unaudited financial information, and are net of all Hines expenses, including general and administrative expenses, transaction related expenses, management fees, the performance participation allocation, and share class specific fees, but exclude the impact of early redemption deductions on the redemption of shares that have been outstanding for less than one year. The inception dates for the Class AX Shares, Class TX Shares, and Class IX Shares are October 1, 2014, September 1, 2015, and May 1, 2017, respectively. The returns have been prepared using unaudited data and valuations of the underlying investments in our portfolio, which are estimates of fair value and form the basis for our NAV per share. Valuations based upon unaudited reports from the underlying investments may be subject to later adjustments, may not correspond to realized value and may not accurately reflect the price at which assets could be liquidated. 
As of March 31, 2019
 
 
 
 
 
 
Shares Class
 
1-Year
 
3-Year
 
ITD
Class AX Shares (No Sales Load)
 
9.49
%
 
11.63
%
 
11.00
%
Class AX Shares (With Sales Load)
 
N/A

 
7.27
%
 
7.41
%
Class TX Shares (No Sales Load)
 
8.41
%
 
10.36
%
 
10.29
%
Class TX Shares (With Sales Load)
 
N/A

 
8.42
%
 
8.15
%
Class IX Shares (No Sales Load)
 
9.22
%
 
N/A

 
9.10
%
Class IX Shares (With Sales Load)
 
N/A

 
N/A

 
8.60
%
The table below discloses the total returns for the classes of shares that are available for investment in our current public offering. Class I Shares and Class D Shares are sold without an upfront sales load. The total returns shown reflect the percent change in the NAV per share from the beginning of the applicable period, plus the amount of any distribution per share declared during the period. The total returns shown are calculated assuming reinvestment of distributions pursuant to our DRP, are derived from unaudited financial information, and are net of all Hines Global expenses, including general and administrative expenses, transaction related expenses, management fees, the performance participation allocation, and share class specific fees, but exclude the impact of early redemption deductions on the redemption of shares that have been outstanding for less than one year. The inception date for Class I, Class D, Class S and Class T Shares is December 6, 2017. Class T Shares and Class S Shares listed as (With Sales Load) reflect the returns after the maximum up-front selling commission and dealer manager fees, which total 3.5% for both share classes. Class T Shares and Class S Shares listed as (No Sales Load) exclude up-front selling commissions and dealer manager fees. The returns have been prepared using unaudited data and valuations of the underlying investments in our portfolio, which are estimates of fair value and form the basis for our NAV per share. Valua