424B3 1 gcear2-supplementno9dated8.htm 424B3 GCEAR2 - Supplement No. 9 dated 8/3/2015
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-194280


 
 
 
 
PROSPECTUS
 SUPPLEMENT NO. 9
AUGUST 3, 2015
GRIFFIN CAPITAL ESSENTIAL ASSET REIT II
SUPPLEMENT NO. 9 DATED AUGUST 3, 2015
TO THE PROSPECTUS DATED DECEMBER 8, 2014
This document supplements, and should be read in conjunction with, the prospectus of Griffin Capital Essential Asset REIT II, Inc. dated December 8, 2014 and Supplement No. 8 dated July 7, 2015. Supplement No. 8 amended and superseded all prior supplements to the prospectus. Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the prospectus.
The purpose of this supplement is to disclose:
an update on the status of our offering;
an update to our state-specific suitability standards;
a revision to the "Questions and Answers about this Offering" section of our prospectus;
a revision to the "Risk Factors" section of our prospectus;
our recent property acquisitions;
the third quarter 2015 stock distribution declaration;
a revision to the "Management - Affiliated Companies" section of our prospectus; and
a revised subscription agreement.
Status of Our Offering
We commenced the initial public offering of shares of our common stock on July 31, 2014. On September 23, 2014, we reached the minimum offering amount of $2.0 million in sales of Class A common stock as a result of a $2.0 million investment by an affiliate of our sponsor, and commenced operations. On November 12, 2014, we announced that we had ceased offering shares of our Class T common stock in our offering, and reallocated the shares being offered such that we are currently offering up to $2.0 billion in shares of Class A common stock in our primary offering and up to $200 million in shares of Class A common stock pursuant to our distribution reinvestment plan. We did not sell any shares of Class T common stock in this offering; however, we reserved the right to reallocate shares among classes of stock, if we elect to offer shares of additional classes in the future.
As of July 27, 2015, we had received gross offering proceeds of approximately $160.8 million from the sale of 16,174,675 Class A shares in our initial public offering, including proceeds raised and shares issued under our distribution reinvestment plan. As of July 27, 2015, approximately $2.0 billion in shares of common stock remained available for sale to the public under our initial public offering, including shares available under our distribution reinvestment plan.
Update to Suitability Standards
The state-specific suitability standard for Kentucky contained in the "Suitability Standards" section on page i of our prospectus is hereby revised as follows:
For Kentucky Residents - Investments by residents of the State of Kentucky must not exceed 10% of such investor's liquid net worth in our shares or the shares of our affiliates' non-publicly traded real estate investment trusts.
Revision to "Questions and Answers about this Offering"
The information provided in the fourth bullet point in the response to the question "What are some of the more significant risks involved in an investment in your shares?" in the "Questions and Answers about this Offering" section our prospectus is hereby removed and replaced with the following:

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We have paid, and may continue to pay distributions from sources other than cash flow from operations, including out of net proceeds from this offering; therefore, we will have fewer funds available for the acquisition of properties, and our stockholders' overall return may be reduced.
Revision to "Risk Factors"
The information provided in the sixth risk factor to the "Risk Factors - Risks Related to this Offering and an Investment in Griffin Capital Essential Asset REIT II, Inc." section of our prospectus is hereby removed and replaced with the following:
We have paid distributions from sources other than cash flow from operations; therefore, we will have fewer funds available for the acquisition of properties, and our stockholders' overall return may be reduced.
In the event we do not have enough cash from operations to fund our distributions, we may borrow, issue additional securities, or sell assets in order to fund the distributions or make the distributions out of net proceeds from this offering. We are not prohibited from undertaking such activities by our charter, bylaws, or investment policies, and we may use an unlimited amount from any source to pay our distributions. Through June 30, 2015, we funded a substantial amount of our total distributions out of net offering proceeds from this offering.  If we continue to pay distributions from sources other than cash flow from operations, we will have fewer funds available for acquiring properties, which may reduce our stockholders' overall returns. Additionally, to the extent distributions exceed cash flow from operations, a stockholder's basis in our stock may be reduced and, to the extent distributions exceed a stockholder's basis, the stockholder may recognize a capital gain. See the "Description of Shares - Distribution Policy" section of this prospectus.
Property Acquisitions
The following is hereby added to the end of the "Real Estate Investments - Our Properties" section of our prospectus:
FedEx Freight Property
On July 22, 2015, we acquired a single-story, Class "A" truck terminal and its associated outbuildings consisting of 160,410 net rentable square feet located in West Jefferson, Ohio (the "FedEx Freight property"). The FedEx Freight property is leased in its entirety to FedEx Freight, Inc. ("FedEx Freight"). The purchase price for the FedEx Freight property was $28.0 million, plus closing costs. The purchase price and acquisition fees and expenses earned by our advisor were funded with proceeds from our public offering, a draw of $16.8 million pursuant to our revolving credit facility with a syndicate of lenders under which KeyBank, N.A. ("KeyBank") serves as administrative agent and JPMorgan Chase Bank, N.A. ("JPMorgan") serves as syndication agent (the "KeyBank Revolving Credit Facility"), and approximately $10.8 million in proceeds from a preferred equity investment made by Griffin Capital Vertical Partners, L.P., an affiliate of Griffin Capital Corporation, our sponsor (the "Sponsor"), into Griffin Capital Essential Asset Operating Partnership II, L.P., our operating partnership (the "Operating Partnership"), in exchange for preferred units of limited partnership interest in the Operating Partnership. Our advisor earned approximately $0.6 million in acquisition fees in connection with the acquisition of the FedEx Freight property. As of the closing date, we incurred acquisition expenses of approximately $0.2 million in connection with the acquisition of the FedEx Freight property, approximately $0.06 million of which will be reimbursed or paid to our advisor and approximately $0.14 million of which were paid to unaffiliated third parties.
FedEx Freight is a wholly-owned subsidiary of FedEx Corporation ("FedEx"), which operates a broad portfolio of transportation, e-commerce, and business services through its four business segments: FedEx Freight, FedEx Express, FedEx Ground, and FedEx Services. FedEx Freight is a leading U.S. provider of less-than-truckload ("LTL") freight services through its FedEx Freight Priority and FedEx Freight Economy services. FedEx (NYSE:FDX) is ranked #64 on the 2014 Fortune 500 List and has investment grade credit ratings of 'BBB' from S&P, 'Baa1' from Moody's, and 'A+' from Egan-Jones.
The FedEx Freight property is located in the Columbus, Ohio MSA and functions as one of only twelve "dual hubs" for both FedEx Freight Priority shipments and FedEx Freight Economy shipments nationally. The FedEx Freight property was completed in 2009 as a build-to-suit for FedEx Freight and includes a 133,040 square foot warehouse/freight terminal with 272 dock-high doors, an adjoining single-story office area, a free standing truck and trailer maintenance facility, three fueling stations, a digital truck scale, and a large parking area. The FedEx Freight

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property is centrally located to handle LTL shipments moving to and from Western, Eastern, Southern, Midwestern, and Northeastern United States and is in close proximity to major highways, the Norfolk Southern Intermodal at Rickenbacker in Columbus, and a line-haul freight to and from intermodals in Chicago. We believe the FedEx Freight property is a business essential facility to FedEx Freight's overall operations due to its significant locational benefits, the operational efficiency of its terminals, and the functions performed therein.
The FedEx Freight lease, as amended, is a triple-net lease with a remaining term of approximately 8.5 years upon our acquisition, expiring in January 2024. The current annual base rent is approximately $1.9 million, with 0.9% average annual rental increases for the remaining duration of the lease. Under the FedEx Freight lease, FedEx Freight has two five-year fixed rate renewal options, with base rent increases of 9.92% on the first renewal option and 7.45% on the second renewal option, and no termination option. FedEx also serves as the guarantor for FedEx Freight's obligations under the FedEx Freight lease.
The going-in capitalization rate for the FedEx Freight property is approximately 6.65%. The going-in capitalization rate is determined by dividing the projected net operating income for the first fiscal year we own the property by the acquisition price (exclusive of closing and offering costs). The net operating income is calculated by totaling the sum of all the revenues from the tenant including base rental revenue, parking revenue, and expense reimbursement revenue then deducting the total of all the property expenses including utilities, insurance, real estate taxes, repairs and maintenance, and all property operating expenses. The projected net operating income includes assumptions that may not be indicative of the actual future performance of a property, including the assumption that the tenant will perform its obligations under its lease agreement during the next 12 months.
Aetna Property
On July 29, 2015, we acquired a two-story, institutional quality office property consisting of approximately 100,270 net rentable square feet located in Tucson, Arizona (the "Aetna property"). The Aetna property is leased in its entirety to Aetna Life Insurance Company ("Aetna Life Insurance"). The purchase price for the Aetna property was $21.7 million. The purchase price plus closing costs and certain acquisition expenses to third parties (reduced by certain adjustments, credits, and previous deposits) were funded with a draw of $21.6 million pursuant to the KeyBank Revolving Credit Facility. Our advisor earned approximately $0.4 million in acquisition fees in connection with the acquisition of the Aetna property. As of the closing date, we incurred acquisition expenses of approximately $0.12 million in connection with the acquisition of the Aetna property, approximately $0.05 million of which will be reimbursed or paid to our advisor and approximately $0.07 million of which were paid to unaffiliated third parties. The acquisition fees and expenses to be paid to our advisor were deferred and will be paid at a future date.
Aetna Life Insurance provides insurance products principally to employers that sponsor its products for the benefit of their employees or their employees' dependents and has an investment grade credit rating of 'AA-' from S&P. Aetna Life Insurance is a wholly-owned subsidiary of Aetna, Inc. ("Aetna"), which operates as a diversified health care benefits company through its three segments: Health Care, Group Insurance, and Large Case Pensions. Aetna (NYSE:AET) is ranked #49 on the 2015 Fortune 500 List and has investment grade credit ratings of 'A' from S&P, 'A' from Fitch, and 'Baa1' from Moody's.
The Aetna property is located within Pima County, Arizona approximately 120 miles south of Phoenix. The Aetna property was completed in 2001 as a build-to-suit for Coventry Health Care Workers' Compensation, Inc., which was acquired by Aetna in May 2013. Upon the closing of the Aetna property, Aetna Life Insurance executed and commenced a 10-year lease in connection with the sale-leaseback of the Aetna property. The Aetna property is the largest facility for Aetna's workers' compensation group and is a fully-equipped professional office facility with operations supporting large-scale clerical, administrative, contact center, mail center, and business processing organization functions. In addition, the Aetna property includes a full service telephone and IT infrastructure to accommodate and secure business operations and a full-perimeter fence surrounding a secure parking area. Aetna has invested over $2.5 million in a number of improvements to the building since 2006. We believe the Aetna property is a business essential facility to Aetna Life Insurance's overall operations due to its significant locational benefits, the capital invested by Aetna, and Aetna Life Insurance's long-term commitment to the Tucson market evidenced by its 10-year lease term.
The Aetna lease is a 10-year triple-net lease commencing upon our acquisition, expiring in July 2025. The current annual base rent is approximately $1.5 million, with 3.0% annual base rental rate increases for the remaining

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duration of the lease. Under the Aetna lease, Aetna Life Insurance has two five-year fixed rate renewal options at 95% of fair market rent, a short term extension option of up to 12 months, and a right of first refusal on any lease, subject to certain conditions. The going-in capitalization rate for the Aetna property is approximately 6.93%.
Management of FedEx Freight and Aetna Properties
FedEx Freight will be responsible for manging the FedEx Freight property. Our property manager will be paid an oversight fee in an amount of 1.0% of the gross monthly revenues collected from the FedEx Freight property.
Our property manager will be responsible for managing the Aetna property and will be paid management fees in an amount of 3.0% of the gross monthly revenues collected from the Aetna property. Our property manager has hired an unaffiliated third party to manage the day-to-day operations and will pay the third party a portion of the management fees paid by us, unless such management fee can be recovered from the tenant.
Declaration of Third Quarter 2015 Stock Distribution
On July 27, 2015, our board of directors declared a stock distribution in the amount of 0.00013699 shares of common stock per day per share (equivalent to an annual stock distribution rate of 0.5% based on our current public offering price of $10.00 per share of common stock) to stockholders of record at the close of business on each day during the period from July 27, 2015 through September 30, 2015 ("Stock Distribution"). Our board of directors believes that the Stock Distribution is appropriate to compensate stockholders based on our current and prospective assets, liabilities, and business opportunities. The Stock Distribution to each stockholder of record during a month will be issued on such date of the following month as our Chief Executive Officer may determine.
The Stock Distribution is in addition to our declaration of a cash distribution at a distribution rate of $0.00150684932 per day per share (equivalent to an annual distribution rate of 5.5% based on our current public offering price of $10.00 per share of common stock) payable to stockholders of record at the close of business on each day during the period from July 1, 2015 through September 30, 2015.
Revision to "Management - Affiliated Companies"
The biographical information for Scott A. Tausk contained in the "Management - Affiliated Companies -Our Sponsor and its Principals" section of our prospectus is hereby removed and replaced with the following:
Scott A. Tausk joined Griffin Capital Corporation in 2013 as Managing Director - Asset Management.  Mr. Tausk has over 20 years of asset management experience, including 13 years as Managing Director of Asset and Portfolio Management for Transwestern Investment Company, where he led the execution of active business plans, including property repositioning, leasing, and operating efficiency across a 15 million square foot portfolio.  In addition to asset management experience, Mr. Tausk has experience with real estate development, construction management, and third party property management.  He currently serves as an advisor to Gensler, a global architectural firm, where he helps Gensler connect with the commercial real estate owner.  Mr. Tausk earned a B.S. in Civil Engineering from Purdue University and an MBA from the University of Chicago's Booth School of Business.  Mr. Tausk is a registered Professional Engineer and a licensed Real Estate Managing Broker in the state of Illinois.
Subscription Agreement
The form of subscription agreement contained in Appendix A of our prospectus is hereby removed and replaced with the revised form of subscription agreement attached to this supplement as Appendix A.


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Appendix A
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Appendix A
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Appendix A
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Appendix A
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