UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): July 1, 2010
Hines Global REIT, Inc.
(Exact name of registrant as specified in its charter)
Maryland | 000-53964 | 26-3999995 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
2800 Post Oak Blvd, Suite 5000, Houston, Texas | 77056-6118 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (888) 220-6121
Not Applicable
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item 1.01 Entry Into a Material Definitive Agreement.
Joint Venture Agreement
On June 29, 2010, Hines Global REIT Properties LP (the Operating Partnership), a subsidiary of
Hines Global REIT, Inc. (Hines Global or the
Company), and MREF II MH SÀRL, a subsidiary of
Moorfield Real Estate Fund II GP Ltd. (Moorfield), formed a new joint venture entity called
Hines-Moorfield UK Venture I S.à.r.l. (the Joint
Venture). The Joint Venture is a S.à.r.l.
formed under the laws of Luxembourg and is owned 60% and 40% by the Operating Partnership and
Moorfield, respectively. The purpose of the Joint Venture is to acquire certain assets of the
Brindleyplace project (the Project), a mixed-use development located in Birmingham, United
Kingdom (as further described below).
The Joint Venture Agreement, dated July 1, 2010, sets forth certain rights and obligations between
the parties, including the following key provisions:
| the majority shareholder (presently the Operating Partnership) has the right to elect 2 of the 3 members of the board of managers of the Joint Venture for so long as it maintains majority control of the Joint Ventures shares. The Operating Partnership designated Ken Macrae, an employee of an affiliate of Hines Interests Limited Partnership (Hines), the Companys sponsor, and HGR International Investment Manager LLC, a subsidiary of the Operating Partnership that is managed by officers of the Company, as its two initial members of the board of managers; | |
| each member of the board of managers has one vote, and a majority of the votes is needed for board action, subject to the rights of the minority shareholder (or, when applicable, its board member designee) to approve certain Major Decisions discussed below (such approval rights being in effect as long as the minority shareholder owns at least 25% of the shares of the Joint Venture); | |
| the Major Decisions that require the approval of the minority shareholder (or its manager designee, as applicable) include, among others: the sale of any property (except as provided in the forced sale rights discussed below) or the acquisition of any additional properties; new debt financings or any guaranty of indebtedness; entering into major leases and certain other leasing decisions; the annual strategic business plan and annual budget (and certain deviations therefrom); entering into any agreement with either venturer or their respective affiliates; any merger or similar extraordinary transaction; amendment of the constitutional documents of the Joint Venture; changing the nature of the Joint Ventures business; admitting a new shareholder (except as provided below); dissolving the Joint Venture; any change of property manager or asset manager; retention of certain leasing agents; commencing a bankruptcy action; changing the tax residency of the Joint Venture; entering into certain litigation settlements; entering into certain non-arms length transactions; and any other matter that could reasonably be expected to have an adverse effect on the valuation of the Joint Venture in excess of 10%; | |
| a requirement that each venturer fund its pro-rata share of the initial capital required to complete the acquisition of the Project and the capital contributions that are needed to re-tenant one of the buildings being acquired (in a total amount not to exceed £10.0 million ($15.2 million assuming a rate of $1.52 per GBP)). Failure to make such required additional capital contribution allows the other venturer to fund the shortfall and dilute the non-contributing venturer. Other than this specific capital requirement, there is no other requirement of either venturer to fund additional capital contributions after closing; | |
| procedures and consents for making shareholder distributions; | |
| after July 7, 2012, there is a mutual buy-sell right, in which either venturer may offer to purchase the entire interest of the other venturer in the Joint Venture and the offeree must sell its interest at the offered price or purchase the interest of the offeror based on the same originally offered price (adjusted to reflect the different ownership percentages of the venturers); | |
| after July 1, 2014, both venturers will have a forced sale right, meaning that after such date, either venturer may elect to trigger a third party sale of any building or of the entire Project. If either the Operating Partnership or Moorfield elects to trigger such sale, then the other venturer has a right of first refusal to purchase such asset(s) at the sale price proposed by the triggering party; | |
| after July 1, 2014, either venturer may transfer all (but not less than all) of its interest in the Joint Venture to a third party that is reasonably approved by the remaining venturer (based upon financial stability), with the remaining venturer having a right of first refusal to purchase such interest at the price stated in any signed, written bona fide offer from such third party; |
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| a Luxembourg-based affiliate of Hines was designated by the parties to be the initial Administrative Manager of the Joint Venture, which entity is allowed to recover its actual personnel and other costs and expenses (without mark-up) in an amount not to exceed £120,000 per year ($182,000 as adjusted for inflation, assuming a rate of $1.52 per GBP), and it shall be solely responsible for managing the day-to-day operations of the Joint Venture. The Companys Conflicts Committee reviewed and approved the proposed recovery of expenses from the Joint Venture to the Hines affiliate in performing its duties as the Administrative Manager, and determined that such recovery and cap was fair and reasonable to the Company; and | |
| the Joint Venture Agreement is governed by the laws of the United Kingdom. |
Agreement for Purchase
Concurrently with the execution of the Joint Venture Agreement, on July 1, 2010, the Joint Venture
entered into a contract to acquire the Project. The Project consists of five office buildings
including ground-floor retail, restaurant and theatre space, and a 903-space multi-story parking
garage. The seller, Brindleyplace Limited Partnership, is not affiliated with Hines Global or its
affiliates.
Item 2.01 Completion of Acquisition or Disposition of Assets.
The Joint Venture consummated the acquisition of the Project on July 7, 2010. The contract
purchase price for the Project was £186.2 million ($282.5 million assuming a rate of $1.52 per GBP
based on the transaction date), exclusive of transaction costs, financing fees and working capital
reserves. The Joint Venture funded the acquisition using contributions from the venturers and
proceeds from a secured mortgage facility agreement entered into with Eurohypo AG (see additional
details in Item 2.03 below). Hines Global funded its contributions to the Joint Venture using
proceeds from its initial public offering.
The Project consists of 560,200 square feet of rentable area that is 99.2% leased to 29 tenants.
British Telecom, a telecommunication firm, leases 133,084 square feet or approximately 24% of the
rentable area of the Project, under a lease that expires in January 2012. The annual base rent
under the lease is currently approximately £3.1 million ($4.7 million assuming a rate of $1.52 per
GBP). The Royal Bank of Scotland PLC, a global banking and financial services company (RBS),
leases 101,349 square feet or approximately 18% of the rentable area of the Project, under a lease
that expires in December 2028. The annual base rent under the lease is currently approximately
£2.6 million ($3.9 million assuming a rate of $1.52 per GBP), but is subject to rent reviews every
five years (Rent reviews are negotiations between the tenant and landlord to bring the annual base
rent under a lease to a market rental rate. Rent reviews cannot result in decreased annual rent.).
In addition, the lease has a termination option, which permits RBS to terminate the lease in June
2022 with twelve months notice. Deloitte LLP, a company that provides auditing, consulting,
financial advisory, risk management and tax services, leases 58,341 square feet or approximately
10% of the rentable area of the Project, under a lease that expires in February 2016. The annual
base rent under the lease is currently approximately £1.5 million ($2.2 million assuming a rate of
$1.52 per GBP), but is subject to rent reviews every 5 years. The remaining space is leased to
twenty-six tenants, none of which leases more than 10% of the rentable area of the Project.
Additionally, a joint venture owned 60% by an affiliate of Hines and 40% by an affiliate of
Moorfield, will lease 100% of the parking garage under a lease that expires in July 2015. This
joint venture will be responsible for the operations of the parking garage, which they intend to
outsource to GVA Grimley Limited. The annual base rent under this lease is currently £600,000
($910,000 assuming a rate of $1.52 per GBP) plus a certain percentage of gross rental receipts from
the operation of the garage, if certain thresholds are achieved.
The Project will continue to be property managed by GVA Grimley Limited, and the initial asset
management service will be outsourced to Argent Estates Limited, neither of which is affiliated
with the Company, Hines or their affiliates.
In connection with the acquisition of its investment in this property, Hines Global expects to pay
its advisor, Hines Global REIT Advisors LP, an affiliate of Hines, approximately $3.4 million in
acquisition fees and $1.1 million in financing fees. Additionally, we expect that Moorfield will
pay an affiliate of Hines an acquisition fee of approximately £380,000 plus a transaction
structuring fee of approximately £120,000 ($578,000 and $181,000, respectively, assuming a rate of
$1.52 per GBP).
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet
Arrangement of a Registrant.
On July 1, 2010, subsidiaries of the Joint Venture entered into a secured mortgage facility
agreement in the aggregate amount of £121.1 million ($183.7 million assuming a rate of $1.52 per
GBP) (the Loan) with Eurohypo AG (Eurohypo or the Lender) pursuant to separate Debenture
Agreements dated July 7, 2010 (the Debentures), Share and Receivables Pledge Agreements and
Account Pledge Agreements (together with the Debentures and the additional documents executed by
the parties in connection with the Loan, the Loan Documents). Pursuant to Loan Documents, the
Loan is secured by a mortgage and related security interests in the Project. The Loan Documents
also included assignments of rent, leases and permits for the benefit of the Lender.
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The Loan matures on July 7, 2015 and has a floating interest rate of LIBOR plus a spread that
ranges from 1.45% to 1.60%, based on the loan-to-value ratio of the Project. Interest on
approximately £90.8 million ($137.7 million assuming a rate of $1.52 per GBP) of the loan balance
was fixed at closing at 3.91% through multiple 5-year swaps with Eurohypo. Interest payments are
due quarterly, in arrears, beginning on July 20, 2010 through maturity. The Loan may be repaid in
full prior to maturity, subject to a prepayment premium if it is repaid in the first 3 years, and
is prepayable at par thereafter. The Loan Documents require the borrowers to establish a reserve
for the refurbishment of a portion of the Project. The borrowers will deposit £584,000 ($886,000
assuming a rate of $1.52 per GBP) quarterly beginning October 2010 and will continue until January
2012.
The Lender may exercise certain rights under the Loan Documents, including the right of foreclosure
and the right to accelerate payment of the entire balance of the Loan (including fees and the
prepayment premium) upon events of default, subject to the borrowers ability to cure during a
grace period. The events of default under the Loan Documents include, among others, the insolvency
of the borrowers or the Joint Venture, the borrowers inability to meet ongoing financial covenants
of the facility, the borrowers failure to maintain insurance on the Project and the failure of
certain representations and warranties in the Loan Documents to be true and correct in all material
respects.
Item 9.01 Financial Statements and Exhibits.
(a) and (b) Financial Statements of Real Estate Property Acquired and Pro Forma Financial
Information.
To be filed by amendment. The registrant hereby undertakes to file the financial statements
required to be filed in response to this item on an amendment to this Current Report on Form 8-K no
later than September 22, 2010.
Statements in this Current Report on Form 8-K, including intentions, beliefs, expectations or
projections relating to the potential acquisition of the property described herein and the lease of
the parking garage, are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements are based on current expectations and assumptions with respect to, among
other things, future economic, competitive and market conditions and future business decisions that
may prove incorrect or inaccurate. Important factors that could cause actual results to differ
materially from those in the forward looking statements include the risks associated with property
acquisitions and other risks described in the Risk Factors section of Hines Global REIT, Inc.s
Registration Statement on Form S-11, its Annual Report on Form 10-K for the year ended December 31,
2009 and its other filings with the Securities and Exchange Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.
Hines Global REIT, Inc. |
||||
July 8, 2010 | By: | /s/ Ryan T. Sims | ||
Name: | Ryan T. Sims | |||
Title: | Chief Accounting Officer | |||
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