EX-99.1 2 a50437exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
(LOGO)
PRESS RELEASE
FOR IMMEDIATE RELEASE
     
Contact:
  Janice McDill
Phone:
  312.698.6707 
Email:
  janice.mcdill@grubb-ellis.com
Grubb & Ellis Company Reports
Third Quarter and Nine Month 2008 Results
SANTA ANA, Calif. (Nov. 6, 2008) — Grubb & Ellis Company (NYSE: GBE), a leading real estate services and investment firm, today reported revenue of $159.2 million for the third quarter of 2008. Revenue for the nine-month period ended September 30, 2008 was $486.8 million.
The company reported a net loss of $44.0 million, or $0.69 per share, for the third quarter. The net loss for the first nine months of 2008 was $55.0 million, or $0.87 per share. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter of 2008 was negative $56.3 million, compared with EBITDA for the combined companies of $17.3 million in the same period a year ago. For the first nine months of 2008, the company reported negative EBITDA of $48.3 million.
The third quarter 2008 EBITDA included the following charges, all of which adversely affected the EBITDA result:
  •   A $45.8 million real estate impairment charge related to real estate assets the company owns and has decided to market for sale;
 
  •   A $16.3 million charge related to the company’s investment management programs; and
 
  •   $2.7 million of merger-related and integration costs.
Excluding the above charges, which primarily had no cash impact to the current quarter, and certain other items totaling $1.0 million of net earnings, adjusted EBITDA for the three month period ended September 30, 2008 was a positive $7.4 million. Excluding certain charges and other non-cash items totaling $75.8 million, adjusted EBITDA for the nine-month period ended September 30, 2008 was a positive $27.5 million. (Combined non-GAAP supplemental disclosure follows this release.)
“Given the difficult market conditions our underlying operations continued to perform well and we have clearly benefited from the impacts of cost reductions and operational changes implemented post merger,” said interim Chief Executive Officer Gary Hunt. “We continue to identify synergies and eliminate redundancies in an effort to maximize cost efficiencies. At the same time, we are taking advantage of the current environment to recruit high-quality professionals who understand that our expanded platform will create additional revenue opportunities.”
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Grubb & Ellis Company
1551 N. Tustin Avenue Suite 300 Santa Ana, CA 92705 714.667.8252

 

 

2 — 2 — 2
11/06/08
Grubb & Ellis Company Reports 2008 Third Quarter and Nine Month Results
Hunt added, “We are also capitalizing on the increasing trend of corporate owners and users to outsource their real estate services needs. We secured several important new business wins during the period, many of which would not have been possible without the restructuring resulting from the merger.”
Business Highlights
•   Raised an aggregate of approximately $245 million in the company’s investment programs during the third quarter, an approximately 35 percent increase over the prior year period, bringing the total equity raised for the year to approximately $761 million.
 
•   According to the most recent Stanger Report, Grubb & Ellis ranked fifth among all public non-traded REIT sponsors in total sales for the third quarter of 2008. The total equity raise for the company’s public non-traded programs is up more than 90 percent during the nine months of 2008, compared with the same period of 2007.
 
•   Won or renewed six major corporate services accounts, including being selected by Kraft Foods Global Inc. as its facilities services provider for more than 4 million square feet of property.
 
•   Amended the company’s credit facility, adjusting the covenants to more appropriately reflect the impact of the current environment on the company’s businesses and the timing of potential asset sales.
 
•   Increased annualized net cost saving synergies to in excess of $20 million during the third quarter as a direct result of the company’s continued merger integration.
 
•   Took significant steps toward the company’s goal of increasing the productivity of its brokerage sales force with the addition of more than two dozen senior-level professionals during the third quarter. Earlier this week, the company eliminated more than 10 percent of its brokerage sales professionals, all of whom did not meet production expectations.
“In light of the unprecedented events taking place throughout the financial services and real estate industries, we no longer expect to meet our previously stated 2008 adjusted EBITDA goal of $74.8 million and we do not anticipate providing guidance going forward,” said Richard W. Pehlke, executive vice president and chief financial officer. “Conditions in the credit markets also prompted us to accelerate our strategy related to our real estate assets, which resulted in the impairment charges that we recorded in the quarter.”
Pehlke added, “We are confident that Grubb & Ellis is taking the actions necessary to both successfully navigate through this difficult period and have adequate resources to meet the needs of our clients.”
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Grubb & Ellis Company
1551 N. Tustin Avenue Suite 300 Santa Ana, CA 92705 714.667.8252

 

 

3 — 3 — 3
11/06/08
Grubb & Ellis Company Reports 2008 Third Quarter and Nine Month Results
Pehlke noted that the recent turmoil in the credit markets and resulting impact on the real estate industry impacted both the value of its real estate assets and the operating and return potential of its investment programs. As a result, in the third quarter, the company recorded an impairment to the carrying value of certain real estate assets totaling $45.8 million. During the quarter, the company also recognized charges totaling $16.3 million related to its investment programs, consisting primarily of additional reserves against advances and receivables to certain programs, charges for recourse guarantee obligations on two property mortgages and forfeited deposits on potential real estate acquisitions.
The merger between Grubb & Ellis and NNN Realty Advisors, Inc. was consummated on December 7, 2007. As required by generally accepted accounting principles (GAAP), the transaction was accounted for as a reverse merger. The company’s results of operations commencing and subsequent to December 7, 2007 include the operations of the combined entity. Reported results of operations prior to December 7, 2007, including third quarter 2007 results, reflect only the operations of NNN Realty Advisors.
COMBINED COMPANIES SUPPLEMENTAL DISCLOSURE
In an effort to present a more complete financial and narrative description of the results of operations, the company has also provided non-GAAP financial measures. The non-GAAP financial measures are intended to reflect the company’s results of operations on a combined basis, exclusive of the total financial or accounting impact associated with the merger transaction, such as amortization associated with purchase price adjustments or identified intangible assets. The non-GAAP combined results for the three and nine months ended September 30, 2007 do not purport to show the results as if the companies were merged as of January 1, 2007, but rather represent an arithmetic combination of results of the two companies, Grubb & Ellis and NNN Realty Advisors. Results do not reflect the elimination of transactions between the two companies and certain estimated synergies and expenses related to the combination of the two companies for the periods presented. (Please refer to the Combined Statements of Operations tables that follow.)
Third Quarter Operations
For the third quarter of 2008, the company generated revenue of $159.2 million, compared with combined revenue of $181.5 million in the third quarter of 2007. The company posted a third quarter net loss of $44.0 million in 2008, compared with net income of $2.6 million for the companies on a combined basis in the same period of 2007. EBITDA was negative $56.3 million for the third quarter of 2008, compared with combined positive EBITDA of $17.3 million in the third quarter of 2007. The 2008 negative EBITDA includes charges of $45.8 million for real estate-related impairments, $16.3 million related to the company’s investment management programs, $2.7 million of merger-related and integration costs and $2.9 million of non-cash stock-based compensation, offset by real estate operations and other items totaling $3.9 million. Excluding these items, adjusted EBITDA for the third quarter of 2008 was $7.4 million, compared with the combined companies’ adjusted EBITDA of $18.2 million on the same basis for the third quarter of 2007. (See Tables)
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Grubb & Ellis Company
1551 N. Tustin Avenue Suite 300 Santa Ana, CA 92705 714.667.8252

 

 

4 — 4 — 4
11/06/08
Grubb & Ellis Company Reports 2008 Third Quarter and Nine Month Results
Nine-Month Operations
For the first nine months of 2008, the company generated revenue of $486.8 million, compared with combined revenue of $512.8 million for the same period in 2007. The company posted a net loss of $55.0 million during the nine months of 2008, compared with net income of $14.4 million for the companies on a combined basis in the first nine months of 2007. EBITDA was negative $48.3 million for the first nine months of 2008, compared with combined positive EBITDA of $47.4 million in the first nine months of 2007. EBITDA for the first nine months of 2008 includes the aforementioned charges of $45.8 million for real estate-related impairments and $16.3 million related to the company’s investment management programs as well as $10.2 million of merger-related and integration costs, a $5.8 million charge related to the company’s write-off of its sponsorship of Grubb & Ellis Realty Advisors and $8.5 million of non-cash stock based compensation. These charges were partially offset by rental-related operations and other non-cash items totaling $10.8 million. Excluding these items, adjusted EBITDA for the first nine months of 2008 was $27.5 million, compared with combined companies’ adjusted EBITDA of $52.3 million for the first nine months of 2007. (See Tables)
OPERATING SEGMENTS
Transaction Services
Transaction Services revenue for the third quarter of 2008, including brokerage commission, valuation and consulting revenue, was $57.5 million, compared with $73.1 million for the combined companies for the same period a year ago. For the nine-month period ended September 30, 2008, the segment generated revenue of $173.2 million, compared with $218.7 million for the combined companies during the first nine months of 2007.
The company’s Transaction Services business was negatively impacted by the current economic environment, which has reduced commercial real estate transaction velocity, particularly investment sales.
Investment Management
Investment Management revenue for the third quarter of 2008, which includes transaction fees, captive management fees and dealer-manager fees, totaled $25.0 million, compared with fees of $40.1 million in the same period a year ago. Investment Management revenue for the first nine months of 2008 totaled $86.6 million, compared with $110.6 million during the first nine months of 2007. The decrease in revenue over prior-year periods can be attributed to lower acquisition fees resulting from a decrease in equity raised by the company’s tenant-in-common programs and lower disposition fees, which were partially offset by higher acquisition fees related to the company’s public non-traded REITs as a result of a significant increase in the amount of equity being raised by these programs and fees from the company’s Wealth Management platform.
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Grubb & Ellis Company
1551 N. Tustin Avenue Suite 300 Santa Ana, CA 92705 714.667.8252

 

 

5 — 5 — 5
11/06/08
Grubb & Ellis Company Reports 2008 Third Quarter and Nine Month Results
In total, approximately $245 million in equity was raised for the company’s investment programs in the third quarter of 2008, compared with $182 million in the third quarter of 2007. For the nine-month period ended September 30, 2008, approximately $761 million was raised for the company’s investment programs, compared with $547 million raised during the first nine months of 2007. This increase in equity raised was driven by additional equity raised for the company’s public non-traded REITs as well as its new Wealth Management platform. During the first nine months of 2008, the company’s public non-traded REIT programs raised approximately $396 million, compared with $206 million in the same period of 2007. The Wealth Management platform placed $193 million in real estate investments on behalf of investors during the first nine months of 2008. The company’s tenant-in-common 1031 exchange programs raised $153 million in equity during the first three quarters of 2008, compared with $341 million in the same period of 2007. At September 30, 2008, the value of the company’s assets under management was $6.7 billion, up from $6.5 billion at June 30, 2008.
Management Services
Management Services revenue includes asset and property management fees as well as reimbursed salaries, wages and benefits from the company’s captive management and third party property management and facilities outsourcing services, along with business services fees. Management Services revenue was $63.5 million for the third quarter of 2008, compared with $53.4 million for the combined companies for the same period a year ago. For the first nine months of 2008, the company reported Management Services revenue of $185.9 million, compared with $158.0 million for the combined companies in the same period of 2007. Approximately 25.8 million square feet of the company’s management portfolio relates to a significant portion of Grubb & Ellis Realty Investors’ (formerly Triple Net Properties, LLC, a wholly owned subsidiary of NNN Realty Advisors) captive property portfolio being transferred to Grubb & Ellis Management Services, Inc.
Rental-Related Operations
Rental-related revenue and rental-related expense includes revenue and the related expense from the warehousing of properties held for investment primarily related to the company’s Investment Management programs and the company’s prior affiliate Grubb & Ellis Realty Advisors, Inc., which has been liquidated and dissolved. The combined benefit from the operations for the properties held for sale is included in the Reconciliation of Net Income to EBITDA disclosure which follows the release and is identified as real estate operations. These line items also include pass-through revenue and related expense for master lease accommodations related to the company’s tenant-in-common programs.
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Grubb & Ellis Company
1551 N. Tustin Avenue Suite 300 Santa Ana, CA 92705 714.667.8252

 

 

6 — 6 — 6
11/06/08
Grubb & Ellis Company Reports 2008 Third Quarter and Nine Month Results
Conference Call & Webcast
The conference call will be webcast on the investor relations section of Grubb & Ellis’ Web site at www.grubb-ellis.com or may be accessed by dialing 1.800.659.1966 for domestic callers and 1.617.614.2711 for international callers. The conference call ID number is 99398901.
The company’s 2008 third quarter earnings conference call will be held today at 11 a.m. ET. A live webcast will be accessible through the Investor Relations section of the company’s Web site at http://www.grubb-ellis.com. The direct dial-in number for the conference call is 1.800.659.1966 for domestic callers and 1.617.614.2711 for international callers. The conference call ID number is 99398901. An audio replay will be available beginning today at 1 p.m. ET until 7 p.m. ET on Thursday, November 20, and can be accessed by dialing: 1.888.286.8010, and 1.617.801.6888 for international callers and entering conference call ID 84927757. In addition, the conference call audio will be archived on the company’s Web site following the call.
About Grubb & Ellis
Grubb & Ellis Company (NYSE: GBE) is one of the largest and most respected commercial real estate services and investment companies. With more than 130 owned and affiliate offices worldwide, Grubb & Ellis offers property owners, corporate occupants and investors comprehensive integrated real estate solutions, including transaction, management, consulting and investment advisory services supported by proprietary market research and extensive local market expertise.
Grubb & Ellis and its subsidiaries are leading sponsors of real estate investment programs that provide individuals and institutions the opportunity to invest in a broad range of real estate investment vehicles, including tax-deferred 1031 tenant-in-common (TIC) exchanges, public non-traded real estate investment trusts (REITs) and real estate investment funds. As of September 30, 2008, more than $3.8 billion in investor equity has been raised for these investment programs. The company and its subsidiaries currently manage a growing portfolio of more than 225 million square feet of real estate. In 2007, Grubb & Ellis was selected from among 15,000 vendors as Microsoft Corporation’s Vendor of the Year. For more information regarding Grubb & Ellis Company, please visit www.grubb-ellis.com.
Forward-looking Statement
Certain statements included in this announcement may constitute forward-looking statements regarding, among other things, future revenue growth, market trends, new business opportunities and investment programs, synergies resulting from the merger of Grubb & Ellis Company and NNN Realty Advisors, certain combined financial information regarding Grubb & Ellis Company and NNN Realty Advisors, new hires, results of operations, changes in expense levels and profitability and effects on the company of changes in the real estate markets. These statements involve known and unknown risks, uncertainties and other factors that may cause the company’s actual results and performance in future periods to be materially different from any future results or performance suggested by these statements. Such factors which could adversely affect the company’s ability to obtain these results include, among other things: (i) the slowdown in the volume and the decline in transaction values of sales and leasing transactions; (ii) the general economic downturn and recessionary pressures on businesses in general; (iii) a prolonged and pronounced recession in real estate markets and values; (iv) the unavailability of credit to finance real estate transactions in general and the company’s tenant-in-common programs, in particular; (v) the reduction in borrowing capacity under the company’s current credit facility, and the additional limitations with respect thereto; (vi) the company’s continuing ability to make interest and principal payments with respect to its credit facility; (vii) an increase in expenses related to new initiatives, investments in people, technology and service improvements; (viii) the success of current and new investment programs; (ix) the success of new initiatives and investments; (x) the inability to attain expected levels of revenue, performance, brand equity and expense synergies resulting from the merger of Grubb & Ellis Company and NNN Realty Advisors in general, and in the current macroeconomic and credit environment, in particular and (xi) other factors described in the company’s annual report on Form 10-K for the fiscal year ending December 31, 2007 and in the company’s quarterly reports on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008 filed with the SEC.
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Grubb & Ellis Company
1551 N. Tustin Avenue Suite 300 Santa Ana, CA 92705 714.667.8252

 

 

7 — 7 — 7
11/06/08
Grubb & Ellis Company Reports 2008 Third Quarter and Nine Month Results
Non-GAAP Financial Information
In addition to the results reported in accordance with U.S. generally accepted accounting principles (GAAP) included within this press release, Grubb & Ellis has provided certain information, which includes non-GAAP financial measures. Such information is reconciled to its closest GAAP measure in accordance with the Securities and Exchange Commission rules and is included in the attached supplemental data. Management believes that these non-GAAP financial measures are useful to both management and the company’s stockholders in their analysis of the business and operating performance of the company. Management also uses this information for operational planning and decision-making purposes. Non-GAAP financial measures are not and should not be considered a substitute for any GAAP measures. Additionally, non-GAAP financial measures as presented by Grubb & Ellis may not be comparable to similarly titled measures reported by other companies.
TABLES FOLLOW
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Grubb & Ellis Company
1551 N. Tustin Avenue Suite 300 Santa Ana, CA 92705 714.667.8252

 

 

Grubb & Ellis Company
Consolidated Statements of Operations
(in thousands)
(Unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,     September 30,     September 30,  
    2008     2007 (1)     2008     2007 (1)  
REVENUE
                                
Transaction services
   $ 57,502     $ —     $ 173,191     $ —  
Investment management (2)
     25,035       40,137       86,561       110,603  
Management services
     63,479       —       185,855       —  
Rental related
     13,220       9,565       41,146       17,625  
 
                        
TOTAL REVENUE
     159,236       49,702       486,753       128,228  
 
                        
 
                                
OPERATING EXPENSE
                                
Compensation costs
     33,464       16,615       106,531       43,999  
Transaction commissions and related costs
     39,186       —       117,979       —  
Reimbursable salaries, wages, and benefits
     46,224       527       135,343       1,044  
General and administrative
     40,263       10,049       84,399       29,769  
Depreciation and amortization
     8,910       5,012       27,385       6,018  
Rental related
     7,643       7,687       26,258       13,743  
Interest
     4,410       3,200       14,534       6,685  
Merger related costs
     2,657       140       10,217       201  
Real estate related impairments
     45,767       —       45,767       —  
 
                        
Total operating expense
     228,524       43,230       568,413       101,459  
 
                        
 
                                
OPERATING (LOSS) INCOME
     (69,288 )     6,472       (81,660 )     26,769  
 
                        
 
                                
OTHER (EXPENSE) INCOME
                                
Equity in (losses) earnings of unconsolidated entities
     (120 )     (519 )     (6,318 )     (40 )
Interest income
     235       915       757       2,182  
Other (expense) income
     195       (544 )     (1,793 )     524  
 
                        
Total other (expense) income
     310       (148 )     (7,354 )     2,666  
 
                        
 
                                
(Loss) income from continuing operations before income tax provision
     (68,978 )     6,324       (89,014 )     29,435  
Income tax benefit (provision)
     25,346       (2,039 )     34,434       (11,423 )
 
                        
(Loss) income from continuing operations
     (43,632 )     4,285       (54,580 )     18,012  
Loss from discontinued operations
     (384 )     (232 )     (419 )     (88 )
 
                        
NET (LOSS) INCOME
   $ (44,016 )   $ 4,053     $ (54,999 )   $ 17,924  
 
                        
 
                                
Basic earnings per share:
                                
(Loss) income from continuing operations
   $ (0.69 )   $ 0.10     $ (0.86 )   $ 0.43  
Loss from discontinued operations
     —       —       (0.01 )     —  
 
                        
Net (loss) earnings per share
   $ (0.69 )   $ 0.10     $ (0.87 )   $ 0.43  
 
                        
 
                                
Diluted earnings per share:
                                
(Loss) income from continuing operations
   $ (0.69 )   $ 0.10     $ (0.86 )   $ 0.43  
Loss from discontinued operations
     —       —     $ (0.01 )     —  
 
                        
Net (loss) earnings per share
   $ (0.69 )   $ 0.10     $ (0.87 )   $ 0.43  
 
                        
 
                                
Shares used in computing basic net earnings per share
     63,601       41,943       63,574       41,943  
Shares used in computing diluted net earnings per share
     63,601       42,127       63,574       42,057  
 
(1)   In accordance with Generally Accepted Accounting Principles (GAAP), the operating results for the three and nine months ended September 30, 2007 only includes the results of legacy NNN Realty Advisors.
 
(2)   The investment management segment represents legacy NNN Realty Advisors’ transaction, management and dealer-manager businesses.

8

 

Grubb & Ellis Company
Consolidated Balance Sheets
(in thousands)
(Unaudited)
                 
    September 30,     December 31,  
    2008     2007  
ASSETS
Cash and cash equivalents
   $ 34,426     $ 49,328  
Restricted cash
     33,419       69,098  
Investment in marketable securities
     4,915       9,052  
Current portion of accounts receivable from related parties — net
     25,403       32,575  
Current portion of advances to related parties — net
     8,634       7,010  
Note receivable from related party — net
     9,100       7,600  
Services fees receivable — net
     20,620       19,521  
Current portion of professional service contract — net
     7,477       7,235  
Real estate deposits and preacquisition costs
     7,549       11,818  
Properties held for sale including investments in unconsolidated real estate — net
     17,570       98,206  
Identified intangible assets and other assets held for sale — net
     2,155       23,569  
Prepaid expenses and other current assets
     24,894       13,032  
Deferred tax assets
     5,347       7,854  
 
            
TOTAL CURRENT ASSETS
     201,509       355,898  
 
                
Accounts receivable from related parties — net
     7,168       10,360  
Advances to related parties — net
     7,733       3,751  
Professional service contracts — net
     11,604       13,088  
Investments in unconsolidated real estate
     6,944       11,028  
Properties held for investment — net
     183,646       234,422  
Property, equipment and leasehold improvements — net
     14,628       16,291  
Goodwill
     171,723       169,317  
Identified intangible assets — net
     133,841       145,427  
Other assets — net
     14,466       16,858  
 
            
TOTAL ASSETS
   $ 753,262     $ 976,440  
 
            
 
                
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses
   $ 61,622     $ 100,867  
Due to related parties
     1,112       3,329  
Current portion of line of credit
     63,000       —  
Current portion of notes payable and capital lease obligations
     453       30,447  
Notes payable of properties held for sale
     10,656       91,020  
Liabilities of properties held for sale — net
     72       902  
Other liabilities
     9,204       6,716  
 
            
TOTAL CURRENT LIABILITIES
     146,119       233,281  
 
                
Line of credit
     —       8,000  
Senior notes
     16,277       16,277  
Notes payable and capital lease obligation
     215,027       228,254  
Other long-term liabilities
     20,598       30,421  
Deferred tax liability
     2,984       32,837  
 
            
TOTAL LIABILITIES
     401,005       549,070  
 
                
MINORITY INTEREST
     4,027       18,725  
 
                
Common Stock
     653       648  
Additional paid-in capital
     400,589       393,665  
(Accumulated deficit) retained earnings
     (53,012 )     15,381  
Accumulated other comprehensive loss
     —       (1,049 )
 
            
TOTAL STOCKHOLDERS’ EQUITY
     348,230       408,645  
 
            
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
   $ 753,262     $ 976,440  
 
            

9

 

Grubb & Ellis Company
Combined Statements of Operations
(in thousands)
                                 
    Three Months Ended     Three Months Ended  
    September 30, 2008     September 30, 2007  
    (Unaudited)     (Unaudited)  
    Grubb & Ellis     NNN Realty     Grubb & Ellis     Combined  
    Company     Advisors     Company     Companies (1)  
REVENUE
                                
Transaction services
   $ 57,502     $ —     $ 73,124     $ 73,124  
Investment management (2)
     25,035       40,137       —       40,137  
Management services
     63,479       —       53,392       53,392  
Rental related
     13,220       9,565       5,324       14,889  
 
                        
TOTAL REVENUE
     159,236       49,702       131,840       181,542  
 
                        
 
                                
OPERATING EXPENSES
                                
Compensation costs
     33,464       16,615       21,657       38,272  
Transaction commissions and related costs
     39,186       —       50,988       50,988  
Reimbursable salaries, wages, and benefits
     46,224       527       38,496       39,023  
General and administrative
     40,263       10,049       12,626       22,675  
Depreciation and amortization
     8,910       5,012       2,691       7,703  
Rental related
     7,643       7,687       3,524       11,211  
Interest
     4,410       3,200       3,391       6,591  
Merger related costs
     2,657       140       741       881  
Real estate related impairments
     45,767       —       —       —  
 
                        
Total operating expense
     228,524       43,230       134,114       177,344  
 
                        
 
                                
OPERATING (LOSS) INCOME
     (69,288 )     6,472       (2,274 )     4,198  
 
                        
 
                                
OTHER (EXPENSE) INCOME
                                
Equity in (losses) earnings of unconsolidated entities
     (120 )     (519 )     98       (421 )
Interest income
     235       915       161       1,076  
Other (expense) income
     195       (544 )     —       (544 )
 
                        
Total other (expense) income
     310       (148 )     259       111  
 
                        
 
                                
(Loss) income from continuing operations before income tax provision
     (68,978 )     6,324       (2,015 )     4,309  
Income tax benefit (provision)
     25,346       (2,039 )     563       (1,476 )
 
                        
(Loss) income from continuing operations
     (43,632 )     4,285       (1,452 )     2,833  
Loss from discontinued operations
     (384 )     (232 )     —       (232 )
 
                        
NET (LOSS) INCOME
   $ (44,016 )   $ 4,053     $ (1,452 )   $ 2,601  
 
                        
 
(1)   To provide additional insight into its underlying results of operations, the Company has also presented selected non-GAAP financial measures intended to reflect its results of operations on a combined basis and such numbers are exclusive of the total financial or accounting impact associated with the merger transaction, such as amortization associated with purchase price adjustments or identified intangible assets. These non-GAAP combined results do not purport to show the results as if the companies were merged as of January 1, 2007, but rather is an arithmetic combination of the results of the two companies, Grubb & Ellis and NNN Realty Advisors. Results do not reflect the elimination of transactions between the two companies and certain estimated synergies and expenses related to the combination of the two companies for the periods presented
 
(2)   The investment management segment represents legacy NNN Realty Advisors’ transaction, management and dealer-manager businesses.

10

 

Grubb & Ellis Company
Reconciliation of Combined Net Income to Adjusted EBITDA
(in thousands)
                                 
    Three Months Ended     Three Months Ended  
    September 30, 2008     September 30, 2007  
    (Unaudited)     (Unaudited)  
    Grubb & Ellis     NNN Realty     Grubb & Ellis     Combined  
    Company     Advisors     Company     Companies (1)  
 
                                
Net (loss) income
   $ (44,016 )   $ 4,053     $ (1,452 )   $ 2,601  
Interest expense
     4,410       3,200       3,391       6,591  
Interest income
     (235 )     (915 )     (161 )     (1,076 )
Depreciation and amortization
     8,910       5,012       2,691       7,703  
Taxes
     (25,346 )     2,039       (563 )     1,476  
 
                        
EBITDA (2)
     (56,277 )     13,389       3,906       17,295  
 
                                
Charges related to sponsored programs
     16,296       —       —       —  
Real estate related impairment
     45,767       —       —       —  
Stock based compensation
     2,851       2,416       601       3,017  
Loss on marketable securities
     169       700       —       700  
Merger related costs
     2,657       141       741       882  
Amortization of contract rights
     193       857       —       857  
Real estate operations
     (4,405 )     (2,716 )     (1,800 )     (4,516 )
Other
     190       80       (98 )     (18 )
 
                        
Adjusted EBITDA (2)
   $ 7,441     $ 14,867     $ 3,350     $ 18,217  
 
                        
 
(1)   To provide additional insight into its underlying results of operations, the Company has also presented selected non-GAAP financial measures intended to reflect its results of operations on a combined basis and such numbers are exclusive of the total financial or accounting impact associated with the merger transaction, such as amortization associated with purchase price adjustments or identified intangible assets. These non-GAAP combined results do not purport to show the results as if the companies were merged as of January 1, 2007, but rather is an arithmetic combination of the results of the two companies, Grubb & Ellis and NNN Realty Advisors. Results do not reflect the elimination of transactions between the two companies and certain estimated synergies and expenses related to the combination of the two companies for the periods presented.
 
(2)   EBITDA represents earnings before net interest expense, interest income, realized gains or losses on sales of marketable securities, income taxes, depreciation and amortization. Management believes EBITDA is useful in evaluating our performance compared to that of other companies in our industry because the calculation of EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending and acquisition, which items may vary for different companies for reasons unrelated to overall operating performance. As a result, management uses EBITDA as an operating measure to evaluate the operating performance of the Company’s various business lines and for other discretionary purposes, including as a significant component when measuring performance under employee incentive programs.
 
    However, EBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and when analyzing the Company’s operating performance, readers should use EBITDA in addition to, and not as an alternative for, net income as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as tax and debt service payments. The amounts shown for EBITDA also differ from the amounts calculated under similarly titled definitions in the Company’s debt instruments, which are further adjusted to reflect certain other cash and non-cash charges and are used to determine compliance with financial covenants and the Company’s ability to engage in certain activities, such as incurring additional debt and making certain restricted payments.

11

 

Grubb & Ellis Company
Combined Statements of Operations
(in thousands)
                                 
    Nine Months Ended     Nine Months Ended  
    September 30, 2008     September 30, 2007  
    (Unaudited)     (Unaudited)  
    Grubb & Ellis     NNN Realty     Grubb & Ellis     Combined  
    Company     Advisors     Company     Companies (1)  
REVENUE
                                
Transaction services
   $ 173,191     $ —     $ 218,682     $ 218,682  
Investment management (2)
     86,561       110,603       —       110,603  
Management services
     185,855       —       158,032       158,032  
Rental related
     41,146       17,625       7,848       25,473  
 
                        
TOTAL REVENUE
     486,753       128,228       384,562       512,790  
 
                        
 
                                
OPERATING EXPENSES
                                
Compensation costs
     106,531       43,999       67,939       111,938  
Transaction commissions and related costs
     117,979       —       147,504       147,504  
Reimbursable salaries, wages, and benefits
     135,343       1,044       114,612       115,656  
General and administrative
     84,399       29,769       39,107       68,876  
Depreciation and amortization
     27,385       6,018       7,547       13,565  
Rental related
     26,258       13,743       5,106       18,849  
Interest
     14,534       6,685       5,345       12,030  
Merger related costs
     10,217       201       3,078       3,279  
Real estate related impairments
     45,767       —       —       —  
 
                        
Total operating expense
     568,413       101,459       390,238       491,697  
 
                        
 
                                
OPERATING (LOSS) INCOME
     (81,660 )     26,769       (5,676 )     21,093  
 
                        
 
                                
OTHER (EXPENSE) INCOME
                                
Equity in (losses) earnings of unconsolidated entities
     (6,318 )     (40 )     308       268  
Interest income
     757       2,182       521       2,703  
Other (expense) income
     (1,793 )     524       —       524  
 
                        
Total other (expense) income
     (7,354 )     2,666       829       3,495  
 
                        
 
                                
(Loss) income from continuing operations before income tax provision
     (89,014 )     29,435       (4,847 )     24,588  
Income tax benefit (provision)
     34,434       (11,423 )     1,340       (10,083 )
 
                        
(Loss) income from continuing operations
     (54,580 )     18,012       (3,507 )     14,505  
Loss from discontinued operations
     (419 )     (88 )     —       (88 )
 
                        
NET (LOSS) INCOME
   $ (54,999 )   $ 17,924     $ (3,507 )   $ 14,417  
 
                        
 
(1)   To provide additional insight into its underlying results of operations, the Company has also presented selected non-GAAP financial measures intended to reflect its results of operations on a combined basis and such numbers are exclusive of the total financial or accounting impact associated with the merger transaction, such as amortization associated with purchase price adjustments or identified intangible assets. These non-GAAP combined results do not purport to show the results as if the companies were merged as of January 1, 2007, but rather is an arithmetic combination of the results of the two companies, Grubb & Ellis and NNN Realty Advisors. Results do not reflect the elimination of transactions between the two companies and certain estimated synergies and expenses related to the combination of the two companies for the periods presented
 
(2)   The investment management segment represents legacy NNN Realty Advisors’ transaction, management and dealer-manager businesses.

12

 

Grubb & Ellis Company
Reconciliation of Combined Net Income to Adjusted EBITDA
(in thousands)
                                 
    Nine Months Ended     Nine Months Ended  
    September 30, 2008     September 30, 2007  
    (Unaudited)     (Unaudited)  
    Grubb & Ellis     NNN Realty     Grubb & Ellis     Combined  
    Company     Advisors     Company     Companies (1)  
 
                                
Net (loss) income
   $ (54,999 )   $ 17,924     $ (3,507 )   $ 14,417  
Interest expense
     14,534       6,685       5,345       12,030  
Interest income
     (757 )     (2,182 )     (521 )     (2,703 )
Depreciation and amortization
     27,385       6,018       7,547       13,565  
Taxes
     (34,434 )     11,423       (1,340 )     10,083  
 
                        
EBITDA (2)
     (48,271 )     39,868       7,524       47,392  
 
                                
Write off of investment in Grubb & Ellis Realty Advisors, net
     5,828       —       —       —  
Charges related to sponsored programs
     16,296       —       —       —  
Real estate related impairment
     45,767       —       —       —  
Stock based compensation
     8,484       5,014       1,756       6,770  
Loss / (Gain) on marketable securities
     1,783       (412 )     —       (412 )
Merger related costs
     10,217       202       3,078       3,280  
Amortization of contract rights
     1,179       2,678       —       2,678  
Real estate operations
     (13,917 )     (5,157 )     (2,743 )     (7,900 )
Other
     163       818       (308 )     510  
 
                        
Adjusted EBITDA (2)
   $ 27,529     $ 43,011     $ 9,307     $ 52,318  
 
                        
 
(1)   To provide additional insight into its underlying results of operations, the Company has also presented selected non-GAAP financial measures intended to reflect its results of operations on a combined basis and such numbers are exclusive of the total financial or accounting impact associated with the merger transaction, such as amortization associated with purchase price adjustments or identified intangible assets. These non-GAAP combined results do not purport to show the results as if the companies were merged as of January 1, 2007, but rather is an arithmetic combination of the results of the two companies, Grubb & Ellis and NNN Realty Advisors. Results do not reflect the elimination of transactions between the two companies and certain estimated synergies and expenses related to the combination of the two companies for the periods presented.
 
(2)   EBITDA represents earnings before net interest expense, interest income, realized gains or losses on sales of marketable securities, income taxes, depreciation and amortization. Management believes EBITDA is useful in evaluating our performance compared to that of other companies in our industry because the calculation of EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending and acquisition, which items may vary for different companies for reasons unrelated to overall operating performance. As a result, management uses EBITDA as an operating measure to evaluate the operating performance of the Company’s various business lines and for other discretionary purposes, including as a significant component when measuring performance under employee incentive programs.
 
    However, EBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and when analyzing the Company’s operating performance, readers should use EBITDA in addition to, and not as an alternative for, net income as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as tax and debt service payments. The amounts shown for EBITDA also differ from the amounts calculated under similarly titled definitions in the Company’s debt instruments, which are further adjusted to reflect certain other cash and non-cash charges and are used to determine compliance with financial covenants and the Company’s ability to engage in certain activities, such as incurring additional debt and making certain restricted payments.

13

 

Grubb & Ellis Company
Supplemental Data
(in thousands)
(Unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,     September 30,     September 30,  
    2008     2007     2008     2007  
 
                                
Investment management revenue:
                                
Acquisition fees
   $ 6,863     $ 12,944     $ 31,790     $ 33,613  
Property and asset management fees (1)
     9,421       10,312       27,026       27,619  
Disposition fees (excluding amortization of intangible contract rights)
     695       6,493       5,808       18,743  
Amortization of intangible contract rights
     (193 )     (799 )     (1,179 )     (2,620 )
Other (2)
     8,249       11,187       23,116       33,248  
 
                        
Total investment management revenue
   $ 25,035     $ 40,137     $ 86,561     $ 110,603  
 
                        
 
                                
Investment management data:
                                
Total properties acquired
     10       23       51       58  
Total aggregate purchase price
   $ 209,850     $ 710,530     $ 1,056,232     $ 1,634,078  
 
                                
Total properties disposed
     4       9       11       24  
Total aggregate sales value at disposition
   $ 54,450     $ 230,375     $ 233,875     $ 752,107  
 
                                
Total square feet under management
     46,324       30,911       46,324       30,911  
 
                                
Assets under management
   $ 6,660,015     $ 5,400,214     $ 6,660,015     $ 5,400,214  
 
                                
Equity raise:
                                
Tenant-in-common
   $ 46,218     $ 116,783     $ 152,944     $ 341,283  
Non-traded real estate investment trust
     183,279       65,337       396,123       206,118  
Wealth management
     4,851       —       193,290       —  
Other
     10,622       —       18,143       —  
 
                        
Total equity raise
   $ 244,970     $ 182,120     $ 760,500     $ 547,401  
 
                        
 
(1)   Does not include $1.9 million and $5.6 million of property management fees that were recorded by the management services
 
(2)   Decrease in other investment management revenue a result of lower tenant-in-common equity raise.

14