Merger With Tier REIT, Inc.

9 Months Ended

Sep. 30, 2019

On June 14, 2019, pursuant to the Agreement and Plan of Merger dated March 25, 2019 (the “Merger Agreement”), by and among the Company and TIER REIT, Inc. (“TIER”), TIER merged with and into a subsidiary of the Company (the “Merger”) with this subsidiary continuing as the surviving corporation of the Merger. In accordance with the terms and conditions of the Merger Agreement, each share of TIER common stock issued and outstanding immediately prior to the Merger, was converted into 2.98 newly issued pre-reverse split shares of the Company’s common stock with fractional shares being settled in cash. In the Merger, former TIER common stockholders received approximately 166 million pre-reverse split shares of common stock of the Company. As discussed in note 1 to the condensed consolidated financial statements, immediately following the Merger, the Company completed a 1-for-4 reverse stock split.

The Merger has been accounted for as a business combination with the Company as the accounting acquirer, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their acquisition date fair value. The total value of the transaction is based on the closing stock price of the Company's common stock on June 13, 2019, the day immediately prior to the closing of the Merger. Based on the shares issued in the transaction, the total fair value of the assets acquired and liabilities assumed in the Merger was $1.6 billion. During the three and nine months ended September 30, 2019, the Company incurred expenses related to the Merger of $1.0 million and $50.9 million, respectively.

Management engaged a third party valuation specialist to assist with valuing the real estate assets acquired and liabilities assumed in the Merger. The third party used cash flow analyses as well as an income approach and a cost approach to determine the fair value of real estate assets acquired. Based on additional information that may become available, subsequent adjustments may be made to the purchase price allocation within the allocation period, which typically does not exceed one year.

The purchase price was allocated as follows (in thousands):



Real estate assets	$	2,186,719
Real estate assets held for sale	29,193
Cash and cash equivalents	84,042
Restricted cash	1,947
Notes and other receivables	7,447
Investment in unconsolidated joint ventures	349
Intangible assets	142,316
Other assets	10,039
	2,462,052

Notes payable	747,549
Accounts payable and accrued expenses	48,030
Deferred income	8,388
Intangible liabilities	46,579
Other liabilities	7,796
Nonredeemable noncontrolling interests	5,348
	863,690

Total purchase price	$	1,598,362

During the three and nine months ended September 30, 2019, the Company recorded revenues of $52.1 million and $61.7 million, respectively, related to the Merger. The following unaudited supplemental pro forma information is based upon the Company's historical condensed consolidated statements of operations, adjusted as if the Merger had occurred on January 1, 2018. The supplemental pro forma information is not necessarily indicative of future results, or of actual results, that would have been achieved had the Merger been consummated at the beginning of the period.



	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
	(unaudited, in thousands)
Revenues	$	188,323	$	176,711	$	555,324	$	521,945
Net income	21,740		44,218		110,188		30,829
Net income available to common stockholders	21,410		43,689		108,724		30,466

2019 supplemental pro forma earnings were adjusted to exclude $1.0 million and $50.9 million of transaction costs incurred in the three and nine months ended September 30, 2019, respectively. Supplemental pro forma earnings for the nine months ended September 30, 2018 were adjusted to include this change.