##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-Q
 (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    March 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number:
    000-50805
      Hines Real Estate Investment
    Trust, Inc.
 (Exact Name of Registrant as
    Specified in its Charter)
  Maryland

20-0138854(State or Other Jurisdiction
    of

(I.R.S. EmployerIncorporation or
    Organization)

Identification No.)2800 Post Oak
    BoulevardSuite 5000Houston, Texas

77056-6118(Address of principal executive
    offices)

(Zip code)   Registrants telephone number, including area code:
 (888) 220-6121
  Indicate by check mark whether the registrant: þ o
  Rule 12b-2
  o o þ
  Rule 12b-2  o þ




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##### 



TABLE OF
    CONTENTS
  PART I 
    FINANCIAL INFORMATIONItem 1.

Consolidated
    Financial Statements (Unaudited)


1Condensed
    Consolidated Balance Sheets As of March 31, 2007 and
    December 31, 2006


1Condensed
    Consolidated Statements of Operations For the Three Months Ended
    March 31, 2007 and 2006


2Condensed
    Consolidated Statements of Shareholders Equity For the
    Three Months Ended March 31, 2007 and the Year Ended
    December 31, 2006


3Condensed
    Consolidated Statements of Cash Flows For the Three Months Ended
    March 31, 2007 and 2006


4Notes to the
    Condensed Consolidated Financial Statements


5Item 2.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


22Item 3.

Quantitative and
    Qualitative Disclosures About Market Risk


37Item 4T.

Controls and
    Procedures


38PART II 
    OTHER INFORMATIONItem 2.

Unregistered Sales
    of Equity Securities and Use of Proceeds


39Item 6.

Exhibits


39SIGNATURES


40Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO & CFO Pursuant to Section 906




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##### Table of Contents



PART I



FINANCIAL
    INFORMATION  Item 1.
    Consolidated
    Financial Statements. HINES
    REAL ESTATE INVESTMENT TRUST, INC.
    CONDENSED CONSOLIDATED BALANCE SHEETS
    As of March 31, 2007 and December 31, 2006
    (UNAUDITED)  March 31,


December 31,2007


2006(In thousands, except per share amounts)ASSETSInvestment property, at cost:Buildings and improvements, net

$
746,271


$
511,961In-place leases, net


158,484



120,765Land


239,903



165,603Total investment property


1,144,658



798,329Investment in Hines-Sumisei
    U.S. Core Office Fund, L.P.


300,439



307,553Cash and cash equivalents


50,458



23,022Restricted cash


5,626



2,483Distributions receivable


5,978



5,858Interest rate swap contracts


1,993



1,511Straight-line rent receivable


5,061



3,423Tenant and other receivables


6,714



1,749Acquired above-market leases, net


38,112



36,414Deferred leasing costs, net


17,565



17,189Deferred financing costs, net


5,786



5,412Other assets


2,693



10,719TOTAL ASSETS

$
1,585,083


$
1,213,662LIABILITIES AND
    SHAREHOLDERS EQUITYLiabilities:Accounts payable and accrued
    expenses

$
32,228


$
28,899Unaccepted subscriptions for common
    shares


1,239



2,325Due to affiliates


6,530



8,954Acquired below-market leases, net


39,709



15,814Other liabilities


5,938



4,163Interest rate swap contracts


6,372



5,955Participation interest liability


14,916



11,801Distributions payable


14,012



11,281Notes payable


689,472



481,233Total liabilities


810,416



570,425Minority interest


331



652Commitments and ContingenciesShareholders equity:Preferred shares, $.001 par
    value; 500,000 preferred shares authorized, none issued or
    outstanding as of March 31, 2007 and December 31, 2006






Common shares, $.001 par
    value; 1,500,000 common shares authorized as of March 31,
    2007 and December 31, 2006; 97,058 and 80,217 common shares
    issued and outstanding as of March 31, 2007 and
    December 31, 2006, respectively

$
97


$
80Additional paid-in capital


836,759



692,780Retained deficit


(62,726
)


(50,275
)Accumulated other comprehensive
    income


206



Total shareholders equity


774,336



642,585TOTAL LIABILITIES AND
    SHAREHOLDERS EQUITY

$
1,585,083


$
1,213,662    1




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    For the Three Months Ended March 31, 2007 and 2006
    (UNAUDITED)   2007


2006(In thousands, except per share amounts)Revenues:Rental revenue

$
29,356


$
8,076Other revenue


1,319



317Total revenues


30,675



8,393Expenses:Property operating expenses


7,129



2,629Real property taxes


4,736



1,012Property management fees


704



209Depreciation and amortization


11,558



3,046Asset management and acquisition
    fees


6,229



2,891Organizational and offering
    expenses


2,397



133General and administrative expenses


842



609Total expenses


33,595



10,529Loss before other income
    (expenses), income tax expense and loss (income) allocated to
    minority interests


(2,920
)


(2,136
)Other income
    (expenses):Equity in losses of Hines-Sumisei
    U.S. Core Office Fund, L.P.


(1,136
)


(101
)Gain on derivative instruments, net


639



Gain on foreign currency
    transactions


134



Interest expense


(9,434
)


(2,504
)Interest income


401



84Loss before income tax expense
    and minority interests


(12,316
)


(4,657
)Income tax expense


(66
)


(Income) loss allocated to
    minority interests


(69
)


121Net loss

$
(12,451
)

$
(4,536
)Basic and diluted loss per
    common share:Loss per common share

$
(0.14
)

$
(0.17
)Weighted average number of common
    shares outstanding


88,534



26,951    2




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
    CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS
    EQUITY
    For the Three Months Ended March 31, 2007 and the Year
    Ended December 31, 2006
    (UNAUDITED)  AccumulatedAdditional





OtherCommon





Paid-In


Retained


Comprehensive


ShareholdersShares


Amount


Capital


Deficit


Income


Equity(In thousands)BALANCE,January 1, 2006


23,046


$
23


$
199,846


$
(11,785
)

$



$
188,084Issuance of common shares


57,422



57



581,948











582,005Redemptions of common shares


(251
)






(2,341
)










(2,341
)Distributions declared










(29,840
)










(29,840
)Selling commissions and dealer
    manager fees










(47,220
)










(47,220
)Other offering costs, net










(9,613
)










(9,613
)Net loss














(38,490
)






(38,490
)BALANCE,December 31,
    2006


80,217



80



692,780



(50,275
)






642,585Issuance of common shares


16,950



17



175,401











175,418Redemption of common shares


(109
)






(1,019
)










(1,019
)Distributions declared










(13,621
)










(13,621
)Selling commissions and dealer
    manager fees










(15,046
)










(15,046
)Other offering costs, net










(1,736
)










(1,736
)Comprehensive loss:Net loss














(12,451
)


Other comprehensive
    income  Foreign currency translation adjustment


















206Total comprehensive loss






















(12,245
)BALANCE,March 31, 2007


97,058


$
97


$
836,759


$
(62,726
)

$
206


$
774,336    3




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    For the Three Months Ended March 31, 2007 and 2006
    (UNAUDITED)  2007


2006(In thousands)CASH FLOWS FROM OPERATING
    ACTIVITIES:Net loss

$
(12,451
)

$
(4,536
)Adjustments to reconcile net loss
    to net cash provided by operating activities:Depreciation and amortization


12,502



3,338Non-cash compensation expense


8



8Equity in losses of Hines-Sumisei
    U.S. Core Office Fund, L.P.


1,136



101Income (loss) allocated to minority
    interests


69



(121
)Accrual of organizational and
    offering expenses


2,397



133Gain on foreign currency
    transactions


(134
)


Gain on derivative instruments, net


(639
)


Net change in operating accounts


(1,442
)


2,458Net cash provided by operating
    activities


1,446



1,381CASH FLOWS FROM INVESTING
    ACTIVITIES:Investment in Hines-Sumisei
    U.S. Core Office Fund, L.P.






(17,200
)Distributions received from
    Hines-Sumisei U.S. Core Office Fund, L.P. in excess of
    equity in losses


5,858



3,598Investments in property


(343,757
)


(63,295
)Investments in master leases


(4,186
)


Master lease rent receipts


396



Settlement of foreign currency hedge


939



Additions to other assets






(10,000
)Increase in restricted cash


(3,134
)


(2,996
)Increase in acquired
    out-of-market
    leases, net


22,115



2,210Net cash used in investing
    activities


(321,769
)


(87,683
)CASH FLOWS FROM FINANCING
    ACTIVITIES:(Decrease) increase in unaccepted
    subscriptions for common shares


(1,086
)


67Proceeds from issuance of common
    stock


168,751



89,188Redemption of common shares


(1,019
)


(63
)Payments of selling commissions and
    dealer manager fees


(14,524
)


(6,540
)Payments of organizational and
    offering expenses


(6,042
)


(3,000
)Proceeds from advances from
    affiliate






789Distributions paid to shareholders
    and minority interests


(4,622
)


(1,436
)Proceeds from notes payable


374,415



77,000Payments on notes payable


(167,000
)


(60,900
)Decrease in security deposit
    liability, net


(6
)


Additions to deferred financing
    costs


(764
)


(1,518
)Payments related to interest rate
    swap contracts


(366
)


Net cash provided by financing
    activities


347,737



93,587Effect of exchange rate changes on
    cash


22



Net change in cash and cash
    equivalents


27,436



7,285Cash and cash equivalents,
    beginning of period


23,022



6,156Cash and cash equivalents, end
    of period

$
50,458


$
13,441    4




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.



NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2007 and
    2006

(unaudited) 1.
    Organization  The accompanying interim unaudited condensed consolidated
    financial information has been prepared according to the rules
    and regulations of the Securities and Exchange Commission.
    Certain information and footnote disclosures normally included
    in financial statements prepared in accordance with accounting
    principles generally accepted in the United States of America
    (GAAP) have been condensed or omitted according to
    such rules and regulations. For further information, refer to
    the financial statements and footnotes for the year ended
    December 31, 2006 included in Hines Real Estate Investment
    Trust, Inc.s Annual Report on
    Form 10-K.
    In the opinion of management, all adjustments and eliminations,
    consisting only of normal recurring adjustments, necessary to
    present fairly and in conformity with GAAP the financial
    position of Hines Real Estate Investment Trust, Inc. as of
    March 31, 2007 and December 31, 2006, the results of
    operations and cash flows for the three months ended
    March 31, 2007 and 2006 have been included. The results of
    operations for such interim periods are not necessarily
    indicative of the results for the full year.
    Public
    Offerings
      Initial Public Offering


Current Public Offering


All OfferingsPeriod

# of Shares


Proceeds


# of Shares


Proceeds


# of Shares


ProceedsYear Ended December 31, 2004


2.1


$
20.6






$




2.1


$
20.6Year Ended December 31, 2005


21.0
(a)


207.7
(a)










21.0



207.7Year Ended December 31, 2006


30.1
(b)


299.2
(b)


27.3
(b)


282.7
(b)


57.4



581.9Three Months Ended March 31,
    2007










16.9
(c)


175.4
(c)


16.9



175.4Total


53.2


$
527.5



44.2


$
458.1



97.4


$
985.6     (a)
    
    Amounts include $2.1 million of gross proceeds relating to
    approximately 223,000 shares issued under the
    Companys dividend reinvestment plan.(b)
    
    Amounts include $13.5 million of gross proceeds relating to
    approximately 1.4 million shares issued under the
    Companys dividend reinvestment plan. 5




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (c)
    
    Amounts include $6.7 million of gross proceeds relating to
    approximately 674,000 shares issued under the
    Companys dividend reinvestment plan.        Minority
    Interests    Investment
    Property  non-managing
    2.
    Summary
    of Significant Accounting Policies  Basis of
    Presentation    Consolidation of Variable Interest Entities 78-9, Accounting for Investments in Real Estate Ventures No. 04-5, Investors Accounting for an Investment in a Limited
    Partnership When the Investor Is the Sole General Partner and
    the Limited Partners Have Certain Rights.
 6




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Reportable
    Segments    Comprehensive
    Loss    International
    Operations        Investment
    Property  15-20 years
   7




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      lease-up
  out-of-market
    Cash and
    Cash Equivalents    Restricted
    Cash    Deferred
    Leasing Costs     8




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Derivative
    Instruments
    
    A gain of approximately $66,000 resulting from the increase in
    the fair value of the interest rate swaps during the period;
    Fees of approximately $366,000 incurred upon entering into the
    swap transactions; and
    A gain of approximately $939,000 resulting from the settlement
    of a foreign currency contract.    10-year
        Deferred
    Financing Costs
   9




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Other
    Assets
    March 31,


December 31,2007


2006Property acquisition escrow deposit

$



$
8,858Prepaid insurance


643



353Prepaid taxes


554



Mortgage loan deposits


926



924Other


570



584Total

$
2,693


$
10,719   Unaccepted
    Subscriptions for Common Shares
    Due
    to Affiliates
    March 31,


December 31,2007


2006Organizational and offering costs
    related to the Current Offering

$
3,123


$
4,992Dealer manager fees and selling
    commissions


1,407



885Asset management, acquisition fees
    and property-level fees and reimbursements


1,872



3,077Other


128



Total

$
6,530


$
8,954   Organizational
    and Offering Costs
  Initial
    Offering
     10




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Current
    Offering      Revenue
    Recognition  straight-line
   11




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock-based
    Compensation  ®
  Income
    Taxes    Accounting for Income
    Taxes.
    Accounting for
    Uncertainty in Income Taxes  an Interpretation of
    FASB Statement No. 109
   12




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Per Share
    Data    3.
    Real
    Estate Investments  Direct
    Investments      Acquired


AcquiredBuildings and





Above-Market


Below-MarketImprovements


In-Place Leases


Leases


LeasesCost

$
758,250


$
182,381


$
43,259


$
44,389Less: accumulated depreciation and
    amortization


(11,979
)


(23,897
)


(5,147
)


(4,680
)Net

$
746,271


$
158,484


$
38,112


$
39,709     Acquired


AcquiredBuildings and


In-Place


Above-Market


Below-MarketImprovements


Leases


Leases


LeasesCost

$
519,843


$
137,344


$
40,267


$
19,046Less: accumulated depreciation and
    amortization


(7,882
)


(16,579
)


(3,853
)


(3,232
)Net

$
511,961


$
120,765


$
36,414


$
15,814   in-place out-of-market
  out-of-market
  In-place


Out-of-MarketLeases


Leases, netApril 1 through
    December 31, 2007

$
24,095


$
(1,573
)2008


29,927



(1,762
)2009


26,980



(1,075
)2010


20,013



(1,126
)2011


17,873



(1,204
)  13




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fixed FutureMinimumRentalsApril 1 through
    December 31, 2007

$
68,5572008


86,5212009


82,1562010


64,3932011


58,035Thereafter


168,626Total

$
528,288       Investment
    in Hines-Sumisei U.S. Core Office Fund, L.P.
        ASSETS
  March 31,


December 31,2007


2006Cash

$
63,644


$
67,557Property, net


2,493,590



2,520,278Other assets


313,763



305,027Total Assets

$
2,870,997


$
2,892,862  14




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  LIABILITIES
    AND PARTNERS CAPITAL
  Debt

$
1,580,238


$
1,571,290Other liabilities


155,735



157,248Minority interest


333,136



341,667Partners capital


801,888



822,657Total Liabilities and
    Partners Capital

$
2,870,997


$
2,892,862   OPERATIONS
  March 31,


March 31,2007


2006Revenues and interest income

$
91,704


$
57,018Operating expenses


(41,964
)


(26,341
)Interest expense


(21,948
)


(13,073
)Depreciation and amortization


(29,189
)


(15,617
)Minority interest


(1,800
)


(2,236
)Net Loss

$
(3,197
)

$
(249
)      15




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   4.
    Debt
    Financing    Principal


PrincipalOutstanding at


Outstanding atDate








March 31,


December 31,Description

Entered Into


Maturity Date


Interest Rate


2007


2006Key Bank National
    Association  Revolving Credit Facility


9/9/2005



10/31/2009



Variable
(1)

$
107,664


$
162,000SECURED MORTGAGE DEBTWells Fargo Bank, N.A. 
    Airport Corporate Center


1/31/2006



3/11/2009



4.775
%


89,434



89,233Metropolitan Life Insurance
    Company  1515 S. Street


4/18/2006



5/1/2011



5.680
%


45,000



45,000Capmark Finance, Inc. 
    Atrium on Bay


2/26/2007



2/26/2017



5.330
%


164,374
(4)


HSH Nordbank  Citymark,
    321 North Clark, 1900 and 2000 Alameda


8/1/2006



8/1/2016



5.8575
%(2)


185,000



185,000HSH Nordbank  3400 Data
    Drive, Watergate Tower IV


1/23/2007



1/12/2017



5.2505
%(3)


98,000



$
689,472


$
481,233     (1)
    
    The revolving credit facility with KeyBank National Association
    (KeyBank) provides a maximum aggregate borrowing
    capacity of $250.0 million, which may be increased to
    $350.0 million upon the Companys election. Borrowings
    under the revolving credit facility are at variable interest
    rates based on LIBOR plus 125 to 200 basis points based on
    prescribed leverage ratios. The weighted average interest rate
    on outstanding borrowings under this facility was 6.70% and
    6.73% as of March 31, 2007 and December 31, 2006,
    respectively.(2)
    
    Borrowings under the pooled mortgage facility with HSH Nordbank
    have variable interest rates equal to one-month LIBOR plus
    0.40%. However, the Company entered into an interest rate swap
    agreement which effectively fixed the interest rate of this
    borrowing at 5.8575%.(3)
    
    Borrowings under the pooled mortgage facility with HSH Nordbank
    have variable interest rates equal to one-month LIBOR plus
    0.40%. However, the Company entered into an interest rate swap
    agreement which effectively fixed the interest rate of this
    borrowing at 5.2505%.(4)
    
    This amount was translated to U.S. dollars at a rate of
    $0.8651 as of March 31, 2007. The mortgage agreement
    provided for a principal amount of $190.0 million CAD.      5.
    Distributions   16




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    TotalDistribution for the Quarter Ended

Date Paid

DistributionMarch 31, 2007

April 16, 2007

$
14,012December 31, 2006

January 16, 2007

$
11,281September 30, 2006

October 13, 2006

$
9,056June 30, 2006

July 14, 2006

$
6,405March 31, 2006

April 13, 2006

$
4,212   6.
    Related
    Party Transactions  Advisory
    Agreement
    Acquisition Fees
  Asset Management Fees
  Expense Reimbursements
  Dealer
    Manager Agreement   17




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Property
    Management and Leasing Agreements    
    A property management fee equal to the lesser of 2.5% of the
    annual gross revenues received from the properties or the amount
    of property management fees recoverable from tenants of the
    property under the leases. The Company incurred property
    management fees of approximately $704,000 and $209,000 for the
    three months ended March 31, 2007 and 2006, respectively.
    As of March 31, 2007 and December 31, 2006, the
    Company had liabilities for incurred and unpaid property
    management fees of approximately $213,000 and $312,000,
    respectively, which have been included in the accompanying
    condensed consolidated balance sheets.
    A leasing fee of 1.5% of gross revenues payable over the term of
    each executed lease, including any lease renewal, extension,
    expansion or similar event and certain construction management
    and re-development construction management fees, in the event
    Hines renders such services. The Company incurred leasing,
    construction management or redevelopment fees of approximately
    $62,000 and $11,000 during the three months ended March 31,
    2007 and 2006, respectively. As of March 31, 2007 the
    Company had a related liability of approximately $672,000, which
    was included in due to affiliates in the accompanying condensed
    consolidated balance sheet. No related liability existed as of
    December 31, 2006.
    The Company generally will be required to reimburse Hines for
    certain operating costs incurred in providing property
    management and leasing services pursuant to the property
    management and leasing agreements. Included in this
    reimbursement of operating costs are the cost of personnel and
    overhead expenses related to such personnel who are located at
    the property as well as off-site personnel located in
    Hines headquarters and regional offices, to the extent the
    same relate to or support the performance of Hiness duties
    under the agreement. However, the reimbursable cost of these
    off-site personnel and overhead expenses are limited to the
    lesser of the amount that is recovered from the tenants under
    their leases
    and/or a
    limit calculated based on the rentable square feet covered by
    the agreement. The Company incurred reimbursable expenses of
    approximately $1.3 million and $458,000 for the three
    months ended March 31, 2007 and 2006, respectively. As of
    March 31, 2007 and December 31, 2006, the Company had
    related liabilities of approximately $1.1 million and
    $498,000, respectively, which were included in due to affiliates
    in the accompanying condensed consolidated balance sheets.  The
    Participation Interest   18




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     7.
    Changes
    in Assets and Liabilities    2007


2006Changes in assets and liabilities:(Increase) decrease in other assets

$
(755
)

$
58Increase in straight-line rent
    receivable


(1,636
)


(149
)Increase in tenant and other
    receivables


(827
)


(380
)Additions to deferred lease costs


(1,546
)


(168
)Increase in accounts payable and
    accrued expenses


863



1,009Increase in participation interest
    liability


3,115



1,446Increase in other liabilities


387



144Increase (decrease) in due to
    affiliates


(1,043
)


498Changes in assets and liabilities

$
(1,442
)

$
2,458   8.
    Supplemental
    Cash Flow Disclosures    2007


2006Cash paid for interest

$
9,306


$
2,020Supplemental Schedule of Non-Cash
    ActivitiesUnpaid selling commissions and
    dealer manager fees

$
1,407


$
1,495Deferred offering costs offset
    against additional
    paid-in-capital

$
1,736


$
Distributions declared and unpaid

$
14,012


$
4,212Distributions receivable

$
5,978


$
3,115Distributions reinvested

$
6,659


$
1,773Non-cash net assets acquired upon
    acquisition of property

$
1,714


$
1,675Accrual of deferred offering costs

$



$
280Assumption of mortgage upon
    acquisition of property

$



$
88,495Accrued additions to deferred
    leasing costs

$
792


$
Accrued additions to investment
    property

$
123


$
  19




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  9.
    Commitments
    and Contingencies      10.
    Subsequent
    Events      one-month
  th th
 20




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##### Table of Contents



HINES
    REAL ESTATE INVESTMENT TRUST, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     
    Increased the offering price of shares of its common stock from
    $10.40 per share to $10.58 per share
    Increased the price at which shares will be issued pursuant to
    its dividend reinvestment plan from $9.88 per share to
    $10.05 per share.
    Increased the price at which shares will be redeemed under its
    share redemption plan from $9.36 per share to
    $9.52 per share.   21




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##### Table of Contents



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, the notes thereto, and the other unaudited financial
    data included elsewhere in this
    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, 2006.
  Cautionary
    Note Regarding Forward-Looking Statements  Form 10-Q
  Form 10-Q
    
    Our ability to invest offering and dividend reinvestment plan
    proceeds to acquire properties or other investments in a timely
    manner and at appropriate amounts that provide acceptable
    returns;
    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;
    Risks associated with debt;
    Competition for tenants and real estate investment
    opportunities, including competition with affiliates of Hines
    Interests Limited Partnership (Hines);
    Risks associated with adverse changes in general economic or
    local market conditions, including terrorist attacks and other
    acts of violence, may affect the markets in which we and our
    tenants operate;
    Catastrophic events, such as hurricanes, earthquakes and
    terrorist attacks; and our ability to secure adequate insurance
    at reasonable and appropriate rates;
    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;
    Risks relating to our investment in Hines-Sumisei U.S. Core
    Office Fund, L.P. (the Core Fund), such as its
    reliance on Hines for its operations and investments, and our
    potential liability for Core Fund obligations; 22




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##### Table of Contents




    The lack of liquidity associated with our assets;
    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;
    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; and
    Our ability to continue to qualify as a real estate investment
    trust (REIT) for federal income tax purposes.  Form 10-K
  Form 10-Q. Form 10-Q Form 10-Q Form 10-Q, Form 10-Q
  Executive
    Summary     23




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##### Table of Contents



Leasable


Percent


Our EffectiveProperty

City

Square Feet


Leased


Ownership(1)321 North Clark

Chicago, Illinois


885,664



94
%


100
%Citymark

Dallas, Texas


218,096



100
%


100
%Watergate Tower IV

Emeryville, California


344,433



100
%


100
%Airport Corporate Center

Miami, Florida


1,018,627



95
%


100
%3400 Data Drive

Rancho Cordova, California


149,703



100
%


100
%Daytona Buildings

Redmond, Washington


250,515



100
%


100
%Laguna Buildings

Redmond, Washington


464,701



100
%


100
%1515 S Street

Sacramento, California


348,881



100
%


100
%1900 and 2000 Alameda

San Mateo, California


253,377



75
%


100
%Atrium on Bay

Toronto, Canada


1,079,870



86
%


100
%Total for Directly-Owned Properties


5,013,867



93
%One Atlantic Center

Atlanta, Georgia


1,100,312



82
%


30.95
%Three First National Plaza

Chicago, Illinois


1,419,079



92
%


24.76
%333 West Wacker

Chicago, Illinois


841,621



90
%


24.70
%One Shell Plaza

Houston, Texas


1,228,160



97
%


15.47
%Two Shell Plaza

Houston, Texas


566,960



94
%


15.47
%425 Lexington Avenue

New York, New York


700,034



100
%


13.81
%499 Park Avenue

New York, New York


288,204



100
%


13.81
%600 Lexington Avenue

New York, New York


281,072



100
%


13.81
%Riverfront Plaza

Richmond, Virginia


949,873



99
%


30.95
%525 B Street

San Diego, California


447,159



89
%


30.95
%The KPMG Building

San Francisco, California


379,328



96
%


30.95
%101 Second Street

San Francisco, California


388,370



99
%


30.95
%720 Olive Way

Seattle, Washington


300,710



82
%


24.70
%1200 19th Street

Washington, D.C.


234,718



100
%


13.81
%Warner Center

Woodland Hills, California


808,274



98
%


24.70
%Total for Core Fund Properties


9,933,874



94
%Total for All Properties


14,947,741



94
%     (1)
    
    This percentage shows the effective ownership of the Operating
    Partnership in the properties listed. On March 31, 2007,
    Hines REIT owned a 97.30% interest in the Operating Partnership
    as its sole general partner. Affiliates of Hines owned the
    remaining 2.70% interest in the Operating Partnership. We own
    interests in all of the properties other than those identified
    above as being owned 100% by us through our interest in the Core
    Fund, in which we owned an approximate 34.0% non-managing
    general partner interest as of March 31, 2007. The Core
    Fund does not own 100% of these buildings; its ownership
    interest in its buildings ranges from 40.6% to 91.0%.     24




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##### Table of Contents



and/or
  Critical
    Accounting Policies
  Form 10-Q
  Organizational
    and Offering Costs
  Miscellaneous
    Accounting  Expenses of Offering 98-5, Reporting on the Costs of
    Start-up
    Activities paid-in
     25




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##### Table of Contents



Revenue
    Recognition and Valuation of Receivables    Derivative
    Instruments        Treatment
    of Management Compensation, Expense Reimbursements and Operating
    Partnership Participation Interest  95-7, Implementation Issues Related to the Treatment of Minority
    Interests in Certain Real Estate Investment Trusts
 26




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##### Table of Contents



Accounting for Costs and Initial Rental Operations of Real
    Estate Projects. Accounting for Nonrefundable Fees and
    Costs Associated with Originating or Acquiring Loans and Initial
    Direct Costs of Leases.
  Income
    Taxes    Accounting for Income
    Taxes.
    Accounting for
    Uncertainty in Income Taxes  an Interpretation of
    FASB Statement No. 109
    Comprehensive
    Income   27




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##### Table of Contents



International
    Operations        Financial
    Condition, Liquidity and Capital Resources
  General    
    proceeds from our public offerings, including our dividend
    reinvestment plan;
    debt financings, including secured or unsecured
    facilities; and
    cash flow generated by our real estate investments and
    operations.      Cash
    Flows from Operating Activities   28




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##### Table of Contents



Cash
    Flows from Investing Activities              Cash
    Flows from Financing Activities  Equity
    Offerings   29




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##### Table of Contents



Initial Public Offering


Current Public Offering


All OfferingsPeriod

# of Shares


Proceeds


# of Shares


Proceeds


# of Shares


ProceedsYear Ended December 31, 2004


2.1


$
20.6






$




2.1


$
20.6Year Ended December 31, 2005


21.0
(a)


207.7
(a)










21.0



207.7Year Ended December 31, 2006


30.1
(b)


299.2
(b)


27.3
(b)


282.7
(b)


57.4



581.9Three Months Ended
    March 31, 2007










16.9
(c)


175.4
(c)


16.9



175.4Total


53.2


$
527.5



44.2


$
458.1



97.4


$
985.6     (a)
    
    Amounts include $2.1 million of gross proceeds relating to
    approximately 223,000 shares issued under our dividend
    reinvestment plan.(b)
    
    Amounts include $13.5 million of gross proceeds relating to
    1.4 million shares issued under our dividend reinvestment
    plan.(c)
    
    Amounts include $6.7 million of gross proceeds relating to
    approximately 674,000 shares issued under our dividend
    reinvestment plan.    Payment
    of Offering and Other Costs and Expenses           30




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##### Table of Contents



Debt
    Financings        PrincipalPrincipal


Outstanding atOutstanding at


December 31,Description

Date Entered Into


Maturity Date


Interest Rate


March 31, 2007


2006Key Bank National
    Association  Revolving Credit Facility


9/9/2005



10/31/2009



Variable(1
)

$
107,664


$
162,000SECURED MORTGAGE DEBTWells Fargo
    Bank, N.A.  Airport Corporate Center


1/31/2006



3/11/2009



4.775
%


89,434



89,233Metropolitan Life Insurance
    Company  1515 S. Street


4/18/2006



5/1/2011



5.680
%


45,000



45,000Capmark
    Finance, Inc.  Atrium on Bay


2/26/2007



2/26/2017



5.330
%


164,374
(4)


HSH POOLED MORTGAGE
    FACILITYHSH Nordbank  Citymark,
    321 North Clark, 1900 and 2000 Alameda


8/1/2006



8/1/2016



5.8575
%(2)


185,000



185,000HSH Nordbank  
    3400 Data Drive, Watergate Tower IV


1/23/2007



1/12/2017



5.2505
%(3)


98,000



$
689,472


$
481,233     (1)
    
    The revolving credit facility with KeyBank National Association
    (KeyBank) provides a maximum aggregate borrowing
    capacity of $250.0 million, which may be increased to
    $350.0 million upon the Companys election. Borrowings
    under the revolving credit facility are at variable interest
    rates based on LIBOR plus 125 to 200 basis points based on
    prescribed leverage ratios. The weighted average interest rate
    on outstanding borrowings was 6.70% and 6.73% as of
    March 31, 2007 and December 31, 2006, respectively. 31




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##### Table of Contents



(2)
    
    This borrowing under the pooled mortgage facility with HSH
    Nordbank has a variable interest rate equal to
    one-month
    LIBOR plus 0.40%. However, the Company entered into an interest
    rate swap agreement which effectively fixed the interest rate of
    this borrowing at 5.8575%.(3)
    
    This borrowing under the pooled mortgage facility with HSH
    Nordbank has a variable interest rate equal to
    one-month
    LIBOR plus 0.40%. However, the Company entered into an interest
    rate swap agreement which effectively fixed the interest rate of
    this borrowing at 5.2505%.(4)
    
    This amount was translated to U.S. dollars at a rate of
    $0.8651 as of March 31, 2007. The mortgage agreement
    contained a principal amount of $190.0 million CAD.      Advances
    from affiliates        Distributions       32




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##### Table of Contents



Cash flow from operating activities

$
1,446Distributions from the Core Fund(1)

$
5,978Cash acquisition fees(2)

$
3,452Acquisition-related items(3)

$
4,283Master lease rent receipts(4)

$
396     (1)
    
    Cash distributions earned during the three months ended
    March 31, 2007 related to our investment in the
    Core Fund.(2)
    
    In accordance with GAAP, acquisition fees paid to our Advisor
    reduce cash flows from operating activities in our condensed
    consolidated statements of cash flows. However, we fund such
    payments with offering proceeds and related acquisition
    indebtedness as such payments are transaction costs associated
    with our acquisitions of real estate investments. As a result,
    we considered the payment of acquisition fees in our analysis of
    cash flow available to pay distributions.(3)
    
    Acquisition-related items include cash payments to settle net
    liabilities assumed upon acquisition of properties. In
    accordance with GAAP, these payments reduce cash flows from
    operating activities in our condensed consolidated statements of
    cash flows. However, these payments are related to the
    acquisition, as opposed to the operations, of these properties,
    and we fund such payments with offering proceeds and
    acquisition-related indebtedness. As a result, we considered the
    payment of these items in our analysis of cash flow available to
    pay distributions. For the three months ended March 31,
    2007, these amounts consisted primarily of property tax
    liabilities assumed upon the acquisition of 321 North Clark.(4)
    
    Master lease rent receipts include rent payments received
    related to master leases entered into in conjunction with
    previous asset acquisitions. In accordance with GAAP, these
    payments are recorded in cash flows from investing activities in
    our condensed consolidated statement of cash flows. However, we
    consider these cash receipts in our analysis of cash flow
    available to pay distributions.  Form 10-Q.
      Results
    of Operations   33




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##### Table of Contents



Direct
    Investments    Our
    Interest in the Core Fund  non-managing
    Asset
    Management and Acquisition Fees    Form 10-Q
  General,
    Administrative and Other Expenses    Gain on
    Derivative Instruments   34




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##### Table of Contents




    A gain of approximately $66,000 resulting from the increase in
    the fair value of the interest rate swaps during the period;
    Fees of approximately $366,000 incurred upon entering into the
    swap transactions; and
    A gain of approximately $939,000 resulting from the settlement
    of a foreign currency contract.    Gain on
    Foreign Currency Transaction    Interest
    Expense    Interest
    Income    Loss
    Allocated to Minority Interests    Related-Party
    Transactions and Agreements  Form 10-Q
 35




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##### Table of Contents



Off-Balance
    Sheet Arrangements    Subsequent
    Events          Changes
    to Our Current Offering    
    Effective July 1, 2007, we will offer shares to the public
    pursuant to our Current Offering at a price of $10.58 per
    share.
    Effective July 1, 2007, participants in our dividend
    reinvestment plan will acquire shares at a fixed price of
    $10.05 per share rather than at the current price of
    $9.88 per share. Therefore, we expect that shares issued
    under the plan in connection with distributions previously
    declared for April and May 2007, and (if declared) 36




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##### Table of Contents



June 2007, which will be aggregated and paid in July 2007, will
    be issued at this revised price of $10.05 per share  
    Effective July 1, 2007, shares redeemed under our share
    redemption program will be redeemed at a price of $9.52 per
    share rather than at our current redemption price of
    $9.36 per share.      per-share
    Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk.       37




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##### Table of Contents



Item 4T.
    Controls
    and Procedures.  Rules 13a-15 15d-15 Rule 13a-15(e)
  Rule 13a-15(f)
   38




---



##### Table of Contents



PART II  OTHER
    INFORMATION  Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds.      Maximum Number (orApproximate DollarTotal Number of


Value) of SharesTotal





Shares Purchased as


that May Yet beNumber of


Average Price


Part of Publicly


Purchased Under theShares


Paid per Share


Announced Plans or


Plans orPeriod

Purchased


(or Unit)


Programs


Programs(1)January 1, 2007 to
    January 31, 2007


108,831



9.36



108,831



1,951,514February 1, 2007 to
    February 28, 2007














1,951,514March 1, 2007 to
    March 31, 2007














2,890,147Total


108,831



9.36



108,831     (1)
    
    We may redeem shares under the program so long as the total
    number of shares redeemed during the calendar year does not
    exceed, as of the date of the redemption, 10% of our shares
    outstanding on the same date during the prior year.  Item 6.
    Exhibits.   39




---



##### Table of Contents



SIGNATURES      By:
    /s/  Charles
    M. Baughn       By:
    /s/  Sherri
    W. Schugart      40




---



##### Table of Contents



EXHIBIT INDEX
  Exhibit No.



Description3.1



Amended and Restated Articles of
    Incorporation of Hines Real Estate Investment Trust, Inc. (filed
    as Exhibit 3.1 to Amendment No. 5 to the
    registrants Registration Statement on
    Form S-11,
    File No. 333-108780,
    on May 25, 2004 and incorporated herein by reference).3.2



Second Amended and Restated Bylaws
    of Hines Real Estate Investment Trust, Inc. (filed as
    Exhibit 3.1 to the registrants Current Report on
    Form 8-K
    on August 3, 2006 and incorporated herein by reference).10.1



First Amendment to Credit
    Agreement, dated as of January 19, 2007, among Hines REIT
    3100 McKinnon Street LP, Hines REIT 1900/2000 Alameda de las
    Pulgas LLC, Hines REIT 321 North Clark Street LLC and the
    Borrowing, Base Subsidiaries party thereto from time to time, as
    Borrowers, Hines REIT Properties, LP., as sponsor, HSH Nordbank
    AG, New York Branch, as lender and as Agent and Arranger, and
    the lenders party thereto from time to time (filed as
    Exhibit 10.77 to Amendment No. 4 to registrants
    Registration Statement on
    Form S-11,
    File
    No. 333-130114
    (the Second Registration Statement), and
    incorporated herein by reference).10.2



Purchase and Sale Agreement, dated
    as of March 27, 2007, by and between Bay West Design
    Center, LLC, Bay West Seattle, LLC, and Hines REIT Properties,
    L.P. (filed as Exhibit 10.78 to the Second Registration
    Statement and incorporated herein by reference).31.1*



Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.31.2*



Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.32.1*



Certification of Chief Executive
    Officer and Chief Financial Officer Pursuant to 18 U.S.C.,
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release
    34-47551
    this Exhibit is furnished to the SEC and shall not be deemed to
    be filed.     *
    
    Filed herewith 41