Form 8-K American Realty Capital For: Mar 02

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): March 2, 2015

 

 

AMERICAN REALTY CAPITAL PROPERTIES, INC.

ARC PROPERTIES OPERATING PARTNERSHIP, L.P.

(Exact name of Registrant as specified in its charter)

 

 

 

Maryland		001-35263		45-2482685
Delaware		333-197780		45-1255683
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

 

2325 E. Camelback Road, Suite 1100

Phoenix, AZ 85016

(Address of principal executive offices, including zip code)

(800) 606-3610

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02. Results of Operations and Financial Condition.

On March 2, 2015, American Realty Capital Properties, Inc. (the “Company”) furnished the following documents (the “Documents”): (i) a press release pertaining its restatement of its fiscal year 2013 and first and second quarter 2014 financial statements and related matters, attached hereto as Exhibit 99.1; (ii) a press release pertaining to the Company’s financial results for the periods ended September 30, 2014, attached hereto as Exhibit 99.2; (iii) an investor presentation providing a business update, attached hereto as Exhibit 99.3; and (iv) quarterly supplemental information for the fiscal quarter ended September 30, 2014, attached hereto as Exhibit 99.4.

Item 7.01. Regulation FD Disclosure.

As disclosed in Item 2.02 above, on March 2, 2015, the Company issued the Documents which are attached hereto as Exhibits 99.1 through 99.4. The information set forth in Items 2.02 and 7.01 hereto and in the attached Exhibits 99.1 through 99.4 is deemed to be “furnished” and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, or otherwise subject to the liabilities of that Section. The information set forth in Items 2.02 and 7.01, including Exhibits 99.1 through 99.4, shall not be deemed incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933, as amended, regardless of any general incorporation language in such filing.

Item 9.01. Financial Statements and Exhibits.

 

(d)

Exhibits

 

Exhibit No.		Description
99.1		Press Release issued March 2, 2015 Pertaining to the Company’s Restatement of its Fiscal Year 2013 and First and Second Quarter 2014 Financial Statements and Related Matters
99.2		Press Release issued March 2, 2015 Pertaining to the Company’s Financial Results for the Periods Ended September 30, 2014
99.3		Investor Presentation
99.4		Quarterly Supplemental Information for the Fiscal Quarter Ended September 30, 2014

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, each registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

Date: March 2, 2015

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Exhibit Index

 

Exhibit No.		Description
99.1		Press Release issued March 2, 2015 Pertaining to the Company’s Restatement of its Fiscal Year 2013 and First and Second Quarter 2014 Financial Statements and Related Matters
99.2		Press Release issued March 2, 2015 Pertaining to the Company’s Financial Results for the Periods Ended September 30, 2014
99.3		Investor Presentation
99.4		Quarterly Supplemental Information for the Fiscal Quarter Ended September 30, 2014

Exhibit 99.1

 

FOR IMMEDIATE RELEASE

American Realty Capital Properties Restates Financial Reports for FY2013 and

First Two Quarters of 2014

No Material Changes Relating to Real Estate Ownership, Rental Revenue or

Fundamental Business Operations

No Changes to the Financial Statements or Operations of the Cole Capital^® Sponsored Non-Traded REITs

The Company Has Filed its Quarterly Report on Form 10-Q for Q3 2014 and Anticipates Filing its Annual

Report on Form 10-K for FY2014 on or prior to March 31, 2015

Phoenix, AZ, March 2, 2015 — American Realty Capital Properties, Inc. (“ARCP” or the “Company”) (NASDAQ: ARCP) announced today the completion of its restatement and filing of amendments to its 2013 Annual Report on Form 10-K and first and second quarter 2014 Quarterly Reports on Form 10-Q. Additionally, ARC Properties Operating Partnership, L.P. (the “Operating Partnership”) has restated its previously issued financial statements. Furthermore, both the Company and the Operating Partnership have filed their Quarterly Reports on Form 10-Q for the third quarter of 2014.

As previously announced, the Audit Committee of ARCP’s Board of Directors (the “Audit Committee”), with the assistance of its independent advisors Weil, Gotshal & Manges LLP and Ernst & Young LLP, conducted a thorough and independent investigation into accounting concerns and other matters brought to the Audit Committee’s attention in September 2014.

Notably, the Audit Committee’s investigation did not identify any material changes relating to ARCP’s real estate ownership, rental revenue or fundamental business operations. Additionally, the Audit Committee investigation did not identify any changes to the financial statements or operations of the Cole Capital-sponsored non-traded REITs, nor did the matters reviewed by the Audit Committee relate to the operations of these REITs.

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The Audit Committee investigation reported the following key findings:

 

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Net loss was understated for 2013 (including each quarter of 2013) and the second quarter of 2014. Net loss was overstated for the first quarter of 2014. AFFO was overstated for 2011, 2012, 2013 (including each fiscal quarter of 2013) and the first two quarters of 2014.

 

•

The Audit Committee’s investigation identified certain payments made by the Company to ARC Properties Advisors, LLC and certain of its affiliates that were not sufficiently documented or otherwise warrant scrutiny. The Company has recovered consideration valued at approximately $8.5 million in respect of certain such payments that the Company concluded were inappropriate.

 

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The investigation found that equity awards made to two former executives in connection with the Company’s transition to self-management contained provisions that, as drafted, were more favorable to such executives than the Compensation Committee of the Company’s Board of Directors had approved.

 

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The investigation found certain material weaknesses in the Company’s internal controls over financial reporting and its disclosure controls and procedures.

“The restatement of our financial statements is an important milestone for ARCP and enables the Company to put this matter behind us,” said William Stanley, interim Chairman and Chief Executive Officer of ARCP. “The Board moved swiftly to put in place new senior management, realign the Board committee compositions, appoint an interim Chief Executive Officer, and conduct an extensive review of the Company’s financial statements, accounting policies, financial controls and corporate governance, with the assistance of the new management team. Importantly, the investigation did not identify any material changes relating to our real estate ownership, the validity of our leases or our fundamental business operations. With the restatement, we are moving swiftly to appoint a new Chief Executive Officer and independent Chairman of the Board, which we hope to announce in the near term, and will focus on bringing our financial controls and corporate governance to world-class standards as a leading net lease REIT.”

Mr. Stanley reiterated the strength of the Cole Capital platform: “At Cole Capital, the team is turning its attention to normalizing relationships with its broker-dealer partners and clearing firms, as well as re-engaging its financial advisor network. We are optimistic that we can quickly build momentum and resume the normal course of business operations soon.”

The restatements had the following effects:

 

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Previously reported net loss attributable to stockholders, and net loss per share will be increased while AFFO (net method) and AFFO per share will be decreased by approximately $16.8 million, $0.08 per share, $43.9 million and $0.20 per share, respectively, for the full year 2013, as compared to originally reported amounts.1

 

•

Previously reported net loss attributable to the Company, net loss per share, AFFO (net method) and AFFO per share will be decreased by approximately $17.2 million, $0.03 per share, $38.5 million and $0.07 per share, respectively, for the three months ended March 31, 2014, as compared to originally reported amounts.1

 

 

1

The foregoing amounts reflect the recasting of the Company’s historical financial statements to present the effects of the Company’s acquisition of ARCT IV, an entity previously deemed to be under common control with the Company, as if it had been completed at the beginning of the period presented, as previously disclosed in the Company’s Current Report on Form 8-K, dated May 20, 2014.

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Previously reported net loss attributable to the Company and net loss per share will be increased while AFFO (gross method) and AFFO per share will be decreased by approximately $14.4 million, $0.02 per share, $19.3 million and $0.03 per share, respectively, for the three months ended June 30, 2014, as compared to originally reported amounts.

More detail related to the restatements and the reconciliation of net income and net loss to AFFO is available in the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”). ARCP expects to report its fourth quarter and full year 2014 financial results in its 2014 Annual Report on Form 10-K for such periods on or prior to March 31, 2015.

ARCP will host an audio webcast later today, Monday, March 2, 2015, at 8:30 a.m. Eastern Time to discuss financial results and provide a business update. The public can access the live audio webcast via the ARCP website homepage: www.arcpreit.com. Participants should access the webcast 10-15 minutes early. A replay will be available via the ARCP Investor Relations website approximately one hour after the completion of the webcast.

About ARCP

ARCP is a leading, self-managed commercial real estate investment trust (“REIT”) focused on investing in single tenant freestanding commercial properties subject to net leases with high credit quality tenants. ARCP acquires and manages assets on behalf of the
Cole Capital^® non-traded REITs. ARCP is a publicly traded Maryland corporation listed on The NASDAQ Global Select Market. Additional information about ARCP can be found on its website at www.arcpreit.com. ARCP may disseminate important information regarding it and its operations, including financial information, through social media platforms such as Twitter, Facebook and LinkedIn.

 

Media Contacts
Stephen Cohen		John Bacon, Vice President, Marketing
212.886.9332		American Realty Capital Properties, Inc.
		602.778.6057 | [email protected]

Investor Contact

Bonni Rosen, Director Investor Relations

American Realty Capital Properties, Inc.

877.405.2653 | [email protected]

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Forward Looking Statements

Information set forth herein (including information included or incorporated by reference herein) contains “forward-looking statements” (as defined in Section 21E of the Securities Exchange Act of 1934, as amended), which reflect American Realty Capital Properties, Inc.’s (“ARCP”, the “Company,” “us,” “our” and “we”) expectations regarding future events. The forward-looking statements involve a number of assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions identify forward-looking statements, and any statements regarding ARCP’s future financial condition, results of operations and business are also forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, most of which are difficult to predict and many of which are beyond ARCP’s control.

The following additional factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: ARCP’s plans, market and other expectations, objectives, intentions and other statements that are not historical facts; the developments disclosed herein; negative reactions from ARCP’s creditors, stockholders, or business partners to the findings of the investigation by the Audit Committee or the refiling of ARCP’s financial statements; the results of the reevaluation of ARCP’s internal control over financial reporting and disclosure controls and procedures and the timing and expense of the remediation of control deficiencies; the impact and outcome of litigation and regulatory investigations related to the matters disclosed in ARCP’s Current Report on Form 8-K that was filed on October 29, 2014; ARCP’s ability to comply with the requirements of the NASDAQ Stock Market; the impact of ARCP’s debt documents on ARCP’s overall borrowing flexibility; ARCP’s inability to reestablish the financial network which supports Cole Capital^®; ARCP’s inability to regain the prior transaction and capital raising volume of Cole Capital prior to the filing of ARCP’s Current Report on Form 8-K that was filed on October 29, 2014; ARCP’s inability to pay a dividend at the same rate and frequency as ARCP previously had paid; ARCP’s inability to regain its investment-grade credit rating; ARCP’s inability to file its Annual Report on Form 10-K for the fiscal year ended December 31, 2014 timely in light of its obligations under its debt documents; the unpredictability of the business plans of ARCP’s tenants; the inability to retain or hire key personnel; and continuation or deterioration of current market conditions. Additional factors that may affect future results are contained in ARCP’s filings with the SEC, which are available at the SEC’s website at www.sec.gov.

The forward-looking statements contained herein reflect ARCP’s beliefs, assumptions and expectations regarding ARCP’s future performance, taking into account all information currently available to it. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to ARCP. If a change occurs, ARCP’s business, financial condition, liquidity and results of operations may vary materially from those expressed in its forward-looking statements. ARCP disclaims any obligation to publicly update or revise any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes, except as required by law.

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Description of Funds From Operations and Adjusted Funds From Operations

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”), an industry trade group, has promulgated a measure known as funds from operations (“FFO”), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income or loss as determined under generally accepted accounting principles in the United States (“U.S. GAAP”).

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with U.S. GAAP, excluding gains or losses from sales of property, depreciation and amortization of real estate assets and impairment write-downs including adjustments for the proportionate share of adjustments for unconsolidated partnerships and joint ventures. These adjustments also include the pro rata share of unconsolidated partnerships and joint ventures.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of U.S. GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in U.S. GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO and Adjusted Funds From Operations (“AFFO”), as described below, should not be construed to be more relevant or accurate than the current U.S. GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under U.S. GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and AFFO measures and the adjustments to U.S. GAAP in calculating FFO and AFFO.

We consider FFO and AFFO useful indicators of the performance of a REIT. Because FFO calculations exclude such factors as depreciation and amortization of real estate assets and gains or losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs in our peer group. Accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. While certain companies may experience significant acquisition activity, other companies may not have significant acquisition activity and management believes that excluding costs such as merger and transaction costs and acquisition related costs from property operating results provides useful information to investors and provides information that improves the comparability of operating results with other companies who do not have significant merger or acquisition activities. AFFO is not equivalent to our net income or loss as determined under GAAP, and AFFO may not be a useful measure of the impact of long-term operating performance if we continue to have such activities in the future.

We exclude certain income or expense items from AFFO that we consider more reflective of investing activities, other non-cash income and expense items and the income and expense effects of other activities that are not a fundamental attribute of our business plan. These items include unrealized gains and losses, which may not ultimately be realized, such as gains or losses on derivative instruments, gains and losses on investments and early extinguishment of debt. In addition, by excluding non-cash income and expense items such as amortization of above and below market leases, amortization of deferred financing costs, straight-line rent, net direct financing lease adjustments and equity-based compensation from AFFO we believe we provide useful information regarding income and expense items which have no cash impact and do not provide us liquidity or require our capital resources. By providing AFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our

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ongoing operating performance without the impacts of transactions that are not related to the ongoing profitability of our portfolio of properties. We also believe that AFFO is a recognized measure of sustainable operating performance by the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies that are not as involved in activities which are excluded from our calculation. Investors are cautioned that AFFO should only be used to assess the sustainability of our operating performance excluding these activities, as it excludes certain costs that have a negative effect on our operating performance during the periods in which these costs are incurred.

In addition, we exclude certain interest expenses related to securities that are convertible to common stock as the shares are assumed to have converted to common stock in our calculation of weighted-average common shares-fully diluted.

In calculating AFFO, we exclude expenses, which under GAAP are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors. All paid and accrued merger and acquisition fees and certain other expenses negatively impact our operating performance during the period in which expenses are incurred or properties are acquired and will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property and certain other expenses. Therefore, AFFO may not be an accurate indicator of our operating performance, especially during periods in which mergers are being consummated or properties are being acquired or certain other expense are being incurred. AFFO that excludes such costs and expenses would only be comparable to companies that did not have such activities. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments as items which are unrealized and may not ultimately be realized. We view both gains and losses from fair value adjustments as items which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Excluding income and expense items detailed above from our calculation of AFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe AFFO provides useful supplemental information.

As a result, we believe that the use of FFO and AFFO, together with the required U.S. GAAP presentations, provide a more complete understanding of our performance relative to our peers and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.

FFO and AFFO are non-GAAP financial measures and do not represent net income as defined by U.S. GAAP. FFO and AFFO do not represent cash flows from operations as defined by U.S. GAAP, are not indicative of cash available to fund all cash flow needs and liquidity, including our ability to pay distributions and should not be considered as alternatives to net income, as determined in accordance with U.S. GAAP, for purposes of evaluating our operating performance. Other REITs may not define FFO in accordance with the current NAREIT definition (as we do) or may interpret the current NAREIT definition differently than we do and/or calculate AFFO differently than we do. Consequently, our presentation of FFO and AFFO may not be comparable to other similarly titled measures presented by other REITs.

We are now presenting the restated FFO and AFFO using two methods: 1) we calculate FFO and AFFO on a gross basis, whereby we start with net income attributable to both the stockholders and the non-controlling interest holders, and then adjust net income by the gross reported amounts of the items being adjusted (“Gross Method”); and 2) we calculate FFO and AFFO on a net basis, whereby we start with net income attributable only to the stockholders, and adjust net income by only the stockholders’ portion of the applicable items (“Net Method”). For presentation of the Net Method, the company has included the gross amounts of each adjustment on their respective line items and adjusted for the proportionate share which is attributable to non-controlling interest on a separate line item within FFO and AFFO.

Similarly, AFFO per share follows the same logic. Under the Gross Method, AFFO is divided by a share number that takes into account the dilutive effect of units held by the non-controlling interest holders; Under the Net Method, AFFO is divided by a share number that reflects only the dilutive effects of common shares.

Exhibit 99.2

 

FOR IMMEDIATE RELEASE

American Realty Capital Properties Announces Third Quarter 2014 Operating Results

Phoenix, AZ, March 2, 2015 — American Realty Capital Properties, Inc. (NASDAQ: ARCP) (“ARCP” or the “Company”) announced today its operating results for the three months ended September 30, 2014.

The Company announced separately the completion of its restatement and filing of amendments to its 2013 Annual Report on Form 10-K and first and second quarter 2014 Quarterly Reports on Form 10-Q. Additionally, ARC Properties Operating Partnership, L.P. (the “Operating Partnership”) has restated its previously issued financial statements. Both the Company and the Operating Partnership have also filed their Quarterly Reports on Form 10-Q for the third quarter of 2014.

Third Quarter 2014 Consolidated Highlights

 

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Revenue increased $361.9 million to $457.1 million over restated prior year third quarter results

 

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Net loss increased $200.2 million to ($280.4) million over restated prior year third quarter results, which includes a $256.9 million loss primarily due to the multi-tenant portfolio held for sale at September 30, 2014

 

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FFO, on a gross method basis, increased $214.9 million to $195.8 million over restated prior year third quarter results

 

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AFFO, on a gross method basis, per diluted share decreased $0.02 from the restated prior year third quarter to $0.26

 

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Acquired $2.3 billion of real estate in the third quarter with a cash cap rate of 7.7%, including the approximate $1.7 billion Red Lobster sale-leaseback transaction

 

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Sold seven properties for total net proceeds of $73.1 million

 

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With proceeds from the line of credit, repaid $199.1 million of debt, with an average maturity of 5.9 years and a weighted average interest rate of 6.5%, and $316.1 million of Series D Preferred

 

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Invested $1.1 billion in 228 properties on behalf of the Cole Capital® managed funds

Management Commentary

William Stanley, interim Chairman and Chief Executive Officer, stated, “We are pleased to report our third quarter 2014 operating results. We have made significant progress to address the issues identified in the Audit Committee investigation, and can now focus our attention on moving ARCP to where we know it should be. We do that knowing that we have an exceptional business built on a diversified, high-quality portfolio of net lease assets, an outstanding team of real estate professionals and a healthy balance sheet to support our efforts.”

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Third Quarter Real Estate Segment Highlights

 

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Revenue and net loss of $397.3 million and ($289.1) million, respectively

 

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AFFO, on a gross method basis, per diluted share decreased $0.05 to $0.23 over restated prior year third quarter results

 

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Normalized EBITDA increased $288.8 million to $333.2 million over restated prior year third quarter results

 

•

Acquired $2.3 billion of real estate in the third quarter with a cash cap rate of 7.7%, including the approximate $1.7 billion Red Lobster sale-leaseback transaction and sold seven properties for total net proceeds of $73.1 million

 

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With proceeds from the line of credit, repaid $199.1 million of debt, with an average maturity of 5.9 years and a weighted average interest rate of 6.5%, and $316.1 million of Series D Preferred

 

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Total portfolio occupancy of 99.2%, investment grade tenancy of 45.0% and a weighted average remaining lease term of 11.5 years as of September 30, 2014

Third Quarter Cole Capital^® Segment Highlights

 

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Revenue and net income of $59.8 million and $1.1 million, respectively

 

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AFFO, on a gross method basis, of $0.03 per diluted share and normalized EBITDA of $30.8 million

 

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Raised $260.8 million of capital on behalf of the managed REITs bringing the year to date total as of September 30, 2014, to approximately $1.3 billion

 

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Structured $1.1 billion of real estate acquisitions and $700.1 million of real estate financing on behalf of the Cole Capital managed funds

 

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The Company did not own Cole Capital in the prior year period

Subsequent to Third Quarter Activity Highlights

 

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On October 17, 2014, completed the previously announced sale of its multi-tenant portfolio for approximately $1.9 billion to a Blackstone-DDR joint venture and entered into an LOI to sell five additional multi-tenant properties for $52.8 million for total sale proceeds of $2.0 billion with approximately $1.2 billion of net proceeds that were used to reduce leverage by paying down the Company’s line of credit

 

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On December 4, 2014, issued a press release announcing that the Company had entered into a settlement agreement with RCS Capital Corporation (“RCS Capital”) that resolved the dispute over the sale of Cole Capital to RCS Capital in which the Company received $60.0 million from RCS Capital to terminate the Equity Purchase Agreement and all related agreements and documents

 

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Acquired $27.4 million of real estate assets through December 31, 2014

 

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Approximately $3.2 billion outstanding under its credit facility as of December 31, 2014

 

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On January 29, 2015, the Company announced that Cole Corporate Income Trust, Inc. successfully closed the previously announced merger with and into a wholly owned subsidiary of Select Income REIT

Third Quarter 2014 Financial Results

Revenues

Consolidated Revenue for the quarter ended September 30, 2014 increased $361.9 to $457.1 million as compared to restated revenue of $95.3 million for the same quarter in 2013 mainly due to the large increase in gross assets and the inclusion of the Cole Capital revenue.

Real Estate segment revenue for the quarter ended September 30, 2014 increased $302.1 to $397.3 million as compared to restated revenue of $95.3 million for the same quarter in 2013.

Cole Capital segment revenue for the quarter ended September 30, 2014 was $59.8 million.

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FFO and FFO per Diluted Common Share – Gross Method

Funds From Operations (“FFO”) for the quarter ended September 30, 2014 increased $214.9 million to $195.8 million, or $0.21 per diluted share, as compared to ($19.1) million, or ($0.07) per diluted share as restated, for the same quarter in 2013.

AFFO and AFFO per Diluted Common Share – Gross Method

Adjusted Funds From Operations (“AFFO”) for the quarter ended September 30, 2014 increased $172.4 to $244.5 million, or $0.26 per diluted share, as compared to $72.1 million, or $0.28 per diluted share as restated, for the same quarter in 2013.

Real Estate segment AFFO for the quarter ended September 30, 2014 increased $142.8 million to $215.0 million, or $0.23 per diluted share, as compared to $72.1 million, or $0.28 per diluted share as restated, for the same quarter in 2013.

Cole Capital segment AFFO for the quarter ended September 30, 2014 was $29.6 million, or $0.03 per diluted share.

Normalized EBITDA

Consolidated normalized EBITDA for the quarter ended September 30, 2014 increased $319.5 to $363.9 million as compared to restated normalized EBITDA of $44.4 million for the same quarter in 2013 mainly due to the large increase in gross assets and the inclusion of the Cole Capital revenue.

Real Estate segment normalized EBITDA for the quarter ended September 30, 2014 increased $288.8 to $333.2 million as compared to restated normalized EBITDA of $44.4 million, for the same quarter in 2013.

Cole Capital segment normalized EBITDA for the quarter ended September 30, 2014 was $30.8 million.

Fourth Quarter Results

The Company intends to report its fourth quarter and full year 2014 results and file its Annual Report on Form 10-K by March 31, 2015.

Dividend Update

The Board of Directors will announce the Company’s new dividend policy later in 2015

 

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Per the waivers and consents from the Company’s lenders, the Board cannot declare or pay a dividend on the Company’s common stock until the Company has delivered its required quarterly and annual financial statements and related officer’s and compliance certificates, all of which the Company expects to deliver on or before March 31, 2015

 

•

The Board, working with the new CEO and management, will establish a common stock dividend, which is expected to be in line with net lease peers

 

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When the dividend is reinstated it is expected to be paid on a quarterly basis

Audio Webcast Details

The live audio webcast, beginning at 8:30 a.m. ET on Monday, March 2, 2015, is available by accessing this link: http://services.choruscall.com/links/arcp150302.html

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About the Company

ARCP is a leading, self-managed commercial real estate investment trust (“REIT”) focused on investing in single tenant freestanding commercial properties subject to net leases with high credit quality tenants. ARCP acquires and manages assets on behalf of the Cole Capital^® non-traded REITs. ARCP is a publicly traded Maryland corporation listed on The NASDAQ Global Select Market. Additional information about ARCP can be found on its website at www.arcpreit.com. ARCP may disseminate important information regarding it and its operations, including financial information, through social media platforms such as Twitter, Facebook and LinkedIn.

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Media Contacts
Stephen Cohen		John Bacon, Vice President, Marketing
212.886.9332		American Realty Capital Properties, Inc.
		602.778.6057 | [email protected]

Investor Contact

Bonni Rosen, Director Investor Relations

American Realty Capital Properties, Inc.

877.405.2653 | [email protected]

 

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Terms and Definitions

Description of Funds From Operations and Adjusted Funds From Operations

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”), an industry trade group, has promulgated a measure known as funds from operations (“FFO”), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income or loss as determined under generally accepted accounting principles in the United States (“U.S. GAAP”).

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with U.S. GAAP, excluding gains or losses from sales of property, depreciation and amortization of real estate assets and impairment write-downs including adjustments for the proportionate share of adjustments for unconsolidated partnerships and joint ventures. These adjustments also include the pro rata share of unconsolidated partnerships and joint ventures.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of U.S. GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in U.S. GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO and Adjusted Funds From Operations (“AFFO”), as described below, should not be construed to be more relevant or accurate than the current U.S. GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under U.S. GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and AFFO measures and the adjustments to U.S. GAAP in calculating FFO and AFFO.

We consider FFO and AFFO useful indicators of the performance of a REIT. Because FFO calculations exclude such factors as depreciation and amortization of real estate assets and gains or losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs in our peer group. Accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. While certain companies may experience significant acquisition activity, other companies may not have significant acquisition activity and management believes that excluding costs such as merger and transaction costs and acquisition related costs from property operating results provides useful information to investors and provides information that improves the comparability of operating results with other companies who do not have significant merger or acquisition activities. AFFO is not equivalent to our net income or loss as determined under GAAP, and AFFO may not be a useful measure of the impact of long-term operating performance if we continue to have such activities in the future.

We exclude certain income or expense items from AFFO that we consider more reflective of investing activities, other non-cash income and expense items and the income and expense effects of other activities that are not a fundamental attribute of our business plan. These items include unrealized gains and losses, which may not ultimately be realized, such as gains or losses on derivative instruments, gains and losses on investments and early extinguishment of debt. In addition, by excluding non-cash income and expense items such as amortization of above and below market leases, amortization of deferred financing costs, straight-line rent, net direct financing lease adjustments and equity-based compensation from AFFO we believe we provide useful information regarding income and expense items which have no cash impact and do not provide us liquidity or require our capital resources. By providing

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AFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our ongoing operating performance without the impacts of transactions that are not related to the ongoing profitability of our portfolio of properties. We also believe that AFFO is a recognized measure of sustainable operating performance by the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies that are not as involved in activities which are excluded from our calculation. Investors are cautioned that AFFO should only be used to assess the sustainability of our operating performance excluding these activities, as it excludes certain costs that have a negative effect on our operating performance during the periods in which these costs are incurred.

In addition, we exclude certain interest expenses related to securities that are convertible to common stock as the shares are assumed to have converted to common stock in our calculation of weighted-average common shares-fully diluted.

In calculating AFFO, we exclude expenses, which under GAAP are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors. All paid and accrued merger and acquisition fees and certain other expenses negatively impact our operating performance during the period in which expenses are incurred or properties are acquired and will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property and certain other expenses. Therefore, AFFO may not be an accurate indicator of our operating performance, especially during periods in which mergers are being consummated or properties are being acquired or certain other expense are being incurred. AFFO that excludes such costs and expenses would only be comparable to companies that did not have such activities. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments as items which are unrealized and may not ultimately be realized. We view both gains and losses from fair value adjustments as items which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Excluding income and expense items detailed above from our calculation of AFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe AFFO provides useful supplemental information.

As a result, we believe that the use of FFO and AFFO, together with the required U.S. GAAP presentations, provide a more complete understanding of our performance relative to our peers and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.

FFO and AFFO are non-GAAP financial measures and do not represent net income as defined by U.S. GAAP. FFO and AFFO do not represent cash flows from operations as defined by U.S. GAAP, are not indicative of cash available to fund all cash flow needs and liquidity, including our ability to pay distributions and should not be considered as alternatives to net income, as determined in accordance with U.S. GAAP, for purposes of evaluating our operating performance. Other REITs may not define FFO in accordance with the current NAREIT definition (as we do) or may interpret the current NAREIT definition differently than we do and/or calculate AFFO differently than we do. Consequently, our presentation of FFO and AFFO may not be comparable to other similarly titled measures presented by other REITs.

We are now presenting the restated FFO and AFFO using two methods: 1) we calculate FFO and AFFO on a gross basis, whereby we start with net income attributable to both the stockholders and the non-controlling interest holders, and then adjust net income by the gross reported amounts of the items being adjusted (“Gross Method”); and 2) we calculate FFO and AFFO on a net basis, whereby we start with net income attributable only to the stockholders, and adjust net income by only the stockholders’ portion of the applicable items (“Net Method”). For presentation of the Net Method, the company has included the gross amounts of each adjustment on their respective line items and adjusted for the proportionate share which is attributable to non-controlling interest on a separate line item within FFO and AFFO.

Similarly, AFFO per share follows the same logic. Under the Gross Method, AFFO is divided by a share number that takes into account the dilutive effect of units held by the non-controlling interest holders; Under the Net Method, AFFO is divided by a share number that reflects only the dilutive effects of common shares.

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EBITDA and Normalized EBITDA

Normalized EBITDA as disclosed represents EBITDA, or earnings before interest, taxes, depreciation and amortization, modified to include other adjustments to GAAP net income for merger expenses which are considered non-recurring and gains/losses in real estate and derivatives which are not considered fundamental attributes of the Company’s business plans and do not affect the Company’s overall long-term operating performance. The Company excludes these items from Normalized EBITDA as they are not the primary drivers in the Company’s decision making process. In addition, the Company’s assessment of the Company’s operations is focused on long-term sustainability and not on such non-cash items, which may cause short term fluctuations in net income but have no impact on cash flows. The Company believes that Normalized EBITDA is a useful supplemental measure to investors and analysts for assessing the performance of the Company’s business segments, although it does not represent net income that is computed in accordance with GAAP. Therefore, Normalized EBITDA should not be considered as an alternative to net income or as an indicator of the Company’s financial performance. The Company uses Normalized EBITDA as one measure of its operating performance when formulating corporate goals and evaluating the effectiveness of the Company’s strategies. Normalized EBITDA may not be comparable to similarly titled measures of other companies.

Forward Looking Statements

Information set forth herein (including information included or incorporated by reference herein) contains “forward-looking statements” (as defined in Section 21E of the Securities Exchange Act of 1934, as amended), which reflect American Realty Capital Properties, Inc.’s (“ARCP”, the “Company,” “us,” “our” and “we”) expectations regarding future events. The forward-looking statements involve a number of assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions identify forward-looking statements, and any statements regarding ARCP’s future financial condition, results of operations and business are also forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, most of which are difficult to predict and many of which are beyond ARCP’s control.

The following additional factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: ARCP’s plans, market and other expectations, objectives, intentions and other statements that are not historical facts; the developments disclosed herein; negative reactions from ARCP’s creditors, stockholders, or business partners to the findings of the investigation by the Audit Committee or the refiling of ARCP’s financial statements; the results of the reevaluation of ARCP’s internal control over financial reporting and disclosure controls and procedures and the timing and expense of the remediation of control deficiencies; the impact and outcome of litigation and regulatory investigations related to the matters disclosed in ARCP’s Current Report on Form 8-K that was filed on October 29, 2014; ARCP’s ability to comply with the requirements of the NASDAQ Stock Market; the impact of ARCP’s debt documents on ARCP’s overall borrowing flexibility; ARCP’s inability to reestablish the financial network which supports Cole Capital^®; ARCP’s inability to regain the prior transaction and capital raising volume of Cole Capital prior to the filing of ARCP’s Current Report on Form 8-K that was filed on October 29, 2014; ARCP’s inability to pay a dividend at the same rate and frequency as ARCP previously had paid; ARCP’s inability to regain its investment-grade credit rating; ARCP’s inability to file its Annual Report on Form 10-K for the fiscal year ended December 31, 2014 timely in light of its obligations under its debt documents; the unpredictability of the business plans of ARCP’s tenants; the inability to retain or hire key personnel; and continuation or deterioration of current market conditions. Additional factors that may affect future results are contained in ARCP’s filings with the SEC, which are available at the SEC’s website at www.sec.gov.

The forward-looking statements contained herein reflect ARCP’s beliefs, assumptions and expectations regarding ARCP’s future performance, taking into account all information currently available to it. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to ARCP. If a change occurs, ARCP’s business, financial condition, liquidity and results of operations may vary materially from those expressed in its forward-looking statements. ARCP disclaims any obligation to publicly update or revise any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes, except as required by law.

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CONSOLIDATED BALANCE SHEETS

(in 000’s, except for share and per share data)

(Unaudited)

 

		September 30, 2014				December 31, 2013 (as restated)1
ASSETS
Real estate investments, at cost:
Land		$	3,487,824			$	1,380,308
Buildings, fixtures and improvements			12,355,029				5,297,400
Land and construction in progress			86,973				21,839
Acquired intangible lease assets			2,424,076				759,595
Total real estate investments, at cost			18,353,902				7,459,142
Less: accumulated depreciation and amortization			(828,624	)			(267,278	)
Total real estate investments, net			17,525,278				7,191,864
Investment in unconsolidated entities			100,762				—
Investment in direct financing leases, net			57,441				66,112
Investment securities, at fair value			59,131				62,067
Loans held for investment, net			96,981				26,279
Cash and cash equivalents			145,310				52,725
Restricted cash			72,754				35,921
Intangible assets, net			323,332				—
Deferred costs and other assets, net			446,606				280,661
Goodwill			2,096,450				92,789
Due from affiliates			55,666				—
Assets held for sale			1,887,872				665
Total assets		$	22,867,583			$	7,809,083
LIABILITIES AND EQUITY
Mortgage notes payable, net		$	3,782,407			$	1,301,114
Corporate bonds, net			2,546,294				—
Convertible debt, net			976,251				972,490
Credit facilities			4,259,000				1,969,800
Other debt, net			48,587				104,804
Below-market lease liabilities, net			318,494				77,169
Accounts payable and accrued expenses			180,338				730,571
Deferred rent, derivative and other liabilities			195,256				40,271
Distributions payable			9,927				10,903
Due to affiliates			2,757				103,434
Liabilities associated with assets held for sale			545,382				—
Total liabilities			12,864,693				5,310,556
Series D preferred stock, $0.01 par value, zero and 21,735,008 shares (part of 100,000,000 aggregate preferred shares authorized) issued and outstanding at September 30, 2014 and December 31, 2013, respectively			—				269,299
Preferred stock (excluding Series D Preferred Stock), $0.01 par value, 100,000,000 shares authorized and 42,822,383 and 42,199,547 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively			428				422
Common stock, $0.01 par value, 1,500,000,000 shares authorized and 907,964,521 and 239,234,725 issued and outstanding at September 30, 2014 and December 31, 2013, respectively			9,080				2,392
Additional paid-in capital			11,905,338				2,940,907
Accumulated other comprehensive income			8,600				7,666
Accumulated deficit			(2,182,731	)			(877,957	)
Total stockholders’ equity			9,740,715				2,073,430
Non-controlling interests			262,175				155,798
Total equity			10,002,890				2,229,228
Total liabilities and equity		$	22,867,583			$	7,809,083

 

(1)	For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Consolidated Financial Statements in the relevant filing for such period made on March 2, 2015.

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CONSOLIDATED STATEMENTS OF OPERATIONS

(in 000’s, except for per share data)

(Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013 (as restated)1				2014				2013 (as restated)1
Revenues:
Rental income		$	365,712			$	89,729			$	924,646			$	183,251
Direct financing lease income			625				1,201				2,812				1,201
Operating expense reimbursements			30,984				4,325				81,716				8,516
Cole Capital revenue			59,797				—				151,276				—
Total revenues			457,118				95,255				1,160,450				192,968
Operating expenses:
Cole Capital reallowed fees and commissions			15,398				—				56,902				—
Acquisition related(2)			13,998				26,948				34,616				74,541
Merger and other non-routine transactions(3)			7,632				4,301				175,352				133,734
Property operating			40,977				5,430				110,018				11,065
Management fees to affiliates			—				—				13,888				12,493
General and administrative(4)			32,207				9,866				128,711				23,921
Depreciation and amortization			265,150				62,136				689,731				122,484
Impairment of real estate			2,299				2,074				3,855				2,074
Total operating expenses			377,661				110,755				1,213,073				380,312
Operating income (loss)			79,457				(15,500	)			(52,623	)			(187,344	)
Other (expense) income:
Interest expense, net			(101,643	)			(27,189	)			(326,491	)			(45,414	)
Extinguishment of debt, net			(5,396	)			—				(21,264	)			—
Other income, net			7,556				136				29,702				2,658
Loss on derivative instruments, net			(17,484	)			(38,651	)			(10,398	)			(69,830	)
Loss on held for sale assets and disposition of properties, net			(256,894	)			—				(275,768	)			—
Gain (loss) on sale of investments			6,357				(2,246	)			6,357				(1,795	)
Total other expenses, net			(367,504	)			(67,950	)			(597,862	)			(114,381	)
Net loss from continuing operations			(288,047	)			(83,450	)			(650,485	)			(301,725	)
Discontinued operations:
Income from operations of held for sale assets			—				96				—				159
Net income from discontinued operations			—				96				—				159
Net loss			(288,047	)			(83,354	)			(650,485	)			(301,566	)
Net loss attributable to non-controlling interests			7,649				3,153				23,923				7,882
Net loss attributable to the Company		$	(280,398	)		$	(80,201	)		$	(626,562	)		$	(293,684	)
Basic and diluted net loss per share from continuing operations attributable to common stockholders		$	(0.35	)		$	(0.36	)		$	(0.94	)		$	(1.50	)
Basic and diluted net loss per share from discontinued operations attributable to common stockholders		$	—			$	—			$	—			$	—

 

(1)	For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Consolidated Financial Statements in the relevant filing for such period made on March 2, 2015.

(2)	Includes $1.7 million to affiliates for the nine months ended September 30, 2014, and $10.1 million and $36.9 million to affiliates for the three and nine months ended September 30, 2013, respectively.

(3)	Includes $137.8 million to affiliates for the nine months ended September 30, 2014, and $2.3 million and $109.2 million to affiliates for the three and nine months ended September 30, 2013, respectively.

(4)	Includes $0.1 million and $14.9 million to affiliates for the three and nine months ended September 30, 2014, respectively, and $7.0 million and $16.3 million to affiliates for the three and nine months ended September 30, 2013, respectively.

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Segment Reporting

(in 000’s)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013 (as restated)¹				2014				2013 (as restated)¹
REI:
Rental income		$	365,712			$	89,729			$	924,646			$	183,251
Direct financing lease income			625				1,201				2,812				1,201
Operating expense reimbursements			30,984				4,325				81,716				8,516
Total real estate investment revenues			397,321				95,255				1,009,174				192,968
Acquisition related			13,998				26,948				34,616				74,541
Merger and other non-routine transactions			7,613				4,301				173,406				133,734
Property operating			40,977				5,430				110,018				11,065
General and administrative			14,942				9,866				68,580				23,921
Management fees to affiliate			—				—				13,888				12,493
Depreciation and amortization			240,073				62,136				625,521				122,484
Impairment of real estate			2,249				2,074				3,855				2,074
Total operating expenses			319,902				110,755				1,029,884				380,312
Operating income (loss)			77,419				(15,500	)			(20,710	)			(187,344	)
Interest expense, net			(101,643	)			(27,189	)			(326,491	)			(45,414	)
Extinguishment of debt, net			(5,396	)			—				(21,264	)			—
Other income, net			8,508				136				16,799				2,658
Loss on derivative instruments, net			(17,484	)			(38,651	)			(10,398	)			(69,830	)
Loss on held for sale assets and disposition of properties, net			(256,894	)			—				(275,768	)			—
Gain (loss) on sale of investments			6,357				(2,246	)			6,357				(1,795	)
Total other expenses, net			(366,552	)			(67,950	)			(610,765	)			(114,381	)
Net loss from continuing operations			(289,133	)			(83,450	)			(631,475	)			(301,725	)
Discontinued operations:
Income from operations of held for sale assets			—				96				—				159
Net income from discontinued operations			—				96				—				159
Net loss		$	(289,133	)		$	(83,354	)		$	(631,475	)		$	(301,566	)
Cole Capital:
Dealer manager and distribution fees, selling commissions and offering reimbursements		$	21,535			$	—			$	73,957			$	—
Transaction service fees			22,972				—				41,942				—
Management fees and reimbursements			15,290				—				35,377				—
Total Cole Capital revenues			59,797				—				151,276				—
Cole Capital reallowed fees and commissions			15,398				—				56,902				—
General and administrative expenses			17,265				—				60,131				—
Merger and other non-routine transactions			19				—				1,946				—
Depreciation and amortization			25,077				—				64,210				—
Total operating expenses			57,759				—				183,189				—
Total other income			(952	)			—				12,903				—
Net income (loss)			1,086				—				(19,010	)			—
Total Company:
Total revenues		$	457,118			$	95,255			$	1,160,450			$	192,968
Total operating expenses		$	377,661			$	110,755			$	1,213,073			$	380,312
Total interest and other expense, net		$	(367,504	)		$	(67,950	)		$	(597,862	)		$	(114,381	)
Loss from continuing operations		$	(288,047	)		$	(83,450	)		$	(650,485	)		$	(301,725	)
Income (loss) from discontinued operations		$	—			$	96			$	—			$	159
Net loss		$	(288,047	)		$	(83,354	)		$	(650,485	)		$	(301,566	)

 

(1)	For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Consolidated Financial Statements in the relevant filing for such period made on March 2, 2015.

 

		Total Assets as of
		September 30, 2014				December 31, 2013 (as restated)1
REI			21,834,806			$	7,809,083
Cole Capital		$	1,032,777				—
Total company		$	22,867,583			$	7,809,083

 

(1)	For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Consolidated Financial Statements in the relevant filing for such period made on March 2, 2015.

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Funds From Operations and Adjusted Funds From Operations ⁽¹⁾

(in 000’s, except per share data)

 

		Three Months Ended
		September 30, 2014				June 30, 2014 (as restated)2				March 31, 2014 (as restated)2				December 31, 2013 (as restated)2				September 30, 2013 (as restated)2
Total Company:
Net loss		$	(288,047	)		$	(56,598	)		$	(305,840	)		$	(206,249	)		$	(83,354	)
Dividends on Series F Preferred Stock			(17,974	)			(17,773	)			(17,374	)			—				—
Adjusted net loss			(306,021	)			(74,371	)			(323,214	)			(206,249	)			(83,354	)
Gain on disposition of property			256,894				1,269				17,605				—				—
Depreciation and amortization of real estate assets			240,046				225,940				159,461				88,320				62,136
Impairment of real estate			2,299				1,556				—				1,272				2,074
Proportionate share of adjustments for unconsolidated entities			2,580				2,573				1,344				—				—
FFO		$	195,798			$	156,967			$	(144,804	)		$	(116,657	)		$	(19,144	)
Acquisition related			13,998				7,201				13,417				1,572				26,948
Merger and other non-routine transaction related			7,632				7,422				160,298				76,809				4,301
Litigation insurance proceeds			(3,275	)			—				—				—				—
Gain (loss) on investment securities			(6,357	)			(14,207	)			—				411				2,246
(Gain) loss on derivative instruments, net			17,484				—				7,121				(1,884	)			38,651
Interest on convertible obligation to preferred investors			—				—				—				2,653				6,519
Amortization of premiums and discounts on debt and investments			(8,106	)			(4,606	)			(5,198	)			(347	)			347
Amortization of above- and below-market lease assets and liabilities, net			1,934				2,103				388				(382	)			68
Net direct financing lease adjustments			620				137				390				347				149
Amortization and write-off of deferred financing costs			12,486				10,985				44,976				20,798				4,267
Interest premium on settlement of convertible obligation to preferred investors			—				—				—				7,245				4,827
Amortization of intangible assets			24,288				24,024				13,992				—				—
Extinguishment of debt, net			5,396				6,469				9,399				—				—
Straight-line rent			(24,871	)			(17,413	)			(7,520	)			(6,461	)			(4,235	)
Non-cash equity compensation expense			5,541				5,690				21,574				86,280				7,190
Other amortization and non-cash charges			713				698				421				138				11
Proportionate share of adjustments for unconsolidated entities			1,268				464				318				—				—
AFFO		$	244,549			$	185,934			$	114,772			$	70,522			$	72,145
Weighted-average shares outstanding - basic			902,096,102				815,406,408				547,470,457				231,986,847				221,707,920
Effect of dilutive securities			44,970,255				52,613,117				51,151,928				37,448,611				39,359,194
Weighted-average shares outstanding - diluted			947,066,357				868,019,525				598,622,385				269,435,458				261,067,114
AFFO attributable to stockholders per share		$	0.26			$	0.21			$	0.19			$	0.26			$	0.28
REI:
Net loss		$	(289,133	)		$	(46,124	)		$	(296,218	)		$	(206,249	)		$	(83,354	)
Dividends on Series F Preferred Stock			(17,974	)			(17,773	)			(17,374	)			—				—
Adjusted net loss			(307,107	)			(63,897	)			(313,592	)			(206,249	)			(83,354	)
Gain on disposition of property			256,894				1,269				17,605				—				—
Depreciation and amortization of real estate assets			240,046				225,940				159,461				88,320				62,136
Impairment of real estate			2,299				2,573				1,344				(2,074	)			2,074
Proportionate share of adjustments for unconsolidated entities			2,580				1,556				—				3,346				—
FFO		$	194,712			$	167,441			$	(135,182	)		$	(116,657	)		$	(19,144	)
Acquisition related			13,998				7,201				13,417				1,572				26,948
Merger and other non-routine transaction related			7,613				5,999				159,794				76,809				4,301
Litigation insurance proceeds			(3,275	)			—				—				—				—
Gain (loss) on investment securities			(6,357	)			—								411				2,246
(Gain) loss on derivative instruments, net			17,484				(14,207	)			7,121				(1,884	)			38,651
Interest on convertible obligation to preferred investors			—				—				—				2,653				6,519
Amortization of premiums and discounts on debt and investments			(8,106	)			(4,606	)			(5,198	)			(347	)			347
Amortization of above- and below-market lease assets and liabilities, net			1,934				2,103				388				(382	)			68
Net direct financing lease adjustments			620				137				390				347				149
Amortization and write-off of deferred financing costs			12,486				10,985				44,976				20,798				4,267
Interest premium on settlement of convertible obligation to preferred investors			—				—				—				7,245				4,827
Extinguishment of debt, net			5,396				6,469				9,399				—				—
Straight-line rent			(24,871	)			(17,413	)			(7,520	)			(6,461	)			(4,235	)
Non-cash equity compensation expense			2,086				3,575				20,640				86,280				7,190
Other amortization and non-cash charges			3				40				121				138				11
Proportionate share of adjustments for unconsolidated entities			1,268				464				318				—				—
AFFO		$	214,991			$	168,188			$	108,664			$	70,522			$	72,145
Cole Capital:
Net income (loss)		$	1,086			$	(10,474	)		$	(9,622	)		$	—			$	—
FFO		$	1,086			$	(10,474	)		$	(9,622	)		$	—			$	—
Merger and other non-routine transaction related			19				1,423				504				—				—
Amortization of intangible assets			24,288				24,024				13,992				—				—
Non-cash equity compensation expense			3,455				2,115				934				—				—
Other amortization and non-cash charges			710				658				300				—				—
AFFO			29,558				17,746				6,108				—				—

 

(1)	FFO and AFFO are non-GAAP measures. See the Terms and Definitions section for a description of the Company’s non-GAAP measures.

(2)	For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Consolidated Financial Statements in the relevant filing for such period made on March 2, 2015.

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Reconciliation of GAAP Net Income to Normalized EBITDA ⁽¹⁾

(in 000’s)

 

		Three Months Ended September 30, 2014												Three Months Ended September 30, 2013 (as restated)2
		Total				REI				Cole Capital				Total				REI				Cole Capital
Net income (loss)		$	(288,047	)		$	(289,133	)		$	1,086			$	(83,354	)		$	(83,354	)		$	—
Adjustments:
Interest expense			101,643				101,643				—				27,189				27,189				—
Depreciation and amortization			265,150				240,073				25,077				62,136				62,136				—
Income tax expense			1,131				—				1,131				—				—				—
EBITDA			79,877				52,583				27,294				5,971				5,971				—
Management adjustments:
Loss on held for sale assets and disposition of properties, net			256,894				256,894				—				—								—
Acquisition related			13,998				13,998				—				26,948				26,948				—
Merger and other non-routine transactions			7,632				7,613				19				4,301				4,301				—
Equity based compensation			5,541				2,086				3,455				7,190				7,190				—
Normalized EBITDA		$	363,942			$	333,174			$	30,768			$	44,410			$	44,410			$	—

 

(1)	EBITDA and Normalized EBITDA are non-GAAP measures. See the Terms and Definitions section for a description of the Company’s non-GAAP measures.

(2)	For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Consolidated Financial Statements in the relevant filing for such period made on March 2, 2015.

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Exhibit 99.4

 

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American Realty Capital Properties, Inc.

Table of Contents

Third Quarter Ended September 30, 2014

Table of Contents

 

Introductory Notes			1
Company Information			2
Summary of Company and Financial Highlights			4
Consolidated Balance Sheets			5
Consolidated Statements of Operations			6
Segment Reporting			7
Reconciliation of GAAP Net Income to Normalized EBITDA			9
Funds From Operations and Adjusted Funds From Operations			10
Adjusted G&A			12
Financial and Operational Statistics and Ratios			13
Debt and Preferred Equity Summary			14
Mortgage Notes Payable			15
Bond and Line of Credit Covenants			18
Top 10 Concentrations			19
Tenants Comprising Over 1% of Annualized Rental Income			20
Tenant Industry Diversification			21
Property Geographic Diversification			22
Property Building Type Diversification			23
Lease Expirations			24
Unconsolidated Joint Venture Investment Summary			27
Managed Programs			28
Definitions			31

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American Realty Capital Properties, Inc.

Introductory Notes

The financial data and other information described in this Quarterly Supplement are as of the date this Quarterly Supplement was filed or an earlier date where indicated. Future performance may not be consistent with past performance and is subject to change with inherent risks and uncertainties.

This Quarterly Supplement contains certain statements that are the Company’s (as defined below) and its management’s hopes, intentions, beliefs, expectations or projections of the future and might be considered to be forward-looking statements under Federal securities laws. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve inherent risks and uncertainties. The Company’s actual future results may differ significantly from the matters discussed in these forward-looking statements, and we do not undertake to, and may not, release revisions to these forward-looking statements to reflect changes after we have made the statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the Company’s filings with the U.S. Securities and Exchange Commission (“SEC”), including, but not limited to, the Company’s Amended Annual Report on Form 10-K/A filed with the SEC, the Company’s Quarterly Reports on Form 10-Q and amendments thereto filed with the SEC, as well as other reports and Company press releases filed with the SEC.

This Quarterly Supplement includes certain combined consolidated financial information. We use the terms “on a combined basis” throughout this Quarterly Supplement. The consolidated financial information combines the historical financial statements of American Realty Capital Properties, Inc. (“ARCP”, the “Company”, “we”, “us” and “our”), American Realty Capital Trust III, Inc. (“ARCT III”) and American Realty Capital Trust IV, Inc. (“ARCT IV”) after giving effect to the mergers of ARCT III and ARCT IV with and into a wholly owned subsidiary of ARCP and ARCP’s operating partnership (the “ARCT III Merger” and “ARCT IV Merger”), respectively, using the carryover basis of accounting as ARCP, ARCT III and ARCT IV were considered to be entities under common control under United States generally accepted accounting principles (“U.S. GAAP”). The consolidated financial information should be read in conjunction with ARCP’s historical consolidated financial statements including the notes thereto, and the notes to the consolidated financial statements contained in its Quarterly Report on Form 10-Q for the period ended September 30, 2014.

The combined consolidated financial information is presented for illustrative purposes only and does not purport to be indicative of the results that would actually have occurred if the ARCT III Merger and the ARCT IV Merger had occurred as presented in such statements. In addition, future results may vary significantly from the results reflected in such statements.

Definitions of specialized terms can be found at the end of this presentation beginning on page 31.

 

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American Realty Capital Properties, Inc.

Company Information

Company Profile

American Realty Capital Properties, Inc. is a self-managed and self-administered real estate company, incorporated in Maryland on December 2, 2010 that qualified as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning in the taxable year ended December 31, 2011. On September 6, 2011, the Company completed its initial public offering. Our business operates in two segments, Real Estate Investment (“REI”) and Cole Capital^®, the Company’s private capital management segment (“Cole Capital”). Through our REI segment, we acquire, own and operate single-tenant, freestanding commercial properties, primarily subject to long-term net leases with high credit quality tenants. We seek to acquire net lease assets granularly, by self-originating or purchasing such assets, or executing sale-leaseback transactions, small portfolio acquisitions and in connection with build-to-suit or forward take-out opportunities, to the extent they are appropriate in terms of capitalization rate and scale. Our high-quality property portfolio is generally net leased to corporate tenants. These tenants are primarily investment-grade rated (approximately 45% as of September 30, 2014), occupying properties located at the corner of “Main & Main” and in other strategic locations.

Cole Capital is responsible for raising capital for, managing the affairs of and identifying and making acquisitions and investments on behalf of non-traded REITs sponsored indirectly by the Company (the “Managed Programs”) on a day-to-day basis. We receive compensation and reimbursement for services relating to the Managed Programs’ offerings and the investment, management, financing and disposition of their respective assets, as applicable. Cole Capital allows us to generate earnings without the corresponding need to invest capital in that business or incur balance sheet debt in order to fund or expand operations. Cole Capital also develops new REIT offerings and coordinates receipt of regulatory approvals from the SEC, the Financial Industry Regulatory Authority, Inc. and various jurisdictions for such offerings. At the appropriate time, Cole Capital recommends to each of the Managed Program’s respective board of directors an approach for providing investors with liquidity.

ARCP’s common shares and Series F preferred shares trade on the NASDAQ Global Select Market under the tickers symbol “ARCP” and “ARCPP,” respectively.

Company Mission

Our mission is to provide our investors with income and growth potential while preserving investor capital through a professionally managed investment strategy focused on investment-grade corporate tenants occupying properties subject to medium-term and long-term net leases in strategic locations. We believe this approach enables us to generate attractive risk-adjusted returns for our investors. Management adheres to a strict code of industry best practices designed to put the investor first and to align the interests of our stockholders with those of management. These practices include a best of class management team, properly sized equity raises, pay-for-performance, prudent use of leverage and coverage of distributions from cash flows generated by operations. Our Company culture is established on ethical values and a commitment to approaching every decision through the eyes of the investors we serve.

Investment Strategy

Our investment strategy is designed to generate monthly dividends from a predictable level of monthly rents paid by primarily investment-grade rated and other credit worthy tenants under long-term leases. Our ongoing focus will be on actively managing our portfolio of high-quality, well located net leased properties diversified by tenant, industry and geography. We intend to strategically reinvest certain disposition process into core, single-tenant net lease real estate that maintains or improves the quality of our portfolio while seeking self-originated investment opportunities. Previously, we advanced our investment objectives by growing our net lease portfolio not only through granular self-originated acquisitions, but through strategic mergers and acquisitions. On February 28, 2013, ARCP completed its merger with ARCT III. On June 27, 2013, ARCP acquired a large portfolio from affiliates of GE Capital. On November 5, 2013, ARCP acquired CapLease, Inc. On January 3, 2014, ARCP acquired ARCT IV. On January 8, 2014, ARCP completed the acquisition of a large portfolio from affiliates of funds managed by Fortress Investment Group LLC. On February 7, 2014, ARCP acquired Cole Real Estate Investments, Inc. (“Cole”). On March 28, 2014, ARCP completed the acquisition of a large portfolio from Inland American Real Estate Trust, Inc. On May 19, 2014, ARCP acquired Cole Credit Property Trust, Inc. (“CCPT”). Finally, on July 30, 2014, ARCP completed the acquisition of the Red Lobster portfolio. As part of our focus on owing and managing single-tenant properties, we completed the sale of our multi-tenant shopping center portfolio to Blackstone-DDR joint venture on October 17, 2014.

 

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American Realty Capital Properties, Inc.

Company Information

 

Senior Management		Board of Directors
William G. Stanley, Interim Chief Executive Officer		William G. Stanley, Interim Chairman
Michael J. Sodo, Executive Vice President, Chief Financial Officer and Treasurer		Thomas A. Andruskevich, Lead Independent Director
Gavin B. Brandon, Senior Vice President and Chief Accounting Officer		Governor Edward G. Rendell, Independent Director
Richard A. Silfen, Executive Vice President, General Counsel and Secretary		Leslie D. Michelson, Independent Director
		Bruce D. Frank, Independent Director

Corporate Offices and Contact Information

 

2325 E. Camelback Road, Suite 1100		1065 Avenue of the Americas, Floor 23
Phoenix, AZ 85016		New York, NY 10018
800-606-3610		212-413-9100
www.arcpreit.com

Trading Symbols: ARCP, ARCPP

Stock Exchange Listing: NASDAQ Global Select Market

Transfer Agent

Computershare Trust Company, N.A.

250 Royall Street

Canton, MA 02021

800-736-3001

 

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American Realty Capital Properties, Inc.

Summary of Company and Financial Highlights

Company Highlights

Selected operating highlights for the quarter include:

Third Quarter 2014 Consolidated Highlights

 

•

Revenue increased $361.9 million to $457.1 million over restated prior year third quarter results

 

•

Net loss increased $200.2 million to ($280.4) million over restated prior year third quarter results, which includes a $256.9 million loss primarily due to the multi-tenant portfolio held for sale at September 30, 2014

 

•

FFO, on a gross method basis, increased $214.9 million to $195.8 million over restated prior year third quarter results

 

•

AFFO, on a gross method basis, per diluted share decreased $0.02 from the restated prior year third quarter to $0.26

 

•

Acquired $2.3 billion of real estate in the third quarter with a cash cap rate of 7.7%, including the approximate $1.7 billion Red Lobster sale-leaseback transaction

 

•

Sold seven properties for total net proceeds of $73.1 million

 

•

With proceeds from the line of credit, repaid $199.1 million of debt, with an average maturity of 5.9 years and a weighted average interest rate of 6.5%, and $316.1 million of Series D Preferred

 

•

Invested $1.1 billion in 228 properties on behalf of the Cole Capital® managed funds

Third Quarter Real Estate Segment Highlights

 

•

Revenue and net loss of $397.3 million and ($289.1) million, respectively

 

•

AFFO, on a gross method basis, per diluted share decreased $0.05 to $0.23 over restated prior year third quarter results

 

•

Normalized EBITDA increased $288.8 million to $333.2 million over restated prior year third quarter results

 

•

Acquired $2.3 billion of real estate in the third quarter with a cash cap rate of 7.7%, including the approximate $1.7 billion Red Lobster sale-leaseback transaction and sold seven properties for total net proceeds of $73.1 million

 

•

With proceeds from the line of credit, repaid $199.1 million of debt, with an average maturity of 5.9 years and a weighted average interest rate of 6.5%, and $316.1 million of Series D Preferred

 

•

Total portfolio occupancy of 99.2%, investment grade tenancy of 45.0% and a weighted average remaining lease term of 11.5 years as of September 30, 2014

Third Quarter Cole Capital^® Segment Highlights

 

•

Revenue and net income of $59.8 million and $1.1 million, respectively

 

•

AFFO, on a gross method basis, of $0.03 per diluted share and normalized EBITDA of $30.8 million

 

•

Raised $260.8 million of capital on behalf of the managed REITs bringing the year to date total as of September 30, 2014, to approximately $1.3 billion

 

•

Structured $1.1 billion of real estate acquisitions and $700.1 million of real estate financing on behalf of the Cole Capital managed funds

 

•

The Company did not own Cole Capital in the prior year period

Dividends

ARCP is currently reviewing its dividend policy and determining a common stock dividend in line with its industry peers.

 

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American Realty Capital Properties, Inc.

Consolidated Balance Sheets

(in 000’s)

 

		September 30, 2014				June 30, 2014 (as restated)1				March 31, 2014 (as restated)1				December 31, 2013 (as restated)1				September 30, 2013 (as restated)1
ASSETS
Real estate investments, at cost:
Land		$	3,487,824			$	3,343,235			$	3,224,257			$	1,380,308			$	1,013,888
Buildings, fixtures and improvements			12,355,029				12,420,626				11,836,655				5,297,400				3,549,272
Land and construction in progress			86,973				62,594				40,459				21,839				—
Acquired intangible lease assets			2,424,076				2,227,393				2,209,902				759,595				550,658
Total real estate investments, at cost			18,353,902				18,053,848				17,311,273				7,459,142				5,113,818
Less: accumulated depreciation and amortization			(828,624	)			(660,617	)			(428,566	)			(267,278	)			(179,016	)
Total real estate investments, net			17,525,278				17,393,231				16,882,707				7,191,864				4,934,802
Investment in unconsolidated entities			100,762				102,047				105,775				—				—
Investment in direct financing leases, net			57,441				62,094				65,723				66,112				75,403
Investment securities, at fair value			59,131				219,204				213,803				62,067				9,480
Loans held for investment, net			96,981				97,587				98,185				26,279				—
Cash and cash equivalents			145,310				195,529				83,216				52,725				188,226
Restricted cash			72,754				69,544				55,559				35,921				1,680
Intangible assets, net			323,332				347,618				371,634				—				—
Deferred costs and other assets, net			446,606				418,199				304,097				280,661				132,851
Goodwill			2,096,450				2,293,020				2,298,677				92,789				—
Due from affiliates			55,666				73,686				8,719				—				—
Assets held for sale			1,887,872				38,737				—				665				6,014
Total assets		$	22,867,583			$	21,310,496			$	20,488,095			$	7,809,083			$	5,348,456
LIABILITIES AND EQUITY
Mortgage notes payable, net		$	3,782,407			$	4,227,494			$	4,234,074			$	1,301,114			$	272,015
Corporate bonds, net			2,546,294				2,546,089				2,545,884				—				—
Convertible debt, net			976,251				975,003				973,737				972,490				300,975
Credit facilities			4,259,000				1,896,000				2,415,800				1,969,800				1,310,000
Convertible obligation to Series C Convertible Preferred stockholders			—				—				—				—				449,827
Contingent value rights obligation to preferred and common investors			—				—				—				—				49,314
Other debt, net			48,587				146,158				148,809				104,804				—
Below-market lease liabilities, net			318,494				281,954				286,579				77,169				3,580
Accounts payable and accrued expenses			180,338				174,942				149,542				730,571				670,972
Deferred rent, derivative and other liabilities			195,256				223,419				206,105				40,271				12,987
Distributions payable			9,927				10,779				11,233				10,903				10,318
Due to affiliates			2,757				3,184				2,614				103,434				6,107
Liabilities associated with assets held for sale			545,382				—				—				—				—
Total liabilities			12,864,693				10,485,022				10,974,377				5,310,556				3,086,095
Series D Preferred stock			—				269,299				269,299				269,299				—
Series F Preferred stock			428				427				427				422				422
Common stock			9,080				9,079				7,699				2,392				2,223
Additional paid-in capital			11,905,338				11,901,675				10,302,168				2,940,907				2,710,990
Accumulated other comprehensive income			8,600				7,058				8,463				7,666				4,885
Accumulated deficit			(2,182,731	)			(1,639,208	)			(1,358,743	)			(877,957	)			(599,793	)
Total stockholders’ equity			9,740,715				10,279,031				8,960,014				2,073,430				2,118,727
Non-controlling interests			262,175				277,144				284,405				155,798				143,634
Total equity			10,002,890				10,556,175				9,244,419				2,229,228				2,262,361
Total liabilities and equity		$	22,867,583			$	21,310,496			$	20,488,095			$	7,809,083			$	5,348,456

 

(1)	For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Consolidated Financial Statements in the relevant filing for such period made on March 2, 2015.

 

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American Realty Capital Properties, Inc.

Consolidated Statements of Operations ⁽¹⁾

(in 000’s, except per share data)

 

		Quarter Ended
		September 30, 2014				June 30, 2014 (as restated)2				March 31, 2014 (as restated)2				December 31, 2013 (as restated)2				September 30, 2013 (as restated)2
Revenues:
Rental income		$	365,712			$	314,519			$	244,415			$	127,257			$	89,729
Direct financing lease income			625				1,181				1,006				1,043				1,201
Operating expense reimbursements			30,984				29,256				21,476				8,055				4,325
Cole Capital revenues			59,797				37,222				54,257				—				—
Total revenues			457,118				382,178				321,154				136,355				95,255
Operating expenses:
Cole Capital reallowed fees and commissions			15,398				7,068				34,436				—				—
Acquisition related			13,998				7,201				13,417				1,572				26,948
Merger and other non-routine transactions			7,632				7,422				160,298				76,809				4,301
Property operating			40,977				39,286				29,755				12,551				5,430
Management fees to affiliates			—				—				13,888				4,969				—
General and administrative			32,207				40,012				56,492				99,252				9,866
Depreciation and amortization			265,150				250,739				173,842				88,492				62,136
Impairment of real estate			2,299				1,556				—				1,272				2,074
Total operating expenses			377,661				353,284				482,128				284,917				110,755
Operating income (loss)			79,457				28,894				(160,974	)			(148,562	)			(15,500	)
Other (expense) income:
Interest expense, net			(101,643	)			(103,897	)			(120,951	)			(60,134	)			(27,189	)
Extinguishment of debt, net			(5,396	)			(6,469	)			(9,399	)			—				—
Other income, net			7,556				11,936				10,210				1,166				136
Loss on derivative instruments, net			(17,484	)			14,207				(7,121	)			1,884				(38,651	)
Loss on held for sale assets and disposition of properties, net			(256,894	)			(1,269	)			(17,605	)			—				—
Loss on sale of investments in affiliates			—				—				—				(411	)			—
Gain (loss) on sale of investments			6,357				—				—				—				(2,246	)
Total other expenses, net			(367,504	)			(85,492	)			(144,866	)			(57,495	)			(67,950	)
Net loss from continuing operations			(288,047	)			(56,598	)			(305,840	)			(206,057	)			(83,450	)
Discontinued operations:
Income from operations of held for sale assets			—				—				—				(193	)			96
Net income from discontinued operations			—				—				—				(193	)			96
Net loss			(288,047	)			(56,598	)			(305,840	)			(206,250	)			(83,354	)
Net loss attributable to non-controlling interests			7,649				1,878				14,396				8,434				3,153
Net loss attributable to the Company			(280,398	)			(54,720	)			(291,444	)			(197,816	)			(80,201	)
Basic and diluted net loss per share from continuing operations attributable to common stockholders		$	(0.35	)		$	(0.10	)		$	(0.58	)		$	(0.85	)		$	(0.36	)
Basic and diluted net loss per share from discontinued operations attributable to common stockholders		$	—			$	—			$	—			$	—			$	—

 

(1)	Certain historical balances have been restated to reflect discontinued operations.

(2)	For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Consolidated Financial Statements in the relevant filing for such period made on March 2, 2015.

 

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American Realty Capital Properties, Inc.

Segment Reporting

The Company operates under two business segments - REI and Cole Capital. The following tables present a summary of the financial results and total assets for each business segment (in thousands):

 

		Three Months Ended September 30,								Nine Months Ended September 30,
						2013								2013
		2014				(as restated)1				2014				(as restated)1
REI:
Rental income		$	365,712			$	89,729			$	924,646			$	183,251
Direct financing lease income			625				1,201				2,812				1,201
Operating expense reimbursements			30,984				4,325				81,716				8,516
Total real estate investment revenues			397,321				95,255				1,009,174				192,968
Acquisition related			13,998				26,948				34,616				74,541
Merger and other non-routine transactions			7,613				4,301				173,406				133,734
Property operating			40,977				5,430				110,018				11,065
General and administrative			14,942				9,866				68,580				23,921
Management fees to affiliate			—				—				13,888				12,493
Depreciation and amortization			240,073				62,136				625,521				122,484
Impairment of real estate			2,299				2,074				3,855				2,074
Total operating expenses			319,902				110,755				1,029,884				380,312
Operating income (loss)			77,419				(15,500	)			(20,710	)			(187,344	)
Interest expense, net			(101,643	)			(27,189	)			(326,491	)			(45,414	)
Extinguishment of debt, net			(5,396	)			—				(21,264	)			—
Other income, net			8,508				136				16,799				2,658
Loss on derivative instruments, net			(17,484	)			(38,651	)			(10,398	)			(69,830	)
Loss on held for sale assets and disposition of properties, net			(256,894	)			—				(275,768	)			—
Gain (loss) on sale of investments			6,357				(2,246	)			6,357				(1,795	)
Total other expenses, net			(366,552	)			(67,950	)			(610,765	)			(114,381	)
Net loss from continuing operations			(289,133	)			(83,450	)			(631,475	)			(301,725	)
Discontinued operations:
Income from operations of held for sale assets			—				96				—				159
Net income from discontinued operations			—				96				—				159
Net loss		$	(289,133	)		$	(83,354	)		$	(631,475	)		$	(301,566	)
Cole Capital
Dealer manager and distribution fees, selling commissions and offering reimbursements		$	21,535			$	—			$	73,957			$	—
Transaction service fees			22,972				—				41,942				—
Management fees and reimbursements			15,290				—				35,377				—
Total Cole Capital revenues			59,797				—				151,276				—
Cole Capital reallowed fees and commissions			15,398				—				56,902				—
General and administrative expenses			17,265				—				60,131				—
Merger and other non-routine transactions			19				—				1,946				—
Depreciation and amortization			25,077				—				64,210				—
Total operating expenses			57,759				—				183,189				—
Total other income			(952	)			—				12,903				—
Net Income (Loss)			1,086				—				(19,010	)			—
Total Company:
Total revenues		$	457,118			$	95,255			$	1,160,450			$	192,968
Total operating expenses		$	377,661			$	110,755			$	1,213,073			$	380,312
Total interest and other expense, net		$	(367,504	)		$	(67,950	)		$	(597,862	)		$	(114,381	)
Loss from continuing operations		$	(288,047	)		$	(83,450	)		$	(650,485	)		$	(301,725	)
Income (loss) from discontinued operations		$	—			$	96			$	—			$	159
Net loss		$	(288,047	)		$	(83,354	)		$	(650,485	)		$	(301,566	)

 

(1)	For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Consolidated Financial Statements in the relevant filing for such period made on March 2, 2015.

 

7

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American Realty Capital Properties, Inc.

Segment Reporting

 

		Total Assets as of
		September 30, 2014				December 31, 2013 (as restated)1
REI		$	21,834,806			$	7,809,083
Cole Capital			1,032,777				—
Total company		$	22,867,583			$	7,809,083

 

(1)	For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Consolidated Financial Statements in the relevant filing for such period made on March 2, 2015.

 

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American Realty Capital Properties, Inc.

Reconciliation of GAAP Net Income to Normalized EBITDA ⁽¹⁾

The calculations of EBITDA and Normalized EBITDA, and reconciliation to net income, which is the most directly comparable GAAP measure, are presented in the table below (in thousands):

 

		Three Months Ended September 30, 2014												Three Months Ended September 30, 2013 (as restated)2
		Total				REI				Cole Capital				Total				REI				Cole Capital
Net income (loss)		$	(288,047	)		$	(289,133	)		$	1,086			$	(83,354	)		$	(83,354	)		$	—
Adjustments:
Interest expense			101,643				101,643				—				27,189				27,189				—
Depreciation and amortization			265,150				240,073				25,077				62,136				62,136				—
Income tax expense			1,131				—				1,131				—				—				—
EBITDA			79,877				52,583				27,294				5,971				5,971				—
Management adjustments:
Loss on held for sale assets and disposition of properties, net			256,894				256,894				—				—								—
Acquisition related			13,998				13,998				—				26,948				26,948				—
Merger and other non-routine transactions			7,632				7,613				19				4,301				4,301				—
Equity based compensation			5,541				2,086				3,455				7,190				7,190				—
Normalized EBITDA		$	363,942			$	333,174			$	30,768			$	44,410			$	44,410			$	—

 

(1)	EBITDA and Normalized EBITDA are non-GAAP measures. See the Terms and Definitions section that begins on page 31 for a description of the Company’s non-GAAP measures.

(2)	For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Consolidated Financial Statements in the relevant filing for such period made on March 2, 2015.

 

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American Realty Capital Properties, Inc.

Funds From Operations and Adjusted Funds From Operations ⁽¹⁾

(in 000’s, except per share data)

 

		Three Months Ended
		September 30, 2014				June 30, 2014 (as restated)2				March 31, 2014 (as restated)2				December 31, 2013 (as restated)2				September 30, 2013 (as restated)2
Total Company:
Net loss		$	(288,047	)		$	(56,598	)		$	(305,840	)		$	(206,249	)		$	(83,354	)
Dividends on Series F Preferred Stock			(17,974	)			(17,773	)			(17,374	)			—				—
Adjusted net loss			(306,021	)			(74,371	)			(323,214	)			(206,249	)			(83,354	)
Gain on disposition of property			256,894				1,269				17,605				—				—
Depreciation and amortization of real estate assets			240,046				225,940				159,461				88,320				62,136
Impairment of real estate			2,299				1,556				—				1,272				2,074
Proportionate share of adjustments for unconsolidated entities			2,580				2,573				1,344				—				—
FFO		$	195,798			$	156,967			$	(144,804	)		$	(116,657	)		$	(19,144	)
Acquisition related			13,998				7,201				13,417				1,572				26,948
Merger and other non-routine transaction related			7,632				7,422				160,298				76,809				4,301
Litigation insurance proceeds			(3,275	)			—				—				—				—
Gain (loss) on investment securities			(6,357	)			(14,207	)			—				411				2,246
(Gain) loss on derivative instruments, net			17,484				—				7,121				(1,884	)			38,651
Interest on convertible obligation to preferred investors			—				—				—				2,653				6,519
Amortization of premiums and discounts on debt and investments			(8,106	)			(4,606	)			(5,198	)			(347	)			347
Amortization of above- and below-market lease assets and liabilities, net			1,934				2,103				388				(382	)			68
Net direct financing lease adjustments			620				137				390				347				149
Amortization and write-off of deferred financing costs			12,486				10,985				44,976				20,798				4,267
Interest premium on settlement of convertible obligation to preferred investors			—				—				—				7,245				4,827
Amortization of intangible assets			24,288				24,024				13,992				—				—
Extinguishment of debt, net			5,396				6,469				9,399				—				—
Straight-line rent			(24,871	)			(17,413	)			(7,520	)			(6,461	)			(4,235	)
Non-cash equity compensation expense			5,541				5,690				21,574				86,280				7,190
Other amortization and non-cash charges			713				698				421				138				11
Proportionate share of adjustments for unconsolidated entities			1,268				464				318				—				—
AFFO		$	244,549			$	185,934			$	114,772			$	70,522			$	72,145
Weighted-average shares outstanding - basic			902,096,102				815,406,408				547,470,457				231,986,847				221,707,920
Effect of dilutive securities			44,970,255				52,613,117				51,151,928				37,448,611				39,359,194
Weighted-average shares outstanding - diluted			947,066,357				868,019,525				598,622,385				269,435,458				261,067,114
AFFO attributable to stockholders per share		$	0.26			$	0.21			$	0.19			$	0.26			$	0.28
REI:
Net loss		$	(289,133	)		$	(46,124	)		$	(296,218	)		$	(206,249	)		$	(83,354	)
Dividends on Series F Preferred Stock			(17,974	)			(17,773	)			(17,374	)			—				—
Adjusted net loss			(307,107	)			(63,897	)			(313,592	)			(206,249	)			(83,354	)
Gain on disposition of property			256,894				1,269				17,605				—				—
Depreciation and amortization of real estate assets			240,046				225,940				159,461				88,320				62,136
Impairment of real estate			2,299				2,573				1,344				(2,074	)			2,074
Proportionate share of adjustments for unconsolidated entities			2,580				1,556				—				3,346				—
FFO		$	194,712			$	167,441			$	(135,182	)		$	(116,657	)		$	(19,144	)

 

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American Realty Capital Properties, Inc.

Funds From Operations and Adjusted Funds From Operations ⁽¹⁾

(in 000’s, except per share data)

 

		Three Months Ended
		September 30, 2014				June 30, 2014 (as restated)2				March 31, 2014 (as restated)2				December 31, 2013 (as restated)2				September 30, 2013 (as restated)2
Acquisition related			13,998				7,201				13,417				1,572				26,948
Merger and other non-routine transaction related			7,613				5,999				159,794				76,809				4,301
Litigation insurance proceeds			(3,275	)			—				—				—				—
Gain (loss) on investment securities			(6,357	)			—								411				2,246
(Gain) loss on derivative instruments, net			17,484				(14,207	)			7,121				(1,884	)			38,651
Interest on convertible obligation to preferred investors			—				—				—				2,653				6,519
Amortization of premiums and discounts on debt and investments			(8,106	)			(4,606	)			(5,198	)			(347	)			347
Amortization of above- and below-market lease assets and liabilities, net			1,934				2,103				388				(382	)			68
Net direct financing lease adjustments			620				137				390				347				149
Amortization and write-off of deferred financing costs			12,486				10,985				44,976				20,798				4,267
Interest premium on settlement of convertible obligation to preferred investors			—				—				—				7,245				4,827
Extinguishment of debt, net			5,396				6,469				9,399				—				—
Straight-line rent			(24,871	)			(17,413	)			(7,520	)			(6,461	)			(4,235	)
Non-cash equity compensation expense			2,086				3,575				20,640				86,280				7,190
Other amortization and non-cash charges			3				40				121				138				11
Proportionate share of adjustments for unconsolidated entities			1,268				464				318				—				—
AFFO		$	214,991			$	168,188			$	108,664			$	70,522			$	72,145
Cole Capital:
Net income (loss)		$	1,086			$	(10,474	)		$	(9,622	)		$	—			$	—
FFO		$	1,086			$	(10,474	)		$	(9,622	)		$	—			$	—
Merger and other non-routine transaction related			19				1,423				504				—				—
Amortization of intangible assets			24,288				24,024				13,992				—				—
Non-cash equity compensation expense			3,455				2,115				934				—				—
Other amortization and non-cash charges			710				658				300				—				—
AFFO			29,558				17,746				6,108				—				—

 

(1)	FFO and AFFO are non-GAAP measures. See the Terms and Definitions section that begins on page 31 for a description of the Company’s non-GAAP measures.

(2)	For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Consolidated Financial Statements in the relevant filing for such period made on March 2, 2015.

 

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American Realty Capital Properties, Inc.

Adjusted G&A

The following table shows information regarding the Company’s general and administrative expenses (in thousands):

 

		Three Months Ended September 30, 2014												Three Months Ended September 30, 2013 (as restated)1
		Total				REI				Cole Capital				Total				REI				Cole Capital
G&A		$	32,207			$	14,942			$	17,265			$	9,867			$	9,867			$	—
Less:
Stock-based compensation			(5,541	)			(2,086	)			(3,455	)			(7,190	)			(7,190	)			—
Expense reimbursements from Managed Programs (2)			(6,896	)			—				(6,896	)			—				—				—
Adjusted G&A (3)		$	19,770			$	12,856			$	6,914			$	2,677			$	2,677			$	—

 

(1)	For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Consolidated Financial Statements in the relevant filing for such period made on March 2, 2015.

(2)	Expense reimbursements from Managed Programs represents expenses incurred during the three months ended September 30, 2014 for which reimbursement revenue was recorded.

(3)	Adjusted G&A is a non-GAAP measure. See the Terms and Definitions section that begins on page 31 for a description of the Company’s non-GAAP measures.

 

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American Realty Capital Properties, Inc.

Financial and Operational Statistics and Ratios

(in 000’s, expect share and per share amounts)

The following table presents certain financial and real estate portfolio information for the Company as of and for the three months ended September 30, 2014.

 

Financial Ratios:
Annualized Normalized EBITDA (thousands) (1) (2)		$	1,455,768
Net debt plus preferred equity to Annualized Normalized EBITDA			8.88
Net debt to Annualized Normalized EBITDA (1) (2) (3)			8.14
Gross real estate and related assets (thousands) (4)		$	17,839,593
Debt to gross real estate and related assets (4) (5)			65.09	%
Unsecured debt to gross real estate and related assets (4)			43.62	%
Interest coverage ratio (6)			3.58
Weighted-average cost of debt (7)			3.21	%
Weighted average years to maturity of debt			5.1
Owned Property Information:
Number of properties			4,714
Number of tenants			1,222
Total rentable square feet (thousands)			113,801
Occupancy (8)			99.2	%
Weighted average lease term remaining (years) (9)			11.5
Percentage of investment-grade tenants (10)			44.75	%
Percentage of rated, non-investment grade tenants			27.56	%

 

(1)	Normalized EBITDA is a non-GAAP measure. See the Terms and Definitions section that begins on page 31 for a description of the Company’s non-GAAP measures and page 9 for reconciliation of net income to Normalized EBITDA.

(2)	Annualized three months ended September 30, 2014.

(3)	Net debt represents total GAAP-basis debt less cash.

(4)	Gross real estate and related assets represent total gross real estate and related assets, including investments in notes receivables, marketable securities and net investment in unconsolidated entities, net of gross intangible lease liabilities.

(5)	Debt represents total GAAP-basis debt.

(6)	Interest coverage ratio is calculated by dividing Annualized Normalized EBITDA by annualized interest expense.

(7)

Weighted average cost of debt is calculated based on the Company’s total GAAP-basis debt outstanding of $11.6 billion as of September 30, 2014. Rates ranging from 1.50% to 5.81% were used to calculate the variable debt payment obligations in future periods. These were the rates effective as of September 30, 2014.

(8)	Occupancy is the percent of rentable square feet for which there is a lease in place.

(9)	Weighted-average lease term remaining is calculated using the remaining non-cancelable lease terms.

(10)	Percentage of investment-grade tenants is based on annualized rental revenue from tenants with credit ratings of BBB- or higher. Tenant credit rating may reflect the credit rating of the parent company or guarantor.

 

13

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American Realty Capital Properties, Inc.

Debt and Preferred Equity Summary

(in 000’s)

 

Principal Payments Due on Debt Maturities:		Total				October 1 - December 31, 2014				2015				2016				2017				2018				Thereafter
Mortgage notes payable		$	4,237,464			$	101,258			$	162,126			$	263,679			$	506,980			$	260,654			$	2,942,767
Corporate bonds			2,550,000				—				—				—				1,300,000				—				1,250,000
Convertible debt			1,000,000				—				—				—				—				597,500				402,500
Unsecured credit facility			4,259,000				—				—				—				—				4,259,000				—
Other debt			48,016				2,691				11,862				12,516				7,680				13,267				—
Total		$	12,094,480			$	103,949			$	173,988			$	276,195			$	1,814,660			$	5,130,421			$	4,595,267

 

Debt Type		Percentage of Total Debt				Weighted-Average Effective Interest Rate				Weighted-Average Years to Maturity
Mortgage notes payable			35.0	%			4.80	%			7.0
Corporate bonds			21.1	%			2.80	%			4.3
Convertible debt			8.3	%			3.30	%			4.8
Unsecured credit facility			35.2	%			1.82	%			3.8
Other debt			0.4	%			5.81	%			3.3
Total			100.0	%			3.21	%			5.1

 

Debt Type		Percentage of Total Debt				Weighted-Average Effective Interest Rate				Weighted-Average Years to Maturity
Total unsecured debt			64.6	%			2.33	%			4.1
Total secured debt			35.4	%			4.81	%			6.9
Total			100.0	%			3.21	%			5.1
Total fixed rate debt			72.7	%			3.84	%			5.3
Total floating rate debt			27.3	%			1.52	%			3.7
Total			100.0	%			3.21	%			5.1

 

Preferred Equity		Amount Outstanding				Percent of Total Preferred Equity				Weighted-Average Effective Interest Rate
Series F Preferred Stock		$	1,070,560				100.00	%			6.7	%

 

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American Realty Capital Properties, Inc.

Mortgage Notes Payable

 

Lender		Maturity				Balance (in 000’s)				Coupon Rate				Effective Rate				Payment Terms (1)
Cantor Commercial Real Estate Lending, L.P.			1/6/2024			$	465,000				4.97	%			5.04	%			I/O
Wells Fargo Bank, National Association			8/10/2036				283,441				4.16	%			4.16	%			P&I
Cantor Commercial Real Estate Lending, L.P.			1/6/2024				155,000				4.97	%			5.04	%			I/O
Wells Fargo Bank, National Association			1/1/2018				133,025				5.61	%			5.69	%			I/O through 02/01/2016, then P&I
The Royal Bank of Scotland Plc			5/1/2023				124,300				3.84	%			3.89	%			I/O
JPMorgan Chase Bank, N.A.			9/1/2020				104,949				5.55	%			5.63	%			P&I
Bank of America, N.A.			1/1/2017				94,885				6.30	%			6.30	%			I/O
Wells Fargo Bank, National Association			7/1/2022				90,000				4.50	%			4.50	%			I/O
Wells Fargo Bank, National Association			3/1/2023				74,250				4.23	%			4.29	%			I/O
Wells Fargo Bank, National Association			7/1/2022				68,110				4.54	%			4.60	%			I/O
Wells Fargo Bank, National Association			1/1/2023				66,000				4.24	%			4.30	%			I/O
Goldman Sachs Commercial Mortgage Capital, L.P.			6/6/2020				63,600				5.73	%			5.81	%			I/O through 07/06/2015, then P&I
Wells Fargo Bank, National Association			5/1/2021				60,450				5.54	%			5.61	%			I/O
PNC Bank, National Association			1/1/2019				59,500				4.10	%			4.16	%			I/O
New York State Teachers’ Retirement System			3/1/2019				55,000				4.41	%			4.41	%			I/O
Citigroup Global Markets Realty Corp			5/6/2022				54,300				6.05	%			6.13	%			I/O
US Bank National Association			11/11/2014				53,857				5.23	%			5.30	%			I/O
Wachovia Bank, National Association			9/11/2015				53,798				5.32	%			5.39	%			P&I
Bank of America, N.A.			1/1/2017				51,836				5.90	%			5.90	%			I/O
Capital One, N.A.			11/20/2019				51,400				3.27	%			3.32	%			I/O through 11/01/2017, then P&I
American General Life Insurance Company			11/1/2021				51,250				5.25	%			5.25	%			I/O
The Royal Bank of Scotland Plc			4/11/2015				48,621				7.07	%			7.17	%			P&I
Wells Fargo Bank, National Association			2/1/2017				48,500				3.75	%			3.80	%			I/O
JPMorgan Chase Bank, N.A.			5/1/2021				46,910				5.53	%			5.61	%			I/O
Goldman Sachs Commercial Mortgage Capital, L.P.			5/6/2021				46,670				5.92	%			6.01	%			I/O
US Bank National Association			7/11/2016				43,700				6.03	%			6.11	%			I/O
JPMorgan Chase Bank, National Association			6/1/2023				43,500				3.75	%			3.80	%			I/O
Goldman Sachs Mortgage Company			12/6/2020				43,000				5.20	%			5.27	%			I/O
People’s United Bank			4/1/2021				42,500				5.55	%			5.63	%			I/O through 05/01/2016, then P&I
Wells Fargo Bank, National Association			12/1/2018				42,000				4.62	%			4.68	%			I/O
JPMorgan Chase Bank, N.A.			6/1/2020				41,610				5.71	%			5.79	%			I/O through 07/01/2015, then P&I
Wells Fargo Bank, National Association			6/1/2022				41,000				4.73	%			4.80	%			I/O
MORGAN STANLEY MORTGAGE CAPITAL HOLDINGS LLC			1/1/2023				40,800				4.46	%			4.52	%			I/O
US Bank National Association			7/1/2015				39,510				5.10	%			5.17	%			P&I
JPMorgan Chase Bank, N.A.			11/1/2019				38,500				4.10	%			4.15	%			I/O
LaSalle Bank National Association			1/1/2016				38,408				5.68	%			5.76	%			P&I
JPMorgan Chase Bank, N.A.			11/1/2017				38,315				6.34	%			6.34	%			I/O
Wells Fargo Bank, National Association			3/1/2017				36,600				3.76	%			3.81	%			I/O
PNC Bank, N.A.			9/1/2022				34,250				3.60	%			3.65	%			I/O
The Royal Bank of Scotland Plc			1/1/2021				34,000				5.48	%			5.56	%			I/O
The Prudential Insurance Company of America			7/5/2022				33,000				4.10	%			4.10	%			I/O
Goldman Sachs Mortgage Company			12/6/2020				31,500				5.25	%			5.32	%			I/O
BOKF, NA dba Bank of Oklahoma			7/29/2018				30,138				4.10	%			4.16	%			I/O
Oritani Bank			5/1/2024				30,050				3.25	%			3.30	%			I/O through 05/01/2019, then P&I
Goldman Sachs Mortgage Company			12/6/2020				30,000				5.25	%			5.32	%			I/O

 

15

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American Realty Capital Properties, Inc.

Mortgage Notes Payable

 

Lender		Maturity				Balance (in 000’s)				Coupon Rate				Effective Rate				Payment Terms (1)
Jackson National Life Insurance Company			10/1/2021				29,450				4.25	%			4.25	%			I/O through 11/01/2018, then P&I
German American Capital Corporation			10/6/2022			$	29,160				4.48	%			4.54	%			I/O
PNC Bank, National Association			9/1/2022				28,956				4.00	%			4.00	%			P&I
LaSalle Bank National Association			1/1/2016				28,866				5.69	%			5.77	%			I/O through 02/01/2015, then P&I
German American Capital Corporation			10/6/2022				28,440				4.48	%			4.54	%			I/O
BOKF, NA dba Bank of Texas			7/31/2017				28,350				3.27	%			3.32	%			I/O
PNC Bank, National Association			6/1/2022				27,750				4.22	%			4.28	%			I/O
GS Commercial Real Estate LP			8/6/2019				27,725				4.73	%			4.79	%			I/O
Wells Fargo Bank, National Association			7/5/2017				27,400				3.52	%			3.57	%			I/O
Jackson National Life Insurance Company			7/1/2019				27,200				3.10	%			3.10	%			I/O
LaSalle Bank National Association			1/1/2017				25,620				5.81	%			5.89	%			I/O
Bank of America, N.A.			9/1/2017				25,099				5.28	%			5.35	%			P&I
Principal Life Insurance Company			3/1/2022				24,750				4.09	%			4.09	%			I/O through 04/01/2019, then P&I
Jackson National Life Insurance Company			2/1/2021				24,000				4.50	%			4.50	%			I/O through 03/01/2018, then P&I
Wells Fargo Bank, National Association			3/1/2017				24,000				5.34	%			5.41	%			I/O
Citigroup Global Markets Realty Corp			3/6/2022				23,400				5.49	%			5.57	%			I/O
UBS REAL ESTATE SECURITIES INC.			1/6/2023				22,700				4.27	%			4.33	%			I/O
John Hancock Life Insurance Company			10/1/2022				22,500				4.04	%			4.04	%			I/O
Bank of America, N.A.			11/14/2014				22,140				1mo. Libor + 2.25	%			2.40	%			I/O
BOKF, NA dba Bank of Texas			12/31/2018				21,766				3.57	%			3.62	%			I/O
EquiTrust Life Insurance Company			5/1/2019				20,796				4.85	%			4.85	%			I/O through 05/01/2015, then P&I
U.S. Bank National Association			12/14/2014				20,140				1mo. Libor + 2.50	%			2.69	%			I/O
German American Capital Corp			6/6/2022				19,973				4.60	%			4.66	%			P&I
Aviva Life and Annuity Company			7/1/2021				19,600				5.02	%			5.02	%			I/O through 08/01/2019, then P&I
The Variable Annuity Life Insurance Company			1/1/2023				19,525				4.00	%			4.00	%			I/O
MORGAN STANLEY MORTGAGE CAPITAL HOLDINGS LLC			5/10/2021				19,513				5.67	%			5.75	%			I/O
Oritani Bank			5/1/2024				18,889				3.25	%			3.30	%			I/O through 05/01/2019, then P&I
The Royal Bank of Scotland Plc			3/1/2021				18,100				5.88	%			5.96	%			I/O
US Bank National Association			12/11/2016				17,500				5.55	%			5.63	%			I/O
Life Insurance Company of the Southwest			7/10/2022				17,035				4.40	%			4.40	%			I/O
Life Insurance Company of the Southwest			1/10/2022				17,000				4.75	%			4.75	%			I/O
JPMorgan Chase Bank, National Association			5/1/2021				16,717				5.54	%			5.61	%			P&I
BOKF, NA dba Bank of Texas			7/31/2017				16,555				3.28	%			3.32	%			I/O
US Bank National Association			1/11/2017				16,200				5.48	%			5.56	%			I/O
Wachovia Bank, National Association			12/11/2016				16,043				5.63	%			5.71	%			I/O
Wells Fargo Bank, National Association			3/20/2023				15,820				3.23	%			3.23	%			I/O
Oritani Bank			1/1/2023				15,000				3.75	%			3.75	%			I/O through 01/01/2018, then P&I
US Bank National Association			5/1/2016				14,998				5.84	%			5.92	%			P&I
Morgan Stanley Mortgage Capital Holdings, LLC			6/1/2023				14,500				3.97	%			4.02	%			I/O
BOKF, NA dba Bank of Texas			12/31/2018				14,150				3.57	%			3.62	%			I/O
Wells Fargo Bank, National Association			3/1/2016				13,500				5.17	%			5.24	%			I/O
BOKF, NA dba Bank of Texas			12/31/2020				13,420				4.25	%			4.31	%			I/O
US Bank National Association			7/1/2016				13,144				6.05	%			6.13	%			P&I
BOKF, NA dba Bank of Texas			7/13/2017				12,725				3.43	%			3.48	%			I/O
TCF National Bank			3/1/2016				12,327				1mo. Libor + 2.75	%			2.91	%			I/O

 

16

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American Realty Capital Properties, Inc.

Mortgage Notes Payable

 

Lender		Maturity				Balance (in 000’s)				Coupon Rate				Effective Rate				Payment Terms (1)
Goldman Sachs Commercial Mortgage Capital, L.P.			9/6/2017				12,270				3.70	%			3.75	%			I/O
Customers Bank			12/1/2016				11,940				3.75	%			3.80	%			I/O
JPMorgan Chase Bank, N.A.			7/1/2020			$	11,375				5.50	%			5.58	%			I/O through 08/01/2015, then P&I
US Bank National Association			2/11/2017				10,332				5.68	%			5.76	%			I/O
US Bank National Association			11/11/2016				10,137				5.50	%			5.58	%			I/O
40/86 Mortgage Capital, Inc.			1/1/2019				10,050				5.00	%			5.00	%			I/O
Monumental Life Insurance Company			4/1/2023				9,927				3.95	%			3.95	%			I/O through 05/01/2014, then P&I
Wachovia Bank, National Association			6/11/2016				8,625				6.56	%			6.65	%			I/O
Transamerica Life Insurance Company			8/1/2030				7,820				5.57	%			5.57	%			P&I
Transamerica Life Insurance Company			8/1/2030				6,987				5.32	%			5.32	%			P&I
US Bank National Association			5/11/2017				6,262				5.45	%			5.53	%			I/O
Customers Bank			8/16/2017				5,500				3.63	%			3.68	%			I/O
Amegy Bank, National Association			8/31/2016				5,365				1mo. Libor + 2.95	%			3.11	%			I/O
BOKF, NA dba Bank of Texas			10/31/2016				5,060				3.70	%			3.75	%			I/O
Wells Fargo Bank, National Association			12/1/2016				4,933				5.99	%			6.07	%			I/O through 01/01/2007, then P&I
Wells Fargo Bank, National Association			3/1/2017				4,800				3.76	%			3.81	%			I/O
Life Insurance Company of the Southwest			1/10/2022				3,025				4.75	%			4.75	%			I/O
Life Insurance Company of the Southwest			1/10/2022				2,940				4.75	%			4.75	%			I/O
US Bank National Association			4/15/2019				2,063				5.40	%			5.48	%			I/O
Capital Lease Funding, LLC			7/15/2018				1,968				7.20	%			7.20	%			P&I
Bear Stearns Commercial Mortgage, Inc.			9/1/2017				1,678				5.88	%			5.97	%			I/O
US Bank National Association			12/11/2016				1,576				6.18	%			6.27	%			I/O
BOKF, NA dba Bank of Texas			4/12/2018				1,562				3.39	%			3.44	%			I/O
US Bank National Association			12/11/2015				837				5.83	%			5.91	%			I/O
BOKF, NA dba Bank of Texas			4/12/2018				562				3.39	%			3.44	%			I/O
Transamerica Life Insurance Company			8/1/2030				395				5.93	%			5.93	%			P&I
						$	4,237,464				4.76	%			4.85	%

 

(1)	I/O means only interest is due monthly with the principal at due maturity; P&I means both principal and interest are due monthly.

 

17

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American Realty Capital Properties, Inc.

Bond and Line of Credit Covenants

The following is a summary of key financial covenants for the Company’s unsecured credit facility and senior unsecured notes, as defined and calculated per the terms of the facility’s credit agreement and the notes⁽¹⁾ offering document, respectively. These calculations, which are not based on U.S. GAAP measurements, are presented to investors to show our ability to incur additional debt only and are not measures of our liquidity or performance.

 

Unsecured Credit Facility Key Covenants (1)		Required				September 30, 2014
Maximum leverage ratio		£	60	%			53.1	%
Minimum fixed charge coverage		>	1.5x				2.22
Secured leverage ratio		£	45	%			18.2	%
Total unencumbered asset value ratio		£	60	%			56.4	%
Minimum tangible net worth covenant		³	$5.50B			$	8.17B
Minimum unencumbered interest coverage ratio		³	1.75x				3.87
Senior Notes Key Covenants (1)		Required				September 30, 2014
Limitation on incurrence of total debt		£	65	%			57.4	%
Limitation on incurrence of secured debt		£	40	%			20.3	%
Debt service coverage		³	1.5x				2.22
Maintenance of total unencumbered assets		³	150	%			175.0	%

 

(1)	As of September 30, 2014, the Company was in compliance with all covenants based on the covenant limits and calculations in place at that time.

 

18

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American Realty Capital Properties, Inc.

Top 10 Concentrations

 

Tenant Concentration		Number of Leases				Square Feet				Square Feet as a % of Total Portfolio				Annualized Rental Income (in 000’s)				Annualized Rental Income as a % of Total Portfolio				Investment Rating
Red Lobster			523				3,896,099				3.42	%		$	159,744				10.49	%		B-
CVS			181				2,482,501				2.18	%			53,545				3.52	%		BBB+
Walgreens			125				1,814,829				1.59	%			45,460				2.98	%		BBB
Dollar General			410				3,789,930				3.33	%			34,422				2.26	%		BBB-
Family Dollar			386				3,091,313				2.72	%			33,469				2.20	%		BBB-
FedEx			56				3,252,922				2.86	%			32,367				2.13	%		BBB
Albertson’s			34				1,973,485				1.73	%			24,714				1.62	%		B
Petsmart			43				1,312,119				1.15	%			24,490				1.61	%		BB+
AT&T			14				1,335,096				1.17	%			23,990				1.58	%		A-
General Service Administration			23				1,020,641				0.90	%			23,636				1.55	%		AA+
			1,795				23,968,935				21.05	%		$	455,837				29.94	%

 

Tenant Industry Concentration		Number of Leases				Square Feet				Square Feet as a % of Total Portfolio				Annualized Rental Income (in 000’s)				Annualized Rental Income as a % of Total Portfolio
Restaurants - Other			1,096				7,186,031				6.31	%		$	262,722				17.25	%
Restaurants - Quick Service			1,324				4,626,637				4.07	%			129,090				8.48	%
Manufacturing			69				19,173,932				16.85	%			127,160				8.35	%
Retail - Pharmacy			346				5,004,787				4.40	%			112,774				7.40	%
Retail - Discount			884				11,687,952				10.27	%			108,037				7.09	%
Retail - Grocery & Supermarket			105				6,492,758				5.71	%			71,887				4.72	%
Finance			348				3,220,779				2.83	%			70,215				4.61	%
Retail - Home & Garden			124				8,351,599				7.34	%			62,143				4.08	%
Professional Services			79				4,274,098				3.76	%			59,948				3.94	%
Insurance			25				2,177,674				1.91	%			41,173				2.70	%
			4,400				72,196,247				63.45	%		$	1,045,149				68.62	%

 

Geographic Concentration		Number of Leases				Square Feet				Square Feet as a % of Total Portfolio				Annualized Rental Income (in 000’s)				Annualized Rental Income as a % of Total Portfolio
Texas			807				12,999,040				11.42	%		$	191,118				12.55	%
Florida			496				6,452,809				5.67	%			96,146				6.31	%
California			230				6,703,583				5.89	%			94,694				6.22	%
Illinois			278				6,481,105				5.70	%			89,000				5.84	%
Georgia			375				6,102,386				5.36	%			84,290				5.53	%
Ohio			330				6,235,114				5.48	%			61,365				4.03	%
Pennsylvania			183				5,827,498				5.12	%			60,866				4.00	%
Arizona			182				3,479,465				3.06	%			60,646				3.98	%
Michigan			302				3,665,918				3.22	%			53,568				3.52	%
Virginia			202				2,801,864				2.46	%			48,422				3.18	%
			3,385				60,748,782				53.38	%		$	840,115				55.16	%

 

19

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American Realty Capital Properties, Inc.

Tenants Comprising Over 1% of Annualized Rental Income

 

Tenant		Number of Leases				Square Feet				Square Feet as a % of Total Portfolio				Annualized Rental Income (in 000’s)				Annualized Rental Income as a % of Total Portfolio				Investment Rating
Red Lobster			523				3,896,099				3.42	%		$	159,744				10.49	%		B-
CVS			181				2,482,501				2.18	%			53,545				3.52	%		BBB+
Walgreens			125				1,814,829				1.59	%			45,460				2.98	%		BBB
Dollar General			410				3,789,930				3.33	%			34,422				2.26	%		BBB-
Family Dollar			386				3,091,313				2.72	%			33,469				2.20	%		BBB-
FedEx			57				3,258,340				2.86	%			32,444				2.13	%		BBB
Wendy’s			273				821,077				0.72	%			25,823				1.70	%		B+
Albertson’s			34				1,973,485				1.73	%			24,714				1.62	%		B
Petsmart			43				1,312,119				1.15	%			24,490				1.61	%		BB+
AT&T			14				1,335,096				1.17	%			23,990				1.58	%		A-
General Service Administration			23				1,020,641				0.90	%			23,636				1.55	%		AA+
Citizens Bank			190				973,241				0.86	%			22,872				1.50	%		A-
BJ’s Wholesale Club			15				2,461,520				2.16	%			21,984				1.44	%		B-
Applebee’s			91				455,566				0.40	%			20,289				1.33	%		NR
AON			8				1,203,066				1.06	%			18,154				1.19	%		A-
Wal-Mart			12				2,206,974				1.94	%			16,828				1.10	%		AA
Goodyear			10				4,727,594				4.15	%			16,550				1.09	%		BB-
Lowe’s			17				2,259,397				1.99	%			16,505				1.08	%		A-
Tractor Supply			61				1,284,894				1.13	%			16,201				1.06	%		NR
L.A. Fitness			19				839,001				0.74	%			16,070				1.06	%		NR
			2,492				41,206,683				36.20	%		$	647,190				42.49	%

 

20

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American Realty Capital Properties, Inc.

Tenant Industry Diversification

 

Industry		Number of Leases				Square Feet				Square Feet as a % of Total Portfolio				Annualized Rental Income (in 000’s)				Annualized Rental Income as a % of Total Portfolio
Accommodation & Food Services			1				9,513				—	%		$	228				—	%
Administrative & Support Services			8				404,529				0.4	%			4,123				0.3	%
Agricultural			2				137,520				0.1	%			1,245				0.1	%
Construction			1				27,115				—	%			344				—	%
Education			10				1,909,118				1.7	%			21,016				1.4	%
Entertainment & Recreation			36				1,243,693				1.1	%			22,987				1.5	%
Finance			348				3,220,779				2.8	%			70,215				4.6	%
Government & Public Services			33				1,286,778				1.1	%			31,119				2.0	%
Healthcare			138				1,853,443				1.6	%			33,426				2.2	%
Information & Communications			51				1,589,586				1.4	%			30,489				2.0	%
Insurance			25				2,177,674				1.9	%			41,173				2.7	%
Logistics			67				4,729,382				4.2	%			41,158				2.7	%
Manufacturing			69				19,173,932				16.8	%			127,160				8.3	%
Mining & Natural Resources			16				736,172				0.6	%			14,744				1.0	%
Other Services			156				5,438,378				4.8	%			24,408				1.6	%
Professional Services			79				4,274,098				3.8	%			59,948				3.9	%
Real Estate			4				45,259				—	%			691				—	%
Rental			44				712,860				0.6	%			6,734				0.4	%
Restaurants - Other			1,096				7,186,031				6.3	%			262,722				17.3	%
Restaurants - Quick Service			1,324				4,626,637				4.1	%			129,090				8.5	%
Retail - Apparel & Jewelry			127				2,361,712				2.1	%			29,672				1.9	%
Retail - Automotive			167				1,199,067				1.1	%			21,777				1.4	%
Retail - Department Stores			28				2,264,148				2.0	%			15,021				1.0	%
Retail - Discount			884				11,687,952				10.3	%			108,037				7.1	%
Retail - Electronics & Appliances			38				1,028,469				0.9	%			14,541				1.0	%
Retail - Gas & Convenience			128				531,218				0.5	%			27,399				1.8	%
Retail - Grocery & Supermarket			105				6,492,758				5.7	%			71,887				4.7	%
Retail - Hobby, Books & Music			57				1,230,151				1.1	%			12,757				0.8	%
Retail - Home & Garden			124				8,351,599				7.3	%			62,143				4.1	%
Retail - Home Furnishings			62				668,971				0.6	%			10,869				0.7	%
Retail - Internet			3				3,048,444				2.7	%			14,159				0.9	%
Retail - Office Supply			22				400,714				0.4	%			5,937				0.4	%
Retail - Pet Supply			54				1,446,993				1.3	%			26,771				1.8	%
Retail - Pharmacy			346				5,004,787				4.4	%			112,774				7.5	%
Retail - Specialty (Other)			113				1,237,090				1.1	%			15,853				1.0	%
Retail - Sporting Goods			40				1,977,763				1.7	%			22,270				1.5	%
Retail - Warehouse Clubs			20				3,033,536				2.7	%			27,095				1.8	%
Transportation			1				49,920				—	%			6				—	%
Utilities			2				40,734				—	%			931				0.1	%
Other(1)			178				962,313				0.8	%			62				—	%
			6,007				113,800,836				100.0	%		$	1,522,981				100.0	%

 

(1)	Includes billboard, parking and vacant assets.

 

21

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American Realty Capital Properties, Inc.

Property Geographic Diversification

 

State/Possession		Number of Properties				Square Feet				Leased Square Feet as a % of Total Portfolio				Annualized Rental Income (in 000’s)				Annualized Rental Income as a % of Total Portfolio
Alabama			161				2,583,188				2.3	%		$	43,031				2.8	%
Alaska			4				110,426				0.1	%			2,140				0.1	%
Arizona			92				3,479,465				3.1	%			60,646				4.0	%
Arkansas			104				1,136,195				1.0	%			13,887				0.9	%
California			105				6,703,583				5.9	%			94,694				6.2	%
Colorado			61				2,436,971				2.1	%			38,519				2.5	%
Connecticut			19				466,318				0.4	%			6,652				0.4	%
Delaware			13				411,161				0.4	%			5,663				0.4	%
District of Columbia			1				3,210				—	%			44				—	%
Florida			311				6,452,809				5.7	%			96,146				6.3	%
Georgia			234				6,102,386				5.4	%			84,290				5.6	%
Idaho			20				146,935				0.1	%			4,542				0.3	%
Illinois			196				6,481,105				5.7	%			89,000				5.9	%
Indiana			147				5,969,301				5.2	%			46,597				3.1	%
Iowa			54				1,594,692				1.4	%			15,222				1.0	%
Kansas			54				2,387,037				2.1	%			16,893				1.1	%
Kentucky			95				2,242,251				2.0	%			27,364				1.8	%
Louisiana			103				1,685,842				1.5	%			23,878				1.6	%
Maine			25				648,410				0.6	%			8,527				0.6	%
Maryland			35				871,497				0.8	%			17,035				1.1	%
Massachusetts			41				2,398,900				2.1	%			30,975				2.0	%
Michigan			201				3,665,918				3.2	%			53,568				3.5	%
Minnesota			49				629,487				0.6	%			9,718				0.7	%
Mississippi			81				1,843,066				1.6	%			16,398				1.1	%
Missouri			174				1,937,124				1.7	%			27,588				1.8	%
Montana			11				87,577				0.1	%			1,701				0.1	%
Nebraska			25				679,351				0.6	%			12,485				0.8	%
Nevada			34				835,863				0.7	%			11,410				0.7	%
New Hampshire			19				241,460				0.2	%			4,265				0.3	%
New Jersey			38				1,689,825				1.5	%			37,309				2.5	%
New Mexico			58				945,135				0.8	%			14,640				1.0	%
New York			94				1,828,515				1.6	%			34,250				2.2	%
North Carolina			189				4,024,252				3.5	%			44,251				2.9	%
North Dakota			13				269,937				0.2	%			5,518				0.4	%
Ohio			307				6,235,114				5.5	%			61,365				4.0	%
Oklahoma			88				2,047,299				1.8	%			27,128				1.8	%
Oregon			17				319,773				0.3	%			4,433				0.3	%
Pennsylvania			177				5,827,498				5.1	%			60,866				4.0	%
Puerto Rico			3				87,550				0.1	%			2,429				0.2	%
Rhode Island			14				214,079				0.2	%			3,657				0.3	%
South Carolina			128				3,616,446				3.2	%			33,576				2.2	%
South Dakota			11				115,784				0.1	%			1,534				0.1	%
Tennessee			138				3,738,612				3.3	%			37,046				2.4	%
Texas			635				12,999,040				11.4	%			191,118				12.5	%
Utah			14				142,598				0.1	%			3,177				0.2	%
Vermont			8				36,749				—	%			734				—	%
Virginia			123				2,801,864				2.5	%			48,422				3.2	%
Washington			28				517,388				0.5	%			12,158				0.8	%
West Virginia			43				262,804				0.2	%			6,797				0.4	%
Wisconsin			89				1,636,736				1.4	%			20,209				1.3	%
Wyoming			11				70,058				0.1	%			1,709				0.1	%
Alberta			4				31,667				—	%			1,912				0.1	%
Manitoba			2				15,900				—	%			827				0.1	%
Ontario			11				77,885				0.1	%			4,242				0.3	%
Saskatchewan			2				16,800				—	%			796				0.1	%
			4,714				113,800,836				100.0	%		$	1,522,981				100.0	%

 

22

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American Realty Capital Properties, Inc.

Property Building Type Diversification

 

Property Type		Number of Properties				Square Feet				Square Feet as a % of Total Portfolio				Annualized Rental Income (in 000’s)				Annualized Rental Income as a % of Total Portfolio
Owned
Retail			4,261				43,059,262				37.9	%		$	822,298				54.0	%
Office			163				17,175,677				15.1	%			312,782				20.5	%
Multi-Tenant Retail			85				12,925,924				11.4	%			172,243				11.3	%
Distribution			90				28,271,027				24.8	%			141,766				9.3	%
Industrial			77				11,654,405				10.2	%			66,763				4.4	%
Other(1)			38				714,541				0.6	%			7,129				0.5	%
			4,714				113,800,836				100.0	%		$	1,522,981				100.0	%

 

(1)	Includes billboard, parking, construction in progress and vacant assets.

 

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American Realty Capital Properties, Inc.

Lease Expirations

 

Year of Expiration		Number of Leases Expiring				Square Feet				Square Feet as a % of Total Portfolio				Annualized Rental Income Expiring (in 000’s)				Annualized Rental Income Expiring as a % of Total Portfolio
2014			282				2,213,381				1.9	%		$	9,552				0.6	%
2015			223				2,667,984				2.3	%			28,953				1.9	%
2016			283				4,336,053				3.8	%			49,213				3.2	%
2017			414				5,918,858				5.2	%			72,149				4.7	%
2018			428				4,445,265				3.9	%			63,715				4.2	%
2019			322				4,594,345				4.0	%			75,266				4.9	%
2020			226				4,202,481				3.7	%			52,648				3.5	%
2021			228				12,700,796				11.2	%			100,927				6.6	%
2022			310				10,111,571				8.9	%			88,560				5.8	%
2023			273				7,574,247				6.7	%			98,311				6.5	%
			2,989				58,764,981				51.6	%		$	639,294				42.0	%

 

Year of Expiration		Number of Leases Expiring				Square Feet				Square Feet as a % of Total Portfolio				Annualized Rental Income Expiring (in 000’s)				Annualized Rental Income Expiring as a % of Total Portfolio
2014
Retail			7				34,518				—	%		$	248				—	%
Office			27				271,527				0.2	%			1,326				0.1	%
Restaurant			69				292,944				0.3	%			4,253				0.3	%
Multi-Tenant Retail			170				602,427				0.5	%			1,577				0.1	%
Distribution			1				764,177				0.7	%			2,101				0.1	%
Industrial			—				—				—	%			—				—	%
Other(1)			8				247,788				0.2	%			19				—	%
Total 2014			282				2,213,381				1.9	%			9,552				0.6	%
2015
Retail			7				77,926				0.1	%			985				0.2	%
Office			13				602,228				0.5	%			9,752				0.6	%
Restaurant			101				363,739				0.2	%			6,697				0.4	%
Multi-Tenant Retail			98				441,685				0.4	%			7,463				0.5	%
Distribution			3				1,122,406				1.0	%			3,945				0.2	%
Industrial			1				60,000				0.1	%			111				—	%
Other(1)			—				—				—	%			—				—	%
Total 2015			223				2,667,984				2.3	%			28,953				1.9	%
2016
Retail			11				94,394				0.1	%			1,101				0.1	%
Office			15				947,222				0.8	%			15,809				1.0	%
Restaurant			96				357,957				0.3	%			8,731				0.6	%
Multi-Tenant Retail			154				1,115,574				1.0	%			14,979				1.0	%
Distribution			6				1,820,906				1.6	%			8,574				0.5	%
Industrial			—				—				—	%			—				—	%
Other(1)			1				—				—	%			19				—	%
Total 2016			283				4,336,053				3.8	%			49,213				3.2	%
2017
Retail			106				663,082				0.6	%		$	14,609				0.9	%
Office			27				1,399,198				1.2	%			21,345				1.4	%

 

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American Realty Capital Properties, Inc.

Lease Expirations

 

Year of Expiration		Number of Leases Expiring				Square Feet				Square Feet as a % of Total Portfolio				Annualized Rental Income Expiring (in 000’s)				Annualized Rental Income Expiring as a % of Total Portfolio
Restaurant			109				614,460				0.5	%			11,277				0.7	%
Multi-Tenant Retail			163				1,005,898				0.9	%			15,182				1.0	%
Distribution			6				2,144,988				1.9	%			9,268				0.7	%
Industrial			2				91,232				0.1	%			453				—	%
Other(1)			1				—				—	%			15				—	%
Total 2017			414				5,918,858				5.2	%			72,149				4.7	%
2018
Retail			76				973,110				1.0	%			13,933				0.9	%
Office			12				341,746				0.3	%			7,524				0.5	%
Restaurant			117				427,211				0.4	%			10,157				0.7	%
Multi-Tenant Retail			209				1,637,898				1.3	%			26,846				1.6	%
Distribution			7				849,596				0.7	%			4,002				0.3	%
Industrial			6				215,704				0.2	%			1,241				0.1	%
Other(1)			1				—				—	%			12				—	%
Total 2018			428				4,445,265				3.9	%			63,715				4.1	%
2019
Retail			55				1,345,082				1.2	%			15,266				1.0	%
Office			15				1,042,080				0.9	%			25,389				1.7	%
Restaurant			95				419,873				0.3	%			9,375				0.6	%
Multi-Tenant Retail			153				1,498,236				1.3	%			22,538				1.4	%
Distribution			2				220,643				0.2	%			2,212				0.1	%
Industrial			2				68,431				0.1	%			486				—	%
Other(1)			—				—				—	%			—				—	%
Total 2019			322				4,594,345				4.0	%			75,266				4.8	%
2020
Retail			80				1,063,634				0.9	%			13,414				0.9	%
Office			18				1,673,139				1.4	%			20,149				1.3	%
Restaurant			71				278,226				0.2	%			7,016				0.5	%
Multi-Tenant Retail			51				681,297				0.6	%			8,863				0.6	%
Distribution			—				—				—	%			—				—	%
Industrial			5				497,785				0.4	%			3,205				0.2	%
Other(1)			1				8,400				—	%			1				—	%
Total 2020			226				4,202,481				3.7	%			52,648				3.5	%
2021
Retail			76				1,526,594				1.3	%			22,361				1.4	%
Office			16				1,602,674				1.4	%			28,173				1.8	%
Restaurant			62				192,325				0.2	%			5,492				0.4	%
Multi-Tenant Retail			56				797,884				0.7	%			11,179				0.7	%
Distribution			15				7,555,709				6.7	%			29,934				1.9	%
Industrial			3				1,025,610				0.9	%			3,788				0.2	%
Other(1)			—				—				—	%			—				—	%
Total 2021			228				12,700,796				11.2	%			100,927				6.4	%
2022
Retail			161				2,233,645				2.0	%		$	29,480				1.9	%
Office			9				665,954				0.6	%			13,436				0.9	%
Restaurant			63				370,553				0.3	%			8,078				0.5	%

 

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American Realty Capital Properties, Inc.

Lease Expirations

 

Year of Expiration		Number of Leases Expiring				Square Feet				Square Feet as a % of Total Portfolio				Annualized Rental Income Expiring (in 000’s)				Annualized Rental Income Expiring as a % of Total Portfolio
Multi-Tenant Retail			50				791,558				0.7	%			10,095				0.7	%
Distribution			18				5,019,466				4.4	%			21,051				1.4	%
Industrial			9				1,030,395				0.9	%			6,420				0.4	%
Other(1)			—				—				—	%			—				—	%
Total 2022			310				10,111,571				8.9	%			88,560				5.8	%
2023
Retail			120				1,865,950				1.6	%			23,352				1.5	%
Office			26				1,685,099				1.5	%			36,166				2.3	%
Restaurant			60				317,866				0.3	%			7,051				0.5	%
Multi-Tenant Retail			52				1,214,782				1.1	%			14,514				0.9	%
Distribution			8				2,194,833				1.9	%			14,110				0.9	%
Industrial			7				295,717				0.3	%			3,118				0.2	%
Other(1)			—				—				—	%			—				—	%
Total 2023			273				7,574,247				6.7	%			98,311				6.3	%
Total 2014 - 2023			2,989				58,764,981				51.6	%		$	639,294				41.3	%

 

(1)	Includes billboard, parking and vacant assets.

 

26

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American Realty Capital Properties, Inc.

Unconsolidated Joint Venture Investment Summary

($ in 000’s)

The following table shows certain information regarding the Company’s interests in unconsolidated joint ventures as of September 30, 2014:

 

Joint Venture		Partner		Ownership %				Pro rata Share of Purchase Price				Rentable Square Feet (1)				Annualized Rental Income (1)				Debt (1) (2)				Major Tenants
Cole/Mosaic JV South Elgin IL, LLC		Affiliate of Mosaic Properties and Development, LLC			50	%		$	17,000				232,000			$	2,897			$	20,400			Home Depot, Best Buy
Chandler Festival SPE, LLC		Propstra Chandler Trust & RED Development, LLC			45	%(3)			27,878				756,000				5,293				28,636			Nordstrom Rack, Buy Buy Baby, Ross, TJ Maxx
Chandler Village Center, LLC (AZ)		Propstra Chandler Trust & RED Development, LLC			45	%(3)			13,316				130,000				2,429				20,370			Sports Authority, Bed Bath & Beyond, DSW
Cole/LBA JV OF Pleasanton CA		Affiliate of LBA Realty			90	%			86,850				343,000				7,030				57,000			Clorox Companies
Chandler Gateway SPE, LLC		Propstra Chandler Trust & RED Development, LLC			45	%(3)			12,884				266,000				2,147				18,223			Hobby Lobby, Wal-Mart
Cole/Faison JV Bethlehem GA, LLC		Faison-Winder Investors, LLC			90	%			33,429				280,000				3,248				26,000			Publix, Belk
Total Unconsolidated Joint Ventures								$	191,357				2,007,000			$	23,044			$	170,629
Interest (4)																$	15,140			$	115,153

 

(1)	Rentable square feet, annualized rental income and debt represent information for the total unconsolidated joint venture.

(2)	Debt represents secured fixed and variable rates ranging from 2.05% to 6.15% and maturities ranging from July 2015 to July 2021, with a weighted-average interest rate of 3.69% as of September 30, 2014 and a weighted-average years to maturity of 2.2 years as of September 30, 2014.

(3)	Represents the Company’s 90% interest in a consolidated joint venture, whose only assets are 50% interests in the respective unconsolidated joint ventures.

(4)	Represents the Company’s aggregate interest in unconsolidated joint ventures as of September 30, 2014.

 

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American Realty Capital Properties, Inc.

Managed Programs

Program Summary

The following table shows the Managed Program’s cumulative activity summary information as of September 30, 2014 (dollars in 000’s):

 

Program		Capital Raised (1)				Number of Investments (2)				Assets Under Management (3)				Total Debt Outstanding
Open Programs:
Cole Credit Property Trust V, Inc. (“CCPT V”)		$	111,537				47			$	193,867			$	112,239
Cole Real Estate Income Strategy (Daily NAV), Inc. (“INAV”)			126,507				71				225,192				112,750
Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”)			185,799				17				306,681				207,635
Total Open Programs			423,843				135				725,740				432,624
Closed Programs:(4)
Cole Credit Property Trust IV, Inc. (“CCPT IV”)			302,275				671				3,578,720				1,172,563
Cole Corporate Income Trust, Inc. (“CCIT”)			1,974,423				87				2,663,728				1,012,616
Other Programs			372,617				65				737,515				370,865
Total Closed Programs			2,649,315				823				6,979,963				2,556,044
Total		$	3,073,158				958			$	7,705,703			$	2,988,668

 

(1)	Capital raised represents gross proceeds, including DRIP shares issued.

(2)	Number of investments includes properties owned through consolidated joint ventures.

(3)	Assets under management represents total gross real estate and related assets, including net investments in consolidated joint ventures, net of gross intangible lease liabilities.

(4)	The Closed Programs include CCPT IV and CCIT and Other Programs include tenant-in-common programs, Delaware statutory trust programs and Cole Growth Opportunity Fund I, L.P.

Offering Summary

The following table shows offering summary information for the Managed Programs as of September 30, 2014:

 

Program		Primary Investment Strategy		Offering Commencement Date				% of Outstanding Shares Owned by ARCP				Offering Price/NAV				Annualized Distribution
CCPT V		Retail			3/17/2014				2.40	%		$	25.00				6.30	%
INAV		Diversified			12/6/2011	(1)			0.18	%				(2)(3)				(3)
CCIT II		Office and industrial			9/17/2013				1.44	%		$	10.00				6.00	%
Closed Programs		Various			Prior to 2012				less than 0.01	%			Various				Various

 

(1)

On August 26, 2013, INAV designated the existing shares of INAV’s common stock that were sold prior to such date to be Wrap Class shares (“W Shares”) of common stock and registered two new classes of INAV common stock, Advisor Class shares (“A Shares”) and Institutional Class shares (“I Shares”). As the existing class of common stock, W Shares were first issued on December 6, 2011, A Shares were first issued on October 10, 2013 and I Shares were first issued on November 19, 2013.

(2)

The Net Asset Value for each share class (“NAV per share”) is calculated daily as of the close of business using a process that reflects (i) estimated values of each of INAV’s commercial real estate assets, related liabilities and notes receivable secured by real estate provided periodically by INAV’s independent valuation expert in individual appraisal reports, (ii) daily updates in the price of liquid assets for which third party market quotes are available, (iii) accruals of INAV’s daily distributions and (iv) estimates of daily accruals, on a net basis, of operating revenues, expenses, debt service costs and fees.

(3)	Calculated using a daily distribution rate per share and NAV per share, for each share class, as of the close of business on September 30, 2014:

 

Share Class		Date of Offering		NAV Per Share				Daily Distribution Rate				Annualized Distribution
W Shares		12/6/2011(3)		$	17.10			$	0.002678692				5.72	%
A Shares		10/10/13(3)		$	17.05			$	0.002670741				5.72	%
I Shares		11/19/13(3)		$	17.14			$	0.002684700				5.72	%

 

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American Realty Capital Properties, Inc.

Managed Programs

 

Fee Summary

The following table shows fee summary information for Cole Capital for certain of the Managed Programs as of September 30, 2014:

 

		Offering Fees								Transaction Fees								Management Fees
Program		Selling Commissions (1)				Dealer Manager and Distribution Fees (2)				Acquisition Transactional Fees (3)				Financing Transactional Fees				Property Management Fees (4)				Asset Management / Advisory Fees				Performance Fees
Open Programs
CCPT V			7	%			2	%			2	%			—	%			—	%			0.65% - 0.75%	(6)			15	%(7)
INAV				(5)				(5)			—	%			—	%			—	%			0.90%				25	%(8)
CCIT II			7	%			2	%			2	%			—	%			—	%			0.65% - 0.75%	(6)			15	%(7)
Closed Programs
CCPT IV			7	%			2	%			2	%			—	%			—	%			0.65% - 0.75%	(6)			15	%(7)
CCIT			7	%			2	%			2	%			—	%			—	%			0.65% - 0.75%	(6)			15	%(7)
Other Programs			N/A				N/A				Various				Various				Various				Various				Various

 

(1)	The Company reallows 100% of selling commissions earned to participating broker-dealers.

(2)	The Company may reallow all or a portion of its dealer manager fee or applicable distribution fee to participating broker-dealers as a marketing and due diligence expense reimbursement.

(3)	Percent taken on gross purchase price.

(4)	Percent taken on gross revenues (leasing fees based on prevailing market rates with restrictions).

(5)	In connection with the INAV offering, the Company will receive selling commissions, an asset-based dealer manager fee and/or an asset-based distribution fee, as summarized in the table below for each class of common stock:

 

Share Class		Selling Commission (1)				Dealer Manager Fee (2)				Distribution Fee (2)
W Shares			—				0.55	%			—
A Shares			up to 3.75	%			0.55	%			0.50	%
I Shares			—				0.25	%			—

 

(6)	Annualized fee based on the average monthly invested assets.

(7)

Performance fee paid only under the following events: (i) if shares are listed on a national securities exchange; (ii) if the respective Managed Program is sold or the assets are liquidated; or (iii) upon termination of the advisory agreement. In connection with such events, the performance fee will only be earned upon the return to investors of their net capital invested and an 8% annual cumulative, non-compounded return (6% in the case of CCPT V).

(8)	Performance fee paid for any year in which the total return on stockholders’ capital exceeds 6% per annum on a calendar year basis.

 

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American Realty Capital Properties, Inc.

Managed Programs

 

Program Activity Summary

The following table shows the Managed Program’s activity summary information for the three-month period ended on September 30, 2014 (dollars in thousands):

 

Program		Capital Raised (1)				Number of Investments Acquired (2)				Purchase Price (3)				New Debt (4)
Open Programs:
CCPT V		$	88,306				40			$	163,700			$	100,239
INAV			22,715				18				71,954				55,350
CCIT II			108,776				7				91,000				52,635
Total Open Programs			219,797				65				326,654				208,224
Closed Programs:
CCPT IV			28,064				162				724,446				424,876
CCIT			12,929				1				60,800				67,000
Other Programs			—				—				—				—
Total Closed Programs			40,993				163				785,246				491,876
Total		$	260,790				228			$	1,111,900			$	700,100

 

(1)	Capital raised represents gross proceeds, including DRIP shares issued.

(2)	Number of investments acquired includes properties owned through consolidated joint ventures.

(3)	Purchase price of properties includes pro rata share for consolidated joint ventures.

(4)	New debt may include (i) outstanding face value of new mortgage notes payable, (ii) total allowable borrowings under new credit facilities into which the Managed Programs entered and (iii) increases in allowable borrowings to existing credit facilities in accordance with amendments executed.

Revenue Summary

The following table shows the Managed Program’s revenue information for the three-month period ended September 30, 2014 (dollars in thousands):

 

Program		Offering Related Revenue and Reimbursements				Transaction Service Revenue				Management Service Revenue and Reimbursements				Total Managed Programs Revenue and Reimbursements
Open Programs:
CCPT V		$	9,518			$	3,279			$	1,037			$	13,834
INAV			603				—				455				1,058
CCIT II			11,466				1,827				704				13,997
Gross revenues - Open Programs			21,587				5,106				2,196				28,889
Less:
Reallowed revenues			15,384				—				—				15,384
Reimbursements			1,951				—				381				2,332
Adjusted Revenues (1) - Open Programs			4,252				5,106				1,815				11,173
Closed Programs:
CCPT IV			(47	)			16,573				7,110				23,636
CCIT			(5	)			1,216				5,555				6,766
Other Programs			—				77				429				506
Gross revenues - Closed Programs			(52	)			17,866				13,094				30,908
Less:
Reimbursements			—				—				2,294				2,294
Adjusted Revenues (1) - Closed Programs			(52	)			17,866				10,800				28,614
Total Adjusted Revenues (1)		$	4,200			$	22,972			$	12,615			$	39,787

 

(1)	Adjusted Revenues is a non-GAAP measure. See the Definitions section that begins on page 31 for a description of the Company’s non-GAAP measures.

 

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American Realty Capital Properties, Inc.

Definitions

Adjusted Revenues is a non-GAAP financial measure that represents revenue on a GAAP basis adjusted to eliminate revenue recorded as reimbursement revenue in accordance with GAAP, of certain expense, which are included in reallowed fees and commissions and general and administrative expenses.

Annualized Adjusted EBITDA includes full-year real estate activities adjusted for mid-period acquisitions, normalized full-year activity for Cole Capital, less cash general and administrative expenses and property operating expenses.

Annualized Interest Expense is full-year interest expense based on outstanding debt balances as of quarter end.

Average Annual Rent is annualized rental income under our leases reflecting straight-line rent adjustments associated with contractual rent increases in the leases as required by GAAP, as further adjusted to reflect the effect of tenant concessions and abatements such as free rent.

Creditworthy Tenants are determined by us based on our own assessment of the tenant financial condition based on our underwriting criteria.

EBITDA, a non-GAAP measure, is defined as earnings before interest, taxes, depreciation and amortization, excluding one-time expenses for acquisition, merger and other transaction costs.

Funds from Operations and Adjusted Funds from Operations

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”), an industry trade group, has promulgated a measure known as funds from operations (“FFO”), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income or loss as determined under U.S. GAAP.

We define FFO, a non-U.S. GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with U.S. GAAP, excluding gains or losses from sales of property but including asset impairment writedowns, plus depreciation and amortization, after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of U.S. GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in U.S. GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO and adjusted funds from operations (“AFFO”), as described below, should not be construed to be more relevant or accurate than the current U.S. GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under U.S. GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-U.S. GAAP FFO and AFFO measures and the adjustments to U.S. GAAP in calculating FFO and AFFO.

We consider FFO and AFFO useful indicators of the performance of a REIT. Because FFO calculations exclude such factors as depreciation and amortization of real estate assets and gains or losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs in our peer group. Accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.

 

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American Realty Capital Properties, Inc.

Definitions

 

Changes in the accounting and reporting promulgations under U.S. GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to U.S. GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under U.S. GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. While certain companies may experience significant acquisition activity, other companies may not have significant acquisition activity and management believes that excluding costs such as merger and transaction costs and acquisition related costs from property operating results provides useful information to investors and provides information that improves the comparability of operating results with other companies who do not have significant merger or acquisition activities. AFFO is not equivalent to our net income or loss as determined under U.S. GAAP, and AFFO may not be a useful measure of the impact of long-term operating performance if we continue to have such activities in the future.

We exclude certain income or expense items from AFFO that we consider more reflective of investing activities, other non-cash income and expense items and the income and expense effects of other activities that are not a fundamental attribute of our business plan. These items include unrealized gains and losses, which may not ultimately be realized, such as gains or losses on derivative instruments, gains or losses on contingent valuation rights, gains and losses on investments and early extinguishment of debt. In addition, by excluding non-cash income and expense items such as amortization of above and below market leases, amortization of deferred financing costs, straight-line rent and non-cash equity compensation from AFFO we believe we provide useful information regarding income and expense items which have no cash impact and do not provide us liquidity or require our capital resources. By providing AFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our ongoing operating performance without the impacts of transactions that are not related to the ongoing profitability of our portfolio of properties. We also believe that AFFO is a recognized measure of sustainable operating performance by the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies that are not as involved in activities which are excluded from our calculation. Investors are cautioned that AFFO should only be used to assess the sustainability of our operating performance excluding these activities, as it excludes certain costs that have a negative effect on our operating performance during the periods in which these costs are incurred.

In addition, we exclude certain interest expenses related to securities that are convertible to common stock as the shares are assumed to have converted to common stock in our calculation of weighted average shares of common stock-fully diluted. As the Company’s convertible notes have a cash or stock settlement option and the Company has the ability and intent to settle its convertible notes in cash, the interest expense related to our convertible notes have not been excluded from AFFO, and accordingly, the shares are not assumed to have converted to common stock in our calculation of weighted average shares of common stock-fully diluted.

In calculating AFFO, we exclude expenses, which under U.S. GAAP are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors. All paid and accrued merger and acquisition fees and certain other expenses negatively impact our operating performance during the period in which expenses are incurred or properties are acquired and will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property and certain other expenses. Therefore, AFFO may not be an accurate indicator of our operating performance, especially during periods in which mergers are being consummated or properties are being acquired or certain other expenses are being incurred. AFFO that excludes such costs and expenses would only be comparable to companies that did not have such activities. Further, under U.S. GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments as items which are unrealized and may not ultimately be realized. We view both gains and losses from fair value adjustments as items which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Excluding income and expense items detailed above from our calculation of AFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe AFFO provides useful supplemental information.

As a result, we believe that the use of FFO and AFFO, together with the required U.S. GAAP presentations, provide a more complete understanding of our performance relative to our peers and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.

 

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American Realty Capital Properties, Inc.

Definitions

 

FFO and AFFO are non-U.S. GAAP financial measures and do not represent net income as defined by U.S. GAAP. FFO and AFFO do not represent cash flows from operations as defined by U.S. GAAP, are not indicative of cash available to fund all cash flow needs and liquidity, including our ability to pay distributions and should not be considered as alternatives to net income, as determined in accordance with U.S. GAAP, for purposes of evaluating our operating performance. Other REITs may not define FFO in accordance with the current NAREIT definition (as we do) or may interpret the current NAREIT definition differently than we do and/or calculate AFFO differently than we do. Consequently, our presentation of FFO and AFFO may not be comparable to other similarly titled measures presented by other REITs.

Investment Grade is a determination made by major credit rating agencies and, for these purposes, includes an affiliate of an entity with an investment-grade rating.

 

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