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8-K/A - FORM 8-K/A - Corporate Property Associates 17 - Global INC | c91831e8vkza.htm |
EX-10.1 - EXHIBIT 10.1 - Corporate Property Associates 17 - Global INC | c91831exv10w1.htm |
Exhibit 99.1
INDEX TO PRO FORMA FINANCIAL STATEMENTS
Corporate Property Associates 17 Global Incorporated:
Pro Forma Consolidated Financial Information (Unaudited), June 30, 2009
Pro Forma Consolidated Statement of Operations for the year ended December 31, 2008 (Unaudited) |
3 | |||
Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2009 (Unaudited) |
4 | |||
Pro Forma Consolidated Statement of Taxable Income and After-Tax Cash Flow for the twelve months
ended June 30, 2009 (Unaudited) |
5 | |||
Notes to Pro Forma Consolidated Financial Statements (Unaudited) |
6 |
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
The pro forma consolidated financial statements of Corporate Property Associates 17 Global
Incorporated (we, us, and our), which are unaudited, have been prepared based on our historical
financial statements. The pro forma consolidated statements of operations for the year ended
December 31, 2008 and the six months ended June 30, 2009 have been prepared as if the significant
investments subsequent to January 1, 2008 and related mortgage financing (noted herein) had
occurred on January 1, 2008 and carried forward through their issuance dates. The balance sheet as
of June 30, 2009 is not required since these investments are fully reflected in the June 30, 2009
historical balances. For information on our other real estate investments, please see the
Description of the Properties section of the registration statement on Form S-11 filed with the
Securities and Exchange Commission on November 4, 2009. In addition, adjustments have been recorded
to reflect our asset management expense, reimbursement for administrative services and interest
expense on the subordinated fees payable and to eliminate other interest income on uninvested cash.
Pro forma adjustments are intended to reflect what the effect would have been had we held our
ownership interest as of January 1, 2008 less amounts, which have been recorded in the historical
consolidated statements of operations. In our opinion, all adjustments necessary to reflect the
effects of these investments have been made. The pro forma consolidated financial information
should be read in conjunction with the historical consolidated financial statements and notes
thereto of our Quarterly Report on Form 10-Q for the three and six months ended June 30, 2009 and
Current Report on Form 8-K/A filed on July 20, 2009, which updated our Annual Report on Form 10-K
for the year ended December 31, 2008.
The pro forma information is not necessarily indicative of the financial condition or results of
operations had the investments occurred on January 1, 2008, nor are they necessarily indicative of
the financial position, cash flows or results of operations of future periods.
2
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 2008
(Unaudited)
For the year ended December 31, 2008
(Unaudited)
Pro Forma Adjustments | ||||||||||||||||||||||||||||||||
Completed | ||||||||||||||||||||||||||||||||
Historical | NYT (A) | Actebis (B) | Wagon (C) | Life Time (D) | Transactions | Other (E) | Pro Forma | |||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||
Rental income |
$ | 6,629,965 | $ | 2,299,800 | $ | 587,090 | $ | 5,133,618 | $ | 8,020,508 | $ | 14,650,473 | ||||||||||||||||||||
Interest income from direct financing leases |
1,392,137 | $ | 26,569,418 | 2,570,705 | 29,140,123 | 30,532,260 | ||||||||||||||||||||||||||
Interest income from commercial mortgage-backed securities |
1,657,995 | 1,657,995 | ||||||||||||||||||||||||||||||
Other real estate income |
3,829 | 3,829 | ||||||||||||||||||||||||||||||
9,683,926 | 26,569,418 | 2,299,800 | 3,157,795 | 5,133,618 | 37,160,631 | | 46,844,557 | |||||||||||||||||||||||||
Expenses |
||||||||||||||||||||||||||||||||
Depreciation and amortization |
(1,827,299 | ) | (780,821 | ) | (927,775 | ) | (1,708,596 | ) | (3,535,895 | ) | ||||||||||||||||||||||
General and administrative |
(2,041,164 | ) | $ | (340,791 | ) | (2,381,955 | ) | |||||||||||||||||||||||||
Property expenses |
(806,721 | ) | (1,660,658 | ) | (2,467,379 | ) | ||||||||||||||||||||||||||
(4,675,184 | ) | | (780,821 | ) | | (927,775 | ) | (1,708,596 | ) | (2,001,449 | ) | (8,385,229 | ) | |||||||||||||||||||
Other Income and Expenses |
||||||||||||||||||||||||||||||||
Other interest income |
1,128,984 | (1,128,984 | ) | | ||||||||||||||||||||||||||||
Loss from equity investment in real estate |
(1,793,125 | ) | (1,793,125 | ) | ||||||||||||||||||||||||||||
Other income and expenses |
(1,766,000 | ) | (1,766,000 | ) | ||||||||||||||||||||||||||||
Interest expense |
(3,724,527 | ) | (5,965,670 | ) | (1,338,776 | ) | (1,156,799 | ) | (2,154,221 | ) | (10,615,466 | ) | (266,002 | ) | (14,605,995 | ) | ||||||||||||||||
(6,154,668 | ) | (5,965,670 | ) | (1,338,776 | ) | (1,156,799 | ) | (2,154,221 | ) | (10,615,466 | ) | (1,394,986 | ) | (18,165,120 | ) | |||||||||||||||||
(Loss) income before income taxes |
(1,145,926 | ) | 20,603,748 | 180,203 | 2,000,996 | 2,051,622 | 24,836,569 | (3,396,435 | ) | 20,294,208 | ||||||||||||||||||||||
Provision for income taxes |
(503,642 | ) | (187,788 | ) | (539,724 | ) | | (727,512 | ) | (1,231,154 | ) | |||||||||||||||||||||
Net (loss) income |
(1,649,568 | ) | 20,603,748 | (7,585 | ) | 1,461,272 | 2,051,622 | 24,109,057 | (3,396,435 | ) | 19,063,054 | |||||||||||||||||||||
Less: Net loss (income) attributable to noncontrolling interests |
402,266 | (9,271,686 | ) | (10,224 | ) | (980,839 | ) | | (10,262,749 | ) | | (9,860,483 | ) | |||||||||||||||||||
Net (Loss) Income Attributable to CPA®:17 Global Shareholders |
$ | (1,247,302 | ) | $ | 11,332,062 | $ | (17,809 | ) | $ | 480,433 | $ | 2,051,622 | $ | 13,846,308 | $ | (3,396,435 | ) | $ | 9,202,571 | |||||||||||||
Weighted average shares outstanding |
17,273,533 | 17,273,533 | ||||||||||||||||||||||||||||||
Net (loss) income attributable to CPA®:17 Global shareholders per share |
$ | (0.07 | ) | $ | 0.53 | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these pro forma consolidated financial statements.
3
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended June 30, 2009
(Unaudited)
For the six months ended June 30, 2009
(Unaudited)
Pro Forma Adjustments | ||||||||||||||||
Historical | NYT (A) | Other (E) | Pro Forma | |||||||||||||
Revenues |
||||||||||||||||
Rental income |
$ | 8,733,185 | $ | 8,733,185 | ||||||||||||
Interest income from direct financing leases |
12,204,207 | $ | 4,983,139 | 17,187,346 | ||||||||||||
Interest income from commercial mortgage-backed securities |
1,355,813 | 1,355,813 | ||||||||||||||
22,293,205 | 4,983,139 | | 27,276,344 | |||||||||||||
Expenses |
||||||||||||||||
Depreciation and amortization |
(2,266,050 | ) | (2,266,050 | ) | ||||||||||||
Property expenses |
(2,896,748 | ) | $ | (110,542 | ) | (3,007,290 | ) | |||||||||
General and administrative |
(2,062,790 | ) | (47,204 | ) | (2,109,994 | ) | ||||||||||
(7,225,588 | ) | | (157,746 | ) | (7,383,334 | ) | ||||||||||
Other Income and Expenses |
||||||||||||||||
Other interest income |
168,560 | (168,560 | ) | | ||||||||||||
Income from equity investment in real estate |
722,520 | 722,520 | ||||||||||||||
Other income and expenses |
(1,616,997 | ) | (1,616,997 | ) | ||||||||||||
Interest expense |
(4,133,347 | ) | (2,934,445 | ) | (23,487 | ) | (7,091,279 | ) | ||||||||
(4,859,264 | ) | (2,934,445 | ) | (192,047 | ) | (7,985,756 | ) | |||||||||
Income before income taxes |
10,208,353 | 2,048,694 | (349,793 | ) | 11,907,254 | |||||||||||
Provision for income taxes |
(520,346 | ) | (520,346 | ) | ||||||||||||
Net income |
9,688,007 | 2,048,694 | (349,793 | ) | 11,386,908 | |||||||||||
Less: Net income attributable to noncontrolling interests |
(4,947,336 | ) | (928,943 | ) | (5,876,279 | ) | ||||||||||
Net Income Attributable to CPA®:17 Global Shareholders |
$ | 4,740,671 | $ | 1,119,751 | $ | (349,793 | ) | $ | 5,510,629 | |||||||
Weighted average shares outstanding |
42,633,263 | 42,633,263 | ||||||||||||||
Net income attributable to CPA®:17 Global shareholders
per share |
$ | 0.11 | $ | 0.13 | ||||||||||||
The accompanying notes are an integral part of these pro forma consolidated financial statements.
4
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
PRO FORMA CONSOLIDATED STATEMENT OF TAXABLE INCOME AND AFTER-TAX CASH FLOW
For the twelve months ended June 30, 2009
(Unaudited)
For the twelve months ended June 30, 2009
(Unaudited)
Consolidated pro forma net income for the twelve months ended June 30, 2009 |
$ | 10,111,914 | ||
Adjustment to interest income on direct financing leases and straight-line
rental income for tax purposes (F) |
(987,060 | ) | ||
Depreciation adjustment for tax purposes (G) |
(709,796 | ) | ||
Pro forma taxable income |
8,415,058 | |||
Add: Taxable depreciation (H) |
3,388,337 | |||
Excess of noncontrolling interests share of tax earnings over distributions (I) |
901,880 | |||
Companys share of principal paid on mortgage loans (J) |
(2,693,525 | ) | ||
Pro forma after-tax cash flow |
$ | 10,011,750 | ||
The accompanying notes are an integral part of these pro forma consolidated financial statements.
5
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
Note 1. Basis of Presentation
The pro forma consolidated statement of operations for the year ended December 31, 2008 was derived
from the historical audited consolidated financial statements for the year ended December 31, 2008,
included in our Current Report on Form 8-K/A filed on July 20, 2009. The pro forma consolidated
statement of operations for the six months ended June 30, 2009 was derived from the historical
unaudited consolidated financial statements for the six months ended June 30, 2009, included in our
Quarterly Report on Form 10-Q.
Note 2. Pro Forma Adjustments
A. NYT On March 6, 2009, an entity in which we, CPA®:16 Global, and W. P. Carey own
55%, 27.25%, and 17.75% interests, respectively, completed a net lease financing transaction with
respect to a leasehold condominium interest encompassing approximately 750,000 rentable square feet
in the office headquarters of The New York Times Company (The Times) in New York, NY. This
jointly owned entity acquired record leasehold title and a secured interest in the property and
entered into a net lease agreement with NYT Real Estate Company LLC (NYT), a subsidiary of The
Times. The total cost of the transaction, including the acquisition fee payable to Carey Asset
Management Corporation (CAM), was approximately $233,720,223, of which our share is approximately
$129,581,152. The jointly owned entity has been structured such that profits and losses, and
distributions are pro rata to the ownership interests. As we have effective control, we are
consolidating this entity. The interests applicable to CPA®:16 Global and W. P. Carey
are reflected as noncontrolling interest in the accompanying consolidated pro forma financial
statements.
The lease has an initial term of 15 years and provides NYT with one 10-year renewal option and two
additional 5-year renewal options. In the 10th year of the initial term of the lease,
NYT has an option to purchase the leasehold title interest for approximately $250,000,000. Such
purchase option, together with the other terms of the net lease and related transaction documents,
allows the transaction to be accounted for as a direct financing lease. The initial annual rent
under the lease is $24,187,500, of which our share is approximately $13,303,125. Additionally, the
lease provides for annual rent increase of 1.5% for the initial term, and formula rent increases
for any renewal terms. Interest income from direct financing leases is recorded such that we
recognize income at a constant rate of interest on the net investment in the lease, and assumes the
exercise of the purchase option by NYT in the 10th year of the lease. Interest income
for the first lease year is $26,569,418, of which our share is $14,613,180. For financial
reporting purposes, no depreciation is recorded on a direct financing lease.
In August 2009, the jointly owned entity obtained mortgage financing on the property of
$119,750,000, of which our share is approximately $65,862,500, with an annual interest rate of
LIBOR plus 4.75% that has been capped at 8.75% through the use of an interest rate cap and a term
of five years. For pro forma purposes, interest expense is calculated using LIBOR at October 31,
2009 of 0.28%. Based on pro forma mortgage balance of $115,909,485 as of June 30, 2009, a 1/8%
change in LIBOR would change annual interest expense by $144,887.
Included in the historical balances for the six months ended June 30, 2009 are interest income from
direct financing leases of $8,400,776, general and administrative expense of $15,625, net income
attributable to noncontrolling interests of $3,773,318 and net income attributable to
CPA®:17 Global shareholders of $4,611,833.
B. Actebis On July 4, 2008, through a venture in which we and CPA®:16 Global own 70%
and 30% interests, respectively, we acquired two office and warehouse/distribution facilities in
Soest and Bad Wünnenberg, Germany totaling approximately 648,310 square feet from Arques Immobilien
Wert GmbH & Co. KG and entered into a net lease agreement with Actebis Peacock GmbH (Actebis), a
portfolio company of Arques Industries. Through the venture, we and CPA®:16 Global
also entered into an agreement with Actebis to construct an expansion at one of the facilities. The
total cost of acquiring the existing facilities, including the acquisition fee payable to CAM, was
approximately 36,840,220, or $58,310,700, of which our share is approximately 25,788,154,
or $40,817,490. Additionally, the maximum construction cost to the venture under the agreement is
6
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
approximately 7,000,000, or $11,079,600, of which our share will be a maximum of approximately 4,900,000, or $7,755,720.
All U.S. dollar amounts above are based on the exchange rate of the Euro on the date of closing or
$1.5828. The venture has been structured such that capital has been contributed in an amount equal
to the ownership interests and profits and losses and distributions are pro rata to ownership
interests. As we have effective control, we are consolidating this entity. The interest applicable
to CPA®:16 Global is reflected as noncontrolling interest in the accompanying
consolidated pro forma financial statements. For pro forma purposes, revenue and expenses have
been translated using the average exchange rate for the Euro for the year ended December 31, 2008
of $1.47134. Actual results are translated using the average for the periods from acquisition
through December 31, 2008 and for the six months ended June 30, 2009.
The lease has an initial term of 16 years and provides for three five-year renewal options. The
initial aggregate annual rent under the lease is 2,999,999, or $4,414,019, of which our share
is 2,099,999, or $3,089,813. Rental income also includes annual amortization of net above
market intangibles of 32,980 or $48,525. Additionally, the lease provides for annual rent
adjustments based on increases or decreases in the German Consumer Price Index (CPI).
The venture obtained non-recourse mortgage financing of 22,800,000, or $36,087,840, of which
our share is 15,960,000, or $25,261,488, with a fixed annual interest rate of 6.54% and a term
of seven years. The financing agreement provides for additional non-recourse financing of up to
4,900,000, or $7,755,720, of which our share is 3,430,000, or $5,429,004, for the purpose
of constructing the expansion. The additional financing will bear a fixed rate of interest at a
rate that will be based on the Euroswap rate at the date of financing and will mature in July 2015.
All U.S. dollar amounts above are based on the exchange rate of the Euro on the date of closing or
$1.5828.
Depreciable and amortizable tangible and intangible assets of $48,944,755, based on the exchange
rate of Euro at December 31, 2008 of $1.4097, are being depreciated and amortized for financial
reporting purposes on a straight-line basis over periods ranging from 16 to 40 years at an annual
amount of $1,538,188, and over 40 years on a straight-line basis for tax purposes.
Included in the historical balances for the year ended December 31, 2008 are rental income of
$2,065,694, depreciation and amortization of intangibles of $757,367, general and administrative
expense of $11,141, property expenses of $73,165, other interest income of $15,386, loss on foreign
currency transactions and derivative instrument of $78,744, net income attributable to
noncontrolling interests of $10,794, interest expense of $1,075,806, provision for income taxes of
$169,156 and net loss attributable to CPA®:17 Global shareholders of $95,093. There
were no pro forma adjustments for the six months ended June 30, 2009.
C. Wagon On August 15, 2008, a venture in which we and CPA®:15 own 66.67% and 33.33%
interests, respectively, acquired two industrial properties located in Waldaschaff and Nagold,
Germany totaling approximately 842,860 square feet. The venture acquired these properties from, and
entered into a net lease agreement with each of, Wagon Automotive GmbH (Waldaschaff lease) and
Wagon Automotive Nagold GmbH (Nagold lease) (collectively, Wagon), portfolio companies of WL
Ross & Co. LLC, a private equity firm based in New York. Through the venture, we and
CPA®:15 also entered into an agreement with Wagon to construct an expansion at one of
the facilities. The total cost of acquiring the existing facilities, including the acquisition fee
payable to CAM, was approximately 38,852,787, or $57,840,144, of which our share is
approximately 25,903,153, or $38,562,024. Additionally, the maximum construction cost to the
venture under the agreement is approximately 7,000,000, or $10,420,900, of which our share will
be a maximum of approximately 4,666,900, or $6,947,614. All U.S. dollar amounts above are based
on the exchange rate of the Euro on the date of closing or $1.4887. The venture has been structured
such that capital has been contributed in an amount equal to the ownership interests and profits
and losses and distributions are pro rata to ownership interests. As we have effective control, we
are consolidating this entity. The interest applicable to CPA®:15 is reflected as
noncontrolling interest in the accompanying consolidated pro forma financial statements. For pro
forma purposes, revenue and expenses have been translated using the average exchange rate for the
Euro for the year ended December 31, 2008 of $1.47134. Actual results are translated using the
average for the periods from acquisition through December 31, 2008 and for the six months ended
June 30, 2009.
7
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
The facilities are leased to Wagon by the venture under two net leases. Both leases have an initial
term of 15 years and provide for two five-year renewal options. The initial aggregate annual rent
under the leases is 3,417,875, or $5,028,856, of which our share is 2,278,697, or
$3,352,738. Additionally, the leases provide for annual rent
adjustments based on increases or decreases in the German CPI. The land portion of the Waldaschaff
lease has been accounted for separately as an operating lease as it represents more than 25% of the
fair value of the leased assets. The building portion of the Waldaschaff lease and the entire
Nagold lease have been classified as direct financing leases. Initial annual rent attributable to
the land portion of the Waldaschaff lease is 612,974, or $901,893, based on the lessees
incremental borrowing rate of 9.21%, with the remaining rent attributable to the building portion
of the Waldaschaff lease and the entire Nagold lease. Interest income from direct financing leases
is recorded such that we recognize income at a constant rate of interest and includes assumptions
on the residual value of the property as of the end of the initial lease term. Interest income for
the first lease year is 2,685,284, or $3,950,966, of which our share is 1,790,279, or
$2,634,109. For financial reporting purposes, no depreciation is recorded on direct financing
leases; however, for tax purposes such assets are depreciated on a straight-line basis over 40
years. Wagon terminated its Waldaschaff lease with us in the bankruptcy proceedings effective May
2009 but as of the date if this filing is paying us rent, albeit at a significantly reduced rate of
50,000 per month. Wagon also ceased making payments on its Nagold lease from May to June 2009,
but subsequently resumed paying rent to us at substantially the same payment terms. In October
2009, we terminated the Nagold lease and signed a new lease with Wagon Automotive Nagold GmbH on
substantially the same terms as the original Nagold lease.
The venture obtained non-recourse mortgage financing of 19,700,000, or $29,327,390, of which
our share is 13,133,990, or $19,552,571, with a fixed annual interest rate of 6.24% and a term
of seven years. The financing agreement provides for additional non-recourse financing of up to
3,500,000, or $5,210,450, of which our share is 2,333,450, or $3,473,807, for the purpose
of constructing the expansion. The additional financing will bear a fixed rate of interest at a
rate that will be determined at the date of financing and will mature in August 2015. All U.S.
dollar amounts are based on the exchange rate of the Euro on the date of closing or $1.4887.
Included in the historical balances for the year ended December 31, 2008 are rental income of
$314,803, interest income from direct financing leases of $1,380,261, general and administrative
expense of $18,636, property expenses of $50,546, other interest income of $2,198, loss on foreign
currency transactions and derivative instrument of $1,435,830, net loss attributable to
noncontrolling interests of $246,461, interest expense of $682,988, provision for income taxes of
$308,726 and net loss attributable to CPA®:17 Global shareholders of $553,003. There
were no pro forma adjustments for the six months ended June 30, 2009.
D. Life Time On September 26, 2008, we acquired two health and fitness facilities located in
Columbia, Maryland and Scottsdale, Arizona totaling approximately 220,340 square feet from, and
entered into a net lease agreement with, LTF Real Estate Company, Inc., a subsidiary of Life Time
Fitness, Inc. (Life Time). The total cost of acquiring the facilities, including the acquisition
fee payable to CAM, was approximately $63,365,113. The lease has an initial term of 20 years and
provides for four five-year renewal options. The initial aggregate annual rent under the lease is
approximately $5,658,029 with 2% annual rent increases. As a result of stated rent increases,
rental income is being recognized on an annual straight-line basis of $6,873,262. Rental income
also includes net annual amortization of above market intangibles of $27,872.
We obtained non-recourse mortgage financing of $39,300,000 with a fixed annual interest rate of
7.445% and a term of 15 years but may be prepaid at the end of year ten without penalty.
Depreciable and amortizable tangible and intangible assets are $48,307,663 and are being
depreciated and amortized for financial reporting purposes on a straight-line basis over periods
ranging from 20 years to 40 years at an annual amount of $1,237,034, and over 40 years on a
straight-line basis for tax purposes.
Included in the historical balances for the year ended December 31, 2008 are rental income of
$1,711,772, depreciation and amortization of intangibles of $309,258, interest expense of $761,508
and net income attributable to CPA®:17 Global shareholders of $641,006. There were no
pro forma adjustments for the six months ended June 30, 2009.
8
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
E. We pay our advisor an asset management fee ranging from 0.5% per annum of average market value
for long-term net leases and certain other types of real estate investments to 1.75% per annum of
average equity value for certain types of securities. Based on pro forma average invested assets
of $426,548,543 as of June 30, 2009, the pro forma fees amount to $2,379,806 for the year ended
December 31, 2008 and $1,189,903 for the six months ended June 30,
2009, of which $719,148 and $1,079,361, respectively, is included in the historical results of
operations, and is reflected in property expenses in the accompanying pro forma consolidated
statement of operations for the respective periods. The advisor is reimbursed for the cost of
personnel needed to provide administrative services to our operations. The amount of the
reimbursement is allocated based on adjusted gross revenue. Our pro forma calculation of
reimbursement for administrative services is $358,754 for the year ended December 31, 2008 and
$179,377 for the six months ended June 30, 2009, of which $17,963 and $132,173, respectively, is
included in the historical results of operations, and is reflected in general and administrative
expenses for the respective periods. Our pro forma calculation of deferred acquisition fees
payable to the advisor amount to $6,788,490 and $5,553,179 as of December 31, 2008 and June 30,
2009, respectively, and bear interest at an annual rate of 5%, or $339,425 for the year ended
December 31, 2008 and $152,333 for the six months ended June 30, 2009, of which $73,423 and
$128,846, respectively, is included in the historical results of operations, and is reflected in
interest expense for the respective periods. For pro forma purposes, other interest income from
uninvested cash is eliminated based on the assumption that substantially all cash proceeds of the
offering may be invested in real estate.
F. For tax purposes, rents are recognized on a contractual basis and differences between
contractual rents and rents recognized on a straight-line basis and interest income recognized at a
constant rate of interest are eliminated.
G. For financial reporting purposes, no depreciation is recorded on direct financing leases.
Depreciation is recorded for the purpose of determining the taxable income of certain direct
financing leases. The NYT lease is considered a loan for tax purposes, and as such, no deprecation
is recorded on the assets. Annual taxable depreciation of $961,693 is computed on a straight-line
basis over 40 years and is based on the tax basis of Wagons building and improvements, adjusted
for the exchange rate, of $38,467,728.
For financial reporting purposes, a portion of the underlying assets of the operating leases have
been classified as intangible assets and are being amortized on a straight-line basis over the
initial term or renewable term of the leases, ranging from 16 years to 40 years. Such assets are
classified as buildings and improvements for tax purposes and are being depreciated on a
straight-line basis over 40 years. As a result, annual depreciation and amortization for financial
reporting purposes is $251,897 less than depreciation computed for tax purposes.
H. For tax purposes, our basis in buildings and improvements is $135,533,479. Such assets are being
depreciated on a straight-line basis over 40 years resulting in annual taxable depreciation of
$3,388,337.
I. Amounts available for distribution were computed by adding back pro rata tax-basis depreciation
expense to taxable income and deducting pro rata scheduled principal amortization.
J. Our share of mortgage amortization is as follows:
Actebis |
$ | 356,422 | ||
Wagon |
527,960 | |||
Lifetime |
383,359 | |||
NYT |
1,425,784 | |||
$ | 2,693,525 | |||
9