Attached files
| file | filename |
|---|---|
| EX-2.1 - PSA BY AND AMONG GE CAPITAL FRANCHISE FINANCE CORPORATION - American Realty Capital Trust IV, Inc. | arctiv_ex2-1.htm |
| EX-23 - CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTING FIRM - American Realty Capital Trust IV, Inc. | arctiv-gecapitalex23.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
to
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 3, 2013 (June 2, 2013)
American Realty Capital Trust IV, Inc.
(Exact Name of Registrant as Specified in Charter)
Maryland | 000-54947 | 32-0372241 | ||
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
405 Park Avenue, 15th Floor New York, NY 10022 |
(Address, including zip code, of Principal Executive Offices) Registrant's telephone number, including area code: (212) 415-6500 |
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:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Explanatory Note
On June 3, 2013, American Realty Capital Trust IV, Inc. (the "Company") filed with the Securities and Exchange Commission (the "SEC") a Current Report on Form 8-K (the "Original Form 8-K") for the purpose of announcing its entry into a definitive purchase and sale agreement to acquire a real estate portfolio of 986 properties net leased to tenants concentrated in the retail sector located in 47 states. As of the filing of this Amendment No. 1 to the Original Form 8-K ("Amendment No. 1"), the Company plans to purchase, in total, 955 (including seven other revenue generating assets) of the 986 properties previously announced, 943 of which are subject to property leases and 12 of which are subject to direct financing leases, from certain affiliates of GE Capital. As of the filing of this Amendment No. 1, the Company has completed the acquisition of 371 properties and six properties which are subject to direct financing leases. The closing of the remainder of the acquisitions is subject to certain conditions as described in more detail below and therefore there can be no assurance that the Company will acquire all of the remaining properties, including 572 properties subject to property leases and six properties subject to direct financing leases. The Company believes that the completion of the Closings (as defined below) and acquisitions of the remaining properties aforementioned, is probable. The purpose of this Amendment No. 1 is to provide (i) the financial information related to such probable acquisition of the entire portfolio of 955 properties (part of which the Company has acquired, and the remainder of which the Company reasonably expects to acquire) required by Item 9.01 and (ii) certain additional information with respect to the Agreement (as defined below).
Item 1.01. Entry Into a Material Definitive Agreement.
Purchase and Sale Agreement with Certain Affiliates of GE Capital
On June 2, 2013, the Company, through American Realty Capital Operating Partnership IV, L.P. (the "O.P."), entered into a Purchase and Sale Agreement (the "Agreement") with GE Capital Franchise Finance Corporation, a Delaware corporation ("GEFF"), CNL APF Partners, LP, a Delaware limited partnership ("CNL APF") and RAI Restaurants, Inc., a Florida corporation ("RAI Restaurant" and together with GEFF and CNL APF, the "Seller Parties"). The Agreement provides for the purchase and sale of the Seller Parties' fee or leasehold interests, as applicable, in the Properties (as defined below) by the Company (the "Acquisition"), pursuant to the terms and conditions contained therein. Each of the Seller Parties is an affiliate of GE Capital. None of the sellers has a material relationship with the Company and the Acquisition is not an affiliated transaction.
Purchase and Sale of the Properties
The Seller Parties own a real estate portfolio of which the Company intends to acquire 955 properties, including 936 restaurants, 12 retail properties and seven other revenue generating assets located in 46 states and the District of Columbia, representing 3.3 million square feet (the "Properties"). The Properties are currently leased to 265 tenant groups. The leases are generally net, whereby the tenants are to pay substantially all operating expenses, including all costs to maintain and repair the roof and structure of the building, and the cost of all capital expenditures, in addition to base rent. The weighted-average original term of the leases is 17.6 years, with a remaining weighted-average term of approximately 11.2 years. The annualized rental income on a cash basis for the portfolio (including financing income from direct financing leases) will be approximately $88.9 million, or approximately $26.55 per rentable square foot. Annualized rental income excludes percentage rent that approximated $6.9 million for the year ended December 31, 2012. The contract purchase price of the portfolio is approximately $1.4 billion, subject to adjustments set forth in the Agreement and exclusive of closing costs. The Company intends to fund 48% of the purchase price with existing proceeds available from its recently completed initial public offering and the remaining 52% with proceeds made available under the Company's recently announced senior secured credit facility.
The Agreement provides that the Company's obligation to close upon the acquisition remains subject to the Company's satisfactory due diligence and other customary conditions to closing described in more detail below. The due diligence shall be undertaken at the Company's sole cost and expense and must be completed in a 21 day period (the "Due Diligence Phase"). During the Due Diligence Phase, the Company had the option to terminate the Agreement or designate up to 30 properties that it does not wish to acquire. Following the satisfaction or waiver of certain conditions, the initial closing took place on June 27, 2013 (the "Initial Closing," and the date thereof, the "Initial Closing Date").
Because certain conditions of the Initial Closing were not satisfied or waived by the Initial Closing Date, the consummation of the closing for any properties not closed on the Initial Closing Date were deferred, depending on the satisfaction of certain conditions relating to satisfaction of any existing property specific restraints on or about July 31, 2013, August 30, 2013 or September 26, 2013 (each such date a "Deferred Closing," and, together with the Initial Closing, the "Closings").
2
Pursuant to the terms of the Agreement, at the Closings, the Properties will be transferred free and clear of any liens or encumbrances (other than customary permitted title exceptions). The Seller Parties notified the Company in advance of the Initial Closing of certain Properties that were deemed "Heldback" and were not to be transferred, purchased or sold at the Initial Closing. Heldback Properties are those which fail to meet various criteria negotiated by the Seller Parties and the Company, including, but not limited to, tenant quality and creditworthiness, default of lease payments, and lease termination following property condemnation or casualty. If a Heldback Property is inadvertently purchased and sold at a Closing, each of the Seller Parties and the Company has the right to exercise a repurchase option whereby the Heldback Property will be "put back" to the Seller Parties if requested by either Party within 180 days following any of the Closings, but no later than December 31, 2013.
Accordingly, as of the date of this report, and until the completion of the Closings, there can be no assurance that the Company will acquire any or all of the remaining properties. However, the Company believes that the completion of the Closings and acquisitions of the Properties is probable.
Representations, Warranties and Covenants
The Seller Parties made customary representations and warranties to the Company relating to the Properties.
Conditions
Consummation of the Closings is subject to various conditions, including, among other things, the absence of any law, order or injunction prohibiting the consummation of the acquisition of any of the Properties, and the receipt of any necessary third party consents or governmental approvals. Moreover, each party's obligation to consummate the Closings is subject to the accuracy of the other party's representations and warranties (subject to customary qualifications) and the other party's material compliance with its covenants and agreements contained in the Agreement.
Indemnity
Pursuant to the Agreement, the Seller Parties have agreed to indemnify the Company for any breaches of their representations and warranties, as well as any breaches of its covenants and other agreements, subject to certain limitations. The Company agreed to similarly indemnify the Seller Parties.
Termination Rights
The Agreement also includes certain termination rights for both the Company and the Seller Parties. In connection with the termination of the Agreement, under specified circumstances, (i) the Company may be entitled to a return of its deposit, together with interest and other investment income earned thereon; to the receipt of liquidated damages in the amount of $10,000,000; or to sue for specific performance of the obligations of the Seller Parties, or (ii) the Seller Parties may be entitled to retain as liquidated damages the Company's deposit in the amount of $72,655,000, together with interest and other investment income earned thereon.
Guarantee
The obligations of the Seller Parties under the Agreement are unconditionally guaranteed by GE Capital Franchise Finance Corporation.
A copy of the Agreement is attached hereto as Exhibit 2.1 and is incorporated herein by reference. The foregoing description of the Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreement. The representations and warranties in the Agreement were made as of a specified date, are qualified by a confidential disclosure letter, may be subject to a contractual standard of materiality different from what might be viewed as material to stockholders, and may have been used for the purpose of allocating risk between the parties. Accordingly, the representations and warranties in the Agreement are not necessarily characterizations of the actual state of facts about the Company at the time they were made or otherwise and should only be read in conjunction with the other information that the Company makes publicly available in reports, statements and other documents filed with the SEC.
3
Forward-Looking Statements
Information set forth in this Amendment No. 1 (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 the Company's expectations regarding future events. The forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. Such forward-looking statements include, but are not limited to, whether and when the transactions contemplated by the Agreement will be consummated, the Company's plans, market and other expectations, objectives, intentions and other statements that are not historical facts.
The following additional factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the occurrence of any event, change or other circumstances that could give rise to the termination of the Agreement; the inability to complete the acquisitions due to the failure to satisfy other conditions to completion of the purchase and sale; unexpected costs or unexpected liabilities that may arise from the transaction, whether or not consummated; the inability to retain key personnel; continuation or deterioration of current market conditions; future regulatory or legislative actions that could adversely affect the companies; the business plans of the tenants of the respective parties; the outcome of any legal proceedings relating to the Agreement or the transactions contemplated by the Agreement; and risks to consummation of the Closings, including the risk that the purchase and sale will not be consummated within the expected time period or at all. Additional factors that may affect future results are contained in the Company's filings with the SEC, which are available at the SEC's website at www.sec.gov. The Company disclaims any obligation to update and revise statements contained in these materials based on new information or otherwise.
4
Item 9.01. Financial Statements and Exhibits.
Page | |
(a) Financial Statements of Businesses Acquired | |
The GE Capital Portfolio Historical Summary: | |
(b) Unaudited Pro Forma Consolidated Information | |
(c) Exhibits | |
Exhibit No. | Description | |
2.1 | Purchase and Sale Agreement by and among GE Capital Franchise Finance Corporation and Certain Affiliates and American Realty Capital Operating Partnership IV, L.P. * | |
23 | Consent of Grant Thornton LLP | |
* Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish a supplemental copy of any omitted schedule to the SEC upon request.
5
Report of Independent Certified Public Accounting Firm
Board of Directors and Stockholders
American Realty Capital Trust IV, Inc.
We have audited the accompanying Historical Summary of the fee simple interest in the GE Capital Portfolio which comprises the statement of revenues and certain expenses for the year ended December 31, 2012, and the related notes to the Historical Summary.
Management's responsibility for the financial statement
Management of American Realty Capital Trust IV, Inc. is responsible for the preparation and fair presentation of the Historical Summary in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Historical Summary that is free from material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Historical Summary. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the Historical Summary, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the Historical Summary in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the Historical Summary.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the revenues and certain expenses of the GE Capital Portfolio for the year ended December 31, 2012, in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
The accompanying Historical Summary was prepared for the purpose of complying with rules and regulations of the U.S. Securities and Exchange Commission and for inclusion in a Form 8-K/A of American Realty Capital Trust IV, Inc., as described in Note 1 to the Historical Summary, and is not intended to be a complete presentation of the GE Capital Portfolio's revenues and expenses.
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
July 15, 2013
6
THE GE CAPITAL PORTFOLIO
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(In thousands)
Three Months Ended | Year Ended | ||||||
March 31, 2013 | December 31, 2012 | ||||||
(Unaudited) | |||||||
Revenues: | |||||||
Rental income | $ | 24,932 | $ | 95,564 | |||
Direct financing lease income | 112 | 584 | |||||
Operating expense reimbursements | 83 | 128 | |||||
Other income | 34 | 230 | |||||
Total revenues | 25,161 | 96,506 | |||||
Operating expense: | |||||||
Property operating | 265 | 662 | |||||
Revenues in excess of certain expenses | $ | 24,896 | $ | 95,844 | |||
The accompanying notes are an integral part of these Statements of Revenues and Certain Expenses.
7
THE GE CAPITAL PORTFOLIO
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(References to amounts for the three months ended March 31, 2013 are unaudited)
1. Background and Basis of Presentation
The accompanying Statements of Revenues and Certain Expenses include the operations and financing income of 955 properties owned by certain affiliates of GE Capital, 943 of which are subject to property leases and 12 of which are subject to direct financing leases (the "GE Capital Portfolio") for the year ended December 31, 2012 and the three months ended March 31, 2013 (unaudited). On June 2, 2013, American Realty Capital Trust IV, Inc. (the "Company") through American Realty Capital Operating Partnership IV, L.P., the Company's consolidated operating partnership, entered into a purchase and sale agreement with certain affiliates of GE Capital for the purchase and sale of the GE Capital Portfolio. The contract purchase price of the GE Capital Portfolio is approximately $1.4 billion, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs. The GE Capital Portfolio contains approximately 3.3 million rentable square feet and consists of 936 restaurants, 12 retail properties and seven other revenue generating assets.
As of July 15, 2013, the Company has acquired 377 properties, 371 of which are subject to property leases and six of which are subject to direct financing leases, for an aggregate purchase price of $528.2 million. The remainder of the GE Capital Portfolio purchase is expected to close during the third quarter of 2013. The purchase and sale agreement, however, includes provisions that allow the Company to exclude certain properties based on criteria related to issues with obtaining clear title to the property and properties exceeding certain delinquency thresholds among other provisions. Therefore, the Company cannot assure that all 955 properties in the GE Capital Portfolio presented in this Historical Summary (as defined below) will be included in the final purchased portfolio. Additionally, as of July 15, 2013, the Company has not acquired all of the properties and, although the closing of the remainder of the acquisition is subject to certain conditions, including the completion of due diligence, there can be no assurance that the Company will acquire any or all of the remaining 578 properties. However, the Company believes that the completion of such acquisitions is probable.
The accompanying Statements of Revenues and Certain Expenses ("Historical Summary") have been prepared for the purpose of complying with the provisions of Rule 3-14 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the "SEC"), which require that certain information with respect to real estate operations be included within certain SEC filings. An audited statement of revenues and certain operating expenses is being presented for the most recent fiscal year available instead of the three most recent years based on the following factors: (a) the GE Capital Portfolio has been or is being acquired from an unaffiliated party and (b) based on due diligence of the GE Capital Portfolio by the Company, management is not aware of any material factors relating to the GE Capital Portfolio that would cause this financial information not to be indicative of future operating results.
2. Summary of Significant Accounting Policies
Revenue Recognition
Rental income includes the effect of amortizing the aggregate minimum lease payments over the terms of the leases, which amounted to an increase to rental income of $5.4 million and $1.1 million over the rental payments received in cash for the year ended December 31, 2012 and for the three months ended March 31, 2013, respectively. Under the terms of certain leases, certain tenants reimburse the properties' owner for certain expenses on a monthly basis. Reimbursements from the tenants are recognized as revenue in the period the applicable expenses are incurred.
As of March 31, 2013 and December 31, 2012, there were no tenants whose annualized rental income on a straight-line basis or income from direct financing leases represented greater than 10% of total annualized rental income for all tenants.
Direct financing lease income is recognized on the effective interest method to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values at the date of lease inception represent management's initial estimates of fair value of the leased assets at the expiration of the lease, not to exceed original cost. Significant assumptions used in estimating residual values include estimated net cash flows over the remaining lease term and expected future real estate values.
Use of Estimates
The preparation of the Historical Summary in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions of the reported amounts of revenues and certain expenses during the reporting periods. Actual results could differ from those estimates used in the preparation of the Historical Summary.
8
THE GE CAPITAL PORTFOLIO
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(References to amounts for the three months ended March 31, 2013 are unaudited)
3. Future Minimum Lease Payments
At March 31, 2013, the GE Capital Portfolio was 100% leased under non-cancelable operating leases with a remaining lease term of 11.4 years on a weighted-average basis. Future minimum lease payments are as follows (in thousands):
Operating leases | Direct financing leases | Total | ||||||||||
April 1, 2013 to December 31, 2013 | $ | 65,224 | $ | 994 | $ | 66,218 | ||||||
2014 | 85,071 | 992 | 86,063 | |||||||||
2015 | 83,205 | 704 | 83,909 | |||||||||
2016 | 81,896 | 666 | 82,562 | |||||||||
2017 | 78,305 | 570 | 78,875 | |||||||||
2018 and thereafter | 693,444 | 1,550 | 694,994 | |||||||||
Total | $ | 1,087,145 | $ | 5,476 | $ | 1,092,621 | ||||||
4. Subsequent Events
The Company has evaluated subsequent events through July 15, 2013, the date on which this Historical Summary has been issued and has determined that there have not been any events that have occurred that would require adjustments to, or disclosure in, the Historical Summary.
9
AMERICAN REALTY CAPITAL TRUST IV, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2013
The following Unaudited Pro Forma Consolidated Balance Sheet is presented as if American Realty Capital Trust IV, Inc. ("the Company") had acquired the entire GE Capital Portfolio as of March 31, 2013. This financial statement should be read in conjunction with the Unaudited Pro Forma Consolidated Statement of Operations and the Company's historical financial statements and notes thereto in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013. Land, land improvements, buildings, fixtures and acquired intangible lease assets include $1.4 billion, comprised of $387.7 million, $226.6 million, $498.4 million, $181.2 million and $125.2 million provisionally assigned to land, land improvements, buildings, fixtures and acquired intangible lease assets of the GE Capital Portfolio, respectively, pending management's final analysis of the classification of the acquired assets. The Pro Forma Consolidated Balance Sheet is unaudited and is not necessarily indicative of what the actual financial position would have been had the Company acquired the GE Capital Portfolio as of March 31, 2013, nor does it purport to present the future financial position of the Company.
On June 27, 2013, the Company acquired 377 of the 955 properties in the GE Capital Portfolio. The remaining 578 properties of the GE Capital Portfolio purchase are expected to close during the third quarter of 2013. The purchase and sale agreement, however, includes provisions that allow the Company to exclude certain properties based on criteria related to issues with obtaining clear title to the property and properties exceeding certain delinquency thresholds among other provisions. Therefore, the Company cannot assure that all 955 properties in the GE Capital Portfolio presented in the accompanying Unaudited Pro Forma Consolidated Balance Sheet or the Unaudited Pro Forma Consolidated Statements of Operations will be included in the final purchased portfolio. Additionally, as of July 15, 2013, the Company has not acquired all of the properties and, although the closing of the remainder of the acquisition is subject to certain conditions, including the completion of due diligence, there can be no assurance that the Company will acquire any or all of the remaining 578 properties. However, the Company believes that the completion of such acquisitions is probable.
10
AMERICAN REALTY CAPITAL TRUST IV, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2013
(In thousands) | American Realty Capital Trust IV, Inc. (1) | GE Capital Portfolio (2) | Pro Forma American Realty Capital Trust IV, Inc. | |||||||||
Assets | ||||||||||||
Real estate investments, at cost: | ||||||||||||
Land | $ | 39,326 | $ | 387,667 | (3) | $ | 426,993 | |||||
Buildings, fixtures and improvements | 161,868 | 904,557 | (3) | 1,066,425 | ||||||||
Acquired intangible lease assets | 24,875 | 125,247 | (3) | 150,122 | ||||||||
Total real estate investments, at cost | 226,069 | 1,417,471 | 1,643,540 | |||||||||
Less: accumulated depreciation and amortization | (1,954 | ) | — | (1,954 | ) | |||||||
Total real estate investments, net | 224,115 | 1,417,471 | 1,641,586 | |||||||||
Cash and cash equivalents | 1,067,095 | (702,158 | ) | (2) | 364,937 | |||||||
Investments in direct financing leases, net | — | 3,900 | (4) | 3,900 | ||||||||
Investment securities, at fair value | 61,600 | — | 61,600 | |||||||||
Prepaid expenses and other assets | 6,129 | — | 6,129 | |||||||||
Receivable for issuances of common stock | 169,097 | — | 169,097 | |||||||||
Total assets | $ | 1,528,036 | $ | 719,213 | $ | 2,247,249 | ||||||
Liabilities and Stockholders' Equity | ||||||||||||
Senior secured credit facility | $ | — | $ | 739,112 | (5) | $ | 739,112 | |||||
Accounts payable and accrued expenses | 16,579 | — | 16,579 | |||||||||
Deferred rent | 148 | — | 148 | |||||||||
Distributions payable | 6,619 | — | 6,619 | |||||||||
Total liabilities | 23,346 | 739,112 | 762,458 | |||||||||
Common stock | 694 | — | 694 | |||||||||
Additional paid-in capital | 1,522,650 | — | 1,522,650 | |||||||||
Accumulated other comprehensive loss | 335 | — | 335 | |||||||||
Accumulated deficit | (18,989 | ) | (19,899 | ) | (2) | (38,888 | ) | |||||
Total stockholders' equity | 1,504,690 | (19,899 | ) | 1,484,791 | ||||||||
Total liabilities and stockholders' equity | $ | 1,528,036 | $ | 719,213 | $ | 2,247,249 | ||||||
11
AMERICAN REALTY CAPITAL TRUST IV, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2013:
(1) | Reflects the Company's historical unaudited consolidated Balance Sheet as of March 31, 2013, as previously filed. |
(2) | Reflects the acquisition of the GE Capital Portfolio. The contract purchase price is approximately $1.4 billion and associated acquisition costs of approximately $19.9 million primarily representing legal fees and deed transfer fees, funded through (a) cash and (b) borrowings under the Company's senior secured credit facility. The associated acquisition costs of approximately $19.9 million are expensed as incurred and accordingly are reflected as a charge to accumulated deficit. |
(3) | The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings, fixtures, and tenant improvements are based on cost segregation studies performed by independent third-parties or the Company's analysis of comparable properties in its portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates and the value of in-place leases. Depreciation is computed using the straight-line method over the estimated lives of forty years for buildings, fifteen years for land improvements, five years for fixtures and the shorter of the useful life or the remaining lease term for tenant improvements. |
The aggregate value of intangible assets and liabilities, as applicable, related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period, which is estimated to be nine months. Estimates of costs to execute similar leases including leasing commissions, legal and other related expenses are also utilized. The value of in-place leases is amortized to expense over the initial term of the respective lease, which ranges from less than one year to 28 years. If a tenant terminates its lease, the unamortized portion of the in-place lease value and intangible is charged to expense.
Above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease. The capitalized below-market lease values will be amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, the Company initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.
In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company also considers information obtained about the property as a result of pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed. The allocations presented in the accompanying Unaudited Pro Forma Consolidated Balance Sheet are substantially complete; however, there are certain items that will be finalized once additional information is received. Accordingly, these allocations are subject to revision when final information is available, although the Company does not expect future revisions to have a significant impact on its financial position or results of operations.
12
AMERICAN REALTY CAPITAL TRUST IV, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(4) | Represents the fair value of receivables applicable to leases on certain investment properties accounted for as direct financing leases. Amounts represent the discounted remaining cash flows on the respective leases. The estimates presented in the accompanying Unaudited Pro Forma Consolidated Balance Sheet are substantially complete; however, there are certain items that will be finalized once additional information is received. Accordingly, these estimates are subject to revision when final information is available, although the Company does not expect future revisions to have a significant impact on its financial position or results of operations. |
(5) | Represents borrowings on the Company's existing senior secured credit facility to be used for the purchase of the GE Capital Portfolio. |
13
AMERICAN REALTY CAPITAL TRUST IV, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND THE THREE MONTHS ENDED MARCH 31, 2013
Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2012 and the three months ended March 31, 2013, are presented as if American Realty Capital Trust IV, Inc. ("the Company") had acquired the GE Capital Portfolio as of the beginning of each period presented. The Company was incepted on February 14, 2012 (date of inception) and, accordingly, the Company's historical operating results reflect the period from the date of inception to December 31, 2012. These financial statements should be read in conjunction with the Unaudited Pro Forma Consolidated Balance Sheet and the Company's historical financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the period from February 14, 2012 (date of inception) to December 31, 2012 and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013. The Pro Forma Consolidated Statements of Operations are unaudited and are not necessarily indicative of what the actual results of operations would have been had the Company acquired the GE Capital Portfolio as of the beginning of the period presented, nor does it purport to present the future results of operations of the Company.
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2012:
(In thousands) | American Realty Capital Trust IV, Inc. (1) | GE Capital Portfolio (2) | Pro Forma Adjustments GE Capital Portfolio | Pro Forma American Realty Capital Trust IV, Inc. | ||||||||||||
Revenues: | ||||||||||||||||
Rental income | $ | 378 | $ | 95,564 | $ | 1,195 | (3) | $ | 97,137 | |||||||
Direct financing lease income | — | 584 | — | 584 | ||||||||||||
Operating expense reimbursement | 36 | 128 | — | 164 | ||||||||||||
Other income | — | 230 | — | 230 | ||||||||||||
Total revenues | 414 | 96,506 | 1,195 | 98,115 | ||||||||||||
Operating expenses: | ||||||||||||||||
Property operating | 38 | 662 | — | 700 | ||||||||||||
Acquisition and transaction related | 2,309 | — | — | 2,309 | ||||||||||||
General and administrative | 320 | — | — | 320 | ||||||||||||
Depreciation and amortization | 303 | — | 63,696 | (4) | 63,999 | |||||||||||
Total operating expenses | 2,970 | 662 | 63,696 | 67,328 | ||||||||||||
Operating (loss) income | (2,556 | ) | 95,844 | (62,501 | ) | 30,787 | ||||||||||
Other income (expense): | ||||||||||||||||
Interest expense | — | — | (15,521 | ) | (5) | (15,521 | ) | |||||||||
Other income | 19 | — | — | 19 | ||||||||||||
Total other expenses | 19 | — | (15,521 | ) | (15,502 | ) | ||||||||||
Net (loss) income | $ | (2,537 | ) | $ | 95,844 | $ | (78,022 | ) | $ | 15,285 | ||||||
14
AMERICAN REALTY CAPITAL TRUST IV, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND THE THREE MONTHS ENDED MARCH 31, 2013
Unaudited Pro Forma Consolidated Statement of Operations for the three months ended March 31, 2013:
(In thousands) | American Realty Capital Trust IV, Inc. (1) | GE Capital Portfolio (2) | Pro Forma Adjustments GE Capital Portfolio | Pro Forma American Realty Capital Trust IV, Inc. | ||||||||||||
Revenues: | ||||||||||||||||
Rental income | $ | 2,555 | $ | 24,932 | $ | 695 | (3) | $ | 28,182 | |||||||
Direct financing lease income | — | 112 | — | 112 | ||||||||||||
Operating expense reimbursement | 142 | 83 | — | 225 | ||||||||||||
Other income | — | 34 | — | 34 | ||||||||||||
Total revenues | 2,697 | 25,161 | 695 | 28,553 | ||||||||||||
Operating expenses: | ||||||||||||||||
Property operating | 145 | 265 | — | 410 | ||||||||||||
Acquisition and transaction related | 4,745 | — | — | 4,745 | ||||||||||||
General and administrative | 152 | — | — | 152 | ||||||||||||
Depreciation and amortization | 1,644 | — | 15,924 | (4) | 17,568 | |||||||||||
Total operating expenses | 6,686 | 265 | 15,924 | 22,875 | ||||||||||||
Operating (loss) income | (3,989 | ) | 24,896 | (15,229 | ) | 5,678 | ||||||||||
Other income (expense): | ||||||||||||||||
Interest expense | — | — | (3,880 | ) | (5) | (3,880 | ) | |||||||||
Income from investments | 633 | — | — | 633 | ||||||||||||
Other income | 113 | — | — | 113 | ||||||||||||
Total other expenses | 746 | — | (3,880 | ) | (3,134 | ) | ||||||||||
Net (loss) income | $ | (3,243 | ) | $ | 24,896 | $ | (19,109 | ) | $ | 2,544 | ||||||
15
AMERICAN REALTY CAPITAL TRUST IV, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2012 and the three months ended March 31, 2013:
(1) Reflects the Company's historical operations for the period indicated as previously filed.
(2) Reflects the operations of the GE Capital Portfolio for the year ended December 31, 2012 and the three months ended March 31, 2013.
(3) Represents adjustments to estimated straight-line rent for lease terms as of the assumed acquisition date.
(4) Represents the estimated depreciation and amortization of real estate investments and intangible lease assets had the property been acquired as of the beginning of each period presented. Depreciation is computed using the straight-line method over the estimated lives of fifteen years for land improvements, forty years for buildings and five years for fixtures. The value of in-place leases and tenant improvements are amortized to expense over the initial term of the respective leases, which ranges from less than less than one year to 28 years.
(5) Represents estimated interest expense for the $739.1 million of borrowings on the Company's senior secured credit facility at an estimated annual rate of 2.10%.
Note: Pro forma adjustments exclude one-time acquisition costs of approximately $19.9 million primarily representing legal fees and deed transfer fees for the acquisitions of the GE Capital Portfolio.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
AMERICAN REALTY CAPITAL TRUST IV, INC. | ||
Dated: July 15, 2013 | By: | /s/ Nicholas S. Schorsch |
Nicholas S. Schorsch | ||
Chief Executive Officer and Chairman of the Board of Directors | ||
17