New York REIT Liquidating LLC - FORM 10-Q - November 4, 2014

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EX-31.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER OF THE COMPANY - New York REIT Liquidating LLCnyrt09302014ex31110-qss.htm
EX-10.2 - FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALE, DATED AS OF AUGUST 22, 2014 - New York REIT Liquidating LLCnyrt09302014ex10210-qss.htm
EX-10.1 - AGREEMENT OF PURCHASE AND SALE, DATED AS OF JULY 29, 2014 - New York REIT Liquidating LLCnyrt09302014ex10110-qss.htm
EX-32 - WRITTEN STATEMENTS OF THE PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL - New York REIT Liquidating LLCnyrt09302014ex3210-qss.htm
EXCEL - IDEA: XBRL DOCUMENT - New York REIT Liquidating LLCFinancial_Report.xls
EX-31.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER OF THE COMPANY - New York REIT Liquidating LLCnyrt09302014ex31210-qss.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission file number: 001-36416

NEW YORK REIT, INC.
(Exact name of registrant as specified in its charter)
Maryland
 
27-1065431
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
405 Park Ave., 15th Floor, New York, NY
 
10022
(Address of principal executive offices)
 
(Zip Code)
(212) 415-6500
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x (Do not check if a smaller reporting company)
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

As of October 31, 2014, the registrant had 162,185,052 shares of common stock, $0.01 par value per share, outstanding.




NEW YORK REIT, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
NEW YORK REIT, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)


 
 
September 30,
 
December 31,
 
 
2014
 
2013
ASSETS
 
(Unaudited)
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
498,820

 
$
425,814

Buildings, fixtures and improvements
 
1,223,365

 
989,145

Acquired intangible lease assets
 
151,346

 
127,846

Total real estate investments, at cost
 
1,873,531

 
1,542,805

Less accumulated depreciation and amortization
 
(102,191
)
 
(41,183
)
Total real estate investments, net
 
1,771,340

 
1,501,622

Cash and cash equivalents
 
26,111

 
233,377

Restricted cash
 
10,308

 
1,122

Investment securities, at fair value
 
4,334

 
1,048

Investments in unconsolidated joint ventures
 
228,749

 
234,774

Preferred equity investment
 
35,100

 
30,000

Derivatives, at fair value
 
443

 
490

Receivable for sale of common stock
 
—

 
11,127

Due from affiliate
 
1,000

 
—

Prepaid expenses and other assets
 
36,903

 
21,404

Deferred costs, net
 
14,475

 
13,341

Total assets
 
$
2,128,763

 
$
2,048,305

 
 
 
 
 
LIABILITIES AND EQUITY
 
 

 
 

Mortgage notes payable
 
$
172,363

 
$
172,716

Credit facility
 
625,000

 
305,000

Market lease intangibles, net
 
81,813

 
73,029

Derivatives, at fair value
 
14,224

 
875

Accounts payable and accrued expenses
 
24,269

 
30,703

Deferred rent and other liabilities
 
3,990

 
7,997

Dividends payable
 
—

 
8,726

Total liabilities
 
921,659

 
599,046

Preferred stock, $0.01 par value; 40,866,376 shares authorized, none issued and outstanding
 
—

 
—

Convertible preferred stock, $0.01 par value, 9,133,624 shares authorized, none issued and outstanding
 
—

 
—

Common stock, $0.01 par value; 300,000,000 shares authorized, 162,185,052 and 174,120,408 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively
 
1,620

 
1,741

Additional paid-in capital
 
1,400,400

 
1,533,698

Accumulated other comprehensive loss
 
(359
)
 
(613
)
Accumulated deficit
 
(209,463
)
 
(86,008
)
Total stockholders' equity
 
1,192,198

 
1,448,818

Non-controlling interests
 
14,906

 
441

Total equity
 
1,207,104

 
1,449,259

Total liabilities and equity
 
$
2,128,763

 
$
2,048,305

The accompanying notes are an integral part of these financial statements.

2
NEW YORK REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
30,246

 
$
14,476

 
$
83,521

 
$
32,283

Operating expense reimbursements and other revenue
 
10,268

 
1,252

 
26,534

 
2,677

Total revenues
 
40,514

 
15,728

 
110,055

 
34,960

Operating expenses:
 
 

 
 

 
 

 
 
Property operating
 
15,557

 
3,670

 
43,641

 
7,855

Operating fees to affiliates
 
2,980

 
—

 
5,254

 
—

Acquisition and transaction related
 
4,436

 
4,273

 
16,082

 
4,639

Vesting of asset management fees
 
—

 
—

 
11,500

 
—

Change in fair value of listing promote
 
(24,700
)
 
—

 
13,400

 
—

General and administrative
 
3,339

 
183

 
7,458

 
547

Depreciation and amortization
 
21,657

 
10,259

 
62,892

 
20,531

Total operating expenses
 
23,269

 
18,385

 
160,227

 
33,572

Operating income (loss)
 
17,245

 
(2,657
)
 
(50,172
)
 
1,388

Other income (expenses):
 
 

 
 

 
 

 
 
Interest expense
 
(8,407
)
 
(2,749
)
 
(17,159
)
 
(7,589
)
Loss from unconsolidated joint venture
 
(85
)
 
—

 
(1,121
)
 
—

Income from preferred equity investment, investment securities and interest
 
769

 
26

 
2,070

 
27

Gain on derivative instruments
 
—

 
—

 
1

 
4

Total other expenses
 
(7,723
)
 
(2,723
)
 
(16,209
)
 
(7,558
)
Net income (loss)
 
9,522

 
(5,380
)
 
(66,381
)
 
(6,170
)
Net loss attributable to non-controlling interests
 
173

 
7

 
683

 
22

Net income (loss) attributable to stockholders
 
$
9,695

 
$
(5,373
)
 
$
(65,698
)
 
$
(6,148
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Designated derivatives, fair value adjustment
 
1,164

 
(1,683
)
 
3

 
450

Unrealized gain (loss) on investment securities
 
(77
)
 
(172
)
 
251

 
(181
)
Comprehensive income (loss) attributable to stockholders
 
$
10,782

 
$
(7,228
)
 
$
(65,444
)
 
$
(5,879
)
 
 
 
 
 
 
 
 
 
Basic net income (loss) per share attributable to stockholders
 
$
0.06

 
$
(0.06
)
 
$
(0.39
)
 
$
(0.12
)
Diluted net income (loss) per share attributable to stockholders
 
$
0.05

 
$
(0.06
)
 
$
(0.39
)
 
$
(0.12
)

The accompanying notes are an integral part of these financial statements.

3
NEW YORK REIT, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Nine Months Ended September 30, 2014
(In thousands, except share data)
(Unaudited)


 
 
Common Stock
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
Number
of
Shares
 
Par
Value
 
Additional
Paid-In
Capital
 
 
Accumulated
Deficit
 
Total Stockholders'
Equity
 
Non-
controlling
Interests
 
Total
Equity
Balance, December 31, 2013
 
174,120,408

 
$
1,741

 
$
1,533,698

 
$
(613
)
 
$
(86,008
)
 
$
1,448,818

 
$
441

 
$
1,449,259

Issuances of common stock
 
18,908

 
—

 
184

 
—

 
—

 
184

 
—

 
184

Common stock offering costs, commissions and dealer manager fees
 
—

 
—

 
(95
)
 
—

 
—

 
(95
)
 
—

 
(95
)
Common stock issued though distribution reinvestment plan
 
2,002,008

 
20

 
18,999

 
—

 
—

 
19,019

 
—

 
19,019

Common stock repurchases, inclusive of fees and expenses
 
(14,175,117
)
 
(141
)
 
(153,622
)
 
—

 
—

 
(153,763
)
 
—

 
(153,763
)
Dividends declared
 
—

 
—

 
—

 
—

 
(57,757
)
 
(57,757
)
 
—

 
(57,757
)
Contributions from non-controlling interest holders of affiliates
 
—

 
—

 
—

 
—

 
—

 
—

 
750

 
750

Issuance of OP units to affiliates
 
—

 
—

 
—

 
—

 
—

 
—

 
11,500

 
11,500

Equity-based compensation
 
218,845

 
—

 
1,236

 
—

 
—

 
1,236

 
3,312

 
4,548

Distributions to non-controlling interest holders
 
—

 
—

 
—

 
—

 
—

 
—

 
(414
)
 
(414
)
Other comprehensive income
 
—

 
—

 
—

 
254

 
—

 
254

 
—

 
254

Net loss
 
—

 
—

 
—

 
—

 
(65,698
)
 
(65,698
)
 
(683
)
 
(66,381
)
Balance, September 30, 2014
 
162,185,052

 
$
1,620

 
$
1,400,400

 
$
(359
)
 
$
(209,463
)
 
$
1,192,198

 
$
14,906

 
$
1,207,104


The accompanying notes are an integral part of this financial statement.

4
NEW YORK REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Nine Months Ended September 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net loss
$
(66,381
)
 
$
(6,170
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 

Depreciation
47,370

 
14,766

Amortization of intangibles
15,522

 
5,764

Amortization of deferred financing costs
6,533

 
1,685

 Accretion of market lease liabilities and amortization of above-market lease assets, net
(7,015
)
 
(1,362
)
Vesting of asset management fees
11,500

 
—

Share-based compensation
4,548

 
202

Loss (gain) on fair value of the listing promote and other derivatives
13,399

 
(4
)
   Loss from unconsolidated joint venture
1,121

 
—

Changes in assets and liabilities:
 

 
 

Prepaid expenses and other assets
(16,115
)
 
(8,539
)
Accounts payable and accrued expenses
(4,411
)
 
(713
)
Due from affiliated entities
(1,000
)
 
—

Deferred rent and other liabilities
(4,007
)
 
776

Net cash provided by operating activities
1,064

 
6,405

Cash flows from investing activities:
 

 
 

Investment in real estate and other assets
(316,206
)
 
(348,840
)
Acquisition funds held in escrow
(8,428
)
 
—

Deposits for investments in real estate
—

 
(10,000
)
Capital expenditures
(5,842
)
 
(10,488
)
Distributions from unconsolidated joint venture
5,177

 
—

Purchase of investment securities
(3,035
)
 
(1,288
)
Net cash used in investing activities
(328,334
)
 
(370,616
)
Cash flows from financing activities:
 

 
 

Payments on mortgage notes payable
(353
)
 
(72,738
)
Payments of financing costs
(7,293
)
 
(4,883
)
Proceeds from credit facility
320,000

 
80,000

Payments on credit facility
—

 
(19,995
)
Proceeds from issuance of common stock
11,311

 
847,874

Proceeds from issuance of operating partnership units
750

 
—

Repurchases of common stock, inclusive of fees and expenses
(154,269
)
 
(1,413
)
Payments of offering costs and fees related to stock issuances
(1,506
)
 
(83,298
)
Dividends paid
(47,464
)
 
(9,384
)
Due from affiliate
—

 
(175
)
Distributions to non-controlling interest holders
(414
)
 
(51
)
Restricted cash
(758
)
 
(528
)
Net cash provided by financing activities
120,004

 
735,409

Net increase (decrease) in cash and cash equivalents
(207,266
)
 
371,198

Cash and cash equivalents, beginning of period
233,377

 
5,354

Cash and cash equivalents, end of period
$
26,111

 
$
376,552


5
NEW YORK REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Nine Months Ended September 30,
 
2014
 
2013
Supplemental disclosures:
 
 
 
Cash paid for interest
$
10,496

 
$
5,701

Non-cash investing and financing activities:
 

 
 

Mortgage notes payable used to acquire investments in real estate
$
—

 
$
60,000

Common stock issued through distribution reinvestment plan
19,019

 
9,324


The accompanying notes are an integral part of these financial statements.

6
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)



Note 1 — Organization
New York REIT, Inc. (the "Company") focuses on acquiring and owning income-producing commercial real estate in New York City, primarily office and retail properties located in Manhattan. To add diversity to the portfolio, the Company may also acquire multifamily, industrial, hotel and other types of real properties as well as originate or acquire first mortgage loans, mezzanine loans, or preferred equity interests related to New York City real estate. The Company purchased its first property and commenced active operations in June 2010. As of September 30, 2014, the Company owned 24 properties and real estate-related assets.
In September 2010, the Company commenced its initial public offering (the "IPO") on a "reasonable best efforts" basis of up to 150.0 million shares of common stock at a price of $10.00 per share, subject to certain volume and other discounts. The Company's IPO closed in December 2013. The Company operated as a non-traded real estate investment trust ("REIT") through April 14, 2014. On April 15, 2014, the Company listed its common stock on the New York Stock Exchange ("NYSE") under the symbol "NYRT" (the "Listing"). Concurrent with the Listing, the Company offered to purchase up to 23.3 million shares of its common stock at a price of $10.75 per share (the “Tender Offer”). As a result of the Tender Offer, on May 12, 2014, the Company purchased 14.2 million shares of its common stock at a price of $10.75 per share, for an aggregate of $152.3 million, excluding fees and expenses relating to the Tender Offer and including fractional shares repurchased thereafter.
The Company, incorporated on October 6, 2009, is a Maryland corporation that qualified as a REIT for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2010.  Substantially all of the Company's business is conducted through New York Recovery Operating Partnership, L.P. (the "OP"), a Delaware limited partnership. The Company has no employees.  The Company has retained New York Recovery Advisors, LLC (the "Advisor") to manage its affairs on a day-to-day basis. New York Recovery Properties, LLC (the "Property Manager") serves as the Company's property manager, unless services are performed by a third party for specific properties.  Realty Capital Securities, LLC (the "Dealer Manager") served as the dealer manager of the IPO and continues to provide the Company with various services.  The Advisor, Property Manager and Dealer Manager are under common control with the parent of the Company's sponsor, American Realty Capital III, LLC (the "Sponsor"), as a result of which, they are related parties and receive compensation, fees and expense reimbursements for services related to the investment and management of the Company's assets.
Note 2 — Summary of Significant Accounting Policies
The accompanying consolidated financial statements of the Company included herein were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results for the entire year or any subsequent interim period.
These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of, and for the year ended December 31, 2013, which are included in the Company's Annual Report on Form 10-K filed with the SEC on February 28, 2014. There have been no significant changes to the Company's significant accounting policies during the nine months ended September 30, 2014, other than the updates described below and the subsequent notes.
Reclassifications
Certain prior quarter amounts have been reclassified to conform to the current quarter presentation.
Restricted Cash
Restricted cash primarily consists of funds held in escrow for seller free rent credits and reserves related to lease expirations as well as maintenance, structural, and debt service reserves.


7
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)



Listing Note
Concurrently with the Listing, the Company caused the OP to issue the Listing Note (see Note 9 - Subordinated Listing Distribution Derivative). The Listing Note value will be determined, in part, based on the average market value of the Company’s outstanding common stock for the period 180 days to 210 days after the Listing. Until the principal amount of the Listing Note is determined, the Listing Note is treated as a derivative and the Company estimates the contingent consideration using a valuation model and records the fair value of the Listing Note on the consolidated balance sheets. The initial fair value and subsequent changes in fair value are recorded in the consolidated statements of operations.
Multi-Year Outperformance Agreement
On April 15, 2014 (the "Effective Date"), in connection with the Listing, the Company entered into a Multi-Year Outperformance Agreement (the “OPP”) with the OP and the Advisor. See Note 16 - Share-Based Compensation.
Tender Offer
The Company recorded the excess of the cost of the tendered shares over its par value to additional paid-in capital.
Recent Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board ("FASB") issued new accounting guidance clarifying the accounting and disclosure requirements for obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In April 2014, the FASB amended the requirements for reporting discontinued operations. Under the revised guidance, in addition to other disclosure requirements, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component or group of components meets the criteria to be classified as held for sale, disposed of by sale or other than by sale. The Company has adopted the provisions of this guidance effective January 1, 2014, and has applied the provisions prospectively. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In May 2014, the FASB issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is not permitted under GAAP. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. The Company has not yet selected a transition method and is currently evaluating the impact of the new guidance.


8
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


Note 3 — Real Estate Investments
 The following table presents the allocation of the assets acquired and liabilities assumed during the nine months ended September 30, 2014 and 2013.
 
 
Nine Months Ended September 30,
(Dollar amounts in thousands)
 
2014
 
2013
Real estate investments, at cost:
 
 
 
 
Land
 
$
73,006

 
$
116,100

Buildings, fixtures and improvements
 
230,566

 
289,771

Total tangible assets
 
303,572

 
405,871

Acquired intangibles:
 
 
 
 
In-place leases
 
25,095

 
38,001

Above-market lease assets
 
—

 
7,726

Below-market lease liabilities
 
(17,834
)
 
(29,159
)
Total acquired intangibles
 
7,261

 
16,568

Total assets acquired, net
 
310,833

 
422,439

Additional investment in unconsolidated joint venture
 
273

 
—

Mortgage notes payable used to acquire investments in real estate
 
—

 
(60,000
)
Preferred equity investment
 
5,100

 
—

Other liabilities assumed
 
—

 
(13,599
)
Cash paid for acquired real estate investments and other assets
 
$
316,206

 
$
348,840

Number of properties and other investments purchased
 
1

 
3

The allocations above for the nine months ended September 30, 2014 have been provisionally assigned to each class, pending receipt of additional information.
The following table presents pro forma information as if the acquisition during the nine months ended September 30, 2014 had been consummated on January 1, 2013. Additionally, the pro forma net loss attributable to stockholders was adjusted to exclude acquisition and transaction related expenses of $4.4 million from the nine months ended September 30, 2014.

 
 
Nine Months Ended September 30,
(In thousands)
 
2014
 
2013
Pro forma revenues
 
$
124,996

 
$
52,431

Pro forma net income (loss) attributable to stockholders
 
$
(55,250
)
 
$
906

Diluted pro forma net income (loss) per share attributable to stockholders
 
$
(0.33
)
 
$
0.01



9
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)



The following table presents future minimum base cash rental payments due to the Company, excluding future minimum base cash rental payments related to unconsolidated joint ventures, subsequent to September 30, 2014.  These amounts exclude contingent rental payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items. 
(In thousands)
 
Future Minimum Base Cash Rent Payments
October 1, 2014 - December 31, 2014
 
$
22,622

2015
 
105,175

2016
 
94,060

2017
 
91,692

2018
 
89,668

Thereafter
 
668,717

 
 
$
1,071,934

The following table lists the tenants whose annualized rental income on a straight-line basis represented greater than 10% of total annualized rental income for all portfolio properties on a straight-line basis as of September 30, 2014 and 2013:
 
 
 
 
September 30,
Property Portfolio
 
Tenant
 
2014
 
2013
Worldwide Plaza
 
Cravath, Swaine & Moore, LLP
 
15.8%
 
*
Worldwide Plaza
 
Nomura Holding America, Inc.
 
10.7%
 
*
333 West 34th Street
 
The Segal Company (Eastern States) Inc.
 
*
 
14.9%
50 Varick Street
 
Spring Studios New York LLC
 
*
 
10.8%
_____________________
* Tenant's annualized rental income on a straight-line basis was not greater than 10% of total annualized rental income for all portfolio properties as of the period specified.
The termination, delinquency or non-renewal of any of the above tenants may have a material adverse effect on revenues. No other tenant represents more than 10% of annualized rental income as of September 30, 2014 and 2013.
Note 4 — Investment in Unconsolidated Joint Venture
On October 30, 2013, the Company purchased a 48.9% equity interest in WWP Holdings, LLC ("Worldwide Plaza") for a contract purchase price of $220.1 million. The purchase price reflected an agreed value for Worldwide Plaza of $1,325.0 million less $875.0 million of debt on the property. As of September 30, 2014, the Company's pro-rata portion of debt on Worldwide Plaza was $427.9 million. The debt on the property has a weighted average interest rate of 4.6% and matures in March 2023. The Company accounts for the investment in Worldwide Plaza using the equity method of accounting because the Company exercises significant influence over, but does not control, the entity. As of September 30, 2014, the carrying value of the Company's investment in Worldwide Plaza was $228.7 million.
Pursuant to the terms of the membership agreement governing the Company’s purchase of the 48.9% equity interest in Worldwide Plaza, the Company retains an option to purchase the balance of the equity interest in Worldwide Plaza beginning 38 months following the closing of the acquisition at an agreed value of $1.4 billion, subject to certain adjustments, including adjustments for certain loans that are outstanding at the time of any exercise and adjustments for the percentage equity interest being acquired.
At acquisition, the Company's investment in Worldwide Plaza exceeded the Company's share of the book value of the net assets of Worldwide Plaza by $260.6 million. This basis difference resulted from the excess of the Company's purchase price for the interest in Worldwide Plaza over the book value of Worldwide Plaza's net assets. Substantially all of this basis difference was allocated, based on the Company's estimates of the fair values of Worldwide Plaza's assets and liabilities, to real estate (land and buildings). The Company amortizes the basis difference over the anticipated useful lives of the underlying tangible and intangible assets acquired and liabilities assumed.

10
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


During the three and nine months ended September 30, 2014, the Company recorded $0.1 million and $1.1 million of loss, respectively, related to its investment in Worldwide Plaza, which includes $3.9 million and $11.7 million of preferred distributions earned, respectively, net of the Company's pro rata share of Worldwide Plaza's net loss during the same period and $3.2 million and $9.7 million of depreciation and amortization expense, respectively, relating to the amortization of the basis difference. The basis difference related to the land will be recognized upon disposition of the Company's investment. The income (loss) related to the Company's investment in Worldwide Plaza is included in other income (expenses) on the consolidated statements of operations and comprehensive income (loss).
The amounts reflected in the following tables (except for the Company’s share of equity and income) are based on the financial information of Worldwide Plaza. The Company does not record losses of the joint venture in excess of its investment balance unless the Company is liable for the obligations of the joint venture or is otherwise committed to provide financial support to the joint venture.
The condensed balance sheets as of September 30, 2014 and December 31, 2013 for Worldwide Plaza are as follows:
(In thousands)
 
September 30,
2014
 
December 31,
2013
Real estate assets, at cost
 
$
698,939

 
$
696,342

Less accumulated depreciation and amortization
 
(92,066
)
 
(77,919
)
Total real estate assets, net
 
606,873

 
618,423

Other assets
 
263,068

 
248,048

Total assets
 
$
869,941

 
$
866,471

 
 
 
 
 
Debt
 
$
875,000

 
$
875,000

Other liabilities
 
16,772

 
9,923

Total liabilities
 
891,772

 
884,923

Deficit
 
(21,831
)
 
(18,452
)
Total liabilities and deficit
 
$
869,941

 
$
866,471

 
 
 
 
 
Company's basis
 
$
228,749

 
$
234,774


11
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


The condensed statement of operations for the three and nine months ended September 30, 2014 for Worldwide Plaza is as follows:
 
 
Three Months Ended
 
Nine Months Ended
(In thousands)
 
September 30, 2014
 
September 30, 2014
Rental income
 
$
28,867

 
$
84,261

Other revenue
 
1,242

 
3,686

Total revenue
 
30,109

 
87,947

Operating expenses:
 
 
 
 
Operating expense
 
11,407

 
33,699

Depreciation and amortization
 
6,261

 
18,889

Total operating expenses
 
17,668

 
52,588

Operating income
 
12,441

 
35,359

Interest expense
 
(10,102
)
 
(29,976
)
Net income
 
2,339

 
5,383

Company's preferred distribution
 
(3,936
)
 
(11,681
)
Net loss to members
 
$
(1,597
)
 
$
(6,298
)
 
 
 
 
 
Company's preferred distribution
 
$
3,936

 
$
11,681

Company's share of net loss from Worldwide Plaza
 
(780
)
 
(3,079
)
Amortization of difference in basis
 
(3,241
)
 
(9,723
)
Company's loss from Worldwide Plaza
 
$
(85
)
 
$
(1,121
)

Note 5 — Preferred Equity Investment
As of September 30, 2014 and December 31, 2013, the Company owned a preferred equity investment in an institutional quality office building located at 123 William Street in the Financial District of Downtown Manhattan. As of September 30, 2014, the preferred equity investment had a carrying amount of $35.1 million, a five-year term maturing in October 2018, a 0.75% origination fee, a 6.0% current pay rate, and a 2.0% accrual rate (the accrual rate will increase to 2.25% after year two, 2.75% after year three, and 3.25% after year four). The Company's preferred equity investment includes potential additional capital contributions not to exceed a total preferred equity investment of $40.0 million.
The preferred equity investment has a fixed return based on contributed capital, no participation in profits or losses of the real estate activities, and property foreclosure rights in the event of default. As such, the Company records returns earned in income from preferred equity investment, investment securities and interest income on the consolidated statements of operations and comprehensive income (loss). The Company assesses the investment for impairment on a periodic basis.
Note 6 — Investment Securities
As of September 30, 2014, the Company had investments in redeemable preferred stock and a real estate income fund, with an aggregate fair value of $4.3 million. The real estate income fund is managed by an affiliate of the Sponsor (see Note 14 — Related Party Transactions and Arrangements). These investments are considered available-for-sale securities and therefore increases or decreases in the fair value of these investments are recorded in accumulated other comprehensive income (loss) as a component of equity on the consolidated balance sheets unless the securities are considered to be other than temporarily impaired at which time the losses would be reclassified to expense.

12
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


The following table details the unrealized gains and losses on investment securities as of September 30, 2014 and December 31, 2013:
(In thousands)
 
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
September 30, 2014
 
$
4,324

 
$
40

 
$
(30
)
 
$
4,334

December 31, 2013
 
$
1,288

 
$
—

 
$
(240
)
 
$
1,048

Unrealized losses as of September 30, 2014 were considered temporary and therefore no impairment was recorded during the three and nine months ended September 30, 2014 and 2013.
The Company's preferred stock investments are redeemable at the respective issuer's option after five years from issuance.
Note 7 — Credit Facility
On March 30, 2012, the Company entered into a senior unsecured revolving credit facility with Capital One, National Association ("Capital One") in the amount of $40.0 million. On August 20, 2013, the Company entered into a $220.0 million credit facility with Capital One, which provided for aggregate revolving loan borrowings of up to $110.0 million and aggregate term loan borrowings of up to $110.0 million. The credit facility contained an "accordion" feature to allow the Company, under certain circumstances, to increase the aggregate commitments under the credit facility to a maximum of $325.0 million. On December 23, 2013, the Company amended the credit facility to decrease the aggregate revolving loan borrowings to $50.0 million and increase the aggregate term loan borrowings to $340.0 million.
On April 14, 2014, the Company entered into an amendment to the credit facility with Capital One ("Amended Facility"). The Amended Facility allows for total borrowings of up to $705.0 million with a $305.0 million term loan and a $400.0 million revolving loan. The term loan component of the Amended Facility matures in August 2018 and the revolving loan component matures in August 2016. The Amended Facility contains an "accordion feature" to allow the Company, under certain circumstances, to increase the aggregate loan borrowings to up to $1.0 billion of total borrowings.
During the three months ended September 30, 2014, the Company expensed $3.1 million of financing costs in interest expense on the consolidated statements of operations and comprehensive income (loss) as a result of the credit facility amendments.
The Company has the option, based upon its corporate leverage, to have the Amended Facility priced at either: (a) LIBOR, plus an applicable margin that ranges from 1.50% to 2.25%; or (b) the Base Rate plus an applicable margin that ranges from 0.50% to 1.25%. Base Rate is defined in the Amended Facility as the greatest of (i) the fluctuating annual rate of interest announced from time to time by the lender as its “prime rate,” (ii) 0.50% above the federal funds effective rate and (iii) 1.00% above the applicable one-month LIBOR. The outstanding balance of the term and revolving portions of the Amended Facility as of September 30, 2014 was $305.0 million and $320.0 million, respectively. The balance of the term portion of the facility at December 31, 2013 was $305.0 million. The facility had a combined weighted average interest rate of 1.96% and 2.19% as of September 30, 2014 and December 31, 2013, respectively, a portion of which is fixed with an interest rate swap. The Amended Facility includes an unused commitment fee per annum of (a) 0.15% if the unused balance of the facility is equal to or less than 50% of the available facility and (b) 0.25% if the unused balance of the facility exceeds 50% of the available facility. The unused borrowing capacity, based on the value of the borrowing base properties as of September 30, 2014, was $10.6 million. Availability of borrowings is based on a pool of eligible unencumbered real estate assets.
The Amended Facility provides for monthly interest payments for each Base Rate loan and periodic payments for each LIBOR loan, based upon the applicable LIBOR loan period, with all principal outstanding being due on the maturity date. The Amended Facility may be prepaid at any time, in whole or in part, without premium or penalty. In the event of a default, the lenders have the right to terminate their obligations under the Amended Facility and to accelerate the payment on any unpaid principal amount of all outstanding loans.
The Amended Facility requires the Company to meet certain financial covenants, including the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) as well as the maintenance of a minimum net worth. As of September 30, 2014, the Company was in compliance with the debt covenants under the Amended Facility agreement.

13
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


Note 8 — Mortgage Notes Payable
The Company's mortgage notes payable as of September 30, 2014 and December 31, 2013 consist of the following:
 
 
 
 
Outstanding Loan Amount
 
 
 
 
 
 
Portfolio
 
Encumbered
Properties
 
September 30,
2014
 
December 31,
2013
 
Effective
Interest Rate
 
Interest Rate
 
Maturity
 
 
 
 
(In thousands)
 
(In thousands)
 
 
 
 
 
 
Interior Design Building
 
1
 
$
20,296

 
$
20,582

 
4.4
%
 
Fixed
 
Dec. 2021
Bleecker Street
 
3
 
21,300

 
21,300

 
4.3
%
 
Fixed
 
Dec. 2015
Foot Locker
 
1
 
3,250

 
3,250

 
4.6
%
 
Fixed
 
Jun. 2016
Regal Parking Garage
 
1
 
3,000

 
3,000

 
4.5
%
 
Fixed
 
Jul. 2016
Duane Reade
 
1
 
8,400

 
8,400

 
3.6
%
 
Fixed
 
Nov. 2016
Washington Street Portfolio
 
1
 
4,764

 
4,831

 
4.4
%
 
Fixed
 
Dec. 2021
One Jackson Square
 
1
 
13,000

 
13,000

 
3.4
%
(1) 
Fixed
 
Dec. 2016
350 West 42nd Street
 
1
 
11,365

 
11,365

 
3.4
%
 
Fixed
 
Aug. 2017
1100 Kings Highway
 
1
 
20,200

 
20,200

 
3.4
%
(1) 
Fixed
 
Aug. 2017
1623 Kings Highway
 
1
 
7,288

 
7,288

 
3.3
%
(1) 
Fixed
 
Nov. 2017
256 West 38th Street
 
1
 
24,500

 
24,500

 
3.1
%
(1) 
Fixed
 
Dec. 2017
229 West 36th Street
 
1
 
35,000

 
35,000

 
2.9
%
(1) 
Fixed
 
Dec. 2017
 
 
14
 
$
172,363

 
$
172,716

 
3.6
%
(2) 
 
 
 
______________________ 
(1)
Fixed through an interest rate swap agreement.
(2)
Calculated on a weighted average basis for all mortgages outstanding as of September 30, 2014.
The following table summarizes the scheduled aggregate principal repayments subsequent to September 30, 2014:
(In thousands)
 
Future Minimum Principal Payments
October 1, 2014 - December 31, 2014
 
$
120

2015
 
21,794

2016
 
28,167

2017
 
102,730

2018
 
4,573

Thereafter
 
14,979

Total
 
$
172,363

Some of the Company's mortgage notes payable agreements require compliance with certain property-level financial covenants including debt service coverage ratios. As of September 30, 2014, the Company was in compliance with the financial covenants under its mortgage note agreements.

14
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


Note 9 — Subordinated Listing Distribution Derivative
Upon occurrence of the Listing, the New York Recovery Special Limited Partnership, LLC (the "SLP") became entitled to begin receiving distributions of net sale proceeds pursuant to its special limited partner interest in the OP (the "SLP Interest") in an aggregate amount that is evidenced by the issuance of a note by the OP (the "Listing Note"). The Listing Note is equal to 15.0% of the amount, if any, by which (a) the average market value of the Company’s outstanding common stock for the period 180 days to 210 days after Listing, plus dividends paid by the Company prior to Listing, exceeds (b) the sum of the total amount of capital raised from stockholders during the Company’s prior offering and the amount of cash flow necessary to generate a 6.0% annual cumulative, non-compounded return to such stockholders. Concurrently with the Listing, the Company, as general partner of the OP, caused the OP to enter into the Listing Note Agreement dated April 15, 2014 by and between the OP and the SLP (the "Listing Note Agreement"), and caused the OP to issue the Listing Note. The Listing Note is evidence of the SLP's right to receive distributions of net sales proceeds from the sale of the Company's real estate and real estate-related assets up to an aggregate amount equal to the principal balance of the Listing Note. Pursuant to the terms of the Partnership Agreement, the SLP has the right, but not the obligation, to convert all or a portion of the SLP interest into OP units which are convertible into shares of the Company's common stock.
The principal amount of the Listing Note will be determinable based, in part, on the actual market value of the Company’s outstanding common stock for the period 180 days to 210 days after the Listing and therefore the principal amount of the Listing Note is not yet definitive. Until the principal amount of the Listing Note can be determined, the Listing Note is considered a derivative which is marked to fair value at each reporting date, with changes in the fair value recorded in the consolidated statements of operations and comprehensive income (loss). The Listing Note fair value as of September 30, 2014 was determined using a Monte Carlo simulation, which uses a combination of observable and unobservable inputs. As of September 30, 2014, the Listing Note had a fair value of $13.4 million. The final principal amount of the Listing Note could differ materially from the current fair value. See Note 10 - Fair Value of Financial Instruments.
Note 10 — Fair Value of Financial Instruments
The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the instrument. This alternative approach also reflects the contractual terms of the instrument, as applicable, including the period to maturity, and may use observable market-based inputs, including interest rate curves and implied volatilities, and unobservable inputs, such as expected volatility. The guidance defines three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
Level 3 — Unobservable inputs that reflect the entity's own assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.
Although the Company has determined that the majority of the inputs used to value its interest rate swaps fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those interest rate swaps utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of September 30, 2014 and December 31, 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its interest rate swap positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company's interest rate swaps. As a result, the Company has determined that its interest rate swap valuations in their entirety are classified in Level 2 of the fair value hierarchy.

15
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


The valuation of interest rate swaps is determined using a discounted cash flow analysis on the expected cash flows. This analysis reflects the contractual terms of the interest rate swaps, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company's potential nonperformance risk and the performance risk of the counterparties.
The valuation of the Listing Note is determined using a Monte Carlo simulation. This analysis reflects the known inputs used in determining the principal amount of the Listing Note, including the gross share proceeds received and the sum of dividends paid prior to the Listing, as well as observable market-based inputs, including interest rate curves, and unobservable inputs, such as expected volatility. As a result, the Company has determined that its Listing Note valuation in its entirety is classified in Level 3 of the fair value hierarchy.
The Company has investments in redeemable preferred stock and a real estate income fund that are traded in active markets and therefore, due to the availability of quoted market prices in active markets, the Company classified these investments as Level 1 in the fair value hierarchy.
The following table presents information about the Company's assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013, aggregated by the level in the fair value hierarchy within which those instruments fall:
(In thousands)
 
Quoted Prices in Active Markets
Level 1
 
Significant Other Observable Inputs
Level 2
 
Significant Unobservable Inputs
Level 3
 
Total
September 30, 2014
 
 
 
 
 
 
 
 
Interest rate swaps, net
 
$
—

 
$
(381
)
 
$
—

 
$
(381
)
Investment securities
 
$
4,334

 
$
—

 
$
—

 
$
4,334

Listing Note
 
$
—

 
$
—

 
$
(13,400
)
 
$
(13,400
)
December 31, 2013
 
 
 
 
 
 
 
 
Interest rate swaps, net
 
$
—

 
$
(385
)
 
$
—

 
$
(385
)
Investment securities
 
$
1,048

 
$
—

 
$
—

 
$
1,048

A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets. There were no transfers between levels of the fair value hierarchy during the nine months ended September 30, 2014.
Level 3 valuations
The following is a reconciliation of the beginning and ending balance for the instrument classified in Level 3 of the fair value hierarchy for the nine months ended September 30, 2014:
(In thousands)
 
Listing Note
Beginning balance as of December 31, 2013
 
$
—

   Fair value at issuance
 
29,400

   Fair value adjustment, net
 
(16,000
)
Ending balance as of September 30, 2014
 
$
13,400

The following table provides quantitative information about the significant Level 3 input used (in thousands):
Financial Instrument
 
Fair Value at September 30, 2014
 
Principal Valuation Technique
 
Unobservable Inputs
 
Input Value
Listing Note
 
$
13,400

 
Monte Carlo Simulation
 
Expected volatility
 
26.0%
The following discussion provides a description of the impact on a fair value measurement of a change in each unobservable input in isolation. For the relationship described below, the inverse relationship would also generally apply.

16
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


Expected volatility is a measure of the variability in possible returns for an instrument, parameter or market index given how much the particular instrument, parameter or index changes in value over time. Generally, the higher the expected volatility of the underlying instrument, the wider the range of potential future returns. An increase in expected volatility, in isolation, would generally result in an increase in the fair value measurement of an instrument.
Financial instruments not carried at fair value
The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate the value. The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, prepaid expenses and other assets, due from affiliates, notes payable, accounts payable and dividends payable approximates their carrying value on the consolidated balance sheet due to their short-term nature. The fair values of the Company's financial instruments that are not reported at fair value on the consolidated balance sheet are reported below.
 
 
 
 
Carrying
Amount at
 
Fair Value at
 
Carrying
Amount at
 
Fair Value at
(In thousands)
 
Level
 
September 30, 2014
 
September 30, 2014
 
December 31, 2013
 
December 31, 2013
Mortgage notes payable
 
3
 
$
172,363

 
$
174,232

 
$
172,716

 
$
173,427

Credit facility
 
3
 
$
625,000

 
$
625,000

 
$
305,000

 
$
305,000

Preferred equity investment
 
3
 
$
35,100

 
$
34,600

 
$
30,000

 
$
30,000

The fair value of mortgage notes payable, the fixed-rate portions of term loans on the credit facility, and the preferred equity investment are estimated using a discounted cash flow analysis based on the Advisor's experience with similar types of arrangements. Advances under the credit facility with variable interest rates and advances under the revolving portion of the credit facility are considered to be reported at fair value.
Note 11 — Interest Rate Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company may use derivative financial instruments, including interest rate swaps, caps, collars, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and costs associated with the Company's operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements will not be able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its affiliates may also have other financial relationships.
Cash Flow Hedges of Interest Rate Risk
The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company may primarily use interest rate swaps and collars as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates rise above the cap strike rate on the contract and payments of variable-rate amounts if interest rates fall below the floor strike rate on the contract.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company uses such derivatives to hedge the variable cash flows associated with variable-rate debt.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt. During the next 12 months, the Company estimates that an additional $2.0 million will be reclassified from other comprehensive income as an increase to interest expense.

17
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


As of September 30, 2014 and December 31, 2013, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk.
 
 
September 30, 2014
 
December 31, 2013
Interest Rate Derivative
 
Number of
Instruments
 
Notional Amount
 
Number of
Instruments
 
Notional Amount
 
 
 
 
(In thousands)
 
 
 
(In thousands)
Interest rate swaps
 
6
 
$
179,988

 
6
 
$
179,988

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheets as of September 30, 2014 and December 31, 2013:
(In thousands)
 
Balance Sheet Location
 
September 30, 2014
 
December 31, 2013
Derivatives designated as hedging instruments:
 
 
 
 
Interest rate swaps
 
Derivative assets, at fair value
 
$
443

 
$
490

Interest rate swaps
 
Derivative liabilities, at fair value
 
$
(824
)
 
$
(875
)
Derivatives in Cash Flow Hedging Relationships
The table below details the location in the financial statements of the income or loss recognized on interest rate derivatives designated as cash flow hedges for the three and nine months ended September 30, 2014 and 2013:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
 
2014
 
2013
 
2014
 
2013
Amount of income (loss) recognized in accumulated other comprehensive income (loss) from interest rate derivatives (effective portion)
 
$
619

 
$
(2,048
)
 
$
(1,613
)
 
$
(349
)
Amount of loss reclassified from accumulated other comprehensive income (loss) into income as interest expense (effective portion)
 
$
(545
)
 
$
(365
)
 
$
(1,616
)
 
$
(799
)
Amount of income recognized in gain on derivative instruments (ineffective portion and amount excluded from effectiveness testing)
 
$
—

 
$
—

 
$
1

 
$
4

Offsetting Derivatives
The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company's derivatives as of September 30, 2014 and December 31, 2013. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the accompanying balance sheets.
 
 
 
 
 
 
 
 
Gross Amounts Not Offset on the Balance Sheet
 
 
Derivatives (In thousands)
 
Gross Amounts of Recognized Assets
 
Gross Amounts of Recognized Liabilities
 
Net Amounts of Assets (Liabilities) presented on the Balance Sheet
 
Financial Instruments
 
Cash Collateral Posted
 
Net Amount
September 30, 2014
 
$
443

 
$
(824
)
 
$
(381
)
 
$
—

 
$
—

 
$
(381
)
December 31, 2013
 
$
490

 
$
(875
)
 
$
(385
)
 
$
—

 
$
—

 
$
(385
)
Derivatives Not Designated as Hedges
Derivatives not designated as hedges are not speculative. These derivatives are used to manage the Company's exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements to be classified as hedging instruments. The Company does not have any hedging instruments that do not qualify for hedge accounting.

18
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


Credit-risk-related Contingent Features
The Company has agreements with its derivative counterparties that contain a provision whereby if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
As of September 30, 2014, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $0.9 million. As of September 30, 2014, the Company has not posted any collateral related to its agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at the aggregate termination value of $0.9 million at September 30, 2014.
Note 12 — Common Stock
The Company listed its common stock on the NYSE under the symbol "NYRT" on April 15, 2014. As of September 30, 2014 and December 31, 2013, the Company had 162.2 million and 174.1 million shares of common stock outstanding, respectively, including unvested restricted stock, converted preferred shares and shares issued under the distribution reinvestment plan (the "DRIP").
On April 15, 2014, the Company commenced the Tender Offer. The Tender Offer was completed on May 12, 2014 with the Company purchasing approximately 14.2 million shares of its common stock at a price of $10.75 per share, for an aggregate of $152.3 million, excluding fees and expenses relating to the Tender Offer and including fractional shares repurchased thereafter. The Company funded the Tender Offer using cash on hand. 
On April 18, 2014, the Company filed a universal shelf registration statement that was declared effective. The Company intends to maintain the universal shelf registration statement to provide the Company flexibility in future capital raising activities.
In September 2010, the Company's board of directors authorized, and the Company declared, dividends at a dividend rate equal to $0.605 per annum per share of common stock, commencing December 1, 2010.  The dividends were paid by the fifth day following each month end to stockholders of record at the close of business each day during the prior month at a per share rate of 0.0016575342 per day. In April 2014, the Company's board of directors authorized, and the Company declared, dividends at an annualized rate equal to $0.46 per share per annum beginning with the April 2014 dividend. Beginning in April 2014, dividends are paid to stockholders of record on the close of business on the 8th day of each month, payable on the 15th day of such month. The Company's board of directors may reduce the amount of dividends paid or suspend dividend payments at any time and therefore dividend payments are not assured.
On March 31, 2014, the Company provided notice to its stockholders that, pursuant to the terms of the DRIP, the Company's board of directors approved an amendment to the DRIP that enables the Company to suspend the DRIP. Subsequently, the Company's board of directors approved the suspension of the DRIP, effective March 31, 2014. The final issuance of shares of common stock pursuant to the DRIP in connection with the Company’s March 2014 dividend was paid in April 2014.
On March 31, 2014, the Company's board of directors approved the termination of the Company’s Share Repurchase Program (“SRP”). The Company processed all of the requests received under the SRP in the first quarter of 2014 and will not process further requests.
The following table reflects the cumulative number of common shares repurchased as of December 31, 2013 and as of and through the termination of the SRP:
 
Number of Requests
 
Number of Shares Repurchased
 
Average Price per Share
Cumulative repurchases as of December 31, 2013
35

 
279,594

 
$
9.63

Repurchases through termination of the SRP
1

 
5,000

 
10.00

Cumulative repurchases through termination of the SRP
36

 
284,594

 
$
9.63



19
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


Note 13 — Commitments and Contingencies
Future Minimum Lease Payments
The Company has entered into lease agreements related to certain acquisitions under leasehold interest arrangements. The following table reflects the minimum base rental cash payments due from the Company over the next five years and thereafter under these arrangements. These amounts exclude contingent rent payments, as applicable, that may be payable based on provisions related to increases in annual rent based on exceeding certain economic indexes among other items.
(In thousands)
 
Future Minimum Base Rent Payments
October 1, 2014 - December 31, 2014
 
$
847

2015
 
4,555

2016
 
4,991

2017
 
4,991

2018
 
5,175

Thereafter, 2019 - 2050
 
260,548

 
 
$
281,107

Litigation
In the ordinary course of business, the Company may become subject to litigation or claims. There are no material legal proceedings pending or known to be contemplated against the Company.
The Company received a favorable ruling in a suit initiated against the Company by RXR Realty (“RXR”). RXR alleged that it suffered “lost profits” in connection with the Company’s purchase of Worldwide Plaza in October 2013. On August 12, 2014, the Supreme Court of the State of New York dismissed all of RXR’s claims against the seller of Worldwide Plaza and dismissed RXR’s disgorgement claims against the Company, permitting only a limited, immaterial claim against the Company for RXR’s cost of producing due diligence-related material to proceed.
Environmental Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company maintains environmental insurance for its properties that provides coverage for potential environmental liabilities, subject to the policy's coverage conditions and limitations. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the consolidated results of operations.
Note 14 — Related Party Transactions and Arrangements
The SLP, an entity controlled by the Sponsor, owned 20,000 shares of the Company's outstanding common stock as of September 30, 2014 and December 31, 2013.
The Advisor, as the holder of Class B Units, had the right to make a capital contribution to the OP in exchange for OP units. Pursuant to a Contribution and Exchange Agreement entered into between the Advisor and the OP dated April 15, 2014, the Advisor contributed $0.8 million in cash to the OP in exchange for 83,333 OP units of the OP. See Note 18 - Non-controlling Interests.
As of September 30, 2014, the Company had $3.0 million invested in a real estate income fund managed by an affiliate of the Sponsor (see Note 6 — Investment Securities). There is no obligation to purchase any additional shares and the shares can be sold at any time.

20
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


Fees Paid in Connection with the IPO
The Dealer Manager and the Sponsor received fees and compensation in connection with the sale of the Company's common stock in the IPO. The Dealer Manager received a selling commission of up to 7.0% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers. In addition, the Dealer Manager was permitted to re-allow a portion of its dealer manager fee to such participating broker-dealers, based on such factors as the volume of shares sold by respective participating broker-dealers and marketing support provided as compared to other participating broker-dealers. The following table details total selling commissions and dealer manager fees incurred and payable to the Dealer Manager related to the sale of common stock as of and for the periods presented:
 
 
Three Months Ended
 
Nine Months Ended
 
Payable as of
 
 
September 30,
 
September 30,
 
September 30,
 
December 31,
(In thousands)
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Total commissions and fees incurred from Dealer Manager
 
$
—

 
$
41,035

 
$
8

 
$
78,403

 
$
—

 
$
857

 The Advisor and its affiliates received compensation and reimbursement for services provided in connection with the IPO. Effective March 1, 2013, the Company began utilizing transfer agent services provided by an affiliate of the Dealer Manager. All offering costs related to the IPO incurred by the Company, or its affiliated entities, on behalf of the Company were charged to additional paid-in capital on the accompanying consolidated balance sheets. The following table details offering costs reimbursements incurred and payable to the Advisor and Dealer Manager related to the IPO as of and for the periods presented:
 
 
Three Months Ended
 
Nine Months Ended
 
Payable as of
 
 
September 30,
 
September 30,
 
September 30,
 
December 31,
(In thousands)
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Fees and expense reimbursements from the Advisor and Dealer Manager
 
$
—

 
$
2,229

 
$
—

 
$
3,636

 
$
—

 
$
416

Fees Paid in Connection With the Operations of the Company
The Advisor receives an acquisition fee of 1.0% of the contract purchase price of each acquired property and 1.0% of the amount advanced for a loan or other investment. Additionally, the Company reimburses the Advisor for expenses incurred for services provided by third parties and incurs acquisition expenses directly from third parties. The Company expects third-party acquisition expenses to be approximately 0.5% of the purchase price of each property and 0.5% of the amount advanced for a loan or other investment. The total of all acquisition fees, acquisition expenses and any financing coordination fees (as described below) with respect to the Company's portfolio of investments or reinvestments did not exceed 4.5% of the contract purchase price of the Company's portfolio as measured at the close of the acquisition phase. On April 15, 2014, in conjunction with the Listing, the Company entered into the Sixth Amended and Restated Advisory Agreement (the "Amended Advisory Agreement") by and among the Company, the OP and the Advisor, which, among other things, terminated the acquisition fee 180 days after the Listing, or October 12, 2014 (the "Termination Date"), except for fees with respect to properties under contract, letter of intent or under negotiation as of the Termination Date.

21
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


Until the Listing, the Company paid the Advisor an asset management fee equal to 0.75% per annum of the cost of the Company's assets (cost includes the purchase price, acquisition expenses, capital expenditures and other customarily capitalized costs, but excludes acquisition fees) plus costs and expenses incurred by the Advisor in providing asset management services; provided, however, that the asset management fee was reduced by any amounts payable to the Property Manager as an oversight fee, such that the aggregate of the asset management fee and the oversight fee did not exceed 0.75% per annum of the cost of the Company's assets plus costs and expenses incurred by the Advisor in providing asset management services. As payment for this arrangement, the Company caused the OP to issue (subject to periodic approval by the board of directors) to the Advisor performance-based restricted partnership units of the OP designated as "Class B units," which were intended to be profits interests and would vest, and no longer be subject to forfeiture, at such time as: (x) the value of the OP's assets plus all dividends made equals or exceeds the total amount of capital contributed by investors plus a 6.0% cumulative, pre-tax, non-compounded annual return thereon (the "economic hurdle"); (y) any one of the following occurs: (1) the termination of the advisory agreement by an affirmative vote of a majority of the Company's independent directors without cause; (2) a listing; or (3) another liquidity event; and (z) the Advisor is still providing advisory services to the Company (the "performance condition"). The value of issued Class B units was determined and expensed when the Company deemed the achievement of the performance condition was probable, which occurred as of the Listing. As of April 15, 2014, in aggregate, the board of directors had approved the issuance of 1,188,667 Class B units to the Advisor in connection with this arrangement. The Advisor received dividends on unvested Class B units equal to the dividend rate received on the Company's common stock. Such dividends on issued Class B units are included in general and administrative expenses in the consolidated statement of operations and comprehensive income (loss). The performance condition related to these Class B units was satisfied upon completion of the Listing, which resulted in $11.5 million of expense on April 15, 2014, which is included in vesting of asset management fees expense in the consolidated statement of operations and comprehensive income (loss). On April 15, 2014, the Class B units were converted to OP units on a one-to-one basis.
In accordance with the Amended Advisory Agreement, the asset management fee was reduced from 0.75% per annum to 0.50% per annum of the cost of assets up to $3.0 billion and 0.40% per annum of the cost of assets above $3.0 billion. The Amended Advisory Agreement also permits the asset management fee to be paid in the form of cash, OP units, and shares of restricted common stock of the Company, or a combination thereof, at the Advisor’s election.
Unless the Company contracts with a third party, the Company pays the Property Manager a property management fee equal to: (i) for non-hotel properties, 4.0% of gross revenues from properties managed, plus market-based leasing commissions; and (ii) for hotel properties, a market-based fee based on a percentage of gross revenues.  The Company also reimburses the Property Manager for property-level expenses.  The Property Manager may subcontract the performance of its property management and leasing services duties to third parties and pay all or a portion of its property management fee to the third parties with whom it contracts for these services. If the Company contracts directly with third parties for such services, the Company will pay them customary market fees and pay the Property Manager an oversight fee equal to 1.0% of the gross revenues of the applicable property.
If the Advisor provides services in connection with the origination or refinancing of any debt that the Company obtains and uses to acquire assets, or that is assumed, directly or indirectly, in connection with the acquisition of assets, the Company pays the Advisor a financing coordination fee equal to 0.75% of the amount available or outstanding under such financing or such assumed debt. In accordance with the Amended Advisory Agreement, the financing coordination fee terminated on the Termination Date, except for fees with respect to properties under contract, letter of intent or under negotiation as of the Termination Date.

22
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


Effective March 1, 2013, the Company entered into an agreement with the Dealer Manager to provide strategic advisory services and investment banking services required in the ordinary course of the Company's business, such as performing financial analysis, evaluating publicly traded comparable companies and assisting in developing a portfolio composition strategy, a capitalization structure to optimize future liquidity options and structuring operations. Strategic advisory fees were amortized over a six month period beginning in April 2013, the estimated remaining term of the IPO as of the date of the agreement. The Dealer Manager and its affiliates also provide transfer agency services, as well as transaction management and other professional services. These fees are also included in general and administrative expenses on the consolidated statements of operations and comprehensive income (loss) during the period the service was provided.
The following table details amounts incurred, forgiven and contractually due in connection with the operations related services described above as of and for the periods presented:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Payable as of
 
 
2014
 
2013
 
2014
 
2013
 
September 30,
 
December 31,
(In thousands)
 
Incurred
 
Forgiven
 
Incurred
 
Forgiven
 
Incurred
 
Forgiven
 
Incurred
 
Forgiven
 
2014
 
2013
One-time fees and reimbursements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition fees and related cost reimbursements(1)
 
$
3,350

 
$
—

 
$
3,111

 
$
—

 
$
3,350

 
$
—

 
$
2,286

 
$
—

 
$
—

 
$
—

Financing coordination fees
 
—

 
—

 
1,650

 
—

 
2,363

 
—

 
2,100

 
—

 
—

 
—

Ongoing fees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
Asset management fees (2)
 
2,980

 
—

 
—

 
—

 
5,254

 
—

 
—

 
—

 
—

 
—

Transfer agent and other professional fees
 
392

 
—

 
—

 
—

 
2,019

 
—

 
—

 
—

 
857

 
—

Property management and leasing fees
 
—

 
431

 
—

 
211

 
—

 
1,218

 
—

 
582

 
—

 
—

Strategic advisory fees
 
—

 
—

 
315

 
—

 
—

 
—

 
920

 
—

 
—

 
—

Dividends on Class B units
 
—

 
—

 
39

 
—

 
107

 
—

 
79

 
—

 
—

 
—

Total related party operational fees and reimbursements
 
$
6,722

 
$
431

 
$
5,115

 
$
211

 
$
13,093

 
$
1,218

 
$
5,385

 
$
582

 
$
857

 
$
—

___________________________________________
(1)
In June 2013, the Advisor elected to reimburse the Company $2.5 million for insourced acquisition expenses and legal reimbursements incurred.
(2)
Prior to the Listing, the Company caused the OP to issue to the Advisor restricted performance based Class B units for asset management services, which vested as of the Listing.
The Company reimburses the Advisor's costs and expenses of providing services, subject to the limitation that it will not reimburse the Advisor for any amount by which the Company's total operating expenses (as defined in the Company's charter and advisory agreement) for the four preceding fiscal quarters exceeds the greater of (a) 2.0% of average invested assets and (b) 25.0% of net income other than any additions to reserves for depreciation, bad debt or other similar non cash reserves and excluding any gain from the sale of assets for that period.  Additionally, the Company will not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives a separate fee.  No reimbursement was incurred from the Advisor for providing administrative services for the three and nine months ended September 30, 2014 or 2013.
In order to improve operating cash flows and the ability to pay dividends from operating cash flows, the Advisor agreed to waive certain fees including property management fees during the three and nine months ended September 30, 2014 and 2013. Because the Advisor waived certain fees, cash flow from operations that would have been paid to the Advisor was available to pay dividends to stockholders.  The fees that were forgiven are not deferrals and accordingly, will not be paid to the Advisor in any subsequent periods. Additionally, to improve the Company's working capital, the Advisor may elect to absorb a portion of the Company's expenses. The following table details property operating and general and administrative expenses absorbed by the Advisor during the three and nine months ended September 30, 2014 and 2013. These costs are presented net in the accompanying consolidated statements of operations and comprehensive income (loss).
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
 
2014
 
2013
 
2014
 
2013
Property operating expenses absorbed
 
$
623

 
$
—

 
$
623

 
$
—

General and administrative expenses absorbed
 
377

 
500

 
1,418

 
1,450

Total expenses absorbed
 
$
1,000

 
$
500

 
$
2,041

 
$
1,450


23
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


The Company had $1.0 million of receivables from affiliates at September 30, 2014 related to absorbed general and administrative and property operating expenses. The Company had no such receivables as of December 31, 2013.
Fees Paid in Connection with the Liquidation or Listing of the Company's Real Estate Assets
In December 2013, the Company entered into a transaction management agreement with RCS Advisory Services, LLC, an entity owned by the Dealer Manager, to provide strategic alternatives transaction management services through the occurrence of a liquidity event and a-la-carte services thereafter. The Company agreed to pay $3.0 million pursuant to this agreement. For the nine months ended September 30, 2014, the Company incurred $1.5 million of expenses pursuant to this agreement, including amounts for services provided in preparation for the Listing, which are included in acquisition and transaction related costs in the consolidated statement of operations and comprehensive income (loss). The Company did not incur any fees in connection with this agreement during the three months ended September 30, 2014. The Company incurred $1.5 million in fees pursuant to this arrangement during the year ended December 31, 2013 which were included in acquisition and transaction related costs in the consolidated statement of operations and comprehensive income (loss). Thus, the Company does not owe the Dealer Manager any more fees pursuant to this agreement.
In December 2013, the Company entered into an information agent and advisory services agreement with the Dealer Manager and American National Stock Transfer, LLC, an entity owned by the Dealer Manager, to provide in connection with a liquidity event, advisory services, educational services to external and internal wholesalers, communication support as well as proxy, tender offer or redemption and solicitation services. The Company agreed to pay $1.9 million pursuant to this agreement. For the nine months ended September 30, 2014, the Company incurred $1.3 million of expenses pursuant to this agreement, which included amounts for services provided in preparation for the Tender Offer, and are included in additional paid-in capital on the accompanying consolidated balance sheet. The Company did not incur any expenses pursuant to this agreement during the three months ended September 30, 2014. The Company incurred $0.6 million in fees pursuant to this arrangement during the year ended December 31, 2013 which were included in acquisition and transaction related costs in the consolidated statement of operations and comprehensive income (loss). Thus, the Company does not owe the Dealer Manager any more fees pursuant to this agreement.
In December 2013, the Company entered into an agreement with RCS Capital, LLC, the investment banking and capital markets division of the Dealer Manager, for strategic and financial advice and assistance in connection with (i) a possible sale transaction involving the Company (ii) the possible listing of the Company’s securities on a national securities exchange, and (iii) a possible acquisition transaction involving the Company. The Dealer Manager received a transaction fee equal to 0.25% of the transaction value in connection with the possible sale transaction, listing or acquisition. In April 2014, in connection with the Listing, the Company incurred and paid $6.9 million in connection with this agreement which were included in acquisition and transaction related costs in the consolidated statement of operations and comprehensive income (loss). Thus, the Company does not owe the Dealer Manager any more fees pursuant to this agreement.
During the nine months ended September 30, 2014, the Company incurred $0.6 million of expenses with affiliated entities relating to general legal, marketing and sales services provided in connection with the Listing. These expenses are included in acquisition and transaction related costs in the consolidated statement of operations and comprehensive income (loss). During the nine months ended September 30, 2014, the Company also incurred approximately $9,000 of expenses with affiliated entities relating to general legal services provided in connection with the Tender Offer. These expenses are included in additional paid-in capital on the accompanying consolidated balance sheets. The Company did not incur any expenses with affiliated entities in connection with the Listing during the three months ended September 30, 2014. As of September 30, 2014, there were no amounts payable to affiliated entities in accounts payable and accrued expenses on the accompanying balance sheets relating to Listing and Tender Offer expenses.
For substantial assistance in connection with the sale of properties, the Company will pay the Advisor a property disposition fee, not to exceed the lesser of 2.0% of the contract sale price of the property and 50% of the competitive real estate commission paid if a third party broker is also involved; provided, however that in no event may the property disposition fee paid to the Advisor when added to real estate commissions paid to unaffiliated third parties exceed the lesser of 6.0% of the contract sales price and a competitive real estate commission. For purposes of the foregoing, "competitive real estate commission" means a real estate brokerage commission for the purchase or sale of a property which is reasonable, customary and competitive in light of the size, type and location of the property. No such fees were incurred or paid for the three and nine months ended September 30, 2014 and 2013.
In connection with the Listing, the OP entered into the Listing Note. See Note 9 - Subordinated Listing Distribution Derivative.

24
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


In connection with the Listing and the Amended Advisory Agreement, the Company terminated the subordinated termination fee that would be due to the Advisor in the event of termination of the advisory agreement.

In connection with possible strategic alternatives, the Company entered into an agreement with RCS Capital, the investment banking and capital markets division of Realty Capital Securities, LLC. See Note 19 — Subsequent Events.

Note 15 — Economic Dependency
Under various agreements, the Company has engaged or will engage the Advisor, its affiliates and entities under common control with the Advisor to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, the sale of shares of the Company's common stock available for issue, transfer agency services as well as other administrative responsibilities for the Company including accounting services, transaction management and investor relations.
As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that these companies are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.
Note 16 — Share-Based Compensation
Stock Option Plan
The Company has a stock option plan (the "Plan") which authorizes the grant of nonqualified stock options to the Company's independent directors, officers, advisors, consultants and other personnel, subject to the absolute discretion of the board of directors and the applicable limitations of the Plan. The exercise price for all stock options granted under the Plan was previously fixed at $10.00 per share until the termination of the IPO, and the current exercise price for stock options granted to the independent directors will be equal to the fair market value of a share on the last business day preceding the annual meeting of stockholders. Upon a change in control, unvested options will become fully vested and any performance conditions imposed with respect to the options will be deemed to be fully achieved.  A total of 0.5 million shares have been authorized and reserved for issuance under the Plan. As of September 30, 2014 and December 31, 2013, no stock options were issued under the Plan.
Restricted Share Plan
The Company's employee and director incentive restricted share plan ("RSP") provides the Company with the ability to grant awards of restricted shares to the Company's directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, certain consultants to the Company and the Advisor and its affiliates or to entities that provide services to the Company.
Prior to the Listing, the RSP provided for the automatic grant of 3,000 restricted shares of common stock to each of the independent directors, without any further action by the Company's board of directors or the stockholders, on the date of initial election to the board of directors and on the date of each annual stockholder's meeting. Restricted stock issued to independent directors vested over a five-year period following the first anniversary of the date of grant in increments of 20% per annum. Subsequent to the Listing, the Company amended the RSP to, among other things, remove the fixed amount of shares that are automatically granted to the independent directors. Under the amended RSP, the annual amount granted to the independent directors is determined by the board of directors. Generally, such awards provide for accelerated vesting of (i) all unvested shares upon a change in control or a termination without cause and (ii) the portion of the unvested shares scheduled to vest in the year of termination upon a voluntary termination or the failure to be re-elected to the board.
  Prior to March 31, 2014, the total number of shares of common stock granted under the RSP could not exceed 5.0% of the Company's outstanding shares on a fully diluted basis at any time, and in any event could not exceed 7.5 million shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar events). On March 31, 2014, the Company adopted an amendment to the Company’s RSP to increase the number of shares of the Company capital stock, par value $0.01 per share, available for awards thereunder to 10% of the Company’s outstanding shares of capital stock on a fully diluted basis at any time. The amendment also eliminated the RSP limit of 7.5 million shares of capital stock.
Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash dividends prior to the time that the restrictions on the restricted shares have lapsed. Any dividends payable in common shares shall be subject to the same restrictions as the underlying restricted shares.

25
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


The following table displays restricted share award activity during the nine months ended September 30, 2014:
 
Number of Restricted Shares
 
Weighted-Average Issue Price
Unvested, December 31, 2013
24,000

 
$
9.33

Granted
218,845

 
10.74

Vested
(68,673
)
 
10.25

Forfeited
—

 
—

Unvested, September 30, 2014
174,172

 
$
10.74

The fair value of the restricted shares, based on the per share price in the IPO or the per share closing price on the NYSE subsequent to the IPO, is expensed over the vesting period of three or five years. Compensation expense related to restricted stock was $1.0 million and approximately $16,000 for the three months ended September 30, 2014 and 2013, respectively. Compensation expense related to restricted stock was $1.1 million and approximately $40,000 for the nine months ended September 30, 2014 and 2013, respectively.
As of September 30, 2014, the Company had $1.3 million of unrecognized compensation cost related to unvested restricted share awards granted under the Company’s RSP.

Multi-Year Outperformance Plan Agreement
On April 15, 2014 (the "Effective Date") in connection with the Listing, the Company entered into the OPP with the OP and the Advisor. Under the OPP, the Advisor was issued 8,880,579 long term incentive plan ("LTIP Units") in the OP with a maximum award value on the issuance date equal to 5.0% of the Company’s market capitalization (the “OPP Cap”). The LTIP Units are structured as profits interest in the OP.
The Advisor will be eligible to earn a number of LTIP Units with a value equal to a portion of the OPP Cap upon the first, second and third anniversaries of the Effective Date based on the Company’s achievement of certain levels of total return to its stockholders (“Total Return”), including both share price appreciation and common stock dividends, as measured against a peer group of companies, as set forth below, for the three-year performance period commencing on the Effective Date (the “Three-year Period”); each 12-month period during the Three-Year Period (the “One-Year Periods”); and the initial 24-month period of the Three-Year Period (the “Two-Year Period”), as follows:
 
 
 
 
Performance Period
 
Annual Period
 
Interim Period
Absolute Component: 4% of any excess Total Return attained above an absolute hurdle measured from the beginning of such period:
 
21%
 
7%
 
14%
Relative Component: 4% of any excess Total Return attained above the Total Return for the performance period of the Peer Group*, subject to a ratable sliding scale factor as follows based on achievement of cumulative Total Return measured from the beginning of such period:
 
 
 
 
 
 
 
•
100% will be earned if cumulative Total Return achieved is at least:
 
18%
 
6%
 
12%
 
•
50% will be earned if cumulative Total Return achieved is:
 
—%
 
—%
 
—%
 
•
0% will be earned if cumulative Total Return achieved is less than:
 
—%
 
—%
 
—%
 
•
a percentage from 50% to 100% calculated by linear interpolation will be earned if the cumulative Total Return achieved is between:
 
0% - 18%
 
0% - 6%
 
0% - 12%
______________________ 
*The “Peer Group” is comprised of the companies in the SNL US REIT Office Index.
The potential outperformance award is calculated at the end of each One-Year Period, the Two-Year Period and the Three-Year Period. The award earned for the Three-Year Period is based on the formula in the table above less any awards earned for the Two-Year Period and One-Year Periods, but not less than zero; the award earned for the Two-Year Period is based on the formula in the table above less any award earned for the first and second One-Year Period, but not less than zero. Any LTIP Units that are unearned at the end of the Performance Period will be forfeited.

26
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


Subject to the Advisor’s continued service through each vesting date, one third of any earned LTIP Units will vest on each of the third, fourth and fifth anniversaries of the Effective Date. Until such time as the LTIP Units are fully vested in accordance with the provisions of the OPP, the LTIP Units are entitled to dividends equal to 10% of the dividends made on OP units. The Company paid $0.2 million in dividends related to LTIP Units during the three and nine months ended September 30, 2014, which is included in non-controlling interest in the consolidated balance sheets. After the LTIP Units are fully vested, they are entitled to a catch-up dividend and then the same dividends as the OP units. At the time the Advisor’s capital account with respect to the LTIP Units is economically equivalent to the average capital account balance of the OP units and has been earned and has been vested for 30 days, the applicable LTIP Units will automatically convert into OP units on a one-to-one basis. The OPP provides for early calculation of LTIP Units earned and for the accelerated vesting of any earned LTIP Units in the event Advisor is terminated or in the event the Company incurs a change in control, in either case prior to the end of the Three-Year Period.
The Company records equity based compensation expense associated with the awards over the requisite service period of five years. Equity-based compensation expense is adjusted each reporting period for changes in the estimated market-related performance. Compensation expense related to the OPP was $1.5 million and $3.3 million, respectively, for the three and nine months ended September 30, 2014.
The valuation of the OPP is determined using a Monte Carlo simulation. This analysis reflects the contractual terms of the OPP, including the performance periods and total return hurdles, as well as observable market-based inputs, including interest rate curves, and unobservable inputs, such as expected volatility. As a result, the Company has determined that its OPP valuation in its entirety is classified in Level 3 of the fair value hierarchy.
The following table presents information about the Company's OPP, which is measured at fair value on a recurring basis as of September 30, 2014, aggregated by the level in the fair value hierarchy within which the instrument falls:
(In thousands)
 
Quoted Prices in Active Markets
Level 1
 
Significant Other Observable Inputs
Level 2
 
Significant Unobservable Inputs
Level 3
 
Total
September 30, 2014
 
 
 
 
 
 
 
 
OPP
 
$
—

 
$
—

 
$
(28,200
)
 
$
(28,200
)
Level 3 valuations
The following is a reconciliation of the beginning and ending balance for the changes in instruments with Level 3 inputs in the fair value hierarchy for the nine months ended September 30, 2014:
(In thousands)
 
OPP
Beginning balance as of December 31, 2013
 
$
—

   Fair value at issuance
 
31,500

   Fair value adjustment
 
(3,300
)
Ending balance as of September 30, 2014
 
$
28,200

The following table provides quantitative information about significant Level 3 input used:
Financial Instrument
 
Fair Value at September 30, 2014
 
Principal Valuation Technique
 
Unobservable Inputs
 
Input Value
 
 
(In thousands)
 
 
 
 
 
 
OPP
 
$
28,200

 
Monte Carlo Simulation
 
Expected volatility
 
27.0%
The following discussion provides a description of the impact on a fair value measurement of a change in each unobservable input in isolation. For the relationship described below, the inverse relationship would also generally apply.
Expected volatility is a measure of the variability in possible returns for an instrument, parameter or market index given how much the particular instrument, parameter or index changes in value over time. Generally, the higher the expected volatility of the underlying instrument, the wider the range of potential future returns. An increase in expected volatility, in isolation, would generally result in an increase in the fair value measurement of an instrument.

27
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


Other Share-Based Compensation    
The Company may issue common stock in lieu of cash to pay fees earned by the Company's directors at the respective director's election. There are no restrictions on the shares issued. The following table reflects the shares of common stock issued to directors in lieu of cash compensation:
 
 
Nine Months Ended September 30,
 
 
2014
 
2013
Shares issued in lieu of cash
 
—

 
18,107

Value of shares issued in lieu of cash (in thousands)
 
$
—

 
$
162

Note 17 — Net Income (Loss) Per Share
The following is a summary of the basic and diluted net income (loss) per share computations for the periods presented:  
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands, except share and per share data)
 
2014
 
2013
 
2014
 
2013
Basic net income (loss) attributable to stockholders
 
$
9,695

 
$
(5,373
)
 
$
(65,698
)
 
$
(6,148
)
Adjustments to net income (loss) attributable to stockholders for common share equivalents
 
(1,305
)
 
—

 
—

 
—

Net income (loss) attributable to stockholders
 
$
8,390

 
$
(5,373
)
 
$
(65,698
)
 
$
(6,148
)
 
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
 
161,975,420

 
83,841,078

 
168,624,050

 
49,902,303

Basic net income (loss) per share attributable to stockholders
 
$
0.06

 
$
(0.06
)
 
$
(0.39
)
 
$
(0.12
)
Diluted weighted average shares outstanding
 
162,181,209

 
83,841,078

 
168,624,050

 
49,902,303

Diluted net income (loss) per share attributable to stockholders
 
$
0.05

 
$
(0.06
)
 
$
(0.39
)
 
$
(0.12
)

Diluted net income (loss) per share assumes the conversion of all common share equivalents into an equivalent number of common shares, unless the effect is antidilutive.  The Company considers unvested restricted stock, OP units, Class B units and LTIP units to be common share equivalents. The Company had the following common share equivalents for the periods presented, which were excluded from the calculation of diluted loss per share attributable to stockholders as the effect would have been antidilutive:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Unvested restricted stock
 
—

 
24,000

 
174,172

 
24,000

OP units
 
1,272,200

 
200

 
1,272,200

 
200

Class B units
 
—

 
299,483

 
—

 
299,483

LTIP units
 
8,880,579

 
—

 
8,880,579

 
—

Total anti-dilutive common share equivalents
 
10,152,779

 
323,683

 
10,326,951

 
323,683


28
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)


Note 18 — Non-Controlling Interests
The Company is the sole general partner of the OP and holds the majority of OP units. The Advisor, a limited partner, held 200 OP units as of December 31, 2013, which represented a nominal percentage of the aggregate OP ownership. On April 15, 2014, 1,188,667 Class B units that were previously issued to the Advisor for asset management fees were converted to OP units on a one-to-one basis. Additionally, the Advisor, as the holder of Class B Units, had the right to make a capital contribution to the OP in exchange for OP units. Pursuant to a Contribution and Exchange Agreement entered into between the Advisor and the OP dated April 15, 2014, the Advisor contributed $0.8 million in cash to the OP in exchange for 83,333 OP units of the OP. As of September 30, 2014, the Advisor held 1,272,200 OP units. There were $0.1 million and $0.2 million of dividends paid to OP unit holders during the three and nine months ended September 30, 2014, respectively.
A holder of OP units has the right to convert OP units for the cash value of a corresponding number of shares of the Company's common stock or a corresponding number of shares of the Company's common stock, at the Company's election, in accordance with the limited partnership agreement of the OP. The remaining rights of the holders of OP units are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets.
In December 2010, an unrelated third party and a related party, American Realty Capital Operating Partnership, L.P., contributed $1.0 million and $12.0 million to acquire the Bleecker Street properties, respectively.  The Company had the sole voting rights and was the controlling member of the limited liability company that owns the Bleecker Street properties. The non-controlling members' aggregate initial investment balance of $13.0 million was reduced by the monthly distributions paid to each non-controlling member.  There were approximately $0.1 million of distributions to non-controlling members during the nine months ended September 30, 2013. The Company fully redeemed the related party's and third party's non-controlling interest in Bleecker Street in June 2012 and December 2013, respectively.
The Company is the controlling member of the limited liability company that owns the 163 Washington Avenue Apartments, acquired in September 2012. The Company has the sole voting rights under the operating agreement of this limited liability company. The non-controlling members' aggregate initial investment balance of $0.5 million will be reduced by the distributions paid to each non-controlling member. No distributions were paid during the three and nine months ended September 30, 2014 or 2013.
Note 19 — Subsequent Events
The Company has evaluated subsequent events through the filing of this Form 10-Q, and determined that there have not been any events that have occurred that would require adjustments to disclosures in the consolidated financial statements except for the following event:
In October 2014, the Company entered into separate transaction management agreements with Barclays Capital Inc. and RCS Capital, the investment banking and capital markets division of the Dealer Manager, as financial advisors to assist the board of the Company in evaluating strategic options to enhance long-term shareholder value, including a business combination involving the Company or a sale of the Company. Pursuant to the agreement with RCS Capital, the Company will pay to RCS Capital a transaction fee upon the consummation of a transaction equal to 0.25% of the transaction value. Pursuant to the agreement with Barclays Capital Inc., the Company will pay to Barclays Capital Inc. a transaction fee based on the transaction value.




29

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of New York REIT, Inc. and the notes thereto. As used herein, the terms "we," "our" and "us" refer to New York REIT, Inc., a Maryland corporation, and, as required by context, to New York Recovery Operating Partnership, L.P., a Delaware limited partnership, which we refer to as the "OP," and to their subsidiaries. We are externally managed by New York Recovery Advisors, LLC (our "Advisor"), a Delaware limited liability company. Capitalized terms used herein but not otherwise defined have the meaning ascribed to those terms in "Part I  - Financial Information" included in the notes to consolidated financial statements and contained herein.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of New York REIT, Inc. (the "Company," "we," "our" or "us") and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
•
All of our executive officers are also officers, managers or holders of a direct or indirect interest in our Advisor and other American Realty Capital-affiliated entities; as a result, our executive officers, our Advisor and its affiliates face conflicts of interest, including significant conflicts created by our Advisor’s compensation arrangements with us and other investor entities advised by American Realty Capital affiliates, and conflicts in allocating time among these entities and us, which could negatively impact our operating results;
•
Because investment opportunities that are suitable for us may also be suitable for other American Realty Capital-advised programs or investors, our Advisor and its affiliates face conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our stockholders;
•
We depend on tenants for our revenue, and, accordingly, our revenue is dependent upon the success and economic viability of our tenants;
•
We may not be able to achieve our rental rate objectives on new and renewal leases and our expenses could be greater, which may impact our results of operations;
•
Increases in interest rates could increase the amount of our debt payments and limit our ability to pay dividends;
•
We have not and may not generate cash flows sufficient to pay our dividends to stockholders, as such, we may be forced to borrow at higher rates or depend on our Advisor or our property manager, New York Recovery Properties, LLC (our "Property Manager"), to waive fees or reimbursement of certain expenses to fund our operations. There is no assurance these entities will waive such amounts;
•
We may be unable to pay or maintain cash dividends or increase dividends over time;
•
We are obligated to pay fees, which may be substantial, to our Advisor and its affiliates, including fees payable upon the sale of properties;
•
We are subject to risks associated with the significant dislocations and liquidity disruptions that recently existed or occurred in the credit markets of the United States;
•
We may fail to continue to qualify to be treated as a real estate investment trust for U.S. federal income tax purposes (“REIT”);
•
Our properties may be adversely affected by economic cycles and risks inherent to the New York metropolitan statistical area (“MSA”), especially New York City; and
•
Changes in general economic, business and political conditions, including the possibility of intensified international hostilities, acts of terrorism, and changes in conditions of United States or international lending, capital and financing markets.

30

Overview
We focus on acquiring and owning income-producing commercial real estate located in New York City, primarily office and retail properties located in Manhattan. To add diversity to the portfolio, we may also acquire multifamily, industrial, hotel and other types of real properties as well as originate or acquire first mortgage loans, mezzanine loans, or preferred equity interests related to New York City real estate. We purchased our first property and commenced active operations in June 2010. As of September 30, 2014, we owned 24 properties and real estate-related assets.
In September 2010, we commenced our initial public offering (the "IPO") on a "reasonable best efforts" basis of up to 150.0 million shares of common stock at a price of $10.00 per share, subject to certain volume and other discounts. Our IPO closed in December 2013. We operated as a non-traded REIT through April 14, 2014. On April 15, 2014, we listed our common stock on the New York Stock Exchange ("NYSE") under the symbol "NYRT" (the "Listing"). Concurrent with the Listing, we offered to purchase up to 23.3 million shares of our common stock at a price of $10.75 per share (the “Tender Offer”). As a result of the Tender Offer, on May 12, 2014, we purchased 14.2 million shares of our common stock at a price of $10.75 per share, for an aggregate of $152.3 million, excluding fees and expenses relating to the Tender Offer and including fractional shares repurchased thereafter.
 We were incorporated on October 6, 2009. We are a Maryland corporation that qualified as a REIT for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2010.  Substantially all of our business is conducted through the OP. We have no employees. Our Advisor manages our affairs on a day-to-day basis. The Property Manager serves as our property manager, unless services are performed by a third party for specific properties.  Realty Capital Securities, LLC (our "Dealer Manager") served as the dealer manager of our IPO and continues to provide various services.  The Advisor, Property Manager and Dealer Manager are under common control with the parent of our sponsor, American Realty Capital III, LLC (our "Sponsor"), as a result of which, they are related parties and receive compensation, fees and expense reimbursements for services related to the investment and management of our assets.
Significant Accounting Estimates and Critical Accounting Policies
Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our consolidated financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates and critical accounting policies include:
Reclassifications
Certain prior quarter amounts on the consolidated statements of operations and comprehensive income (loss) have been reclassified to conform to the current quarter presentation.
Revenue Recognition
Our revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. Because many of our leases provide for rental increases at specified intervals, straight-line basis accounting requires us to record a receivable, and include in revenues, unbilled rent receivables that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. We defer the revenue related to lease payments received from tenants in advance of their due dates. When we acquire a property, the terms of existing leases are considered to commence as of the acquisition date for the purposes of this calculation.
We continually review receivables related to rent and unbilled rent receivables and determine collectability 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 the event that the collectability of a receivable is in doubt, we record an increase in our allowance for uncollectible accounts or record a direct write-off of the receivable in our consolidated statements of operations.
Cost recoveries from tenants are included in operating expense reimbursement in the period the related costs are incurred, as applicable.
Our hotel revenues are included in operating expense reimbursements and other revenue and are derived from room rentals and other sources such as charges to guests for telephone service, movie and vending commissions, meeting and banquet room revenue and laundry services. Hotel revenues are recognized as earned.

31

Investments in Real Estate
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five to ten years for fixtures and building improvements, and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
We are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in real estate. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our investments in real estate, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis. We are required to present the operations related to properties that have been sold or properties that are intended to be sold as discontinued operations in the statement of operations at fair value for all periods presented to the extent the disposal of a component represents a strategic shift that has or will have a major effect on our operations and financial results. Properties that are intended to be sold are to be designated as "held for sale" on the balance sheet.
Long-lived assets are carried at cost and evaluated for impairment when events or changes in circumstances indicate such an evaluation is warranted or when they are designated as held for sale. Valuation of real estate is considered a "critical accounting estimate" because the evaluation of impairment and the determination of fair values involve a number of management assumptions relating to future economic events that could materially affect the determination of the ultimate value, and therefore, the carrying amounts, of our real estate. Additionally, decisions regarding when a property should be classified as held for sale are also highly subjective and require significant management judgment.
Events or changes in circumstances that could cause an evaluation for impairment include the following:
•
a significant decrease in the market price of a long-lived asset;
•
a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition;
•
a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator;
•
an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset; and
•
a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset.
We review our portfolio on an ongoing basis to evaluate the existence of any of the aforementioned events or changes in circumstances that would require us to test for recoverability. In general, our review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property's use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value expected, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. We are required to make subjective assessments as to whether there are impairments in the values of our investments in real estate. These assessments have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income.
Purchase Price Allocation
We allocate 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. We utilize 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 and fixtures are based on cost segregation studies performed by independent third parties or on our analysis of comparable properties in our portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships, as applicable.

32

The aggregate value of intangible assets 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 by us in our 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, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at contract rates during the expected lease-up period, which typically ranges from six to 12 months. We also estimate costs to execute similar leases, including leasing commissions, legal and other related expenses.
Above-market and below-market in-place lease values for owned properties 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 are 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, we 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.
The aggregate value of intangible assets related to customer relationships, as applicable, is measured based on our evaluation of the specific characteristics of each tenant's lease and our overall relationship with the tenant. Characteristics considered by us in determining these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant's credit quality and expectations of lease renewals, among other factors.
The value of in-place leases is amortized to expense over the initial term of the respective leases, which range primarily from one to 29 years. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.
 In making estimates of fair values for purposes of allocating purchase price, we utilize 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. We also consider information obtained about each property as a result of our 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.
Derivative Instruments
We use derivative financial instruments to hedge the interest rate risk associated with a portion of our borrowings. The principal objective of such agreements is to minimize the risks and costs associated with our operating and financial structure as well as to hedge specific anticipated transactions.
We record all derivatives on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives also may be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that is attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.  We may enter into derivative contracts that are intended to economically hedge certain of our risk, even though hedge accounting does not apply or we elect not to apply hedge accounting.

33

Listing Note
Concurrently with the Listing, we, as the general partner of the OP, caused the OP, subject to the terms of the Fourth Amended and Restated Limited Partnership Agreement, to redeem the SLP's interest in the OP by issuing a note (the "Listing Note"). The Listing Note value will be determined, in part, based on the average market value of our outstanding common stock for the period 180 days to 210 days after the Listing. Until the principal amount of the Listing Note is determined, we estimate the contingent consideration and record the fair value of the Listing Note on the consolidated balance sheets. The initial fair value and subsequent changes in fair value are recorded in the consolidated statements of operations.
Multi-Year Outperformance Agreement
On April 15, 2014 (the "Effective Date"), in connection with the Listing, we entered into a Multi-Year Outperformance Agreement (the “OPP”) with the OP and the Advisor. The Company records equity based compensation expense associated with the awards over the requisite service period of five years. Equity-based compensation expense is adjusted each reporting period for changes in the estimated market-related performance.
Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board ("FASB") issued new accounting guidance clarifying the accounting and disclosure requirements for obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. The adoption of this guidance did not have a material impact on our consolidated financial position, results of operations or cash flows.
In April 2014, the FASB amended the requirements for reporting discontinued operations. Under the revised guidance, in addition to other disclosure requirements, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component or group of components meets the criteria to be classified as held for sale, disposed of by sale or other than by sale. We have adopted the provisions of this guidance effective January 1, 2014, and have applied the provisions prospectively. This adoption of this guidance did not have a material impact on our consolidated financial position, results of operations or cash flows.
In May 2014, the FASB issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is not permitted under GAAP. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. We have not yet selected a transition method and are currently evaluating the impact of the new guidance.
Results of Operations
Comparison of Three Months Ended September 30, 2014 to Three Months Ended September 30, 2013
As of July 1, 2013, we owned 17 properties. From July 1, 2013 through September 30, 2014, we acquired seven properties and real-estate related assets (our "Acquisitions"). As of September 30, 2014, we owned 24 properties and real estate-related assets, which were 94.9% leased. Accordingly, our results of operations for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013, reflect significant increases in most categories.
Rental Income
Rental income increased $15.7 million to $30.2 million for the three months ended September 30, 2014, from $14.5 million for the three months ended September 30, 2013. The increase in rental income was primarily driven by our Acquisitions, which resulted in an increase in rental income of $15.3 million for the three months ended September 30, 2014, compared to the three months ended September 30, 2013 as well as lease termination fees of $0.8 million as a result of a partial lease termination and modification at 229 West 36th Street. This was partially offset by a net decrease in rental income of $0.4 million due to a termination at our 416 Washington Street property as a result of damage caused by Hurricane Sandy, declines in occupancy at 163 Washington Street and net leasing activity at 218 West 18th Street. The terminated space at 416 Washington Street was re-leased in September 2014, resulting in a fully occupied property as of September 30, 2014. Additionally, 218 West 18th Street is also currently fully leased due to rental agreements signed in July and October 2014.

34

Operating Expense Reimbursements and Other Revenue
Operating expense reimbursements and other revenue increased $9.0 million to $10.3 million for the three months ended September 30, 2014 from $1.3 million for the three months ended September 30, 2013, primarily due to our Acquisitions, including our hotel property. Pursuant to many of our lease agreements, tenants are required to pay their pro rata share of certain property operating expenses, in addition to base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating costs of the respective properties. The increase also related to parking revenue due to the switch to self managing the garage at 416 Washington Street in December 2013.
Property Operating Expenses
Property operating expenses increased $11.9 million to $15.6 million for the three months ended September 30, 2014, from $3.7 million for the three months ended September 30, 2013.  The increase in property operating expenses related primarily to real estate taxes, utilities, maintenance and ground rent as well as hotel operations associated with our Acquisitions. This increase was partially offset by absorption of $0.6 million by the Advisor during the three months ended September 30, 2014. There was no absorption by the Advisor during the three months ended September 30, 2013.
Operating Fees to Affiliates
Operating fees to affiliates were $3.0 million for the three months ended September 30, 2014. Operating fees to affiliates represent asset management fees earned by the Advisor. Prior to the Listing, we issued to the Advisor restricted performance based Class B units for asset management services, which vested as of the Listing. As such, there were no operating fees to affiliates for the three months ended September 30, 2013.
Our Property Manager is entitled to fees for the management of our properties. Property management fees increase in direct correlation with gross revenues. Our Property Manager elected to waive these fees for the three months ended September 30, 2014 and 2013.  For the three months ended September 30, 2014 and 2013, we would have incurred property management fees of $0.4 million and $0.2 million, respectively, had these fees not been waived.
Acquisition and Transaction Related Expenses
Acquisition and transaction related expenses were $4.4 million for the three months ended September 30, 2014, primarily relating to our acquisition of 245-249 West 17th Street. During the three months ended September 30, 2013, we incurred $4.3 million of acquisition and transaction related expenses, primarily related to the acquisition of two properties during the period.
Fair Value of Listing Promote
Fair value of listing promote decreased by $24.7 million for the three months ended September 30, 2014, representing the change in the valuation of the Listing Note. The principal value of the Listing Note obligation is not yet definitive and the principal value could differ materially from the fair value at September 30, 2014. The Listing Note is marked-to-market quarterly, with changes in the value recorded in the consolidated statements of operations and comprehensive income (loss).
General and Administrative Expenses
General and administrative expenses increased $3.1 million to $3.3 million for the three months ended September 30, 2014, from $0.2 million for the three months ended September 30, 2013, largely driven by higher equity-based compensation expense and professional fees. Equity-based compensation expense of $2.5 million for the three months ended September 30, 2014 included amortization of the fair value of the OPP, which was adopted in conjunction with the Listing as well as board member compensation. Board member equity-based compensation was $16,000 for the three months ended September 30, 2013. Professional fees increased by $0.5 million to support our larger real estate portfolio, number of stockholders and operations as a traded REIT subsequent to Listing. At the time the IPO ended in December 2013, we began to expense, as incurred, professional fees relating to stockholder services, because these costs no longer related to fulfilling subscriptions and offering costs. Additionally, the Advisor elected to absorb $0.4 million and $0.5 million of general and administrative expenses for the three months ended September 30, 2014 and 2013, respectively.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $11.4 million to $21.7 million for the three months ended September 30, 2014, compared to $10.3 million for the three months ended September 30, 2013. The increase in depreciation and amortization expense related mainly to our Acquisitions, which resulted in additional expense of $12.2 million as well as $0.6 million related to the acceleration of depreciation on tenant improvements as a result of a partial lease termination and modification at 229 West 36th Street. The increase was partially offset by a $1.4 million decrease in depreciation and amortization expense related to prior period tenant lease expirations and terminations.

35

Interest Expense
Interest expense increased $5.7 million to $8.4 million for the three months ended September 30, 2014 from $2.7 million for the three months ended September 30, 2013, as a result of a higher weighted average credit facility balance outstanding of $445.1 million during the three months ended September 30, 2014, compared to the $47.4 million during the three months ended September 30, 2013, as well as the associated increased amortization of deferred financing costs resulting from expanding our credit facility. Additionally, we expensed $3.1 million of financing costs during the three months ended September 30, 2014 as a result of the credit facility amendments.
We view a mix of secured and unsecured financing sources as an efficient and accretive means to acquire properties and manage working capital.  Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the cost of borrowings and the opportunity to acquire real estate assets which meet our investment objectives.
Loss from Unconsolidated Joint Venture
Loss from unconsolidated joint venture was $0.1 million for the three months ended September 30, 2014, which represents our preferred distribution, net of our pro-rata share of the net loss of Worldwide Plaza and the amortization of the difference in basis between our investment and the book value of Worldwide Plaza's net assets, which we acquired in October 2013.
Income from Preferred Equity Investment, Investment Securities and Interest Income
Income from preferred equity investment, investment securities and interest income was $0.8 million for the three months ended September 30, 2014, which primarily represents income earned on our preferred equity investment in 123 William Street, acquired in October 2013, and our investments in redeemable preferred stock and a real estate income fund. Income from preferred equity investment, investment securities and interest income was approximately $26,000 during the three months ended September 30, 2013, primarily representing the income earned on cash and cash equivalents and investment securities held during the period. We did not own any preferred equity investments during the three months ended September 30, 2013.
Net Loss Attributable to Non-Controlling Interests
The net loss attributable to non-controlling interests during the three months ended September 30, 2014 and 2013 was $0.2 million and $7,000, respectively, which represents the net loss attributable to non-controlling interests for the period. The increase in net loss attributable to non-controlling interests was primarily driven by the increase in OP units resulting from the Listing.
Comparison of Nine Months Ended September 30, 2014 to Nine Months Ended September 30, 2013
As of January 1, 2013, we owned 16 properties. From January 1, 2013 through September 30, 2014, we acquired eight properties and real-estate related assets (our "Acquisitions"). As of September 30, 2014, we owned 24 properties and real estate-related assets, which were 94.9% leased. Accordingly, our results of operations for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, reflect significant increases in most categories.
Rental Income
Rental income increased $51.2 million to $83.5 million for the nine months ended September 30, 2014, from $32.3 million for the nine months ended September 30, 2013. The increase in rental income was primarily driven by our Acquisitions, which resulted in an increase in rental income of $51.0 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013 as well as lease termination fees of $0.8 million related to a partial lease termination and modification at 229 West 36th Street. This was partially offset by a net decrease in rental income of $0.6 million due to net leasing activity at 416 Washington Street as a result of damage caused by Hurricane Sandy as well as 256 West 38th Street, partially offset by higher occupancy at 163 Washington Street. The terminated space at 416 Washington Street was re-leased in September 2014, resulting in a fully occupied property as of September 30, 2014. We began self managing the garage at 416 Washington Street in December 2013 through a third-party national operator. Parking revenue associated with self management is higher than the rental income we would have received, however this parking revenue is included in operating expense reimbursements and other revenue.
Operating Expense Reimbursements and Other Revenue
Operating expense reimbursements and other revenue increased $23.8 million to $26.5 million for the nine months ended September 30, 2014 from $2.7 million for the nine months ended September 30, 2013, primarily due to our Acquisitions, including our hotel property. Pursuant to many of our lease agreements, tenants are required to pay their pro rata share of certain property operating expenses, in addition to base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating costs of the respective properties. The increase also related to parking revenue due to the switch to self managing the garage at 416 Washington Street in December 2013.

36

Property Operating Expenses
Property operating expenses increased $35.7 million to $43.6 million for the nine months ended September 30, 2014, from $7.9 million for the nine months ended September 30, 2013.  The increase in property operating expenses primarily related to real estate taxes, utilities, maintenance and ground rent as well as hotel operations associated with our Acquisitions, which resulted in an increase of $35.8 million for the nine months ended September 30, 2014. Property operating expenses increased $0.5 million at our other properties, primarily related to increased real estate taxes, utilities and maintenance expenses. This increase was partially offset by absorption of $0.6 million by the Advisor during the nine months ended September 30, 2014. There was no absorption by the Advisor during the nine months ended September 30, 2013.
Operating Fees to Affiliates
Operating fees to affiliates were $5.3 million for the nine months ended September 30, 2014. Operating fees to affiliates represent asset management fees earned by the Advisor. Prior to the Listing, we issued the Advisor restricted performance based Class B units for prior asset management services, which vested as of the Listing. As such, there were no operating fees to affiliates for the nine months ended September 30, 2013.
Our Property Manager is entitled to fees for the management of our properties. Property management fees increase in direct correlation with gross revenues. Our Property Manager elected to waive these fees for the nine months ended September 30, 2014 and 2013.  For the nine months ended September 30, 2014 and 2013, we would have incurred property management fees of $1.2 million and $0.6 million, respectively, had these fees not been waived.
Acquisition and Transaction Related Expenses
Acquisition and transaction related expenses increased $11.5 million to $16.1 million for the nine months ended September 30, 2014, from $4.6 million for the nine months ended September 30, 2013 primarily relating to the Listing. These fees and expenses mainly consist of $8.9 million relating to investment banking, advisory and other services provided by affiliated entities, including RCS Advisory Services, LLC, an entity owned by the Dealer Manager, and RCS Capital, LLC, the investment banking and capital markets division of the Dealer Manager, and $2.7 million relating to other third party fees and expenses generally in connection with the Listing.
Acquisition and transaction related expenses also included $4.4 million during the nine months ended September 30, 2014 relating to our acquisition of 245-249 West 17th Street. Acquisition and transaction related expense of $4.6 million for the nine months ended September 30, 2013 included $7.1 million for the purchase of three properties during the period, partially offset by a reimbursement by the Advisor of $2.5 million for insourced expenses and legal reimbursements that had been paid on previous acquisitions.
Vesting of Asset Management Fees
Vesting of asset management fees expense was $11.5 million for the nine months ended September 30, 2014, relating to the vesting of Class B units previously issued to the Advisor for asset management services. The performance condition related to these Class B units was satisfied upon completion of the Listing. On April 15, 2014, the Class B units were converted to OP units on a one-to-one basis.
Fair Value of Listing Promote
Fair value of listing promote of $13.4 million for the nine months ended September 30, 2014 represents the valuation of the Listing Note. The principal value of the Listing Note obligation is not yet definitive and the principal value could differ materially from the fair value at September 30, 2014. The Listing Note is marked-to-market quarterly, with changes in the value recorded in the consolidated statements of operations and comprehensive income (loss).
General and Administrative Expenses
General and administrative expenses increased $7.0 million to $7.5 million for the nine months ended September 30, 2014 from $0.5 million for the nine months ended September 30, 2013, primarily related to an increase of $6.9 million in equity-based compensation and professional fees to support our larger real estate portfolio, number of stockholders and operations as a traded REIT subsequent to Listing. Equity-based compensation expense of $4.4 million for the nine months ended September 30, 2014 included amortization of the fair value of the OPP, which was adopted in conjunction with the Listing and board member equity-based compensation. Board member equity-based compensation was $40,000 for the nine months ended September 30, 2013. At the time the IPO ended in December 2013, we began to expense, as incurred, professional fees relating to stockholder services, because these costs no longer related to fulfilling subscriptions and offering costs. Additionally, the Advisor elected to absorb $1.4 million and $1.5 million of general and administrative expenses for the nine months ended September 30, 2014 and 2013, respectively.

37

Depreciation and Amortization Expense
Depreciation and amortization expense increased $42.4 million to $62.9 million for the nine months ended September 30, 2014, compared to $20.5 million for the nine months ended September 30, 2013. The increase in depreciation and amortization expense related mainly to our Acquisitions, which resulted in additional expense of $44.2 million as well as $0.6 million related to the acceleration of depreciation on tenant improvements as a result of a partial lease termination and modification at 229 West 36th Street. The increase was partially offset by a $2.5 million decrease in depreciation and amortization expense relating to prior period tenant lease expirations and terminations.
Interest Expense
Interest expense increased $9.6 million to $17.2 million for the nine months ended September 30, 2014 from $7.6 million for the nine months ended September 30, 2013, as a result of a higher weighted average balance outstanding of $354.5 million during the nine months ended September 30, 2014, compared to the $29.2 million during the nine months ended September 30, 2013, as well as the associated increased amortization of deferred financing costs resulting from expanding our credit facility. Additionally, we expensed $3.1 million of financing costs during the three months ended September 30, 2014 as a result of the credit facility amendments.
We view a mix of secured and unsecured financing sources as an efficient and accretive means to acquire properties and manage working capital.  Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the cost of borrowings and the opportunity to acquire real estate assets which meet our investment objectives.
Loss from Unconsolidated Joint Venture
Loss from unconsolidated joint venture was $1.1 million for the nine months ended September 30, 2014, which represents our preferred distribution, net of our pro-rata share of the net loss of Worldwide Plaza and the amortization of the difference in basis between our investment and the book value of Worldwide Plaza's net assets, which we acquired in October 2013.
Income from Preferred Equity Investment, Investment Securities and Interest Income
Income from preferred equity investment, investment securities and interest income was $2.1 million for the nine months ended September 30, 2014, which primarily represents income earned on our preferred equity investment in 123 William Street, acquired in October 2013, and our investments in redeemable preferred stock and a real estate income fund. Income of approximately $27,000 during the nine months ended September 30, 2013, primarily representing the income earned on cash and cash equivalents and investment securities held during the period. We did not own any preferred equity investments during the nine months ended September 30, 2013.
Net Loss Attributable to Non-Controlling Interests
The net loss attributable to non-controlling interests during the nine months ended September 30, 2014 and 2013 was $0.7 million and approximately $22,000, respectively, which represents the net loss attributable to non-controlling interests for the period. The increase in net loss attributable to non-controlling interests was primarily driven by the increase in OP units resulting from the Listing.
Cash Flows for the Nine Months Ended September 30, 2014
For the nine months ended September 30, 2014, net cash provided by operating activities was $1.1 million. The level of cash flows used in or provided by operating activities is affected by the volume of acquisition activity, the timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments and the level of property operating expenses. Cash flows provided by operating activities during the nine months ended September 30, 2014 included $16.1 million of transaction costs relating to the Listing and the acquisition of 245-249 West 17th Street. Cash flows provided by operating activities included a net loss adjusted for non-cash items, resulting in a cash inflow of $26.6 million (net loss of $66.4 million adjusted for depreciation and amortization of tangible and intangible real estate assets and other non-cash charges of $93.0 million). These cash inflows were partially offset by an increase in prepaid expenses and other assets of $16.1 million primarily due to unbilled rent receivables recorded in accordance with accounting for rental income on a straight-line basis, other accounts receivable and deferred leasing costs. These cash inflows were further offset by a decrease in accounts payable and accrued expenses of $4.4 million, primarily due to fees paid to our Dealer Manager for services rendered in 2013 related to exploring our liquidity event, an increase in receivables from affiliated entities of $1.0 million related to the absorption of general and administrative and property operating expenses and a decrease in deferred rent of $4.0 million.
Net cash used in investing activities during the nine months ended September 30, 2014 of $328.3 million primarily related to $316.2 million for the acquisition of 245-249 W 17th street, a free rent credit from the seller held in escrow of $8.4 million, $5.8 million of capital expenditures and $3.0 million in purchases of additional investment securities. These cash inflows were partially offset by distributions from our unconsolidated joint venture in Worldwide Plaza of $5.2 million.

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Net cash provided by financing activities of $120.0 million during the nine months ended September 30, 2014 primarily related to proceeds from our line of credit of $320.0 million, proceeds from the issuance of common stock of $11.3 million and a $0.8 million contribution from the Advisor for OP units. These inflows were partially offset by the Tender Offer and other repurchases of common stock, including associated fees and expenses, of $154.3 million, dividends to stockholders of $47.5 million, increases to restricted cash of $0.8 million, deferred financing costs paid of $7.3 million to expand the credit facility, offering costs paid of $1.5 million, principal payments related to mortgage notes payable of $0.4 million and $0.4 million of dividends to OP unit holders.
Cash Flows for the Nine Months Ended September 30, 2013
For the nine months ended September 30, 2013, net cash provided by operating activities was $6.4 million.  The level of cash flows used in or provided by operating activities is affected by the volume of acquisition activity, the timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments. Cash flows provided by operating activities during the nine months ended September 30, 2013 included $4.6 million of acquisition and transaction costs. Cash flows provided by operating activities included a net loss adjusted for non-cash items, resulting in a cash inflow of $14.9 million (net loss of $6.2 million adjusted for depreciation and amortization of tangible and intangible real estate assets and other non-cash charges of $21.1 million ) and an increase in deferred rent of $0.8 million. These cash inflows were partially offset by an increase in prepaid expenses and other assets of $8.5 million primarily due to unbilled rent receivables recorded in accordance with accounting for rental income on a straight line basis, other accounts receivable, prepaid insurance and deferred leasing costs and a decrease in accounts payable and accrued expenses of $0.7 million mainly due to the payment of December 2012 acquisition and transaction related expenses.
Net cash used in investing activities during the nine months ended September 30, 2013 of $370.6 million primarily related to $348.8 million for the acquisition of three properties. Cash used in investing activities also included $10.5 million for capital expenditures and tenant improvements, a $10.0 million deposit for a pending acquisition and $1.3 million for the purchase of investment securities.
Net cash provided by financing activities of $735.4 million during the nine months ended September 30, 2013 related to proceeds, net of receivables and repurchases, from the issuance of common stock of $846.5 million and proceeds net of repayments on our credit facility of $60.0 million. These inflows were partially offset by payments related to offering costs of $83.3 million, repayments of mortgage notes payable of $72.7 million, distributions to stockholders of $9.4 million, payments related to financing costs of $4.9 million, increases to restricted cash of $0.5 million, increases in receivables from affiliates of $0.2 million and payments of distributions to non-controlling interest holders of $0.1 million.
Non-GAAP Financial Measures
This section includes non-GAAP financial measures, including Funds from Operations, Core Funds from Operations, Adjusted Funds from Operations, Earnings before Interest, Taxes and Depreciation and Amortization, Net Operating Income and Cash Net Operating Income. A description of these non-GAAP measures and reconciliations to the most directly comparable GAAP measure, which is net income, is provided below.
Funds from Operations, Core 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. FFO is a supplemental performance measure but is not equivalent to our net income or loss as determined under 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 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 definition.
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of a real estate asset diminishes predictably over time, especially if not adequately maintained or repaired and renovated as required by relevant circumstances or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, because 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 and certain other items may be less informative. Historical accounting for real estate involves the use of 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 GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate

39

related depreciation and amortization, among other things, 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, core funds from operations ("Core FFO") and adjusted funds from operations (“AFFO”), as described below, should not be construed to be more relevant or accurate than the current 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 GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO, Core FFO and AFFO measures and the adjustments to GAAP in calculating FFO, Core FFO and AFFO. 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 Core FFO and/or AFFO differently than we do. Consequently, our presentation of FFO, Core FFO and AFFO may not be comparable to other similarly titled measures presented by other REITs.
We consider FFO, Core FFO and AFFO useful indicators of our performance. 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), FFO facilitates comparisons of operating performance between periods and between other REITs in our peer group.
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.
Core FFO is FFO, excluding acquisition and transaction related costs, other costs that are considered to be non-recurring, such as charges relating to the Listing Note, non-recurring revenue, such as lease termination or modification fees, and non-recurring expenses. The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make dividend payments to investors. In evaluating investments in real estate, we differentiate the costs to acquire the investment from the operations derived from the investment. By excluding expensed acquisition costs, we believe Core FFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management's analysis of the investing and operating performance of our properties.
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. We also exclude dividends on Class B OP Units as the related shares are assumed to have converted to common stock in our calculation of fully diluted weighted average common shares. In addition, by excluding non-cash income and expense items such as amortization of above-market and below-market lease intangibles, amortization of deferred financing costs, straight-line rent 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 liquidity to the company or require capital resources of the company. Similarly, we include items such as free rent credits paid by sellers in our calculation of AFFO because these funds are paid to us during the free rent period and therefore improve our liquidity and ability to pay dividends. 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 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 will also have negative effects on returns to investors, the potential for future dividends, 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

40

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, Core FFO and AFFO, together with the required 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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The table below reflects the items deducted from or added to net income (loss) in our calculation of FFO, Core FFO and AFFO during the periods presented.  Items are presented net of non-controlling interest portions where applicable.
 
 
Three Months Ended
 
Nine Months Ended
(In thousands)
 
March 31,
2014
 
June 30,
2014
 
September 30,
2014
 
September 30,
2014
Net income (loss) (in accordance with GAAP)
 
$
(8,155
)
 
$
(67,748
)
 
$
9,522

 
$
(66,381
)
Depreciation and amortization, net of adjustments related to joint ventures
 
21,003

 
20,213

 
21,649

 
62,865

Proportionate share of depreciation and amortization related to unconsolidated joint venture
 
6,354

 
6,302

 
6,302

 
18,958

FFO
 
19,202

 
(41,233
)
 
37,473

 
15,442

Acquisition fees and expenses
 
69

 
11,577

 
4,436

 
16,082

Vesting of asset management fees
 
—

 
11,500

 
—

 
11,500

Fair value of listing promote
 
—

 
38,100

 
(24,700
)
 
13,400

    Non-recurring revenue
 
—

 
—

 
(855
)
 
(855
)
    Non-recurring non-cash compensation expense
 
—

 
—

 
332

 
332

    Non-recurring deferred financing costs
 
—

 
—

 
3,108

 
3,108

Core FFO
 
19,271

 
19,944

 
19,794

 
59,009

Plus:
 
 
 
 
 
 
 
 
Non-cash compensation expense
 
16

 
1,882

 
2,143

 
4,041

Deferred financing costs
 
726

 
1,424

 
1,275

 
3,425

Seller free rent credit
 
—

 
—

 
2,277

 
2,277

Class B distributions
 
88

 
19

 
—

 
107

Minus:
 
 
 
 
 
 
 
 
Amortization of market lease intangibles
 
(2,454
)
 
(2,267
)
 
(2,296
)
 
(7,017
)
Mark-to-market adjustments on derivatives
 
—

 
(1
)
 
—

 
(1
)
Straight-line rent
 
(2,430
)
 
(1,446
)
 
(4,839
)
 
(8,715
)
Recurring capital expenditures
 
(1,216
)
 
(608
)
 
(363
)
 
(2,187
)
Proportionate share of adjustments related to unconsolidated joint venture
 
(560
)
 
(758
)
 
(680
)
 
(1,998
)
AFFO
 
$
13,441

 
$
18,189

 
$
17,311

 
$
48,941


Earnings before Interest, Taxes and Depreciation and Amortization, Net Operating Income and Cash Net Operating Income.
We believe that earnings before interest, taxes, depreciation and amortization adjusted for acquisition fees and expenses, other non-cash valuations and including our pro-rata share from unconsolidated joint ventures ("Adjusted EBITDA") is an appropriate measure of our ability to incur and service debt. Adjusted EBITDA should not be considered as an alternative to cash flows from operating activities, as a measure of our liquidity or as an alternative to net income as an indicator of our operating activities. Other REITs may calculate Adjusted EBITDA differently and our calculation should not be compared to that of other REITs.

42

Net operating income ("NOI") is a non-GAAP financial measure equal to net income attributable to stockholders, the most directly comparable GAAP financial measure, less discontinued operations, interest, other income and income from preferred equity investments and investments securities, plus corporate general and administrative expense, acquisition and transaction costs, depreciation and amortization, other non-cash expenses and interest expense. NOI is adjusted to include our pro-rata share of NOI from unconsolidated joint ventures. We use NOI internally as a performance measure and believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. Therefore, we believe NOI is a useful measure for evaluating the operating performance of our real estate assets and to make decisions about resource allocations. Further, we believe NOI is useful to investors as a performance measure because, when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition activity on an unleveraged basis, providing perspective not immediately apparent from net income. NOI excludes certain components from net income in order to provide results that are more closely related to a property's results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level as opposed to the property level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. NOI presented by us may not be comparable to NOI reported by other REITs that define NOI differently. We believe that in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income as presented in our consolidated financial statements. NOI should not be considered as an alternative to net income as an indication of our performance or to cash flows as a measure of our liquidity or ability to make dividends.
Cash NOI is NOI presented on a cash basis, which is NOI after eliminating the effects of straight-lining of rent and the amortization of above and below market leases.
The tables below reflect the reconciliation of net loss to Adjusted EBITDA, NOI and Cash NOI during the periods presented.
 
 
 
Three Months Ended
 
Nine Months Ended
(In thousands)
 
 
March 31,
2014
 
June 30,
2014
 
September 30,
2014
 
September 30, 2014
Net income (loss) (in accordance with GAAP)
 
 
$
(8,155
)
 
$
(67,748
)
 
$
9,522

 
$
(66,381
)
Acquisition and transaction related
 
 
69

 
11,577

 
4,436

 
16,082

Vesting of asset management fees
 
 
—

 
11,500

 
—

 
11,500

Depreciation and amortization
 
 
21,013

 
20,222

 
21,657

 
62,892

Interest expense
 
 
3,939

 
4,813

 
8,407

 
17,159

Gain on derivative instruments
 
 
—

 
(1
)
 
—

 
(1
)
Fair value of listing promote
 
 
—

 
38,100

 
(24,700
)
 
13,400

Proportionate share of adjustments related to unconsolidated joint venture
 
 
11,187

 
11,189

 
11,242

 
33,618

Adjusted EBITDA
 
 
28,053

 
29,652

 
30,564

 
88,269

General and administrative
 
 
1,361

 
2,758

 
3,339

 
7,458

Asset management fee to affiliate
 
 
—

 
2,274

 
2,980

 
5,254

Income from preferred equity investment, investment securities and interest
 
 
(624
)
 
(677
)
 
(769
)
 
(2,070
)
Preferred return on unconsolidated joint venture
 
 
(3,851
)
 
(3,894
)
 
(3,936
)
 
(11,681
)
Proportionate share of other adjustments related to unconsolidated joint venture
 
 
3,135

 
652

 
1,924

 
5,711

NOI
 
 
28,074

 
30,765

 
34,102

 
92,941

Amortization of above/below market lease assets and liabilities
 
 
(2,454
)
 
(2,267
)
 
(2,296
)
 
(7,017
)
Straight-line rent
 
 
(2,430
)
 
(1,446
)
 
(4,839
)
 
(8,715
)
Proportionate share of adjustments related to unconsolidated joint venture
 
 
(560
)
 
(758
)
 
(680
)
 
(1,998
)
Cash NOI
 
 
$
22,630

 
$
26,294

 
$
26,287

 
$
75,211




43

Liquidity and Capital Resources
As of September 30, 2014, we had cash and cash equivalents of $26.1 million. In the normal course of business, our principal demands for funds will continue to be for property acquisitions, either directly or through investment interests, for the payment of operating expenses, dividends to our investors, and for the payment of principal and interest on our outstanding indebtedness. Future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from offerings, including issuances of equity or debt securities from our universal shelf registration statement, proceeds from the sale of properties and undistributed funds from operations. We expect to increase the amount of cash flow generated from operating activities in future periods through future acquisitions and the stabilization of our current investment portfolio. Furthermore, we anticipate increased cash flow through future leasing activity and the contractual rent escalations included in a majority of our current leases during the primary term of the lease. Such increased cash flow will positively impact the amount of funds available for dividends. Our principal sources and uses of funds are further described below.
Principal Sources of Funds
Capital Markets
In September 2010, we commenced our IPO on a "reasonable best efforts" basis of up to 150.0 million shares of common stock at a price of $10.00 per share, subject to certain volume and other discounts. Our IPO closed in December 2013. We operated as a non-traded REIT through April 14, 2014. On April 15, 2014, we listed our common stock on the NYSE under the symbol "NYRT."
On April 18, 2014, we filed a universal shelf registration statement that was declared effective. We intend to maintain the universal shelf registration statement.
Availability of Funds from Credit Facility
On April 14, 2014, we entered into an amendment to our credit facility ("Credit Facility") with Capital One, National Association ("Capital One"). The Credit Facility allows for total borrowings of up to $705.0 million with a $305.0 million term loan and a $400.0 million revolving loan which mature on August 20, 2018 and August 20, 2016, respectively. The Credit Facility contains an "accordion feature" to allow us, under certain circumstances, to increase the aggregate loan borrowings to up to $1.0 billion of total borrowings. As of September 30, 2014, the outstanding balance of the term loan and revolving components of the credit facility was $305.0 million and $320.0 million, respectively, with a combined weighted average interest rate of 2.0%. The unused borrowing capacity, based on the value of the borrowing base properties as of September 30, 2014, was $10.6 million. Availability of borrowings is based on a pool of eligible unencumbered real estate assets.
The Credit Facility provides for monthly interest payments for each Base Rate loan and periodic payments for each LIBOR loan, based upon the applicable LIBOR loan period, with all principal outstanding being due on the maturity date. The Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty. In the event of a default, the lenders have the right to terminate their obligations under the Credit Facility and to accelerate the payment on any unpaid principal amount of all outstanding loans.
In connection with our financings, our Advisor currently receives a financing coordination fee, equal to 0.75% of the amount made available or outstanding under such financing, subject to certain limitations. On April 15, 2014, 2014, we entered into the Sixth Amended and Restated Advisory Agreement by and among us, the OP and the Advisor (the "Amended Advisory Agreement"), which, among other things, terminated the financing coordination fee 180 days after listing, or October 12, 2014 (the "Termination Date"), except for fees with respect to financings under contract, letter of intent or under negotiation as of the Termination Date. (See Note 14 — Related Party Transactions and Arrangements).
Reimbursement of Advisor's Expenses
We reimburse the Advisor for costs and expenses of providing services, subject to the limitations defined in our charter and advisory agreement. No reimbursement was incurred from the Advisor or paid by us for providing administrative services for the three and nine months ended September 30, 2014 or 2013. The lack of reimbursement to the Advisor of its expenses improves our operating cash flows and our ability to pay dividends from operating cash flows.
Principal Use of Funds
Acquisitions
As of September 30, 2014, we owned 24 properties and real estate-related assets. Our Advisor is actively and continuously evaluating potential acquisitions of real estate and real estate-related assets and engages in negotiations with sellers and borrowers on our behalf. 

44

In connection with our acquisition of properties, our Advisor receives an acquisition fee, equal to 1.0% of the contract purchase price of each acquired property including debt assumed or borrowed in connection with the acquisition. The Amended Advisory Agreement terminated the acquisition fee at the Termination Date, except for fees with respect to properties under contract, letter of intent or under negotiation as of the Termination Date (See Note 14 — Related Party Transactions and Arrangements).
Leasing Activity
During the three months ended September 30, 2014, including our pro-rata share of our unconsolidated joint venture, we executed four new leases and two replacement leases. We will incur $36.42 per square foot of tenant improvements and leasing commissions on replacement leases.
Cash is used to fund, among other things, recurring and nonrecurring capital expenditures. Funds spent on capital expenditures, which are comprised of first and second generation tenant improvements, leasing commissions and building improvements, increased to $4.3 million for the three months ended September 30, 2014 from $2.5 million for the three months ended June 30, 2014, including our pro-rata share of our unconsolidated joint venture. The increased capital expenditures relate primarily to increased costs incurred in connection with first generation building improvements.
Dividends
We are required to distribute at least 90% of our annual REIT taxable income. On September 22, 2010, our board of directors authorized, and we declared, a dividend rate equal to $0.605 per annum per share of common stock, commencing December 1, 2010.  The dividends were payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month at a rate of $0.00165753424 per day. Beginning in April 2014, we changed our dividend to an annual rate equal to $0.46 per share payable to stockholders of record at the close of business on the 8th day of each month, and payable on the 15th day of such month. Dividend payments are dependent on the availability of funds.  Our board of directors may reduce the amount of dividends paid or suspend dividend payments at any time and therefore dividend payments are not assured.
Effective March 31, 2014, the board of directors approved the suspension of the DRIP.
During the nine months ended September 30, 2014, dividends paid totaled $67.0 million, inclusive of $19.0 million of dividends that were reinvested through the DRIP and $0.5 million of dividends paid related to unvested restricted shares, LTIP units and OP units.  During the nine months ended September 30, 2014, cash used to pay our dividends was primarily generated from cash flows provided by operations, issuances of common stock from prior periods, proceeds from financings and common stock issued under the DRIP.  

45

The following table shows the sources for the payment of dividends for the periods presented:
 
 
Three Months Ended
 
Nine Months Ended
 
 
March 31, 2014
 
June 30, 2014
 
September 30,
2014
 
September 30, 2014
(In thousands)
 
 
 
Percentage
of
Distributions
 
 
 
Percentage
of
Distributions
 
 
 
Percentage 
of
Distributions
 
 
 
Percentage
of
Distributions
Distributions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends paid in cash
 
$
11,774

 
 
 
$
17,050

 
 
 
$
18,626

 
 
 
$
47,450

 
 
Dividends reinvested
 
14,084

 
 
 
4,935

 
 
 
—

 
 
 
19,019

 
 
Other(1)
 
92

 
 
 
119

 
 
 
324

 
 
 
535

 
 
Total dividends
 
$
25,950

 
 
 
$
22,104

 
 
 
$
18,950

 
 
 
$
67,004

 
 
Source of distribution coverage:
 
 
 
 
 
 
 
 
 
 

 
 
 
 

 
 
Cash flows provided by (used in) operations 
 
$
4,565

 
17.6
%
 
$
(2,413
)
 
(10.9
)%
 
$
(1,088
)
 
(5.7
)%
 
$
1,064

 
1.6
%
Common stock issued under the DRIP / offering proceeds
 
14,084

 
54.3
%
 
4,935

 
22.3
 %
 
—

 
—
 %
 
19,019

 
28.4
%
Proceeds from previously issued common stock
 
3,365

 
12.9
%
 
18,341

 
83.0
 %
 
—

 
—
 %
 
21,706

 
32.4
%
Proceeds from financings
 
—

 
—
%
 
—

 
—
 %
 
20,038

 
105.7
 %
 
20,038

 
29.9
%
Proceeds from Worldwide Plaza
 
3,936

 
15.2
%
 
1,241

 
5.6
 %
 
—

 
—
 %
 
5,177

 
7.7
%
Total sources of dividends
 
$
25,950

 
100.0
%
 
$
22,104

 
100.0
 %
 
$
18,950

 
100.0
 %
 
$
67,004

 
100.0
%
Cash flows provided by (used in) operations (GAAP basis) (2)
 
$
4,565

 
 
 
$
(2,413
)
 
 
 
$
(1,088
)
 
 

 
$
1,064

 
 

Net income (loss) attributable to stockholders (in accordance with GAAP)
 
$
(8,156
)
 
 
 
$
(67,237
)
 
 
 
$
9,695

 
 

 
$
(65,698
)
 
 

__________________
(1) Includes dividends related to unvested restricted shares, LTIP Units and OP units.
(2) Cash flows provided by operations for the nine months ended September 30, 2014 include cash-related acquisition and transaction related expenses of $16.1 million.

46

The following table compares cumulative dividends paid to cumulative net loss (in accordance with GAAP) for the period from October 6, 2009 (date of inception) through September 30, 2014:
 
 
For the Period from
October 6, 2009
(date of inception) to
(In thousands)
 
September 30, 2014
Dividends paid:
 
 
Preferred stockholders
 
$
2,158

Common stockholders in cash
 
69,236

Common stockholders pursuant to DRIP / offering proceeds
 
41,548

Other(1)
 
535

Total dividends paid
 
$
113,477

 
 
 

Reconciliation of net loss:
 
 

Revenues
 
$
191,276

Acquisition and transaction-related expenses
 
(42,575
)
Fair value of listing promote
 
(13,400
)
Vesting of asset management fees
 
(11,500
)
Depreciation and amortization
 
(109,984
)
Other operating expenses
 
(76,889
)
Other non-operating expenses
 
(34,129
)
Net income attributable to non-controlling interests
 
703

Net loss (in accordance with GAAP) (2)
 
$
(96,498
)
 
 
 
   Cash flows provided by operations
 
$
12,550

 
 
 
   FFO
 
$
33,354

__________________________________
(1)
Includes dividends related to unvested restricted shares, LTIP Units and OP units.
(2)
Net loss as defined by GAAP includes the non-cash impact of depreciation and amortization expense, valuations of derivatives as well as acquisition and transaction related costs.
Share Repurchases
On March 31, 2014, the board of directors approved the termination of our Share Repurchase Program ("SRP"). We processed all of the requests received under the SRP for the first quarter of 2014 and will not process any further requests. The following table reflects the cumulative number of shares repurchased as of December 31, 2013 and as of and through the termination of the SRP:
 
Number of Requests
 
Number of Shares Repurchased
 
Average Price per Share
Cumulative repurchases as of December 31, 2013
35

 
279,594

 
$
9.63

Repurchases through termination of the SRP
1

 
5,000

 
10.00

Cumulative repurchases through termination of the SRP
36

 
284,594

 
$
9.63

Listing and Tender Offer
On April 15, 2014, we commenced an offer to purchase up to 23.3 million shares of our common stock at a price of $10.75 per share (the “Tender Offer”). The Tender Offer closed on May 12, 2014 and we purchased 14.2 million shares of our common stock at a price of $10.75 per share, for an aggregate of $152.3 million, excluding fees and expenses relating to the Tender Offer and including fractional shares repurchased thereafter. We funded the Tender Offer using cash on hand. 

47

Strategic Alternatives Fees
In October 2014, we entered into separate transaction management agreements with Barclays Capital Inc. and RCS Capital, the investment banking and capital markets division of the Dealer Manager, as financial advisors to assist us and our board of directors in evaluating strategic options to enhance long-term shareholder value, including a business combination involving us or our sale. Pursuant to the agreement with RCS Capital, we will pay to RCS Capital a transaction fee upon the consummation of a transaction equal to 0.25% of the transaction value. Pursuant to the agreement with Barclays Capital Inc., we will pay to Barclays Capital Inc. a transaction fee based on the transaction value.
Loan Obligations
As of September 30, 2014, we had consolidated mortgage notes payable of $172.4 million, excluding our pro-rata share of unconsolidated mortgage debt relating to Worldwide Plaza of $427.9 million. As of September 30, 2014, the consolidated mortgage notes payable had a weighted average interest rate of 3.6% and our pro-rata share of unconsolidated mortgage debt relating to Worldwide Plaza had a weighted average interest rate of 4.6%.
The payment terms of our loan obligations require principal and interest amounts payable monthly with all unpaid principal and interest due at maturity. Our loan agreements requires us to comply with specific reporting covenants. As of September 30, 2014, we were in compliance with the debt covenants under our loan agreements.
Incurring mortgage debt increases the risk of loss because defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default and cause us to recognize taxable income on foreclosure for federal income tax purposes even though we do not receive any cash proceeds. In such event, we may be unable to pay the amount of distributions required in order to maintain our REIT status.
Contractual Obligations
The following table reflects contractual mortgage and credit facility obligations and minimum base rental cash payments due for leasehold interests over the next five years and thereafter as of September 30, 2014. These minimum base rental cash payments exclude contingent rent payments, as applicable, that may be payable based on provisions related to increases in annual rent based on exceeding certain economic indexes among other items. As of September 30, 2014, the outstanding mortgage notes payable and advances under our credit facility had a weighted average interest rate of 3.6% and 2.0%, respectively, and a weighted average maturity of 3.0 years.
 
 
 
 
October 1, 2014 - December 31, 2014
 
Years Ended December 31,
 
 
(In thousands)
 
Total
 
 
2015 — 2016
 
2017 — 2018
 
Thereafter
Principal on consolidated mortgage notes payable(1)
 
$
172,363

 
$
120

 
$
49,961

 
$
107,303

 
$
14,979

Interest on consolidated mortgage notes payable
 
18,270

 
1,528

 
11,153

 
4,558

 
1,031

Principal on credit facility (2)
 
625,000

 
—

 
320,000

 
305,000

 
—

Interest on credit facility (2)
 
29,359

 
3,093

 
15,505

 
10,761

 
—

Lease rental payments due
 
281,107

 
847

 
9,546

 
10,166

 
260,548

 
 
$
1,126,099

 
$
5,588

 
$
406,165

 
$
437,788

 
$
276,558

________________________________
(1)
Excludes our pro-rata share of unconsolidated mortgage debt relating to Worldwide Plaza of $427.9 million as of September 30, 2014, which fully matures in March 2023.
(2)
Assumes repayment of revolving portion of credit facility on maturity date in August 2016 and options to extend are not exercised.
Election as a REIT
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with our taxable year ended December 31, 2010. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax to the extent we distribute all of our REIT taxable income to our stockholders. REITs are subject to a number of other organizational and operational requirements. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income. We believe we are organized and operated in such a manner as to continue to qualify to be taxed as a REIT.

48

Inflation
Some of our leases with our tenants contain provisions designed to mitigate the adverse impact of inflation. These provisions generally increase rental rates during the terms of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). We may be adversely impacted by inflation on the leases that do not contain indexed escalation provisions. In addition, our net leases require the tenant to pay its allocable share of operating expenses, which may include common area maintenance costs, real estate taxes and insurance. This may reduce our exposure to increases in costs and operating expenses resulting from inflation.
Related-Party Transactions and Agreements
We have entered into agreements with affiliates of our Sponsor, under which we have paid or may in the future pay certain fees or reimbursements to our Advisor, its affiliates and entities under common control with our Advisor in connection with acquisition and financing activities, sales and maintenance of common stock, transfer agency services, asset and property management services, reimbursement of operating and offering related costs and fees in connection with possible strategic alternatives. See Note 14 — Related Party Transactions and Arrangements to our financial statements included in this report for a discussion of the various related party transactions, agreements and fees.
In addition, the limited partnership agreement of the OP was amended as of December 31, 2013, to allow the special allocation, solely for tax purposes, of excess depreciation deductions of up to $50.0 million to our Advisor, a limited partner of the OP.  In connection with this special allocation, our Advisor has agreed to restore a deficit balance in its capital account in the event of a liquidation of the OP and has agreed to provide a guaranty or indemnity of indebtedness of the OP. Our Advisor is directly or indirectly controlled by certain officers and directors.
Off-Balance - Sheet Arrangements
We have no off-balance-sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our long-term debt, which consists of secured financings and our credit facility, bears interest at fixed rates and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. From time to time, we may enter into interest rate hedge contracts such as swaps, collars, and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.
As of September 30, 2014, our debt consisted of both fixed and variable-rate debt. We had fixed-rate secured mortgage notes payable and fixed-rate loans under our credit facility, with an aggregate carrying value of $252.4 million and a fair value of $254.2 million. Changes in market interest rates on our fixed-rate debt impact the fair value of the notes, but it has no impact on interest due on the notes. For instance, if interest rates rise 100 basis points and our fixed rate debt balance remains constant, we expect the fair value of our obligation to decrease, the same way the price of a bond declines as interest rates rise. The sensitivity analysis related to our fixed–rate debt assumes an immediate 100 basis point move in interest rates from their September 30, 2014 levels, with all other variables held constant.  A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed-rate debt by $3.2 million. A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt by $3.1 million. 
As of September 30, 2014, our variable-rate portion of the credit facility had a carrying and fair value of $545.0 million. Interest rate volatility associated with this variable-rate credit facility affects interest expense incurred and cash flow. The sensitivity analysis related to our variable-rate debt assumes an immediate 100 basis point move in interest rates from their September 30, 2014 levels, with all other variables held constant. A 100 basis point increase or decrease in variable interest rates on our variable-rate credit facility would increase or decrease our interest expense by $5.5 million annually.
These amounts were determined by considering the impact of hypothetical interest rates changes on our borrowing costs, and assuming no other changes in our capital structure. As the information presented above includes only those exposures that existed as of September 30, 2014, it does not consider exposures or positions arising after that date. The information represented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.

49

Item 4. Controls and Procedures.
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that our disclosure controls and procedures are effective.
No change occurred in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

50

PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
The information contained in “Note 13 — Commitments and Contingencies” of our notes to the consolidated financial statements included in this Quarterly Report on Form 10-Q is incorporated by reference into this Item 1. Except as set forth therein, as of the end of the period covered by this Quarterly Report on Form 10-Q, we are not a party to, and none of our properties are subject to, any material pending legal proceedings.
Item 1A. Risk Factors.
There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2013, as amended and supplemented from time to time.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sale of Unregistered Equity Securities
In accordance with the advisory agreement, the Advisor was issued 1,188,667 Class B units by the OP in a private transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. The units vest upon the achievement of an economic hurdle and certain other performance conditions. On April 15, 2014, we deemed the achievement of the performance condition probable and the Class B units were converted to OP units on a one-to-one basis.
Additionally, the Advisor, as the holder of Class B Units, had the right to make a capital contribution to the OP in exchange for OP units. Pursuant to a Contribution and Exchange Agreement entered into between the Advisor and the OP dated April 15, 2014, the Advisor contributed $0.8 million in cash to the OP in exchange for 83,333 OP units of the OP in a private transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
A holder of OP units has the right to convert OP units for the cash value of a corresponding number of shares of our common stock or a corresponding number of shares of our common stock, at our option, in accordance with the limited partnership agreement of the OP. The remaining rights of the holders of OP units are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets.
Use of Proceeds from Sales of Registered Securities
In September 2010, we commenced our IPO on a "reasonable best efforts" basis of up to 150.0 million shares of common stock at a price of $10.00 per share, subject to certain volume and other discounts. Our IPO closed in December 2013. As of September 30, 2014, we had 162.2 million shares of common stock outstanding, including unvested restricted shares, converted preferred shares and shares issued under the DRIP. As of September 30, 2014, we had received common stock proceeds of $1.6 billion from the sale of 162.2 million shares of common stock, including DRIP and net of repurchases. We operated as a non-traded REIT through April 14, 2014. On April 15, 2014, we listed our common stock on the New York Stock Exchange under the symbol "NYRT."
On April 18, 2014 we filed a universal automatic shelf registration statement that automatically became effective upon filing.
We used substantially all of the net proceeds from our IPO, net of cumulative offering costs of $174.9 million, to acquire income-producing commercial real estate in New York City, primarily office and retail properties in Manhattan. As of September 30, 2014, we have used the net proceeds from our IPO, secured debt financing and credit facility to purchase 24 properties and real estate-related assets.
Issuer Purchases of Equity Securities
On March 31, 2014, the board of directors approved the termination of our SRP. We have processed all of the requests received under the SRP for the first quarter of 2014 and will not process further requests. The following table reflects the cumulative number of shares repurchased as of December 31, 2013 and as of and through the termination of the SRP:
 
Number of Requests
 
Number of Shares Repurchased
 
Average Price per Share
Cumulative repurchase requests as of December 31, 2013
35

 
279,594

 
$
9.63

Repurchases through termination of the SRP
1

 
5,000

 
10.00

Cumulative repurchase requests through termination of SRP
36

 
284,594

 
$
9.63

The Tender Offer closed on May 12, 2014 and we purchased 14.2 million shares of our common stock at a price of $10.75 per share, for an aggregate of $152.3 million, excluding fees and expenses relating to the Tender Offer and including fractional shares repurchased thereafter. We funded the Tender Offer using cash on hand. 

51

Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.

52
SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
NEW YORK REIT, INC.
 
By:
/s/ Nicholas S. Schorsch
 
 
Nicholas S. Schorsch
 
 
Chief Executive Officer and Chairman of the Board of Directors
(Principal Executive Officer)
 
 
 
 
By:
/s/ Gregory W. Sullivan
 
 
Gregory W. Sullivan
 
 
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

Date: November 4, 2014


53
EXHIBIT INDEX


The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No.
 
Description
10.1 *
 
Agreement of Purchase and Sale, dated as of July 29, 2014, by and between 245 West 17th Street Property Investors II, LLC, 249 West 17th Street Property Investors II, LLC and New York Recovery Operating Partnership, L.P.
10.2 *
 
First Amendment to Agreement of Purchase and Sale, dated as of August 22, 2014, by and between 245 West 17th Street Property Investors II, LLC, 249 West 17th Street Property Investors II, LLC and New York Recovery Operating Partnership, L.P.
31.1 *
 
Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 *
 
Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 *
 
Written statements of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 *
 
XBRL (eXtensible Business Reporting Language). The following materials from New York REIT, Inc.'s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2014, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this information in furnished and not filed for purpose of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934
_____________________
* Filed herewith



54

New York REIT Liquidating LLC Reports