TABLE OF CONTENTS

 

 

The data and other information described in these slides are as of the date of the slides or an earlier date as indicated. Future performance may not be consistent with past performance and is subject to change and inherent risks and uncertainties.

 

This presentation contains certain statements that are American Realty Capital Trust V, Inc.’s (“ARCT V”) and its Management’s hopes, intentions, beliefs, expectations, or projections of the future and might be considered to be forward-looking statements under Federal Securities laws. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance, and involve risks and uncertainties. ARCT V’s actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to these forward-looking statements to reflect changes after we’ve made the statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in ARCT V’s filings with the Securities and Exchange Commission including, but not limited to, ARCT V’s Annual Report on Form 10-K, Quarterly Report on Form 10-Q, as well as ARCT V’s Current Reports on Form 8-K.

 

 

OVERVIEW

 

 

SUMMARY

 

American Realty Capital Trust V, Inc. (“ARCT V” or the “Company”), incorporated on January 22, 2013, is a Maryland corporation that has elected to qualify to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes.

 

ARCT V has acquired a diversified portfolio of commercial properties comprised primarily of freestanding single-tenant retail properties that are net leased to investment grade and other creditworthy tenants. On April 29, 2013, ARCT V purchased its first property and commenced active operations.

 

As of September 30, 2014, ARCT V owned 463 properties with an aggregate purchase price of $2.2 billion, comprised of 13.1 million rentable square feet that were 100.0% leased with a weighted average remaining lease term of 9.9 years.

 

 

HIGHLIGHTS

 

Financial Performance¹ — The Company generated revenue of $43.6 million, Adjusted EBITDA¹ of $39.2 million and Modified Funds from Operations (MFFO)¹ of $26.9 million during the quarter, which represented increases of 2.7%, 4.7% and 3.0% over the second quarter of 2014, respectively.

 

Real Estate Investments — As of September 30, 2014, the Company owned $2.2 billion of real estate assets, consisting of $1.0 billion of retail properties, $632.7 million of office properties and $504.6 million of distribution properties, with a weighted average remaining lease term of 9.9 years.

 

Leverage Profile — The Company’s net leverage ratio was 38.6% as of September 30, 2014 with over $1.3 billion, or 60.3%, of its assets unencumbered. The Company had $227.4 million of available borrowings on its Credit Facility at September 30, 2014.

  

 

¹See the Definitions section beginning on page 22 for a description of the Company’s non-GAAP measures and pages 7, 8 and 24 for GAAP reconciliations.

 

 

FINANCIAL SUMMARY

(dollars in thousands, except per share data)

		Q3 2014			Q2 2014			Q1 2014			Q4 2013			Q3 2013
FINANCIAL RESULTS
Revenue	$	43,639		$	42,501		$	30,272		$	22,161		$	2,093
NOI1	$	40,167		$	39,069		$	26,745		$	19,522		$	1,944
Adjusted EBITDA1	$	39,186		$	37,410		$	25,651		$	18,405		$	773
Distributions paid per common share	$	0.41		$	0.41		$	0.41		$	0.41		$	0.41
Funds from operations (FFO)1	$	27,414		$	26,473		$	8,467		$	10,619		$	(16,244	)
FFO per diluted share	$	0.42		$	0.41		$	0.13		$	0.17		$	(0.42	)
Modified funds from operations (MFFO)1	$	26,927		$	26,144		$	20,990		$	17,718		$	1,816
MFFO per diluted share	$	0.41		$	0.41		$	0.33		$	0.28		$	0.05
Adjusted funds from operations (AFFO)1	$	28,432		$	27,477		$	21,792		$	18,013		$	1,839
AFFO per diluted share	$	0.44		$	0.43		$	0.34		$	0.29		$	0.05
PORTFOLIO STATISTICS
Equity raised by quarter	$	14,012		$	15,135		$	14,458		$	97,581		$	1,054,190
Net consolidated debt leverage ratio		38.6	%		40.0	%		37.5	%		NM			NM
Adjusted fixed charge coverage ratio		4.3 x			4.3 x			7.9 x			100.0 x			77.3 x
Weighted average remaining lease term		9.9 years			10.1 years			10.2 years			12.1 years			12.3 years
BASE PURCHASE PRICE1
Retail by quarter	$	-		$	168,047		$	389,853		$	135,052		$	336,810
Office by quarter		-			-			259,504			105,281			267,907
Distribution by quarter		-			-			206,097			8,915			289,599
Total base purchase price	$	-		$	168,047		$	855,454		$	249,248		$	894,316

  

  

TOTAL BASE PURCHASE PRICE¹

As a % on September 30, 2014

 

 

 

 

NM – Not meaningful

¹See the Definitions section beginning on page 22 for a description of the Company’s non-GAAP measures and pages 7, 8 and 24 for GAAP reconciliations.

4

 

CONSOLIDATED BALANCE SHEETS  

(dollars in thousands)

	Q3 2014			Q2 2014			Q1 2014			Q4 2013			Q3 2013
ASSETS
Real estate investments, at cost:
Land	$	303,803		$	303,803		$	274,456		$	147,899		$	123,176
Building, fixtures and improvements		1,667,179			1,667,179			1,543,752			868,700			669,311
Acquired intangible lease assets		227,453			227,453			208,879			130,473			101,567
Total real estate investments, at cost		2,198,435			2,198,435			2,027,087			1,147,072			894,054
Less: accumulated depreciation and amortization		(91,421	)		(62,367	)		(34,012	)		(14,947	)		(789	)
Total real estate investments, net		2,107,014			2,136,068			1,993,075			1,132,125			893,265
Cash and cash equivalents		55,545			25,009			17,847			101,176			163,056
Investment securities, at fair value		22,817			35,984			54,060			58,566			93,071
Deposits for real estate acquisitions		-			-			21,952			33,035			110,005
Prepaid expenses and other assets		12,371			12,011			6,654			14,584			19,740
Deferred costs, net		15,216			16,516			15,642			7,889			3,217
Total assets	$	2,212,963		$	2,225,588		$	2,109,230		$	1,347,375		$	1,282,354
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable	$	470,313		$	470,681		$	431,075		$	8,830		$	-
Mortgage premiums, net		23,992			25,885			24,410			334			-
Credit facility		423,000			423,000			338,000			-			-
Below-market lease liabilities, net		904			910			902			909			926
Accounts payable and accrued expenses		10,390			6,402			8,262			15,447			16,898
Deferred rent and other liabilities		5,928			5,616			2,284			1,216			2,279
Distributions payable		8,801			8,712			8,913			8,825			7,349
Total liabilities		943,328			941,206			813,846			35,561			27,452
Common stock		648			642			636			630			590
Additional paid-in capital		1,426,906			1,412,896			1,397,779			1,383,066			1,294,059
Accumulated other comprehensive income (loss)		119			323			(1,750	)		(6,981	)		(4,317	)
Accumulated deficit		(158,038	)		(129,479	)		(101,281	)		(64,901	)		(35,430	)
Total stockholders' equity		1,269,635			1,284,382			1,295,384			1,311,814			1,254,902
Total liabilities and stockholders' equity	$	2,212,963		$	2,225,588		$	2,109,230		$	1,347,375		$	1,282,354

5

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except share amounts)

	Q3 2014			Q2 2014			Q1 2014			Q4 2013			Q3 2013
REVENUES
Rental income	$	40,609		$	39,427		$	26,874		$	19,821		$	2,042
Operating expense reimbrsements		3,030			3,074			3,398			2,340			51
Total revenue		43,639			42,501			30,272			22,161			2,093
OPERATING EXPENSES
Property operating		3,472			3,432			3,527			2,639			149
Acquisition and transaction related		4,260			4,087			14,532			8,663			18,159
General and administrative		981			1,659			1,094			1,117			1,171
Depreciation and amortization		29,045			28,345			19,056			14,158			770
Total operating expenses		37,758			37,523			38,209			26,577			20,249
OPERATING INCOME (LOSS)		5,881			4,978			(7,937	)		(4,416	)		(18,156	)
Other (expense) income:
Interest expense		(8,208	)		(7,723	)		(3,444	)		(457	)		(28	)
Interest income		8			158			3			45			62
Income from investment securities		374			606			955			1,164			1,108
Gain (Loss) on sale of investment securities		314			109			(166	)		125			-
Total other (expense) income, net:		(7,512	)		(6,850	)		(2,652	)		877			1,142
Net loss	$	(1,631	)	$	(1,872	)	$	(10,589	)	$	(3,539	)	$	(17,014	)
Weighted average shares outstanding:
Basic and diluted		64,654,279			64,018,318			62,693,554			62,329,506			38,295,114
Net loss per share:
Basic and diluted	$	(0.03	)	$	(0.03	)	$	(0.17	)	$	(0.06	)	$	(0.44	)

6

 

FFO, MFFO, AFFO AND PER SHARE INFORMATION

(dollars in thousands, except share and per share amounts)

	Q3 2014			Q2 2014			Q1 2014			Q4 2013			Q3 2013
FUNDS FROM OPERATIONS
Net loss	$	(1,631	)	$	(1,872	)	$	(10,589	)	$	(3,539	)	$	(17,014	)
Depreciation and amortization		29,045			28,345			19,056			14,158			770
Funds from operations (FFO)1:		27,414			26,473			8,467			10,619			(16,244	)
Acquisition fees and expenses		4,260			4,087			14,532			8,663			18,159
Amortization of above-market lease assets and
accretion of below-market lease liabilities, net		3			18			2			(17	)		(5	)
Straight-line rent		(2,543	)		(2,498	)		(1,693	)		(1,422	)		(94	)
Amortization of mortgage premiums		(1,893	)		(1,827	)		(484	)		-			-
(Gain) Loss on sale of investments		(314	)		(109	)		166			(125	)		-
Modified funds from operations (MFFO)1:		26,927			26,144			20,990			17,718			1,816
Amortization of deferred financing costs		1,308			1,218			754			273			18
Non-cash equity compensation expense		4			6			5			4			5
Distributions on Class B Units		193			109			43			18			-
Adjusted funds from operations (AFFO)1:	$	28,432		$	27,477		$	21,792		$	18,013		$	1,839
Weighted average shares outstanding - basic:		64,654,279			64,018,318			62,693,554			62,329,506			38,295,114
Weighted average shares outstanding - diluted:		65,125,423			64,287,745			63,507,775			62,377,949			38,299,308
Distributions declared2	$	26,928		$	26,326		$	25,791		$	25,933		$	16,041
Distributions paid2	$	26,839		$	26,526		$	25,704		$	24,459		$	10,421
		Q3 2014			Q2 2014			Q1 2014			Q4 2013			Q3 2013
PER SHARE INFORMATION
FFO per diluted share	$	0.42		$	0.41		$	0.13		$	0.17		$	(0.42	)
MFFO per diluted share	$	0.41		$	0.41		$	0.33		$	0.28		$	0.05
AFFO per diluted share	$	0.44		$	0.43		$	0.34		$	0.29		$	0.05

 

¹See the Definitions section beginning on page 22 for a description of the Company’s non-GAAP measures.

²Includes distributions on unvested restricted stock.

7

 

ADJUSTED EBITDA¹ AND RATIO ANALYSIS

(dollars in thousands)

	Q3 2014			Q2 2014			Q1 2014			Q4 2013			Q3 2013
ADJUSTED EBITDA
Net loss	$	(1,631	)	$	(1,872	)	$	(10,589	)	$	(3,539	)	$	(17,014	)
Acquisition and transaction related expense		4,260			4,087			14,532			8,663			18,159
Depreciation and amortization		29,045			28,345			19,056			14,158			770
Interest expense		8,208			7,723			3,444			457			28
Interest income		(8	)		(158	)		(3	)		(45	)		(62	)
Income from investment securities		(374	)		(606	)		(955	)		(1,164	)		(1,108	)
(Gain) Loss on sale of investment securities		(314	)		(109	)		166			(125	)		-
Adjusted EBITDA	$	39,186		$	37,410		$	25,651		$	18,405		$	773
ADJUSTED INTEREST COVERAGE RATIO
Interest expense	$	8,208		$	7,723		$	3,444		$	457		$	28
Non-cash interest expense		585			609			(270	)		(273	)		(18	)
Total interest		8,793			8,332			3,174			184			10
Adjusted EBITDA		39,186			37,410			25,651			18,405			773
Adjusted interest coverage ratio		4.5 x			4.5 x			8.1 x			100.0 x			77.3 x
ADJUSTED FIXED CHARGE COVERAGE RATIO
Total interest	$	8,793		$	8,332		$	3,174		$	184		$	10
Secured debt principal amortization		368			311			76			-			-
Total fixed charges		9,161			8,643			3,250			184			10
Adjusted EBITDA		39,186			37,410			25,651			18,405			773
Adjusted fixed charge coverage ratio		4.3 x			4.3 x			7.9 x			100.0 x			77.3 x
NET DEBT TO ADJUSTED EBITDA RATIO
Total debt	$	893,313		$	893,681		$	769,075		$	8,830		$	-
Less: cash and cash equivalents		(55,545	)		(25,009	)		(17,847	)		(101,176	)		(163,056	)
Net debt		837,768			868,672			751,228			(92,346	)		(163,056	)
Adjusted EBITDA annualized		156,744			149,640			102,604			73,620			3,092
Net debt to Adjusted EBITDA ratio		5.3 x			5.8 x			7.3 x			NM			NM
NET CONSOLIDATED DEBT LEVERAGE RATIO
Net debt	$	837,768		$	868,672		$	751,228		$	(92,346	)	$	(163,056	)
Real estate assets, gross		2,169,308			2,169,308			2,001,261			1,145,807			896,559
Net debt consolidated leverage ratio		38.6	%		40.0	%		37.5	%		NM			NM
GROSS CONSOLIDATED DEBT LEVERAGE RATIO
Total debt	$	893,313		$	893,681		$	769,075		$	8,830		$	-
Real estate assets, gross		2,169,308			2,169,308			2,001,261			1,145,807			896,559
Gross consolidated debt leverage ratio		41.2	%		41.2	%		38.4	%		0.8	%		0.0	%
UNENCUMBERED ASSETS/TOTAL ASSETS
Unencumbered real estate assets, gross	$	1,308,965		$	1,308,965		$	1,214,745		$	1,126,461		$	896,559
Real estate assets, gross		2,169,308			2,169,308			2,001,261			1,145,807			896,559
Unencumbered assets/total assets		60.3	%		60.3	%		60.7	%		98.3	%		100.0	%

 

NM – Not meaningful

¹See the Definitions section beginning on page 22 for a description of the Company’s non-GAAP measures.

  

NET OPERATING INCOME¹ BY PROPERTY TYPE

(dollars in thousands)

	Q3 2014			Q2 2014			Q1 2014			Q4 2013			Q3 2013
REVENUES
Retail	$	19,014		$	17,658		$	11,767		$	7,755		$	1,521
Office		14,646			14,825			10,923			8,853			165
Distribution		9,979			10,018			7,582			5,553			407
Total revenue	$	43,639		$	42,501		$	30,272		$	22,161		$	2,093
PROPERTY OPERATING EXPENSES
Retail	$	725		$	470		$	482		$	404		$	142
Office		2,552			2,763			2,855			2,116			-
Distribution		195			199			190			119			7
Total property operating expenses	$	3,472		$	3,432		$	3,527		$	2,639		$	149
NET OPERATING INCOME1
Retail	$	18,289		$	17,188		$	11,285		$	7,351		$	1,379
Office		12,094			12,062			8,068			6,737			165
Distribution		9,784			9,819			7,392			5,434			400
Total net operating income	$	40,167		$	39,069		$	26,745		$	19,522		$	1,944

 

¹See the Definitions section beginning on page 22 for a description of the Company’s non-GAAP measures and page 24 for GAAP reconciliation. 

9

 

DEBT SUMMARY

(dollars in thousands)

 

	Minimum	Maximum	Weighted Average	Weighted Average
	Coupon	Coupon	Effective	Years To	Balance
	Rate	Rate	Interest Rate	Maturity
Fixed rate debt	5.42%	5.93%	5.66%	3.8	$	470,313
Variable rate debt - credit facility	1m LIBOR + 1.60%	1m LIBOR + 2.20%	1.91%	3.0		423,000
Total					$	893,313

 

DEBT DETAIL

(dollars in thousands)

 

	Property Base		Contractual	Years to	Effective		Debt
VARIABLE RATE DEBT - CREDIT FACILITY	Purchase Price1		Maturity Date	Maturity	Interest Rate	Balance
Credit facility	$	1,217,980	9/23/2017	3.0	1.91%	$	423,000
FIXED RATE DEBT
SAAB Sensis - Syracuse, NY		19,346	4/1/2025	10.5	6.01%		8,599
SunTrust Pool 3		61,326	7/1/2021	6.8	5.50%		25,000
C & S Wholesale - 4-Pack		145,850	4/1/2017	2.5	5.56%		82,313
SunTrust Pool 1		247,991	7/1/2021	6.8	5.50%		99,677
SunTrust Pool 2		60,889	7/1/2021	6.8	5.50%		25,000
Sanofi - Bridgewater, NJ		251,114	12/6/2015	1.2	5.83%		190,000
Stop & Shop- Malden, MA		22,653	6/1/2021	6.7	5.63%		12,198
Stop & Shop - Swampscott, MA		19,665	6/1/2021	6.7	5.63%		10,620
Stop & Shop - Framingham, MA		16,534	6/1/2021	6.7	5.63%		8,898
Stop & Shop - Bristol, RI		14,975	6/1/2021	6.7	5.63%		8,008
Total	$	2,078,323		3.4	3.85%	$	893,313

 

DEBT MATURITY SCHEDULE

(dollars in thousands)

 

 

¹See the Definitions section beginning on page 22.

 

 

TENANT PORTFOLIO COMPOSITION

(dollars in thousands)

 

Tenant	# of Properties	Base Purchase Price1		%	Annualized SLR1		%	Square Feet	%
SunTrust Bank	213	$	429,600	19.8%	$	29,140	17.9%	1,148,377	8.8%
Sanofi US	1		251,114	11.6%		18,778	11.6%	736,572	5.6%
C&S Wholesale Grocer	5		200,212	9.2%		16,826	10.4%	3,044,685	23.2%
AmeriCold	9		173,939	8.0%		12,720	7.8%	1,407,166	10.7%
Merrill Lynch	3		165,436	7.6%		12,714	7.8%	553,841	4.2%
Stop & Shop	8		145,445	6.7%		9,855	6.1%	544,112	4.2%
American Express Travel Rel. Svcs	2		91,548	4.2%		7,367	4.5%	785,164	6.0%
Home Depot	2		79,055	3.7%		5,989	3.7%	1,315,200	10.0%
Walgreens	18		76,512	3.5%		5,497	3.4%	253,780	1.9%
United Healthcare	1		66,568	3.1%		5,292	3.2%	400,000	3.1%
Top 10 Tenants Sub-Total	262	$	1,679,429	77.4%	$	124,178	76.4%	10,188,897	77.7%
Burger King	41	$	63,138	2.9%	$	5,163	3.2%	168,192	1.3%
Lowe's	5		58,695	2.7%		4,749	2.9%	671,313	5.1%
O'Charley's	20		42,970	2.0%		3,703	2.3%	135,973	1.0%
Dollar General	38		46,438	2.1%		3,423	2.1%	356,512	2.7%
New Breed Logistics	1		24,738	1.1%		1,913	1.2%	390,486	3.0%
Citizens Bank	9		26,158	1.2%		1,827	1.1%	34,777	0.3%
Circle K	19		25,815	1.2%		1,770	1.1%	54,521	0.4%
Mattress Firm	9		18,527	0.9%		1,592	1.0%	43,561	0.3%
SAAB Sensis	1		19,346	0.9%		1,430	0.9%	90,822	0.7%
FedEx Ground	4		17,799	0.8%		1,290	0.8%	154,036	1.2%
Family Dollar	12		11,794	0.5%		972	0.6%	99,882	0.8%
L.A. Fitness	1		12,067	0.6%		875	0.5%	45,000	0.3%
CVS	3		8,939	0.4%		823	0.5%	34,840	0.3%
Amazon	1		9,548	0.4%		760	0.5%	79,105	0.6%
Fresenius	3		8,765	0.4%		723	0.4%	21,847	0.2%
Krystal	6		8,461	0.4%		708	0.4%	12,730	0.1%
American Tire Distributors	1		8,868	0.4%		681	0.4%	125,060	1.0%
Academy Sports	1		8,890	0.4%		663	0.4%	71,640	0.5%
Joe's Crab Shack	2		7,975	0.4%		662	0.4%	16,012	0.1%
Tractor Supply	3		8,514	0.4%		641	0.4%	61,694	0.5%
Food Lion	1		8,910	0.4%		618	0.4%	44,549	0.3%
Bi-Lo	1		7,819	0.4%		544	0.3%	55,718	0.4%
Advance Auto	4		6,078	0.3%		434	0.3%	30,511	0.2%
Chili's	2		5,760	0.3%		403	0.2%	12,700	0.1%
National Tire & Battery	2		3,510	0.2%		342	0.2%	18,163	0.1%
AutoZone	3		4,363	0.2%		320	0.2%	21,526	0.2%
Arby's	2		3,645	0.2%		281	0.2%	6,494	0.0%
Talecris Plasma Resources	1		3,275	0.2%		270	0.2%	22,262	0.2%
BSFS	1		3,047	0.1%		255	0.1%	8,934	0.1%
Tire Kingdom	1		2,063	0.1%		157	0.1%	6,635	0.1%
1st Constitution Bancorp	1		1,907	0.1%		131	0.1%	4,500	0.0%
Aaron's	1		1,052	0.0%		86	0.1%	7,964	0.1%
O'Reilly Auto Parts	1		1,005	0.0%		83	0.1%	10,692	0.1%
Total	463	$	2,169,308	100.0%	$	162,470	100.0%	13,107,548	100.0%

 

¹See the Definitions section beginning on page 22.

11

 

STATE PORTFOLIO COMPOSITION

(dollars in thousands)

 

State	# of Properties	Base Purchase Price1		%	Annualized SLR1		%	Square Feet	%
New Jersey	7	$	437,733	20.2%	$	33,003	20.3%	1,372,311	10.5%
Georgia	57		245,277	11.3%		18,192	11.2%	1,794,648	13.7%
Massachusetts	8		170,259	7.8%		13,368	8.2%	1,561,761	11.9%
Florida	76		174,850	8.1%		12,009	7.4%	417,020	3.2%
North Carolina	44		146,881	6.8%		10,945	6.7%	976,396	7.4%
Alabama	9		110,077	5.1%		8,920	5.5%	2,014,125	15.4%
South Carolina	14		95,545	4.4%		7,087	4.4%	900,203	6.9%
Illinois	30		84,018	3.9%		6,251	3.8%	359,408	2.7%
Wisconsin	2		67,573	3.1%		5,375	3.3%	410,692	3.1%
Maryland	9		67,312	3.1%		5,187	3.2%	441,059	3.4%
Top 10 States Sub-Total	256	$	1,599,525	73.8%	$	120,337	74.0%	10,247,623	78.2%
Ohio	34	$	52,543	2.4%	$	4,287	2.6%	139,007	1.1%
Tennessee	34		55,648	2.6%		4,032	2.5%	276,471	2.1%
Utah	1		42,238	1.9%		3,397	2.1%	395,787	3.0%
Virginia	25		44,326	2.0%		3,024	1.9%	186,162	1.4%
Minnesota	4		40,215	1.9%		2,882	1.8%	311,317	2.4%
Pennsylvania	15		36,810	1.7%		2,686	1.7%	70,350	0.5%
New York	3		36,447	1.7%		2,613	1.6%	152,348	1.1%
Texas	11		33,184	1.5%		2,492	1.5%	147,532	1.1%
Rhode Island	2		35,645	1.6%		2,419	1.5%	148,927	1.1%
Michigan	13		31,416	1.5%		2,388	1.5%	140,232	1.1%
Connecticut	2		23,924	1.1%		1,640	1.0%	84,045	0.6%
Missouri	7		19,767	0.9%		1,455	0.9%	139,566	1.1%
Mississippi	10		19,368	0.9%		1,452	0.9%	124,121	0.9%
Louisiana	13		17,977	0.8%		1,379	0.8%	114,185	0.9%
Kentucky	4		14,925	0.7%		1,203	0.7%	113,269	0.9%
Iowa	5		14,315	0.7%		1,012	0.6%	80,955	0.6%
Arkansas	6		9,239	0.4%		662	0.4%	54,620	0.4%
Indiana	5		7,434	0.3%		588	0.4%	35,056	0.3%
Colorado	3		6,134	0.3%		504	0.3%	25,130	0.2%
Oklahoma	2		7,252	0.3%		486	0.3%	26,970	0.2%
North Dakota	1		4,071	0.2%		299	0.2%	24,310	0.2%
Idaho	2		3,508	0.2%		298	0.2%	13,040	0.1%
Wyoming	1		4,470	0.2%		290	0.2%	14,560	0.1%
South Dakota	1		3,000	0.1%		220	0.1%	21,662	0.2%
District of Columbia	1		3,171	0.1%		214	0.1%	2,745	0.0%
West Virginia	1		1,634	0.1%		117	0.1%	9,238	0.1%
New Mexico	1		1,122	0.1%		94	0.1%	8,320	0.1%
Totals	463	$	2,169,308	100.0%	$	162,470	100.0%	13,107,548	100.0%

 

¹See the Definitions section beginning on page 22.

12

 

TENANT INDUSTRY PORTFOLIO COMPOSITION

(dollars in thousands)

 

Industry	# of Properties	Base Purchase Price1		%	Annualized SLR1		%	Square Feet	%
Retail Banking	223	$	457,665	21.1%	$	31,098	19.1%	1,187,654	9.1%
Healthcare	6		329,722	15.2%		25,063	15.4%	1,180,681	9.0%
Financial Services	5		256,984	11.8%		20,081	12.4%	1,339,005	10.2%
Distribution	9		218,011	10.1%		18,116	11.2%	3,198,721	24.4%
Refrigerated Warehousing	9		173,939	8.0%		12,720	7.8%	1,407,166	10.7%
Supermarket	10		162,174	7.5%		11,017	6.8%	644,379	4.9%
Restaurant	73		131,949	6.1%		10,920	6.7%	352,101	2.7%
Home Maintenance	7		137,750	6.4%		10,738	6.6%	1,986,513	15.2%
Pharmacy	21		85,451	3.9%		6,320	3.9%	288,620	2.2%
Discount Retail	50		58,232	2.7%		4,395	2.7%	456,394	3.5%
Specialty Retail	14		36,983	1.7%		2,982	1.8%	184,859	1.4%
Freight	1		24,738	1.1%		1,913	1.2%	390,486	3.0%
Gas/Convenience	19		25,815	1.2%		1,770	1.1%	54,521	0.4%
Auto Retail	9		20,314	0.9%		1,518	0.9%	187,789	1.4%
Aerospace	1		19,346	0.9%		1,430	0.9%	90,822	0.7%
Fitness	1		12,067	0.6%		875	0.5%	45,000	0.3%
Consumer Products	1		9,548	0.4%		760	0.5%	79,105	0.6%
Auto Services	4		8,620	0.4%		754	0.5%	33,732	0.3%
Total	463	$	2,169,308	100.0%	$	162,470	100.0%	13,107,548	100.0%

 

 

TENANT INDUSTRY PORTFOLIO COMPOSITION

As a % of Annualized SLR¹ on September 30, 2014

 

 

1 

¹ See the Definitions section beginning on page 22.

 

  

TENANT CREDIT RATING PORTFOLIO COMPOSITION

(dollars in thousands)

 

Credit Rating	# of Properties	Base Purchase Price1		%	Annualized SLR1		%	Square Feet	%
AAA	-	$	-	0.0%	$	-	0.0%	-	0.0%
AA+	-		-	0.0%		-	0.0%	-	0.0%
AA	1		251,114	11.6%		18,778	11.6%	736,572	5.6%
AA-	2		76,116	3.6%		6,052	3.7%	479,105	3.6%
A+	-		-	0.0%		-	0.0%	-	0.0%
A	5		244,491	11.3%		18,703	11.5%	1,869,041	14.3%
A-	16		176,401	8.1%		13,943	8.6%	1,491,254	11.4%
BBB+	3		8,939	0.4%		823	0.5%	34,840	0.3%
BBB	263		690,559	31.8%		47,209	29.1%	2,088,726	15.8%
BBB-	57		78,980	3.6%		5,850	3.6%	544,154	4.2%
S&P Inv. Grade Subtotal	347	$	1,526,600	70.4%	$	111,358	68.6%	7,243,692	55.2%
BB+	3	$	8,765	0.4%		723	0.4%	21,847	0.2%
BB	6		203,487	9.4%		17,096	10.5%	3,066,947	23.4%
BB-	-		-	0.0%		-	0.0%	-	0.0%
B+	-		-	0.0%		-	0.0%	-	0.0%
B	10		27,395	1.3%		2,273	1.4%	168,621	1.3%
B-	-		-	0.0%		-	0.0%	-	0.0%
CCC+	-		-	0.0%		-	0.0%	-	0.0%
CCC	-		-	0.0%		-	0.0%	-	0.0%
CCC-	-		-	0.0%		-	0.0%	-	0.0%
CC	-		-	0.0%		-	0.0%	-	0.0%
C	-		-	0.0%		-	0.0%	-	0.0%
D	-		-	0.0%		-	0.0%	-	0.0%
NOT RATED	97		403,061	18.5%		31,020	19.1%	2,606,441	19.9%
Non-Inv. Grade Sub-Total	116	$	642,708	29.6%	$	51,112	31.4%	5,863,856	44.8%
Totals	463	$	2,169,308	100.0%	$	162,470	100.0%	13,107,548	100.0%

 

 

 

 

PORTFOLIO TENANT CREDIT RATING	% OF PORTFOLIO RATED
As a % of Annualized SLR1 on September 30, 2014	As a % of Annualized SLR1 on September 30, 2014

  

¹See the Definitions section beginning on page 22.

14

 

 

 

 

LEASE EXPIRATION SCHEDULE

(dollars in thousands)

 

		EXPIRATION YEAR
		Total	2014		2015		2016			2017		2018		2019		2020			2021	2022			2023	Thereafter
RETAIL
# of Properties		420		-		-		-			201		4		-		-		1		2		28		184
Annualized SLR1	$	74,558	$	-	$	-	$	-	$		27,655	$	326	$	-	$	-	$	81	$	176	$	4,373	$	41,947
OFFICE
# of Properties		21		-		-		-			8		-		1		1		1		-		2		8
Annualized SLR1	$	48,493	$	-	$	-	$	-	$		1,159	$	-	$	3,970	$	3,397	$	5,292	$	-	$	1,030	$	33,645
DISTRIBUTION
# of Properties		22		-		-		-			-		-		-		-		1		4		5		12
Annualized SLR1	$	39,419	$	-	$	-	$	-	$		-	$	-	$	-	$	-	$	1,913	$	12,158	$	5,960	$	19,388
TOTAL
# of Properties		463		-		-		-			209		4		1		1		3		6		35		204
Annualized SLR1	$	162,470	$	-	$	-	$	-	$	28,814		$	326	$	3,970	$	3,397	$	7,286	$	12,334	$	11,363	$	94,980
% of Total	100.0%		0.0%		0.0%		0.0%		17.7%			0.2%		2.4%		2.1%			4.5%	7.6%			7.0%	58.5%
Cumulative Total	100.0%		0.0%		0.0%		0.0%		17.7%			17.9%		20.3%		22.4%		26.9%		34.5%		41.5%		100.0%

 

 

LEASE EXPIRATION SCHEDULE

As a % of Annualized SLR¹ on September 30, 2014

 

 

 

¹See the Definitions section beginning on page 22.

15

 

PORTFOLIO COMPOSITION – RETAIL

(dollars in thousands)

 

Portfolio Name		# of Properties		State		Acquisition Date		Base Purchase Price1		Annualized SLR1		Square Feet		Remaining Lease Term (Years)
Dollar General I		2		Various		4/13 & 5/13		$        2,243		$                 172		18,126		13.6
Walgreens I		1		AR		7/13		3,632		242		10,500		23.0
Dollar General II		2		LA		7/13		2,346		174		18,052		13.7
AutoZone I		1		LA		7/13		1,519		111		7,370		12.8
Dollar General III		5		MI		7/13		5,783		429		45,989		13.6
BSFS I		1		FL		7/13		3,047		255		8,934		9.3
Dollar General IV		2		Various		7/13		1,989		155		18,126		11.4
Tractor Supply I		1		CT		8/13		4,074		305		19,097		13.2
Dollar General V		1		LA		8/13		2,295		168		12,480		13.4
Mattress Firm I		5		Various		Various		10,817		938		23,612		10.9
Family Dollar I		1		KY		8/13		955		81		8,050		6.8
Lowe's I		5		Various		8/13		58,695		4,749		671,313		14.8
O'Reilly Auto Parts I		1		WI		8/13		1,005		83		10,692		15.8
Food Lion I		1		NC		8/13		8,910		618		44,549		15.1
Family Dollar II		1		AR		8/13		969		78		8,028		8.8
Walgreens II		1		GA		8/13		3,200		340		14,490		18.5
Dollar General VI		1		LA		8/13		1,431		107		9,014		11.4
Dollar General VII		1		VA		8/13		1,210		91		9,100		13.5
Family Dollar III		1		ID		8/13		1,004		84		8,000		8.0
Chili's I		2		TX		8/13		5,760		403		12,700		11.2
CVS I		1		AL		8/13		2,640		179		10,055		11.4
Joe's Crab Shack I		2		Various		8/13		7,975		662		16,012		12.5
Dollar General VIII		1		VA		9/13		1,418		104		9,100		13.8
Tire Kingdom I		1		FL		9/13		2,063		157		6,635		10.5
AutoZone II		1		GA		9/13		1,591		115		7,370		8.7
Family Dollar IV		1		LA		9/13		879		74		8,320		8.8
Dollar General IX		1		AR		9/13		875		65		9,014		10.6
Advance Auto I		1		IN		9/13		834		60		10,500		8.8
Walgreens III		1		MI		9/13		4,839		352		15,120		11.5
Walgreens IV		1		TX		9/13		2,796		197		13,500		10.0
CVS II		1		MA		9/13		2,958		387		13,905		22.4
Arby's I		1		MS		9/13		2,320		181		3,000		13.8
Dollar General X		1		LA		9/13		1,305		96		9,100		13.5
L.A. Fitness I		1		TX		9/13		12,067		875		45,000		9.4
SunTrust Bank I		31		Various		9/13		50,695		3,428		138,346		3.3
National Tire & Battery I		1		TX		9/13		1,311		100		10,795		9.2
Circle K I		19		Various		9/13		25,815		1,770		54,521		14.1
Walgreens V		1		OK		9/13		5,750		380		14,490		12.9
Walgreens VI		1		WY		9/13		4,470		290		14,560		14.6
Walgreens VII		10		Various		9/13		40,517		2,861		142,140		15.1
O'Charley's I		20		Various		9/13		42,970		3,703		135,973		17.1
Krystal I		6		Various		9/13		8,461		708		12,730		15.0
1st Constitution Bancorp I		1		NJ		9/13		1,907		131		4,500		9.3
Tractor Supply II		1		MI		10/13		1,627		123		23,500		9.0
National Tire & Battery II		1		IL		10/13		2,199		242		7,368		17.7
Tractor Supply III		1		KY		10/13		2,813		213		19,097		13.6
Mattress Firm II		1		TN		10/13		1,058		90		4,304		8.9
Dollar General XI		1		MS		10/13		1,102		82		9,026		12.6
Academy Sports I		1		MO		10/13		8,890		663		71,640		13.8
Dollar General XII		2		Various		11/13 & 1/14		2,276		165		18,126		14.2
Dollar General XIII		1		TX		11/13		1,065		80		9,169		11.5

 

¹See the Definitions section beginning on page 22.

16

 

PORTFOLIO COMPOSITION – RETAIL (cont.)
(dollars in thousands)
Portfolio Name	# of Properties	State	Acquisition Date	Base Purchase		Annualized SLR1		Square Feet	Remaining Lease
					Price1				Term (Years)
Advance Auto II	2	Various	11/13	$	3,260	$	232	13,887	8.6
Burger King I	41	Various	11/13		63,138		5,163	168,192	19.2
Dollar General XIV	3	AR	11/13		3,764		278	27,078	13.7
Dollar General XV	1	NY	11/13		1,337		98	9,026	14.1
Dollar General XVI	1	TN	11/13		994		73	9,014	11.2
Family Dollar V	1	MO	11/13		877		73	8,400	8.5
Walgreens VIII	1	IA	12/13		5,150		360	14,490	9.3
CVS III	1	MI	12/13		3,341		257	10,880	9.3
Mattress Firm III	1	GA	12/13		1,887		160	5,057	8.8
Arby's II	1	MN	12/13		1,325		100	3,494	13.6
Family Dollar VI	2	CO	12/13		1,903		153	17,484	9.3
Citizens Bank I	9	PA	12/13		26,158		1,827	34,777	9.3
Walgreens IX	1	MI	1/14		6,158		475	14,490	8.3
SunTrust Bank II	29	Various	1/14		59,920		4,069	135,839	3.3
Mattress Firm IV	1	ID	1/14		2,504		214	5,040	9.9
Mattress Firm V	1	AL	1/14		2,261		190	5,548	9.1
Family Dollar VII	1	LA	2/14		794		63	8,320	9.8
Aaron's I	1	PA	2/14		1,052		86	7,964	8.9
AutoZone III	1	MI	2/14		1,253		94	6,786	8.5
Advance Auto III	1	MA	2/14		1,984		142	6,124	9.9
Family Dollar VIII	3	Various	3/14		3,179		265	24,960	8.8
Dollar General XVII	3	LA	3/14 & 5/14		3,400		252	27,078	13.5
SunTrust Bank III	117	Various	3/14		244,219		16,570	636,858	3.3
SunTrust Bank IV	28	Various	3/14		57,674		3,914	164,211	3.3
Dollar General XVIII	1	LA	3/14		1,139		84	9,026	13.5
Family Dollar IX	1	PA	4/14		1,234		101	8,320	9.5
Stop & Shop I	8	Various	5/14		145,445		9,855	544,112	12.1
Bi-Lo I	1	SC	5/14		7,819		544	55,718	11.3
Dollar General XIX	1	OK	5/14		1,502		107	12,480	13.9
Dollar General XX	5	MS	5/14		5,988		430	48,584	12.6
Dollar General XXI	1	WV	5/14		1,634		117	9,238	13.9
Dollar General XXII	1	IN	5/14		1,342		96	10,566	12.6
Retail Total	420			$	1,032,005	$	74,558	3,908,179	9.8

 

¹See the Definitions section beginning on page 22.

17

   

PORTFOLIO COMPOSITION – OFFICE
(dollars in thousands)
Portfolio Name	# of Properties	State	Acquisition Date					Base Purchase		Annualized SLR1		Square Feet	Remaining Lease
									Price1				Term (Years)
Fresenius I	1	AL	9/13					$	2,223	$	182	5,800	10.8
American Express Travel Rel. Svcs	2	Various	9/13						91,548		7,367	785,164	5.4
SunTrust Bank I	1	GA	9/13						8,700		589	44,054	3.3
Merrill Lynch I	3	NJ	9/13						165,436		12,714	553,841	10.2
United Healthcare I	1	WI	10/13						66,568		5,292	400,000	6.8
Talecris Plasma Resources I	1	TX	10/13						3,275		270	22,262	8.5
Amazon I	1	KY	10/13						9,548		760	79,105	8.8
Fresenius II	2	Various	10/13						6,542		541	16,047	12.9
SAAB Sensis I	1	NY	12/13						19,346		1,430	90,822	10.5
SunTrust Bank II	1	FL	1/14						1,406		96	12,394	3.3
SunTrust Bank III	4	Various	3/14						3,772		256	9,677	3.3
SunTrust Bank IV	2	Various	3/14						3,214		218	6,998	3.3
Sanofi US I	1	NJ	3/14						251,114		18,778	736,572	11.8
Office Total	21							$	632,692	$	48,493	2,762,736	9.5
PORTFOLIO COMPOSITION – DISTRIBUTION
(dollars in thousands)
Portfolio Name	# of Properties	State	Acquisition Date					Base Purchase		Annualized SLR1		Square Feet	Remaining Lease
									Price1				Term (Years)
AmeriCold I	9	Various	9/13					$	173,939	$	12,720	1,407,166	13.0
Home Depot I	2	Various	9/13						79,055		5,989	1,315,200	12.4
New Breed Logistics I	1	SC	9/13						24,738		1,913	390,486	7.1
FedEx Ground I	1	SD	9/13						2,999		220	21,662	8.7
American Tire Distributors I	1	TN	9/13						8,868		681	125,060	9.3
FedEx Ground II	1	MS	11/13						4,844		344	48,897	8.8
FedEx Ground III	1	ND	11/13						4,071		299	24,310	8.9
FedEx Ground IV	1	IA	1/14						5,885		427	59,167	8.8
C&S Wholesale Grocer I	5	Various	2/14						200,212		16,826	3,044,685	8.0
Distribution Total	22							$  504,611		$	39,419	6,436,633	10.3
TOTAL PORTFOLIO COMPOSITION
(dollars in thousands)
Portfolio Name	# of Properties	State	Acquisition Date					Base Purchase		Annualized SLR1		Square Feet	Remaining Lease
									Price1				Term (Years)
Retail Total	420	Various	Various					$	1,032,005	$	74,558	3,908,179	9.8
Office Total	21	Various	Various					$	632,692	$	48,493	2,762,736	9.5
Distribution Total	22	Various	Various					$	504,611	$	39,419	6,436,633	10.3
Portfolio Total	463							$	2,169,308	$	162,470	13,107,548	9.9

 

¹See the Definitions section beginning on page 22.

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TOP TENANT DESCRIPTIONS

 

SUNTRUST BANK

 

Acquisition Dates: September-13 through March-14 | Square Feet: 1,148,377 | Percent of Total Revenue: 17.9% | Tenant Credit Rating¹: S&P BBB

 

SunTrust Bank, a Georgia banking corporation, is the largest subsidiary of SunTrust Banks, Inc. (NYSE: STI), an American bank holding company that was established in 1891 in Atlanta, where its headquarters remain. SunTrust Bank is a leading provider of financial services in the Southeastern United States, including Alabama, Arkansas, Florida, Georgia, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, West Virginia, and Washington, D.C.

 

SANOFI SA

 

Acquisition Date: March-14 | Square Feet: 736,572 | Percent of Total Revenue: 11.6% | Tenant Credit Rating¹: S&P AA

 

Sanofi S.A. is a leading pharmaceutical company headquartered in Paris, France. Sanofi engages in the research and development, manufacturing and marketing of pharmaceutical products for sale principally in the prescription market, but the firm also develops over-the-counter medication. The company covers seven major therapeutic areas: cardiovascular, central nervous system, diabetes, internal medicine, oncology, thrombosis and vaccines.

 

C&S WHOLESALE GROCERS, INC.

 

Acquisition Date: February-14 | Square Feet: 3,044,685 | Percent of Total Revenue: 10.4% | Tenant Credit Rating¹: S&P BB

 

C&S Wholesale Grocers, Inc. is the lead supply chain company in the food industry and the largest wholesale grocery supply company in the U.S. They operate regional distribution centers throughout the United States as well as offer independent retailers a full range of store management services to help them run their businesses efficiently and profitably.

 

AMERICOLD LOGISTICS, LLC

 

Acquisition Date: September-13 | Square Feet: 1,407,166 | Percent of Total Revenue: 7.8% | Tenant Credit Rating¹: Not Rated

 

Americold Logistics, LLC provides temperature-controlled warehousing, transportation, and logistics solutions to the food industry in the United States and internationally. It manages customer dedicated distribution temperature controlled warehousing facilities. The company offers transportation management services, including expedited shipment management, operations management, claims management, direct-store delivery, national transportation, consolidation programs, carrier control, brokerage capacity management, real-time information control, shuttle, and multi-vendor consolidation. Americold Logistics was founded in 1911 and is headquartered in Atlanta, Georgia. It owns and operates temperature-controlled warehouses in the United States, Australia, New Zealand, China, Argentina, Belgium, and Canada.

 

¹See the Definitions section beginning on page 22.

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TOP TENANT DESCRIPTIONS

 

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED

 

Acquisition Date: September-13 | Square Feet: 553,841 | Percent of Total Revenue: 7.8% | Tenant Credit Rating¹: S&P A

 

Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), together with its subsidiaries, acts as a broker for corporate, institutional, government and other clients and as a dealer in the purchase and sale of corporate debt and equity securities, U.S. Government securities and U.S. Government agency obligations. Merrill Lynch also acts as a broker-dealer in the purchase and sale of mutual funds, money market instruments, high yield bonds, municipal securities, financial futures contracts and options and other financial instruments, including collateralized debt obligations and collateralized mortgage obligations. As an investment banking entity, it provides corporate, institutional, and government clients with a wide variety of financial services, including underwriting the sale of securities to the public, structured and derivative financing, private placements, mortgage and lease financing and financial advisory services, including advice on mergers and acquisitions. Merrill Lynch Pierce Fenner and Smith, Inc. is a private company and a wholly-owned subsidiary of Bank of America Corp (NYSE: BAC).

 

STOP & SHOP SUPERMARKET COMPANY

 

Acquisition Date: May-14 | Square Feet: 544,112 | Percent of Total Revenue: 6.1% | Tenant Credit Rating¹: S&P BBB

 

The Stop & Shop Supermarket Company is a chain of supermarkets located in the northeastern United States. From its beginnings in 1892 as a small grocery store, it has grown to become one of the largest supermarket operators in New England with over 400 stores chain-wide. Stop & Shop has been a wholly owned subsidiary of the Dutch supermarket operator Ahold since 1995 and has been part of the Stop & Shop/Giant-Landover division since a 2004 merger with sister chain Giant.

 

AMERICAN EXPRESS TRAVEL RELATED SERVICES CO., INC.

 

Acquisition Date: September-13 | Square Feet: 785,164 | Percent of Total Revenue: 4.5% | Tenant Credit Rating¹: S&P A-

 

American Express Travel Related Services Co., Inc., a travel agency, provides financial and travel related services for consumers and companies. The company offers various charge and credit cards, travelers’ checks, and other stored value products. It also offers travel and related consulting services to individuals and corporations worldwide. The company was founded in 1982 and is based in New York City, New York. American Express Travel Related Services Co., Inc. operates as a subsidiary of American Express Company (NYSE: AXP).

 

THE HOME DEPOT, INC.

 

Acquisition Date: September-13 | Square Feet: 1,315,200 | Percent of Total Revenue: 3.7% | Tenant Credit Rating¹: S&P A

 

The Home Depot, Inc. (NYSE: HD) is a retailer of home improvement and construction products and services headquartered in Atlanta, GA. It operates many big-box format stores across the United States (including all 50 U.S. states, the District of Columbia, Puerto Rico, the Virgin Islands and Guam), all ten provinces of Canada, as well as Mexico and China.

 

¹See the Definitions section beginning on page 22.

20

 

TOP TENANT DESCRIPTIONS

 

WALGREEN CO.

 

Acquisition Date: July-13 through January-14 | Square Feet: 253,780 | Percent of Total Revenue: 3.4% | Tenant Credit Rating¹: S&P BBB

 

Walgreen Co. (NYSE: WAG), incorporated on February 15, 1909, together with its subsidiaries, operates the largest drugstore chain in the United States. The company provides its customers with access to consumer goods and services, pharmacy, and health and wellness services in communities across America. The company offers its products and services through drugstores, as well as through mails, by telephone and online. The company sells prescription and non-prescription drugs, as well as general merchandise, including household items, convenience and fresh foods, personal care, beauty care, photofinishing and candy.

 

UNITED HEALTHCARE SERVICES, INC.

 

Acquisition Date: October-13 | Square Feet: 400,000 | Percent of Total Revenue: 3.2% | Tenant Credit Rating¹: S&P AA-

 

United HealthCare Services, Inc. provides health insurance plans for employers, individuals and families in the United States. The company offers employers insurance plans that include employer group health plans; employer ancillary and specialty benefits plans, such as dental, vision, life, disability, critical illness, and accident insurance; and pharmacy and specialty coverage. It also provides specialty products, such as vision and dental insurance, and international coverage, behavioral health, and Medicare and Medicaid coverage options. The company’s network includes physicians and health care professionals, dentists, and hospitals. It sells its products through brokers and consultants. The company was founded in 1977 and is based in Edina, Minnesota. United HealthCare Services, Inc. operates as the largest subsidiary of UnitedHealth Group Inc (NYSE: UNH).

 

¹See the Definitions section beginning on page 22.

 

 

DEFINITIONS

This section contains an explanation of certain non-GAAP financial measures we provide in other sections of this document, as well as the reasons why management believes these measures provide useful information to investors about the Company’s financial condition or results of operations. Additional detail can be found in the Company’s most recent annual report on Form 10-K as well as other documents filed with or furnished to the SEC from time to time.

 

FFO

 

Pursuant to the revised definition of funds from operations adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”), we calculate funds from operations (FFO), by adjusting net income (loss) computed in accordance with GAAP for gains (or losses) from sales of properties, impairment losses on depreciable real estate of consolidated real estate, impairment losses on investments in unconsolidated joint ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated joint ventures, real estate related depreciation and amortization, and after adjustment for unconsolidated partnerships and joint ventures. FFO is a non-GAAP financial measure. The use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial in improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Management generally considers FFO to be a useful measure for reviewing our comparative operating and financial performance because, by excluding gains and losses related to asset sales (land and property), impairment losses and real estate asset depreciation and amortization (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help one compare the operating performance of a company’s real estate between periods or as compared to different companies. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and is not a measure of liquidity or an indicator of our ability to make cash distributions. We believe that to further understand our performance FFO should be compared with our reported net income and considered in addition to cash flows determined in accordance with GAAP, as presented in our consolidated financial statements.

 

MFFO

 

MFFO is FFO excluding certain income or expense items 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 acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above- and below-market lease assets and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. MFFO provides investors a view of the performance of the Company’s portfolio over time. Although our MFFO may not be comparable to that of other REITs and real estate companies, we believe that MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is stabilized. MFFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance. MFFO does not represent cash generated from operating activities determined in accordance with GAAP, and is not a measure of liquidity or an indicator of our ability to make cash distributions. We believe that to further understand our performance MFFO should be compared with our reported net income and considered in addition to cash flows determined in accordance with GAAP, as presented in our consolidated financial statements.

22

 

DEFINITIONS

  

AFFO

 

In addition to FFO and MFFO, the Company uses Adjusted Funds From Operations (AFFO). AFFO is FFO, excluding certain income or expense items 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 or losses on investments and early extinguishment of debt. In addition, by excluding non-cash income and expense items such as amortization of above- and below-market leases, amortization of deferred financing costs, straight-line rent and non-cash equity compensation from AFFO, we believe we provide useful information regarding income and expense items which have no cash impact and do not provide liquidity to the company or require capital resources of the company. We exclude distributions related to Class B units and certain interest expenses related to securities that are convertible to common stock as the shares are assumed to have converted to common stock in our calculation of weighted average common shares-fully diluted. Although our AFFO may not be comparable to that of other REITs and real estate companies, we believe it provides a meaningful indicator of our ability to fund cash needs and to make cash distributions to stockholders. In addition, we believe that to further understand our liquidity, AFFO should be compared with our cash flows determined in accordance with GAAP, as presented in our consolidated financial statements. AFFO does not represent cash generated from operating activities determined in accordance with GAAP, and AFFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP), or as a measure of our liquidity.

 

ADJUSTED EBITDA

 

EBITDA is defined as net income before interest, taxes, depreciation and amortization. We believe EBITDA is an appropriate measure of our ability to incur and service debt. EBITDA should not be considered as an alternative to cash flows from operating activities, as a measure of our liquidity, as an alternative to net income or as an indicator of the Company’s financial performance. Other REITs may calculate EBITDA differently and our calculation should not be compared to that of other REITs. EBITDA is adjusted to include acquisition fees and expenses.

 

ANNUALIZED SLR

 

Annualized straight-line rental revenue (“Annualized SLR”) is the sum of the contractual rent over the term of the lease, including escalations and free rent, divided by the number of months in the lease term and annualized. Annualized SLR excludes 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.

 

 

DEFINITIONS

 

CREDIT RATING

 

S&P credit rating may reflect the credit rating of the parent company or a guarantor.

 

BASE PURCHASE PRICE

 

Contract purchase price of property acquired, excluding acquisition related costs and mortgage premiums resulting from debt assumed in connection with our property acquisitions.

 

NET OPERATING INCOME

 

Net operating income (“NOI”) is a non-GAAP financial measure equal to net income, the most directly comparable GAAP financial measure, less discontinued operations, plus corporate general and administrative expense, acquisition and transaction costs, depreciation and amortization, interest expense, interest and other income, and gain (loss) from investment securities. 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 distributions.

 

NOI GAAP RECONCILIATION

(dollars in thousands)

		Q3 2014			Q2 2014			Q1 2014			Q4 2013			Q3 2013
RECONCILIATION OF NOI
Net loss	$	(1,631	)	$	(1,872	)	$	(10,589	)	$	(3,539	)	$	(17,014	)
Interest expense		8,208			7,723			3,444			457			28
Interest income		(8	)		(158	)		(3	)		(45	)		(62	)
Income from investment securities		(374	)		(606	)		(955	)		(1,164	)		(1,108	)
(Gain) Loss on sale of investment securities		(314	)		(109	)		166			(125	)		-
Operating income (loss)		5,881			4,978			(7,937	)		(4,416	)		(18,156	)
Acquisition and transaction related expense		4,260			4,087			14,532			8,663			18,159
General and administrative expense		981			1,659			1,094			1,117			1,171
Depreciation and amortization		29,045			28,345			19,056			14,158			770
NOI	$	40,167		$	39,069		$	26,745		$	19,522		$	1,944

  

 

 

 

 

 

 

 

 

 

 

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