New York REIT Liquidating LLC - FORM 10-Q - May 11, 2015

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EX-31.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER OF THE COMPANY - New York REIT Liquidating LLCnyrt03312015ex31110-qss.htm
EX-31.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER OF THE COMPANY - New York REIT Liquidating LLCnyrt03312015ex31210-qss.htm
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EX-32 - WRITTEN STATEMENTS OF THE PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL - New York REIT Liquidating LLCnyrt03312015ex3210-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 March 31, 2015

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., 14th 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 x
Accelerated filer o
Non-accelerated filer o (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 April 30, 2015, the registrant had 162,463,456 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)


 
 
March 31,
 
December 31,
 
 
2015
 
2014
ASSETS
 
(Unaudited)
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
494,065

 
$
494,065

Buildings, fixtures and improvements
 
1,243,412

 
1,235,918

Acquired intangible assets
 
158,383

 
158,383

Total real estate investments, at cost
 
1,895,860

 
1,888,366

Less accumulated depreciation and amortization
 
(146,445
)
 
(124,178
)
Total real estate investments, net
 
1,749,415

 
1,764,188

Cash and cash equivalents
 
49,360

 
22,512

Restricted cash
 
3,107

 
6,347

Investment securities, at fair value
 
3,755

 
4,659

Investments in unconsolidated joint venture
 
225,736

 
225,501

Preferred equity investment
 
—

 
35,100

Derivatives, at fair value
 
7

 
205

Tenant and other receivables
 
5,468

 
4,833

Unbilled rent receivables
 
36,207

 
30,866

Prepaid expenses and other assets
 
7,439

 
13,195

Deferred costs, net
 
12,329

 
13,429

Total assets
 
$
2,092,823

 
$
2,120,835

LIABILITIES AND EQUITY
 
 

 
 

Mortgage notes payable
 
$
172,121

 
$
172,242

Credit facility
 
635,000

 
635,000

Market lease intangibles, net
 
80,456

 
84,220

Derivatives, at fair value
 
2,175

 
1,276

Accounts payable, accrued expenses and other liabilities (including amounts due to affiliates of $278 and $575 as of March 31, 2015 and December 31, 2014, respectively)
 
30,647

 
27,850

Deferred rent
 
5,175

 
4,550

Dividends payable
 
12

 
20

Total liabilities
 
925,586

 
925,158

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, 162,463,456 and 162,181,939 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively
 
1,625

 
1,622

Additional paid-in capital
 
1,401,635

 
1,401,619

Accumulated other comprehensive loss
 
(1,805
)
 
(816
)
Accumulated deficit
 
(282,323
)
 
(255,478
)
Total stockholders' equity
 
1,119,132

 
1,146,947

Non-controlling interests
 
48,105

 
48,730

Total equity
 
1,167,237

 
1,195,677

Total liabilities and equity
 
$
2,092,823

 
$
2,120,835

The accompanying notes are an integral part of these consolidated 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 March 31,
 
 
2015
 
2014
Revenues:
 
 
 
 
Rental income
 
$
32,531

 
$
27,171

Hotel revenue
 
4,209

 
2,905

Operating expense reimbursements and other revenue
 
4,162

 
3,516

Total revenues
 
40,902

 
33,592

Operating expenses:
 
 

 
 

Property operating
 
10,969

 
8,858

Hotel operating
 
5,670

 
5,147

Operating fees to affiliates
 
3,144

 
—

Acquisition and transaction related
 
125

 
69

General and administrative
 
3,950

 
1,361

Depreciation and amortization
 
20,732

 
21,013

Total operating expenses
 
44,590

 
36,448

Operating loss
 
(3,688
)
 
(2,856
)
Other income (expenses):
 
 

 
 

Interest expense
 
(5,933
)
 
(3,939
)
Income (loss) from unconsolidated joint venture
 
235

 
(1,984
)
Income from preferred equity investment, investment securities and interest
 
930

 
624

Loss on derivative instruments
 
(4
)
 
—

Total other expenses
 
(4,772
)
 
(5,299
)
Net loss
 
(8,460
)
 
(8,155
)
Net loss (income) attributable to non-controlling interests
 
261

 
(1
)
Net loss attributable to stockholders
 
$
(8,199
)
 
$
(8,156
)
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
Change in unrealized loss on derivatives
 
(1,093
)
 
(126
)
Unrealized gain on investment securities
 
104

 
124

Total other comprehensive loss
 
(989
)
 
(2
)
Comprehensive loss attributable to stockholders
 
$
(9,188
)
 
$
(8,158
)
 
 
 
 
 
Basic and diluted net loss per share attributable to stockholders
 
$
(0.05
)
 
$
(0.05
)
The accompanying notes are an integral part of these consolidated financial statements.


3
NEW YORK REIT, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Three Months Ended March 31, 2015
(In thousands, except share data)
(Unaudited)


 
 
Common Stock
 
 
 
Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
 
 
 
Number
of
Shares
 
Par
Value
 
Additional
Paid-In
Capital
 
 
Accumulated
Deficit
 
Total Stockholders'
Equity
 
Non-
controlling
Interests
 
Total
Equity
Balance, December 31, 2014
 
162,181,939

 
$
1,622

 
$
1,401,619

 
$
(816
)
 
$
(255,478
)
 
$
1,146,947

 
$
48,730

 
$
1,195,677

Equity-based compensation
 
281,517

 
3

 
16

 
—

 
—

 
19

 
229

 
248

Dividends to non-controlling interest holders
 
—

 
—

 
—

 
—

 
—

 
—

 
(593
)
 
(593
)
Dividends declared
 
—

 
—

 
—

 
—

 
(18,646
)
 
(18,646
)
 
—

 
(18,646
)
Net loss
 
—

 
—

 
—

 
—

 
(8,199
)
 
(8,199
)
 
(261
)
 
(8,460
)
Other comprehensive loss
 
—

 
—

 
—

 
(989
)
 
—

 
(989
)
 
—

 
(989
)
Balance, March 31, 2015
 
162,463,456

 
$
1,625

 
$
1,401,635

 
$
(1,805
)
 
$
(282,323
)
 
$
1,119,132

 
$
48,105

 
$
1,167,237

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

4
NEW YORK REIT, INC.

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

 
Three Months Ended March 31,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net loss
$
(8,460
)
 
$
(8,155
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 

Depreciation and amortization
20,732

 
21,013

Amortization of deferred financing costs
1,138

 
726

 Accretion of below- and amortization of above-market lease liabilities and assets, net
(2,124
)
 
(2,454
)
Share-based compensation
248

 
16

Loss on derivative instruments
4

 
—

   Loss (income) from unconsolidated joint venture
(235
)
 
1,984

   Gain on sale of investment securities
(48
)
 
—

   Bad debt expense
542

 
—

Changes in assets and liabilities:
 

 
 

Tenant and other receivables
(648
)
 
(1,779
)
Unbilled rent receivables
(5,870
)
 
(3,511
)
Prepaid expenses, other assets and deferred costs
5,744

 
2,314

Accrued unbilled ground rent
987

 
1,087

Accounts payable and accrued expenses
1,811

 
(5,426
)
Deferred rent and other liabilities
625

 
(1,250
)
Net cash provided by operating activities
14,446

 
4,565

Cash flows from investing activities:
 

 
 

Proceeds from sale of preferred equity investment
35,100

 
—

Acquisition funds released from escrow
3,679

 
—

Additional investment in unconsolidated joint venture
—

 
(273
)
Capital expenditures
(7,494
)
 
(1,427
)
Distributions from unconsolidated joint venture
—

 
3,936

Proceeds from sale of investment securities
1,098

 
—

Purchase of investment securities
(42
)
 
—

Net cash provided by investing activities
32,341

 
2,236

Cash flows from financing activities:
 

 
 

Payments on mortgage notes payable
(121
)
 
(117
)
Payments of financing costs
(132
)
 
(29
)
Proceeds from issuance of common stock
—

 
11,291

Repurchases of common stock, inclusive of fees and expenses
—

 
(506
)
Payments of offering costs and fees related to stock issuances
—

 
(1,419
)
Dividends paid
(18,654
)
 
(11,778
)
Distributions to non-controlling interest holders
(593
)
 
—

Restricted cash
(439
)
 
(598
)
Net cash used in financing activities
(19,939
)
 
(3,156
)
Net increase in cash and cash equivalents
26,848

 
3,645

Cash and cash equivalents, beginning of period
22,512

 
233,377

Cash and cash equivalents, end of period
$
49,360

 
$
237,022


5
NEW YORK REIT, INC.

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

 
Three Months Ended March 31,
 
2015
 
2014
Supplemental disclosures:
 
 
 
Cash paid for interest
$
4,828

 
$
3,283

Accrued capital expenditures
3,556

 
—

Common stock issued through distribution reinvestment plan
—

 
14,084


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

6
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(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 March 31, 2015, the Company owned 23 properties and real estate-related assets.
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 its taxable year ended December 31, 2010.  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").
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 direct 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 initial public offering, which was ongoing from September 2010 to December 2013 (the "IPO") and continues to provide the Company with various services.  The Advisor, Property Manager and Dealer Manager are under common control with AR Capital, LLC, 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 months ended March 31, 2015 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, 2014, which are included in the Company's Annual Report on Form 10-K filed with the SEC on May 11, 2015. There have been no significant changes to the Company's significant accounting policies during the three months ended March 31, 2015, 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.

7
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


Note 3 — Real Estate Investments
 There were no real estate assets acquired or liabilities assumed during the three months ended March 31, 2015 or 2014.
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 March 31, 2015.  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 Rental  Payments
April 1, 2015 - December 31, 2015
 
$
81,720

2016
 
96,014

2017
 
95,826

2018
 
93,765

2019
 
92,429

Thereafter
 
633,169

 
 
$
1,092,923

The following table lists the tenants whose annualized cash rent represented greater than 10% of total annualized cash rent as of March 31, 2015 and 2014, including annualized cash rent related to the Company's unconsolidated joint venture:
 
 
 
 
March 31,
Property Portfolio
 
Tenant
 
2015
 
2014
Worldwide Plaza
 
Cravath, Swaine & Moore, LLP
 
16%
 
18%
Worldwide Plaza
 
Nomura Holdings America, Inc.
 
11%
 
12%
The termination, delinquency or non-renewal of any of the above tenants may have a material adverse effect on net income (loss). No other tenant represents more than 10% of annualized cash rent as of March 31, 2015 and 2014.
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, based on the property value for Worldwide Plaza of $1,325.0 million less $875.0 million of debt on the property. As of March 31, 2015, 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.
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, or December 2016, at an agreed-upon property value of $1.4 billion, subject to certain adjustments, including, but not limited to, adjustments for certain loans that are outstanding at the time of any exercise, adjustments for the percentage equity interest being acquired and any of the Company's preferred return in arrears. If the Company were to not exercise its purchase option, it would be subject to a fee in the amount of $25.0 million.
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 its equity interest in Worldwide Plaza over the book value of Worldwide Plaza's net assets. Substantially all of this basis difference was allocated to the fair values of Worldwide Plaza's assets and liabilities. The Company amortizes the basis difference over the anticipated useful lives of the underlying tangible and intangible assets acquired and liabilities assumed. The basis difference related to the land will be recognized upon disposition of the Company's investment. As of March 31, 2015 and December 31, 2014, the carrying value of the Company's investment in Worldwide Plaza was $225.7 million and $225.5 million, respectively.

8
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


During the three months ended March 31, 2015 and 2014, the Company recorded $0.2 million of income and $2.0 million of loss, respectively, related to its investment in Worldwide Plaza. Net income (loss) related to Worldwide Plaza for the three months ended March 31, 2015 and 2014 includes $3.9 million of preferred distributions earned in each period, net of the Company's pro rata share of Worldwide Plaza's net loss of $0.5 million and $2.6 million, respectively, and $3.1 million and $3.2 million, respectively, of depreciation and amortization expense relating to the amortization of the basis difference. 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 because the Company is not 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 March 31, 2015 and December 31, 2014 for Worldwide Plaza are as follows:
(In thousands)
 
March 31,
2015
 
December 31,
2014
Real estate assets, at cost
 
$
704,257

 
$
704,143

Less accumulated depreciation and amortization
 
(102,127
)
 
(97,181
)
Total real estate assets, net
 
602,130

 
606,962

Other assets
 
261,698

 
255,784

Total assets
 
$
863,828

 
$
862,746

 
 
 
 
 
Debt
 
$
875,000

 
$
875,000

Other liabilities
 
10,765

 
12,442

Total liabilities
 
885,765

 
887,442

Deficit
 
(21,937
)
 
(24,696
)
Total liabilities and deficit
 
$
863,828

 
$
862,746

 
 
 
 
 
Company's basis
 
$
225,736

 
$
225,501


9
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


The condensed statement of operations for the three months ended March 31, 2015 and 2014 for Worldwide Plaza is as follows:
 
 
Three Months Ended March 31,
(In thousands)
 
2015
 
2014
Rental income
 
$
30,514

 
$
27,655

Other revenue
 
1,217

 
1,215

Total revenue
 
31,731

 
28,870

Operating expenses:
 
 
 
 
Operating expense
 
12,241

 
11,513

Depreciation and amortization
 
6,850

 
6,368

Total operating expenses
 
19,091

 
17,881

Operating income
 
12,640

 
10,989

Interest expense
 
(9,882
)
 
(9,882
)
Net income
 
2,758

 
1,107

Company's preferred distribution
 
(3,851
)
 
(3,851
)
Joint venture partner distributions
 
—

 
(2,560
)
Net loss to members
 
$
(1,093
)
 
$
(5,304
)
 
 
 
 
 
Company's preferred distribution
 
$
3,851

 
$
3,851

Company's share of net loss from Worldwide Plaza
 
(534
)
 
(2,594
)
Amortization of difference in basis
 
(3,082
)
 
(3,241
)
Company's loss from Worldwide Plaza
 
$
235

 
$
(1,984
)
Note 5 — Preferred Equity Investment
On March 27, 2015, the Company's preferred equity investment in a class A office building located at 123 William Street (the "Property") in the Financial District of downtown Manhattan was repaid as a result of the sale of the Property. The preferred equity investment carried a 6.0% current pay rate and a 2.0% accrual rate. Pursuant to the sale of the Property, the Company received $1.1 million in current and accrued interest income earned and $35.1 million for the return of all principal invested.
The preferred equity investment had 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 recorded returns earned in income from preferred equity investment, investment securities and interest income on the consolidated statements of operations and comprehensive income (loss).
Note 6 — Investment Securities
The Company's investment securities are comprised of investments in redeemable preferred stock and equity securities, with an aggregate fair value of $3.8 million and $4.7 million as of March 31, 2015 and December 31, 2014, respectively. The equity securities consist of a real estate income fund that is managed by an affiliate of the Sponsor. See Note 13 — Related Party Transactions and Arrangements.
The Company's preferred stock investment is redeemable at the issuer's option after five years from issuance.

10
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


The following table details the unrealized gains and losses on investment securities as of March 31, 2015 and December 31, 2014:
(In thousands)
 
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
March 31, 2015
 
 
 
 
 
 
 
 
Redeemable preferred stock
 
$
238

 
$
17

 
$
—

 
$
255

Equity securities
 
3,169

 
331

 
—

 
3,500

Total
 
$
3,407

 
$
348

 
$
—

 
$
3,755

December 31, 2014
 
 
 
 
 
 
 
 
Redeemable preferred stock
 
$
1,288

 
$
21

 
$
(12
)
 
$
1,297

Equity securities
 
3,127

 
235

 
—

 
3,362

Total
 
$
4,415

 
$
256

 
$
(12
)
 
$
4,659

The Company did not have any securities that were in an unrealized loss position as of March 31, 2015.
Note 7 — Credit Facility
On April 14, 2014, the Company entered into an amendment to its credit facility with Capital One (the "Credit Facility"). 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. The term loan component of the Credit Facility matures in August 2018 and the revolving loan component matures in August 2016. The Credit Facility contains an "accordion feature" to allow the Company, under certain circumstances, and with the consent of its lenders, to increase the aggregate loan borrowings to up to $1.0 billion of total borrowings.
The Company has the option, based upon its corporate leverage, to have the Credit 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 Credit Facility as the greater 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 Credit Facility was $305.0 million and $330.0 million as of March 31, 2015 and December 31, 2014, respectively. The Credit Facility had a combined weighted average interest rate of 2.09% and 2.05% as of March 31, 2015 and December 31, 2014, respectively, a portion of which is fixed with an interest rate swap. The Credit 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 borrowing base properties as of March 31, 2015, was $18.1 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.
The Credit 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 March 31, 2015, the Company was in compliance with the debt covenants under the Credit Facility agreement, as modified by a waiver received for the late filing of the Company's Annual Report on Form 10-K.

11
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


Note 8 — Mortgage Notes Payable
The Company's mortgage notes payable as of March 31, 2015 and December 31, 2014 consist of the following:
 
 
 
 
Outstanding Loan Amount
 
 
 
 
 
 
Portfolio
 
Encumbered
Properties
 
March 31,
2015
 
December 31,
2014
 
Effective
Interest Rate
 
Interest Rate
 
Maturity
 
 
 
 
(In thousands)
 
(In thousands)
 
 
 
 
 
 
Design Center
 
1
 
$
20,100

 
$
20,198

 
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
 
4,718

 
4,741

 
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
 
$
172,121

 
$
172,242

 
3.6
%
(2) 
 
 
 
______________________ 
(1)
Fixed through an interest rate swap agreement.
(2)
Calculated on a weighted average basis for all mortgages outstanding as of March 31, 2015.
Real estate investments of $317.3 million, at cost, at March 31, 2015 have been pledged as collateral to their respective mortgages and are not available to satisfy our corporate debts and obligations unless first satisfying the mortgage note payable on the properties.
The following table summarizes the scheduled aggregate principal repayments subsequent to March 31, 2015:
(In thousands)
 
Future Minimum Principal Payments
April 1, 2015 - December 31, 2015
 
$
21,673

2016
 
28,167

2017
 
102,730

2018
 
4,573

2019
 
4,777

Thereafter
 
10,201

Total
 
$
172,121

Some of the Company's mortgage note agreements require compliance with certain property-level financial covenants including debt service coverage ratios. As of March 31, 2015, the Company was in compliance with the financial covenants under its mortgage note agreements.

12
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


Note 9 — 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 instruments, 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 March 31, 2015 and December 31, 2014, 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. See Note 10 - Interest Rate Derivatives and Hedging Activities.
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 Company has investments in redeemable preferred stock and equity securities 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 March 31, 2015 and December 31, 2014, 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
March 31, 2015
 
 
 
 
 
 
 
 
Interest rate swaps, net
 
$
—

 
$
(2,168
)
 
$
—

 
$
(2,168
)
Investment securities
 
$
3,755

 
$
—

 
$
—

 
$
3,755

December 31, 2014
 
 
 
 
 
 
 
 
Interest rate swaps, net
 
$
—

 
$
(1,071
)
 
$
—

 
$
(1,071
)
Investment securities
 
$
4,659

 
$
—

 
$
—

 
$
4,659


13
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


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 three months ended March 31, 2015.
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, 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
 
March 31, 2015
 
March 31, 2015
 
December 31, 2014
 
December 31, 2014
Mortgage notes payable
 
3
 
$
172,121

 
$
174,800

 
$
172,242

 
$
174,468

Credit facility
 
3
 
$
635,000

 
$
652,581

 
$
635,000

 
$
651,579

Preferred equity investment
 
3
 
$
—

 
$
—

 
$
35,100

 
$
34,800

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 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 10 — 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 utilize derivatives for speculative or 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 primarily uses 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 $1.8 million will be reclassified from other comprehensive income as an increase to interest expense.

14
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


As of March 31, 2015 and December 31, 2014, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk.
 
 
March 31, 2015
 
December 31, 2014
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 March 31, 2015 and December 31, 2014:
(In thousands)
 
Balance Sheet Location
 
March 31, 2015
 
December 31, 2014
Derivatives designated as hedging instruments:
 
 
 
 
Interest rate swaps
 
Derivative assets, at fair value
 
$
7

 
$
205

Interest rate swaps
 
Derivative liabilities, at fair value
 
$
(2,175
)
 
$
(1,276
)
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 months ended March 31, 2015 and 2014:
 
 
Three Months Ended March 31,
(In thousands)
 
2015
 
2014
Amount of income (loss) recognized in accumulated other comprehensive income (loss) from interest rate derivatives (effective portion)
 
$
(1,619
)
 
$
(656
)
Amount of loss reclassified from accumulated other comprehensive income (loss) into income as interest expense (effective portion)
 
$
(526
)
 
$
(530
)
Amount of loss recognized in loss on derivative instruments (ineffective portion and amount excluded from effectiveness testing)
 
$
(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 March 31, 2015 and December 31, 2014. 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
March 31, 2015
 
$
7

 
$
(2,175
)
 
$
(2,168
)
 
$
—

 
$
—

 
$
(2,168
)
December 31, 2014
 
$
205

 
$
(1,276
)
 
$
(1,071
)
 
$
—

 
$
—

 
$
(1,071
)
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.

15
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(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 March 31, 2015, 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 $2.3 million. As of March 31, 2015, 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 $2.3 million at March 31, 2015.
Note 11 — Common Stock
As of March 31, 2015 and December 31, 2014, the Company had 162.5 million and 162.2 million shares of common stock outstanding, respectively, including unvested restricted stock, converted preferred shares and shares issued under the distribution reinvestment plan (the "DRIP"), but not including limited partnership units of the OP (the "OP units") or Long-term Incentive Plan units ("LTIP units") which are currently, or may in the future be, convertible into shares of common stock.
From December 2010 to April 2014, the Company declared and paid dividends at a dividend rate equal to $0.605 per annum per share of common stock. 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.

16
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


Note 12 — Commitments and Contingencies
Future Minimum Lease Payments
The Company entered into operating and capital lease agreements primarily related to certain acquisitions under leasehold interest arrangements. The following table reflects the minimum base cash payments due from the Company over the next five years and thereafter under these arrangements, including the present value of the net minimum payments due under capital leases. 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.
 
 
Future Minimum Base Rent Payments
(In thousands)
 
Operating Leases
 
Capital Leases
April 1, 2015 - December 31, 2015
 
$
3,590

 
$
65

2016
 
4,958

 
86

2017
 
4,905

 
86

2018
 
5,089

 
86

2019
 
5,346

 
86

Thereafter
 
251,627

 
3,490

Total minimum lease payments
 
$
275,515

 
$
3,899

Less: amounts representing interest
 
 
 
(1,769
)
Total present value of minimum lease payments
 
 
 
$
2,130

Total rental expense related to operating leases was $1.9 million for the three months ended March 31, 2015 and 2014. During the three months ended March 31, 2015 and 2014, interest expense related to capital leases was approximately $16,000. The following table discloses assets recorded under capital leases and the accumulated amortization thereon as of March 31, 2015 and December 31, 2014.
(In thousands)
 
March 31, 2015
 
December 31, 2014
Buildings, fixtures and improvements
 
$
11,783

 
$
11,783

Less accumulated depreciation and amortization
 
(1,279
)
 
(1,137
)
Total real estate investments, net
 
$
10,504

 
$
10,646

Litigation and Regulatory Matters
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no material legal or regulatory 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. RXR is currently appealing the ruling. The Company has not recognized a liability with respect to RXR's claim because the Company does not believe that it is probable that it will incur a related material loss.
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.

17
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


Note 13 — Related Party Transactions and Arrangements
New York City Special Limited Partnership, LLC (the "SLP"), an entity controlled by the Sponsor, held 20,000 shares of the Company's outstanding common stock as of March 31, 2015 and December 31, 2014.
As of March 31, 2015, the Company had $3.5 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.
For the three months ended March 31, 2015 and 2014, the Company had revenues from related parties of approximately $15,000 and $0.1 million, respectively, related to room rentals at the Viceroy Hotel. As of March 31, 2015 and December 31, 2014, the Company had receivables from related parties of approximately $17,000 and $23,000, respectively, related to room rentals at the Viceroy Hotel.
Fees Paid in Connection With the Operations of the Company
Prior to the Listing, the Advisor received 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 reimbursed the Advisor for expenses incurred for services provided by third parties and incurred acquisition expenses directly from third parties. 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.
Until the Listing, the Company paid the Advisor an asset management subordinated participation by causing the OP to issue (subject to periodic approval by the board of directors) to the Advisor a number of performance-based restricted, forfeitable partnership units of the OP designated as "Class B units" equal to a maximum 0.75% per annum of the cost of the Company's assets. The value of issued Class B units was determined and expensed when the vesting condition was met, 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 distributions on unvested Class B units equal to the dividend rate received on the Company's common stock. The vesting 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 was included in vesting of asset management fees expense in the consolidated statement of operations and comprehensive income (loss) and in non-controlling interest on the consolidated balance sheets. 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 subordinated participation was no longer issued as of the Listing and instead an asset management fee became payable to the Advisor equal 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.
Prior to the Listing, if the Advisor provided services in connection with the origination or refinancing of any debt that the Company obtained and used to acquire assets, or that is assumed, directly or indirectly, in connection with the acquisition of assets, the Company paid 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.

18
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


The Dealer Manager and its affiliates also provide transfer agency services, as well as transaction management and other professional services. As of the end of the IPO, these fees are included in general and administrative expenses on the consolidated statements of operations and comprehensive income (loss) during the period the service was provided. Prior to the end of the IPO, these fees were included in additional paid-in capital on the consolidated balance sheets.
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 March 31,
 
Payable as of
 
 
2015
 
2014
 
March 31,
 
December 31,
(In thousands)
 
Incurred
 
Forgiven
 
Incurred
 
Forgiven
 
2015
 
2014
Ongoing fees:
 
 
 
 
 
 
 
 
 
 
 
 
Asset management fees (1)
 
$
3,144

 
$
—

 
$
—

 
$
—

 
$
4

 
$
15

Transfer agent and other professional fees
 
184

 
—

 
586

 
—

 
274

 
560

Property management and leasing fees
 
—

 
536

 
—

 
374

 
—

 
—

Dividends on Class B units
 
—

 
—

 
88

 
—

 
—

 
—

Total related party operational fees and reimbursements
 
$
3,328

 
$
536

 
$
674

 
$
374

 
$
278

 
$
575

___________________________________________
(1)
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 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 months ended March 31, 2015 or 2014.
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 months ended March 31, 2015 and 2014. 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 Advisor did not absorb any costs during the three months ended March 31, 2015 and 2014.
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 under common control with 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 three months ended March 31, 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 March 31, 2015.
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 under common control with 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 three months ended March 31, 2014, the Company incurred $0.6 million of expenses pursuant to this agreement, which included amounts for services provided in preparation for the the Company's tender offer to purchase up to 23.3 million shares of its common stock in April 2014 concurrently and in connection with the Listing, 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 March 31, 2015. 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.

19
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


In December 2013, the Company entered into an agreement with RCS Capital, 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.
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 months ended March 31, 2015 and 2014.
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 October 2014, the Company entered into separate transaction management agreements with Barclays Capital Inc. and 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 the Dealer Manager, the Company will pay to the Dealer Manager a transaction fee upon consummation of a transaction equal to 0.25% of the transaction value.
Note 14 — 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 15 — 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 completion 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 date of grant. 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 March 31, 2015 and December 31, 2014, 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.

20
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


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 vest 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 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 shares of common stock shall be subject to the same restrictions as the underlying restricted shares.
The following table displays restricted share award activity during the three months ended March 31, 2015:
 
Number of Restricted Shares
 
Weighted-Average Issue Price
Unvested, December 31, 2014
89,499

 
$
10.73

Granted
281,517

 
10.36

Unvested, March 31, 2015
371,016

 
$
10.54

During the three months ended March 31, 2015, the board of directors approved, and the Company awarded, 279,679 restricted shares to employees of the Advisor. The awards vest over a four year period in increments of 25% per annum. The fair value of the awards are remeasured quarterly, with the resulting amortization adjustments reflected in general and administrative expense in the consolidated statements of operations and comprehensive income (loss).
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 on a straight-line basis over the service period. Compensation expense related to restricted stock was approximately $19,000 and $16,000 for the three months ended March 31, 2015 and 2014, respectively.
As of March 31, 2015, the Company had approximately $3.0 million of unrecognized compensation cost related to unvested restricted share awards granted under the Company’s RSP, which is expected to vest over a period of 3.7 years.

2014 Advisor Multi-Year Outperformance Agreement
On April 15, 2014 (the "Effective Date") in connection with the Listing, the Company entered into the 2014 Advisor Multi-Year Outperformance Agreement (the "OPP") with the OP and the Advisor. Under the OPP, the Advisor was issued 8,880,579 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.

21
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


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.
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 holders of LTIP units are entitled to distributions equal to 10% of the distributions made on OP units. The Company paid $0.1 million in distributions related to LTIP units during the three months ended March 31, 2015, which is included in non-controlling interest in the consolidated balance sheets. There were no distributions related to LTIP units for the three months ended March 31, 2014. After the LTIP units are fully vested, holders are entitled to a catch-up distribution and then the same distributions 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 $0.2 million for the three months ended March 31, 2015. There was no compensation expense related to the OPP for the three months ended March 31, 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.

22
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


The following table presents information about the Company's OPP, which is measured at fair value on a recurring basis as of March 31, 2015 and December 31, 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
March 31, 2015
 
 
 
 
 
 
 
 
OPP
 
$
—

 
$
—

 
$
23,400

 
$
23,400

December 31, 2014
 
 
 
 
 
 
 
 
OPP
 
$
—

 
$
—

 
$
29,100

 
$
29,100

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 three months ended March 31, 2015:
(In thousands)
 
OPP
Beginning balance as of December 31, 2014
 
$
29,100

   Fair value adjustment
 
(5,700
)
Ending balance as of March 31, 2015
 
$
23,400

The following table provides quantitative information about significant Level 3 input used:
Financial Instrument
 
Fair Value
 
Principal Valuation Technique
 
Unobservable Inputs
 
Input Value
 
 
(In thousands)
 
 
 
 
 
 
March 31, 2015
 
 
 
 
 
 
 
 
OPP
 
$
23,400

 
Monte Carlo Simulation
 
Expected volatility
 
24.0%
December 31, 2014
 
 
 
 
 
 
 
 
OPP
 
$
29,100

 
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.
Note 16 — Accumulated Other Comprehensive Loss
The following table illustrates the changes in accumulated other comprehensive loss as of and for the periods indicated:
 
 
Unrealized gains
 
Change in
 
Total
 
 
on available-for-sale
 
unrealized gain
 
accumulated other
(in thousands)
 
securities
 
(loss) on derivatives
 
comprehensive loss
Balance, December 31, 2014
 
$
244

 
$
(1,060
)
 
$
(816
)
Other comprehensive income (loss), before reclassifications
 
152

 
(1,619
)
 
(1,467
)
Amounts reclassified from accumulated other comprehensive loss
 
(48
)
 
526

 
478

Net current-period other comprehensive income (loss)
 
104

 
(1,093
)
 
(989
)
Balance, March 31, 2015
 
$
348

 
$
(2,153
)
 
$
(1,805
)

23
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


For a reconciliation of the income statement line item affected due to amounts reclassified out of accumulated other comprehensive loss for the three months ended March 31, 2015, see Note 10 — Interest Rate Derivatives and Hedging Activities.
Note 17 — Net Loss Per Share
The following is a summary of the basic and diluted net loss per share computations for the periods presented:  
 
 
Three Months Ended March 31,
 
 
2015
 
2014
Net loss attributable to stockholders (In thousands)
 
$
(8,199
)
 
$
(8,156
)
Weighted average shares outstanding, basic and diluted
 
162,092,424

 
175,068,005

Net loss per share attributable to stockholders, basic and diluted
 
$
(0.05
)
 
$
(0.05
)
Diluted net 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 March 31,
 
 
2015
 
2014
Unvested restricted stock
 
371,016

 
24,000

OP units
 
4,270,841

 
200

Class B units(1)
 
—

 
799,332

LTIP units
 
8,880,579

 
—

Total anti-dilutive common share equivalents
 
13,522,436

 
823,532

_____________________
(1)
Upon the occurrence of the Listing, Class B units were converted to OP units on a one-for-one basis.
Note 18 — Non-Controlling Interests
The Company is the sole general partner of the OP and holds the majority of OP units. As of March 31, 2015 and December 31, 2014, the Advisor and SLP held 4,270,841 OP units and 8,880,579 unvested LTIP units. There were $0.5 million of distributions paid to OP unit and LTIP unit holders during the three months ended March 31, 2015. No distributions were paid to OP unit holders during the three months ended March 31, 2014.
A holder of OP units has the right to distributions and has the right 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.
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 dividends paid to each non-controlling member. No dividends were paid during the three months ended March 31, 2015 or 2014.
Note 19 — Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on 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.

24

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 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. Amounts paid to our stockholders may be a return of capital and not a return on a stockholder's investment;
•
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
•
We may be adversely affected by 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.

25

Overview
We are a New York City focused REIT that seeks to provide stockholders with an opportunity to participate in one of the world's most dynamic real estate markets by primarily acquiring income-producing commercial real estate in New York City. We were incorporated on October 6, 2009 as a Maryland corporation that qualified as a REIT beginning with the taxable year ended December 31, 2010. 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").
We focus on acquiring and owning office and retail properties in Manhattan, the largest and most liquid real estate market in the United States. We purchased our first property and commenced active operations in June 2010.  As of March 31, 2015, we owned 23 properties located in New York City. As of March 31, 2015 our properties aggregated 3.4 million rentable square feet, had an occupancy of 95.2% and an average remaining lease term of 9.7 years. Our portfolio primarily consisted of office and retail properties, representing 81% and 10% of rentable square feet, respectively, as of March 31, 2015. We may also acquire multifamily, industrial, hotel and other types of real properties to add diversity to our portfolio. Properties other than office and retail spaces represented 9% of rentable square feet. Additionally, we also may originate or acquire first mortgage loans, mezzanine loans or preferred equity positions related to New York City real estate.
 Substantially all of our business is conducted through the OP. We have no direct employees. Our Advisor manages our affairs on a day-to-day basis. The Property Manager manages our properties, 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 initial public offering which was ongoing from September 2010 to December 2013 (our "IPO") and continues to provide us with various services.  The Advisor, Property Manager and Dealer Manager are under common control with AR Capital, LLC, 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:
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. Since many of our leases provide for rental increases at specified intervals, generally accepted accounting principles ("GAAP") accounting requires us to record a receivable, and include in revenues on a straight-line basis, 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.
Rental revenue recognition commences when the tenant takes possession or controls the physical use of the leased space. For the tenant to take possession, the leased space must be substantially ready for its intended use. To determine whether the leased space is substantially ready for its intended use, we evaluate whether we own or the tenant owns the tenant improvements. When we are the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of the finished space, which is when such improvements are substantially complete. When we conclude that we are not the owner (as the tenant is the owner) of tenant improvements, rental revenue recognition begins when the tenant takes possession of or controls the space.
When we conclude that we are the owner of tenant improvements, we record the cost to construct the tenant improvements, including costs paid for or reimbursed by the tenants, as a capital asset. When we conclude that the tenant is the owner of tenant improvements for accounting purposes, we record our contribution towards those improvements as a lease incentive, which is included in deferred leasing costs, net on the consolidated balance sheets and amortized as a reduction to rental income on a straight-line basis over the term of the lease.
We will 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 will 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.

26

Our hotel revenues are recognized as earned 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.
We may own certain properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant's sales upon the achievement of certain sales thresholds or other targets which may be monthly, quarterly or annual targets. As the lessor to the aforementioned leases, we defer the recognition of contingent rental income until the specified target that triggered the contingent rental income is achieved, or until such sales upon which percentage rent is based are known. If we own certain properties with leases that include provisions for the tenant to pay contingent rental income, contingent rental income will be included in rental income on the consolidated statements of operations and comprehensive loss.
Investments in Real Estate
We evaluate the inputs, processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statement of operations. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets.
In business combinations, we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities and noncontrolling interests based on their respective estimated fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements. Intangible assets or liabilities may include the value of in-place leases, above and below market leases and other identifiable intangible assets or liabilities based on lease or property specific characteristics.
The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases. The fair value of above-market or below-market leases is recorded based on the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the comparable fair market lease rate, measured over the remaining term of the lease. The fair value of other intangible assets, such as real estate tax abatements, are recorded based on the present value of the expected benefit and amortized over the expected useful life including any below-market fixed rate renewal options for below-market leases.
Fair values of assumed mortgages, if applicable, are recorded as debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above- or below-market interest rates.
Non-controlling interests in property owning entities are recorded based on the fair value of units issued at the date of acquisition, as determined by the terms of the applicable agreement.
We utilize a number of sources in making our estimates of fair values for purposes of allocating purchase price including real estate valuations, prepared by independent valuation firms. We also consider information and other factors including: market conditions, the industry in which the tenant operates, characteristics of the real estate such as location, size, demographics, value and comparative rental rates, tenant credit profile and the importance of the location of the real estate to the operations of the tenant’s business.
We present the operations related to properties that have been or are intended to be sold as discontinued operations in the consolidated statements of operations and comprehensive income (loss) where the disposal of a component represents a strategic shift that has had or will have a major effect on our operations and financial results. Properties that are intended to be sold will be designated as "held for sale" on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs for all periods presented when they meet specific criteria to be presented as held for sale. Properties are no longer depreciated when they are classified as held for sale.
Depreciation and Amortization
We are required to make subjective assessments as to the useful lives of the components of our real estate investments for purposes of determining the amount of depreciation to record on an annual basis. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our real estate investments, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income.
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 years for fixtures and improvements, and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.

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Acquired above-market leases are amortized as a reduction of rental income over the remaining terms of the respective leases. Acquired below-market leases are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods.
Acquired above-market ground leases are amortized as a reduction of property operating expense over the remaining term of the respective leases. Acquired below-market ground leases are amortized as an increase to property operating expense over the remaining term of the respective leases and expected below-market renewal option period.
The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to depreciation and amortization expense over the remaining periods of the respective leases.
Assumed mortgage premiums or discounts, if applicable, are amortized as a reduction or increase to interest expense over the remaining term of the respective mortgages.
Impairment of Long Lived Assets
When circumstances indicate the carrying value of a property may not be recoverable, we review the asset for impairment. This review 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, as well as the effects of leasing demand, competition and other factors. If such estimated cash flows are less than 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 for properties to be held and used. For properties held for sale, the impairment loss is based on the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income.
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.
Recently Issued Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board ("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 has applied the provisions prospectively. The 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. In April 2015, the FASB proposed a one-year delay of the revised guidance, although entities will be allowed to early adopt the guidance as of the original effective date. We have not yet selected a transition method and is currently evaluating the impact of the new guidance.

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In February 2015, the FASB amended the accounting for consolidation of certain legal entities. The amendments modify the evaluation of whether certain legal entities are variable interest entities ("VIEs") or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership, affect the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships) and provide a scope exception from consolidation guidance for reporting entities with interests in legal entities. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. If we decide to early adopt the revised guidance in an interim period, any adjustments will be reflected as of the beginning of the fiscal year that includes the interim period. We have not yet selected a transition method and are currently evaluating the impact of the new guidance.
In April 2015, the FASB amended the presentation of debt issuance costs on the balance sheet. The amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted for financial statements that have not previously been issued. If we decide to early adopt the revised guidance in an interim period, any adjustments will be reflected as of the beginning of the fiscal year that includes the interim period. We are currently evaluating the impact of the new guidance.
Results of Operations
Comparison of Three Months Ended March 31, 2015 to Three Months Ended March 31, 2014
As of January 1, 2014, we owned 22 properties (our "Same Store"). From January 1, 2014 through March 31, 2015, we acquired one property (our "Acquisition") and therefore own 23 properties as of March 31, 2015, which were 95.2% leased. Accordingly, our results of operations for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014, reflect significant increases in categories related to revenue and property operating expenses. Net loss attributable to stockholders was $8.2 million for the three months ended March 31, 2015 and 2014, respectively.
During the three months ended March 31, 2015, we signed one new lease for 22,185 square feet. The initial rent on the space is approximately $157.76 per square foot and the term is for 15.5 years. We expect to incur tenant improvements and leasing commissions of approximately $78.88 and $178.40 per square foot, respectively.
Rental Income
Rental income increased $5.3 million to $32.5 million for the three months ended March 31, 2015, from $27.2 million for the three months ended March 31, 2014. The increase in rental income was primarily driven by our Acquisition, which resulted in an increase in rental income of $5.9 million for the three months ended March 31, 2015, compared to the three months ended March 31, 2014. This was partially offset by a net decrease in rental income of $0.6 million in our Same Store, primarily due to a lease modification and terminations, partially offset by new leasing activity.
Operating Expense Reimbursements and Other Revenue
Operating expense reimbursements and other revenue increased $0.7 million to $4.2 million for the three months ended March 31, 2015 from $3.5 million for the three months ended March 31, 2014, primarily due to our Acquisition and increased property operating expenses in our Same Store.
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. Therefore, operating expense reimbursements are directly affected by changes in property operating expenses.
Property Operating Expenses
Property operating expenses increased $2.1 million to $11.0 million for the three months ended March 31, 2015, from $8.9 million for the three months ended March 31, 2014. The increase in property operating expenses of $1.2 million related to our Acquisition. Additionally, property operating expenses at our Same Store increased by $0.9 million as a result of $0.5 million of bad debt expense associated with a tenant bankruptcy at 256 West 38th Street and $0.4 million primarily due to an increase in the real estate tax rate and utilities.
Hotel Revenue and Operating Expenses
Hotel revenues increased $1.3 million to $4.2 million for the three months ended March 31, 2015, from $2.9 million for the three months ended March 31, 2014. Hotel operating expenses increased $0.6 million to $5.7 million for the three months ended March 31, 2015, from $5.1 million for the three months ended March 31, 2014. The increase in hotel revenues and hotel operating expenses relate to more stabilized operations at our hotel, which opened in late 2013.

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Operating Fees to Affiliates
Operating fees to affiliates were $3.1 million for the three months ended March 31, 2015. Operating fees to affiliates represent asset management fees earned by the Advisor. Prior to the Listing, we issued to the Advisor restricted, performance-based, forfeitable 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 March 31, 2014.
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 March 31, 2015 and 2014.  For the three months ended March 31, 2015 and 2014, we would have incurred property management fees of $0.5 million and $0.4 million, respectively, had these fees not been waived.
General and Administrative Expenses
General and administrative expenses increased $2.6 million to $4.0 million for the three months ended March 31, 2015, from $1.4 million for the three months ended March 31, 2014, largely driven by a $2.4 million increase in legal and professional fees primarily related to the audit of our 2014 financial statements by a recently retained independent registered public accounting firm and the increased audit requirements associated with being a traded REIT. We operated as a non-traded REIT until our Listing on April 14, 2014. The increase is also due to equity-based compensation expense of $0.2 million for the three months ended March 31, 2015 related to the amortization of the fair value of the OPP, which was adopted in conjunction with the Listing as well as board member compensation.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased $0.3 million to $20.7 million for the three months ended March 31, 2015, compared to $21.0 million for the three months ended March 31, 2014. Depreciation and amortization expense in our Same Store decreased by $2.4 million related mainly to prior period tenant lease expirations and terminations. This decrease was partially offset by depreciation and amortization of $2.1 million related to our Acquisition.
Interest Expense
Interest expense increased $2.0 million to $5.9 million for the three months ended March 31, 2015, from $3.9 million for the three months ended March 31, 2014, as a result of a higher weighted average credit facility balance outstanding of $635.0 million during the three months ended March 31, 2015, compared to $305.0 million during the three months ended March 31, 2014, as well as the associated increased amortization of deferred financing costs resulting from expanding our credit facility.
Income (Loss) from Unconsolidated Joint Venture
Income (loss) from unconsolidated joint venture for the three months ended March 31, 2015 increased $2.2 million to $0.2 million of income from $2.0 million of loss for the three months ended March 31, 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.
Income from Preferred Equity Investment, Investment Securities and Interest Income
Income from preferred equity investment, investment securities and interest income increased $0.3 million to $0.9 million for the three months ended March 31, 2015 from $0.6 million during the three months ended March 31, 2014. This increase is due to higher investments in securities and our preferred equity investment in 123 William Street, which was returned to us resulting from the sale of the building during the three months ended March 31, 2015.
Net (Income) Loss Attributable to Non-Controlling Interests
The net (income) loss attributable to non-controlling interests during the three months ended March 31, 2015 and 2014 was $0.3 million of net loss and approximately $1,000 of net income, respectively, which represents the net (income) loss attributable to non-controlling interests for the period. The increase in net loss attributable to non-controlling interests was primarily driven by the issuance of OP units in connection with the Listing, whereas during the three months ended March 31, 2014, non-controlling interest represented the share of income attributable to our joint venture partner in 163 Washington Street.

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Cash Flows for the Three Months Ended March 31, 2015
For the three months ended March 31, 2015, net cash provided by operating activities was $14.4 million. The level of cash flows used in or provided by operating activities is affected by 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 included a net loss adjusted for non-cash items, resulting in a cash inflow of $11.8 million (net loss of $8.5 million adjusted for depreciation and amortization of tangible and intangible real estate assets and other non-cash charges of $20.3 million), a decrease in prepaid expenses and other assets of $5.7 million, primarily related to the amortization of prepaid real estate taxes, an increase in accounts payable and accrued expenses of $1.8 million, primarily related to to the audit of our 2014 financial statements, an increase in accrued ground rent of $1.0 million, which results from recording rental expense on a straight-line basis and an increase in deferred revenue of $0.6 million, primarily related to tenants prepaying their monthly rents and operating expense reimbursements. These cash inflows were partially offset by an increase in unbilled rent receivables of $5.9 million, which results from recording rental income on a straight-line basis and an increase in tenant and other receivables of $0.6 million.
Net cash provided by investing activities during the three months ended March 31, 2015 of $32.3 million primarily related to the sale of 123 William Street and the return of our principal invested of $35.1 million, free rent credits released from escrow of $3.7 million related to our August 2014 acquisition of 245-249 West 17th Street and $1.1 million of proceeds from the sale of investment securities. These cash inflows were partially offset by $7.5 million of capital expenditures and approximately $42,000 in purchases of additional investment securities.
Net cash used in financing activities of $19.9 million during the three months ended March 31, 2015 primarily related to dividends to common stockholders of $18.7 million, $0.6 million of dividends to restricted shareholders and distributions to OP unit and participating LTIP unit holders, increases to restricted cash of $0.4 million, primarily related to real estate tax escrows, payments of deferred financing costs of $0.1 million and principal payments on mortgage notes payable of $0.1 million.
Cash Flows for the Three Months Ended March 31, 2014
For the three months ended March 31, 2014, net cash provided by operating activities was $4.6 million.  The level of cash flows used in or provided by operating activities is affected by 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 included a net loss adjusted for non-cash items, resulting in a cash inflow of $13.1 million (net loss of $8.2 million adjusted for depreciation and amortization of tangible and intangible real estate assets and other non-cash charges of $21.3 million), a decrease in prepaid expenses and other assets of $2.3 million, primarily related to the amortization of prepaid real estate taxes and an increase in accrued ground rent of $1.1 million, which results from recording rental expense on a straight-line basis. These cash inflows were partially offset by a decrease in accounts payable and accrued expenses of $5.4 million primarily due to fees paid to our Dealer Manager of $2.1 million for services rendered in 2013 related to exploring our liquidity event and payments related to previously accrued tenant improvements, an increase in unbilled rent receivables of $3.5 million, which results from recording rental income on a straight-line basis, an increase in tenant and other receivables of $1.8 million relating to tenant accounts receivable and accrued income on our preferred equity investment in 123 William Street as well as a decrease in deferred revenue of $1.3 million.
Net cash provided by investing activities during the three months ended March 31, 2014 of $2.2 million primarily related to $3.9 million of distributions from our unconsolidated joint venture in Worldwide Plaza. These cash inflows were partially offset by $1.4 million for capital expenditures and tenant improvements and $0.3 million of additional investments in Worldwide Plaza.
Net cash used in financing activities of $3.2 million during the three months ended March 31, 2014 primarily related to $11.8 million of dividends to stockholders, payments related to previously accrued offering costs of $1.4 million, increases to restricted cash of $0.6 million, payments of accrued common stock redemptions of $0.5 million and principal payments on mortgage notes payable of $0.1 million. These cash outflows were partially offset by proceeds received from the sale of common stock of $11.3 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, Cash Net Operating Income and Adjusted 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.

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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 (“NAREIT”), an industry trade group, has promulgated a measure known as funds from operations (“FFO”), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure 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 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. 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 gains on sales of securities, non-recurring revenue, and other 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 pay dividends or other amounts to our stockholders. 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 and transaction related costs as well as non-recurring revenues and expenses, 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.

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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 units as the related shares are assumed to have converted to common stock in our calculation of fully diluted weighted average shares of common stock. 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. 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 making a significant number of acquisitions. 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 certain 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, acquisition and transaction related 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 ability to fund dividends or distributions in the future, 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. AFFO that excludes such costs and expenses would only be comparable to companies that did not have such activities. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments as items which are unrealized and may not ultimately be realized. We view both gains and losses from fair value adjustments as items which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Excluding income and expense items detailed above from our calculation of AFFO provides information consistent with management's analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe AFFO provides useful supplemental information.
As a result, we believe that the use of FFO, 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 loss in our calculation of FFO, Core FFO and AFFO during the period presented.  Items are presented net of non-controlling interest portions where applicable.
 
 
Three Months Ended
(In thousands)
 
March 31, 2015
Net loss (in accordance with GAAP)
 
$
(8,460
)
Depreciation and amortization, net of adjustments related to joint ventures
 
20,723

Depreciation and amortization related to unconsolidated joint venture(1)
 
6,431

FFO
 
18,694

Acquisition and transaction-related expenses
 
125

    Gain on sale of investment securities
 
(48
)
    Non-recurring other income
 
(158
)
    Non-recurring general and administrative expense
 
500

    Non-recurring straight-line rent bad debt expense
 
529

Core FFO
 
19,642

Plus:
 
 
Non-cash compensation expense
 
248

Deferred financing costs
 
1,138

Seller free rent credit
 
3,679

Minus:
 
 
Amortization of market lease intangibles
 
(2,124
)
Mark-to-market adjustments on derivatives
 
4

Straight-line rent
 
(5,870
)
Straight-line ground rent
 
987

Leasing commissions - second generation
 
(3
)
Building improvements - second generation
 
(9
)
Proportionate share of straight-line rent related to unconsolidated joint venture
 
(714
)
AFFO
 
$
16,978

___________________________
(1)
Proportionate share of depreciation and amortization related to unconsolidated joint venture and amortization of difference in basis.
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, Net Operating Income, Cash Net Operating Income and Adjusted Cash Net Operating Income.
We believe that earnings before interest, taxes, depreciation and amortization adjusted for acquisition and transaction-related expenses, other non-cash items 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.

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Net operating income ("NOI") is a non-GAAP financial measure equal to net income (loss), 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-related expenses, 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.
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.
Adjusted Cash NOI is Cash NOI after eliminating the effects of free rent.
The table below reflect the reconciliation of net loss to Adjusted EBITDA, NOI, Cash NOI and Adjusted Cash NOI during the period presented.
 
 
Three Months Ended
(In thousands)
 
March 31, 2015
Net income (loss) (in accordance with GAAP)
 
$
(8,460
)
Acquisition and transaction related
 
125

Depreciation and amortization
 
20,732

Interest expense
 
5,933

Gain (loss) on derivatives
 
4

Adjustments related to unconsolidated joint venture(1)
 
11,264

Adjusted EBITDA
 
29,598

General and administrative
 
3,950

Asset management fee to affiliate
 
3,144

Income from preferred equity investment, investment securities and interest
 
(930
)
Preferred return on unconsolidated joint venture
 
(3,851
)
Proportionate share of other adjustments related to unconsolidated joint venture
 
1,883

NOI
 
33,794

Amortization of above/below market lease assets and liabilities
 
(2,124
)
Straight-line rent
 
(5,341
)
Straight-line ground rent
 
987

Proportionate share of adjustments related to unconsolidated joint venture
 
(714
)
Cash NOI
 
26,602

Free rent
 
4,498

Adjusted Cash NOI
 
$
31,100

_________________
(1)
Proportionate share of adjustments related to unconsolidated joint venture and amortization of difference in basis.




35

Liquidity and Capital Resources
As of March 31, 2015, we had cash and cash equivalents of $49.4 million. In the normal course of business, our principal demands for funds are for operating expenses, dividends to our stockholders and principal and interest on our outstanding indebtedness. We expect to continue 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 payments to our stockholders. 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, proceeds from the sale of properties and undistributed funds from operations. Our principal sources and uses of funds are further described below.
Principal Sources of Funds
Availability of Funds from Credit Facility
On April 14, 2014, we entered into our amended and restated 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. We have two one-year options to extend the revolving loan to August 20, 2018. 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 March 31, 2015, the outstanding balance of the term loan and revolving components of the credit facility was $305.0 million and $330.0 million, respectively, with a combined weighted average interest rate of 2.1%. The unused borrowing capacity, based on the value of the borrowing base properties as of March 31, 2015, was $18.1 million. Availability of borrowings is based on a pool of eligible unencumbered real estate assets.
The Credit Facility requires 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.
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, in part, 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.
Other Sources of Funds
On March 27, 2015, the owner of 123 William Street, the property in which we held our $35.1 million preferred equity investment, sold the property to American Realty Capital New York City REIT, Inc., which is sponsored and advised by entities under common control with our Sponsor and our Advisor. On such date, we received our entire principal balance plus accrued income receivable. Cash received from the sale of our preferred equity investment has increased our liquidity and the funds are available for dividends to our stockholders and other working capital requirements.
Principal Use of Funds
Acquisitions and Capital Expenditures
As of March 31, 2015, we owned 23 properties. 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. 
In connection with the leasing of our properties, we have entered and will continue to enter into agreements with our tenants to provide allowances for tenant improvements. These allowances require us to fund capital expenditures up to amounts specified in our lease agreements. We intend to fund these allowances with cash on hand, cash flows from operations or proceeds from our Credit Facility. See Note 7 - Credit Facility in the notes to our consolidated financial statements.
Dividends
We are required to distribute at least 90% of our annual REIT taxable income. During the three months ended March 31, 2015, we declared and paid a dividend rate equal to $0.46 per share per annum. Payments are made 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. Payments are dependent on the availability of funds. Amounts paid to our stockholders may be a return of capital and not a return on a stockholder's investment. Our board of directors may reduce the amount of dividends or distributions 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.

36

During the three months ended March 31, 2015, dividends paid totaled $19.2 million, inclusive of $0.6 million of dividends paid on unvested restricted shares and distributions paid on LTIP units and OP units. During the three months ended March 31, 2015, cash used to pay our dividends was primarily generated from cash flows provided by operations and proceeds from the return of our preferred equity investment in 123 William Street.
The following table shows the sources for the payment of dividends for the periods presented:
 
 
Three Months Ended
 
 
March 31, 2015
(In thousands)
 
 
 
Percentage
of
Distributions
Distributions:
 
 
 
 
Dividends paid in cash
 
$
18,634

 
 
Other(1)
 
613

 
 
Total dividends
 
$
19,247

 
 
Source of distribution coverage:
 
 

 
 
Cash flows provided by (used in) operations 
 
$
14,446

 
75.1
%
Proceeds from return of preferred equity investment
 
4,801

 
24.9
%
Total sources of dividends
 
$
19,247

 
100.0
%
Cash flows provided by operations (GAAP basis)
 
$
14,446

 
 

Net income (loss) attributable to stockholders (in accordance with GAAP)
 
$
(8,199
)
 
 

__________________
(1)
Includes dividends on unvested restricted shares and distributions on LTIP units and OP units.

37

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 March 31, 2015:
 
 
For the Period from
October 6, 2009
(date of inception) to
(In thousands)
 
March 31, 2015
Dividends paid:
 
 
Preferred stockholders
 
$
2,158

Common stockholders in cash
 
106,499

Common stockholders pursuant to DRIP / offering proceeds
 
41,548

Other(1)
 
1,699

Total dividends paid
 
$
151,904

 
 
 

Reconciliation of net loss:
 
 

Revenues
 
$
277,690

Acquisition and transaction-related expenses
 
(42,701
)
Fair value of listing promote(2)
 
(33,479
)
Vesting of asset management fees
 
(11,500
)
Depreciation and amortization
 
(150,462
)
Other operating expenses
 
(125,948
)
Other non-operating expenses
 
(47,907
)
Net income attributable to non-controlling interests
 
1,538

Net loss (in accordance with GAAP)(3)
 
$
(132,769
)
 
 
 
   Cash flows provided by operations
 
$
32,467

 
 
 
   FFO
 
$
52,427

__________________________________
(1)
Includes dividends on unvested restricted shares and distributions on LTIP units and OP units.
(2)
Equity-based compensation issued to the Advisor and its affiliates in connection with the Listing.
(3)
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.
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 March 31, 2015, we had consolidated mortgage notes payable of $172.1 million, excluding our pro-rata share of unconsolidated mortgage debt relating to Worldwide Plaza of $427.9 million. As of March 31, 2015, 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 March 31, 2015, we were in compliance with the debt covenants under our loan agreements, as modified by a waiver received for the late filing of our Annual Report on Form 10-K.

38

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.
Our mortgage loan securing the three buildings in our Bleecker Street portfolio in the amount of $21.3 million will mature in December 2015. The Company intends to refinance this obligation utilizing a mortgage loan or unused proceeds from our credit facility. See Note 7 - Credit Facility of the notes to our consolidated financial statements.
Contractual Obligations
Debt Obligations
The following is a summary of our contractual debt obligations as of March 31, 2015:
 
 
 
 
 
 
Years Ended December 31,
 
 
(In thousands)
 
Total
 
April 1, 2015 - December 31, 2015
 
2016 — 2017
 
2018 — 2019
 
Thereafter
Principal payments due:
 
 
 
 
 
 
 
 
 
 
Mortgage notes payable
 
$
172,121

 
$
21,673

 
$
130,897

 
$
9,350

 
$
10,201

Credit facility
 
635,000

 
—

 
330,000

 
305,000

 
—

 
 
$
807,121

 
$
21,673

 
$
460,897

 
$
314,350

 
$
10,201

Interest payments due:
 
 
 
 
 
 
 
 
 
 
Mortgage notes payable
 
$
15,226

 
$
4,604

 
$
8,825

 
$
1,324

 
$
473

Credit facility
 
31,551

 
9,685

 
17,531

 
4,335

 
—

 
 
$
46,777

 
$
14,289

 
$
26,356

 
$
5,659

 
$
473

Lease Obligations
We entered into lease agreements primarily related to certain acquisitions under leasehold interest arrangements. The following table reflects the minimum base rental cash payments due from us 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.
 
 
 
 
 
 
Years Ended December 31,
 
 
(In thousands)
 
Total
 
April 1, 2015 - December 31, 2015
 
2016 — 2017
 
2018 — 2019
 
Thereafter
Capital lease obligations
 
$
3,899

 
$
65

 
$
172

 
$
172

 
$
3,490

Operating lease obligations
 
275,515

 
3,590

 
9,863

 
10,435

 
251,627

Total lease obligations
 
$
279,414

 
$
3,655

 
$
10,035

 
$
10,607

 
$
255,117

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 100% 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. In order to maintain our status as a REIT, we must distribute annually at least 90% of our REIT taxable income. We believe we are organized and operated in such a manner as to continue to qualify to be taxed as a REIT.
Inflation
Some of our leases 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.

39

Related-Party Transactions and Agreements
We have entered into agreements with affiliates of our Sponsor, whereby we have paid or may in the future pay certain fees or reimbursements to our Advisor, its affiliates and entities under common ownership with our Advisor in connection with acquisition and financing activities, sales and maintenance of common stock under our offering, transfer agency services, asset and property management services and reimbursement of operating and offering related costs. See Note 13 — 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.
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 March 31, 2015, 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 $252.1 million and a fair value of $272.4 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 March 31, 2015 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 $2.6 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 $2.3 million. 
As of March 31, 2015, our variable-rate portion of the Credit Facility had a carrying and fair value of $555.0 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 March 31, 2015 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 $5.6 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 March 31, 2015, 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.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 promulgated under the Exchange Act, the Company is required to establish and maintain disclosure controls and procedures as defined in subparagraph (e) of that rule. Management is required to evaluate, with the participation of its Chief Executive Officer and Chief Financial Officer, the effectiveness of its disclosure controls and procedures as of the end of each fiscal quarter. Management has identified material weaknesses in the Company’s internal control over financial reporting and management, including each of the Chief Executive Officer and Chief Financial Officer, has concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2015 due to these material weaknesses. Management believes the consolidated financial statements contained herein present fairly, in all material respects, our financial position as of the specified dates and our results of operations and cash flows for the specified periods.

40

Changes in Internal Control Over Financial Reporting.
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.
During the period covered by this Quarterly Report on Form 10-Q, management concluded that our internal control over financial reporting was not effective as of December 31, 2014 or March 31, 2015 due to the material weaknesses in internal control over financial reporting described in our Annual Report on Form 10-K filed with the SEC on May 11, 2015. Management, with the concurrence of the Audit Committee of the Board of Directors of the Company has directed management to proceed with a remediation plan, which is also described in our Annual Report on Form 10-K filed with the SEC on May 11, 2015. The implementation of this remediation plan in future periods is expected to be reflected as changes in our internal control over reporting in future periods.

41

PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
The information related to litigation and regulatory matters contained in “Note 12 — 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, 2014.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sale of Unregistered Equity Securities
None.
Use of Proceeds from Sales of Registered Securities
We used substantially all of the net proceeds from our IPO, net of cumulative offering costs of $175.0 million, to acquire income-producing commercial real estate in New York City, primarily office and retail properties in Manhattan. As of March 31, 2015, we have used the net proceeds from our IPO, secured debt financing and Credit Facility to purchase 23 properties.
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.

42
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/ Michael A. Happel
 
 
Michael A. Happel
 
 
Chief Executive Officer and President
(Principal Executive Officer)
 
 
 
 
By:
/s/ Gregory W. Sullivan
 
 
Gregory W. Sullivan
 
 
Chief Operating Officer, Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer and Principal Accounting Officer)

Date: May 11, 2015


43
EXHIBIT INDEX


The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No.
 
Description
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 months ended March 31, 2015, 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



44

New York REIT Liquidating LLC Reports