New York City REIT, Inc. - FORM 10-Q - May 12, 2016

Attached files

file filename
EX-10.1 - AGREEMENT OF PURCHASE AND SALE, DATED AS OF MARCH 18, 2016 - New York City REIT, Inc.arcnycr3312016ex101.htm
EX-32 - WRITTEN STATEMENTS OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICERS OF THE COMPANY - New York City REIT, Inc.arcnycr331201610-qex32.htm
EX-99.1 - AMENDED AND RESTATED SHARE REPURCHASE PROGRAM EFFECTIVE AS OF FEBRUARY 28, 2016 - New York City REIT, Inc.arcnycr3312016ex991.htm
EX-31.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER OF THE COMPANY - New York City REIT, Inc.arcnycr331201610-qex312.htm
EX-31.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER OF THE COMPANY - New York City REIT, Inc.arcnycr331201610-qex311.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, 2016
 
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: 000-55393
American Realty Capital New York City REIT, Inc.
(Exact name of registrant as specified in its charter)
Maryland
  
46-4380248
(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. Yes x No o

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). Yes x No o

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

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

As of April 29, 2016, the registrant had 30,722,100 shares of common stock outstanding.


AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

INDEX TO FINANCIAL STATEMENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Part I — FINANCIAL INFORMATION
Item 1. Financial Statements.

AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

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


 
 
March 31, 2016
 
December 31, 2015
ASSETS
 
(Unaudited)
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
133,380

 
$
133,380

Buildings and improvements
 
342,228

 
336,582

Acquired intangible assets
 
80,407

 
80,407

Total real estate investments, at cost
 
556,015

 
550,369

Less accumulated depreciation and amortization
 
(22,860
)
 
(18,045
)
Total real estate investments, net
 
533,155

 
532,324

Cash and cash equivalents
 
153,141

 
182,700

Investment securities, at fair value
 
487

 
472

Prepaid expenses and other assets (including amounts due from related parties of $775 and $819 at March 31, 2016 and December 31, 2015, respectively)
 
27,199

 
7,635

Deferred leasing costs, net
 
3,264

 
3,284

Total assets
 
$
717,246

 
$
726,415

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Mortgage note payable, net of deferred financing costs
 
$
93,716

 
$
93,176

Accounts payable, accrued expenses and other liabilities (including amounts due to related parties of $370 and $184 at March 31, 2016 and December 31, 2015, respectively)
 
3,965

 
4,889

Below-market lease liabilities, net
 
25,879

 
26,644

Deferred revenue
 
2,984

 
1,651

Distributions payable
 
3,928

 
3,916

Total liabilities
 
130,472

 
130,276

 
 
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued and outstanding at March 31, 2016 and December 31, 2015
 
—

 
—

Common stock, $0.01 par value, 300,000,000 shares authorized, 30,644,271 and 30,410,467 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively
 
306

 
304

Additional paid-in capital
 
675,802

 
670,279

Accumulated other comprehensive income
 
11

 
—

Accumulated deficit
 
(89,345
)
 
(74,444
)
Total stockholders' equity
 
586,774

 
596,139

Total liabilities and stockholders' equity
 
$
717,246

 
$
726,415


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


3
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

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



 
 
Three Months Ended March 31,
 
 
2016
 
2015
Revenues:
 
 
 
 
Rental income
 
$
7,961

 
$
2,628

Operating expense reimbursements and other revenue
 
545

 
175

Total revenues
 
8,506

 
2,803

 
 
 
 
 
Operating expenses:
 
 
 
 
Property operating
 
3,548

 
1,150

Operating fees incurred from related parties
 
1,053

 
—

Acquisition and transaction related
 
40

 
5,949

General and administrative
 
1,416

 
1,082

Depreciation and amortization
 
4,769

 
1,839

Total operating expenses
 
10,826

 
10,020

Operating loss
 
(2,320
)
 
(7,217
)
Other income (expense):
 
 
 
 
Interest expense
 
(1,216
)
 
(56
)
Income from investment securities and interest
 
131

 
34

Total other expense
 
(1,085
)
 
(22
)
Net loss
 
$
(3,405
)
 
$
(7,239
)
 
 
 
 
 
Other comprehensive income:
 
 
 
 
Unrealized gain on investment securities
 
11

 
3

Comprehensive loss
 
$
(3,394
)
 
$
(7,236
)
 
 
 
 
 
Basic and diluted weighted average shares outstanding
 
30,562,487

 
22,694,003

Basic and diluted net loss per share
 
$
(0.11
)
 
$
(0.32
)
Dividends declared per common share
 
$
0.38

 
$
0.37


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

4
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the Three Months Ended March 31, 2016
(In thousands, except for share data)
(Unaudited)



 
Common Stock
 
 
 
 
 
 
 
 
 
Number of
Shares
 
Par Value
 
Additional
Paid-in
Capital
 
Accumulated Other Comprehensive Income
 
Accumulated Deficit
 
Total Stockholders' Equity
Balance, December 31, 2015
30,410,467

 
$
304

 
$
670,279

 
$
—

 
$
(74,444
)
 
$
596,139

Common stock issued through distribution reinvestment plan
236,046

 
2

 
5,599

 
—

 
—

 
5,601

Common stock repurchases
(3,575
)
 
—

 
(89
)
 
—

 
—

 
(89
)
Share-based compensation
1,333

 
—

 
13

 
—

 
—

 
13

Distributions declared
—

 
—

 
—

 
—

 
(11,496
)
 
(11,496
)
Net loss
—

 
—

 
—

 
—

 
(3,405
)
 
(3,405
)
Unrealized gain on investment securities
—

 
—

 
—

 
11

 
—

 
11

Balance, March 31, 2016
30,644,271

 
$
306

 
$
675,802

 
$
11

 
$
(89,345
)
 
$
586,774


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



5
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Three Months Ended March 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net loss
$
(3,405
)
 
$
(7,239
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
4,769

 
1,839

Amortization of deferred financing costs
565

 
24

Accretion of below- and amortization of above-market lease liabilities and assets, net
(635
)
 
(218
)
Share-based compensation
13

 
(1
)
Changes in assets and liabilities:
 
 
 
Prepaid expenses, other assets and deferred costs
(1,629
)
 
(1,093
)
Accounts payable, accrued expenses and other liabilities
297

 
883

Deferred revenue
1,333

 
403

Net cash provided by (used in) operating activities
1,308

 
(5,402
)
Cash flows from investing activities:
 
 
 
Investments in real estate
—

 
(157,029
)
Deposit for real estate acquisition
(18,000
)
 
—

Purchase of investment securities
(4
)
 
(7
)
Acquisition funds released from escrow
—

 
1,980

Capital expenditures
(5,376
)
 
(989
)
Net cash used in investing activities
(23,380
)
 
(156,045
)
Cash flows from financing activities:
 
 
 

Payments of offering costs and fees related to common stock issuances
—

 
(13,446
)
Payments of financing costs
(25
)
 
(4,555
)
Proceeds from issuance of common stock
—

 
108,896

Distributions paid
(5,883
)
 
(3,887
)
Repurchases of common stock
(1,579
)
 
—

Net cash provided by (used in) financing activities
(7,487
)
 
87,008

Net change in cash and cash equivalents
(29,559
)
 
(74,439
)
Cash and cash equivalents, beginning of period
182,700

 
184,341

Cash and cash equivalents, end of period
$
153,141

 
$
109,902

 
 
 
 
Supplemental Disclosures:
 
 
 
Cash paid for interest
$
650

 
$
—

 
 
 
 
Non-Cash Investing and Financing Activities
 
 
 
Mortgage note payable used to acquire investments in real estate
—

 
96,000

Accrued stock repurchase requests
89

 
102

Distributions payable
3,928

 
3,106

Accrued offering costs
—

 
2,117

Accrued capital expenditures
269

 
2,060

Other assets assumed in real estate transactions, net
—

 
29

Common stock issued through distribution reinvestment plan
5,601

 
4,011

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

6
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)


Note 1 — Organization
American Realty Capital New York City REIT, Inc. (including, as required by context, New York City Operating Partnership L.P., and its subsidiaries, the “Company”) was incorporated on December 19, 2013 as a Maryland corporation and elected and qualified to be taxed as a real estate investment trust for U.S. federal income tax purposes (“REIT”) beginning with its taxable year ended December 31, 2014. On April 24, 2014, the Company commenced its initial public offering (the "IPO") on a "reasonable best efforts" basis of up to 30.0 million shares of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts, for total gross proceeds of up to $750.0 million, pursuant to a registration statement on Form S-11, as amended (File No. 333-194135) (the "Registration Statement") filed with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"). The Registration Statement also covered up to 10.5 million shares available pursuant to a distribution reinvestment plan (the "DRIP") under which the Company's common stockholders may elect to have their distributions reinvested in additional shares of the Company's common stock at a price of $23.75 per share, which is equal to 95% of the offering price in the IPO.
On May 29, 2014, the Company received and accepted subscriptions in excess of the minimum offering amount for the IPO of $2.0 million in shares, broke general escrow and issued shares of common stock to initial investors who were admitted as stockholders of the Company. In February 2015, as permitted, the Company reallocated the remaining 10.0 million DRIP shares available under the Registration Statement to the primary offering. On May 22, 2015, the Company registered an additional 25.0 million shares to be issued pursuant to the DRIP pursuant to a registration statement on Form S-3 (File No. 333-204433). The Company closed its IPO on May 31, 2015, and continued to accept subscriptions in process as of that date. As of March 31, 2016, the Company had 30.6 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total gross proceeds from the IPO and DRIP of $760.1 million, inclusive of $30.5 million from the DRIP and net of repurchases.
The Company expects to establish its estimated net asset value per share of common stock ("Estimated Per-Share NAV") no later than October 26, 2016, which is 150 days following the second anniversary of the date that the Company broke escrow in the IPO. After the Company has initially established its Estimated Per-Share NAV, the Company expects to update it periodically, at the discretion of the Company's board of directors, provided that such updated estimates will be made at least once annually.
The Company was formed to invest its assets in properties in the five boroughs of New York City, with a focus on Manhattan. The Company may also purchase for investment purposes certain real estate investment assets that accompany office properties, including retail spaces and amenities, as well as hospitality assets, residential assets and other property types exclusively in New York City. All such properties may be acquired and owned by the Company alone or jointly with another party. As of March 31, 2016, the Company owned five properties consisting of 841,868 rentable square feet.
Substantially all of the Company’s business is conducted through New York City Operating Partnership, L.P., a Delaware limited partnership (the “OP”). The Company has no employees. New York City Advisors, LLC (the "Advisor") has been retained by the Company to manage the Company's affairs on a day-to-day basis. The Company has retained New York City Properties, LLC (the “Property Manager”) to serve as the Company’s property manager. The Advisor and Property Manager are under common control with AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global"), the parent of the Company's sponsor, American Realty Capital III, LLC (the "Sponsor"), as a result of which they are related parties, and each of which has received or will receive compensation, fees and expense reimbursements for services related to the IPO and the investment and management of the Company's assets. The Advisor, New York City Special Limited Partner, LLC (the "Special Limited Partner") and Property Manager have also received or will also receive fees, distributions and other compensation during the offering, acquisition, operational and liquidation stages.
The Company is the sole general partner and holds substantially all of the units of limited partner interests in the OP (“OP units”). The Advisor contributed $2,020 to the OP in exchange for 90 OP units, which represents a nominal percentage of the aggregate OP ownership. A holder of OP units has the right to convert OP units for the cash value of a corresponding number of shares of the Company's common stock or, at the option of the OP, a corresponding number of shares of the Company's common stock, in accordance with the limited partnership agreement of the OP, provided, however, that such OP units must have been outstanding for at least one year. The remaining rights of the limited partners in the OP 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.

7
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

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 this 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. The results of operations for the three months ended March 31, 2016 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, 2015, which are included in the Company's Annual Report on Form 10-K filed with the SEC on March 16, 2016. There have been no significant changes to the Company's significant accounting policies during three months ended March 31, 2016 other than the updates described below.
Recent Accounting Pronouncement
In March 2016, the Financial Accounting Standards Board (the "FASB") issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.
Recently Adopted Accounting Pronouncements
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 VIEs or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership and affect the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships). The revised guidance is effective for the Company's fiscal year ended December 31, 2016. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a VIE for which the Company is the primary beneficiary. The Company has evaluated the impact of the adoption of the new guidance on its consolidated financial statements and determined that the OP, which holds substantially all of the Company's assets and liabilities, is considered to be a VIE. The Company meets the disclosure exemption criteria of the new guidance as the Company is the primary beneficiary of the OP and the Company's partnership interest is considered to be a majority voting interest in a business and the assets of the OP can be used for purposes other than settling its obligations, such as paying distributions. Further, the Company has consolidated the OP even prior to the adoption of the new guidance. As such, the adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.
In April 2015, the FASB amended the presentation of debt issuance costs on the balance sheet. The amendment requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability and that the entity apply the new guidance on a retrospective basis. In August 2015, the FASB added that, for line of credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line, regardless of whether or not there are any outstanding borrowings. The revised guidance is effective for the Company's fiscal year ended December 31, 2016. As a result of adoption of the new guidance, the Company has reclassified deferred financing costs, net related to its mortgage note payable of $2.3 million and $2.8 million, respectively, as of March 31, 2016 and December 31, 2015 as a reduction of the carrying amount of its mortgage note payable. See Note 5 — Mortgage Note Payable.
In March 2016, the FASB issued an update that changes the accounting for certain aspects of share-based compensation. Among other things, the revised guidance allows companies to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company has adopted the provisions of this guidance beginning January 1, 2016 and has elected to account for forfeitures when they occur. The Company has determined that there is no impact to the Company’s consolidated financial position, results of operations and cash flows.

8
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Note 3 — Real Estate Investments
There were no real estate assets acquired or liabilities assumed during the three months ended March 31, 2016. On March 18, 2016, the Company, through a wholly-owned subsidiary of the OP, entered into an agreement of purchase and sale to acquire the leasehold interest in an institutional-quality office building located at 1140 Avenue of the Americas in Manhattan, New York. The contract purchase price for 1140 Avenue of the Americas is $180.0 million, exclusive of closing costs. The Company made a $18.0 million nonrefundable deposit for the acquisition.
The following table presents the allocation of the real estate assets acquired and liabilities assumed during three months ended March 31, 2015:
 
 
Three Months Ended
(Dollar amounts in thousands)
 
March 31, 2015
Real estate investments, at cost:
 
 
Land
 
$
50,064

Building and improvements
 
182,917

Total tangible assets
 
232,981

Acquired intangibles:
 
 
In-place leases
 
33,380

Above-market lease assets
 
884

Below-market lease liabilities
 
(14,245
)
Total intangible assets, net
 
20,019

Total assets acquired, net
 
253,000

Mortgage notes payable used to acquire real estate investments
 
(96,000
)
Other assets acquired, net
 
29

Cash paid for acquired real estate investment
 
$
157,029

Number of properties purchased
 
1

The following table presents future minimum base cash rental payments due to the Company subsequent to March 31, 2016. These amounts exclude contingent rent payments, as applicable, that may be collected based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes, among other items.
(In thousands)
 
Future Minimum Base Cash Rent Payments
April 1, 2016 - December 31, 2016
 
$
20,398

2017
 
25,961

2018
 
25,209

2019
 
24,750

2020
 
23,036

Thereafter
 
118,304

 
 
$
237,658


9
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

The following table lists the tenants whose annualized rental income on a straight-line basis represented greater than 10% of total annualized rental income for all portfolio properties on a straight-line basis as of March 31, 2016 and 2015:
 
 
 
 
March 31,
Property
 
Tenant
 
2016
 
2015
123 William Street
 
Planned Parenthood Federation of America, Inc.
 
10.6%
 
N/A
123 William Street
 
The People of the State of New York
 
*
 
11.7%
_____________________
* Tenant's annualized rental income on a straight-line basis was not greater than 10% of total annualized rental income on a straight-line basis for all portfolio properties for the period specified.
The termination, delinquency or non-renewal of these leases by any of the above tenants may have a material adverse effect on the Company's revenues.
Intangible Assets and Liabilities
Acquired intangible assets and lease liabilities consist of the following as of March 31, 2016 and December 31, 2015:
 
 
March 31, 2016
(In thousands)
 
Gross Carrying
 Amount
 
Accumulated
 Amortization
 
Net Carrying
Amount
Intangible assets:
 
 
 
 
 
 
In-place leases
 
$
44,165

 
$
10,233

 
$
33,932

Other intangibles
 
31,447

 
1,727

 
29,720

Above-market leases
 
4,795

 
758

 
4,037

Acquired intangible assets
 
$
80,407

 
$
12,718

 
$
67,689

Intangible liabilities:
 
 
 
 
 
 
Below-market lease liabilities
 
$
29,504

 
$
3,625

 
$
25,879

 
 
December 31, 2015
(In thousands)
 
Gross Carrying
 Amount
 
Accumulated
 Amortization
 
Net Carrying
Amount
Intangible assets:
 
 
 
 
 
 
In-place leases
 
$
44,165

 
$
8,017

 
$
36,148

Other intangibles
 
31,447

 
1,436

 
30,011

Above-market leases
 
4,795

 
628

 
4,167

Acquired intangible assets
 
$
80,407

 
$
10,081

 
$
70,326

Intangible liabilities:
 
 
 
 
 
 
Below-market lease liabilities
 
$
29,504

 
$
2,860

 
$
26,644


10
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

The following table discloses amounts recognized within the consolidated statements of operations and comprehensive loss related to amortization of in-place leases and other intangibles and amortization and accretion of above- and below-market lease assets and liabilities, net, for the periods presented:
 
 
Three Months Ended March 31,
(In thousands)
 
2016
 
2015
Amortization of in-place leases and other intangibles(1)
 
$
2,508

 
$
968

Amortization and (accretion) of above- and below market leases, net(2)
 
$
(635
)
 
$
(218
)
_______________
(1)
Reflected within depreciation and amortization expense.
(2)
Reflected within rental income.
The following table provides the projected amortization expense and adjustments to revenues for the next five years as of March 31, 2016:
(In thousands)
 
April 1, 2016 - December 31, 2016
 
2017
 
2018
 
2019
 
2020
In-place leases
 
$
5,699

 
$
5,421

 
$
4,867

 
$
4,382

 
$
3,287

Other intangibles
 
874

 
1,165

 
1,165

 
1,165

 
1,165

Total to be included in depreciation and amortization
 
$
6,573

 
$
6,586

 
$
6,032

 
$
5,547

 
$
4,452

 
 
 
 
 
 
 
 
 
 
 
Above-market lease assets
 
$
(390
)
 
$
(520
)
 
$
(519
)
 
$
(513
)
 
$
(508
)
Below-market lease liabilities
 
2,211

 
2,778

 
2,630

 
2,301

 
1,914

Total to be included in rental income
 
$
1,821

 
$
2,258

 
$
2,111

 
$
1,788

 
$
1,406

Note 4 — Investment Securities
As of March 31, 2016 and December 31, 2015, the Company had an investment in an equity security with a fair value of $0.5 million. The equity security consists of a mutual fund managed by an affiliate of the Sponsor. See Note 9 — Related Party Transactions and Arrangements. This investment is considered to be an available-for-sale security and therefore increases or decreases in the fair value of this investment are recorded in accumulated other comprehensive income (loss) as a component of equity on the consolidated balance sheets unless the security is considered to be other-than-temporarily impaired, at which time the losses would be reclassified to expense.
The following table details the unrealized gains and losses on the investment security by security type as of March 31, 2016 and December 31, 2015:
(In thousands)
 
Cost(1)
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
March 31, 2016
 
 
 
 
 
 
 
 
Equity security
 
$
476

 
$
11

 
$
—

 
$
487

December 31, 2015
 
 
 
 
 
 
 
 
Equity security
 
$
472

 
$
—

 
$
—

 
$
472

__________________
(1)
Net of previously recognized other-than-temporary impairment charges.

11
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Note 5 — Mortgage Note Payable
The Company's mortgage note payable as of March 31, 2016 and December 31, 2015 is as follows:
 
 
 
 
Outstanding Loan Amount
 
 
 
 
 
 
 
Portfolio
 
Encumbered Properties
 
March 31,
2016
 
December 31,
2015
 
Effective Interest Rate
 
Interest Rate
 
Maturity
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
123 William Street(1)
 
1
 
$
96,000

 
$
96,000

 
2.73
%
(2) 
Variable
 
Mar. 2017
(3) 
Less: deferred financing costs, net
 
 
 
(2,284
)
 
(2,824
)
 
 
 
 
 
 
 
Mortgage note payable, net of deferred financing costs
 
1
 
$
93,716

 
$
93,176

 
2.73
%
 
 
 
 
 
_____________________
(1)
The Company may borrow up to $110.0 million subject to compliance with certain provisions as described in the terms of the mortgage agreement.
(2)
Interest rate is one month LIBOR, which was 0.439% at March 31, 2016, plus a margin of 2.25%, based on a 360 day year.
(3)
The Company has a one-time option to extend the maturity date by one year.
Real estate assets of $264.1 million, at cost (net of below-market lease liabilities), at March 31, 2016 have been pledged as collateral to the Company's mortgage note payable and are not available to satisfy the Company's other obligations unless first satisfying the mortgage note payable on the property. The Company makes payments of interest on its mortgage note payable on a monthly basis.
The following table summarizes the scheduled aggregate principal payments subsequent to March 31, 2016:
(In thousands)
 
Future Minimum Principal Payments
April 1, 2016 - December 31, 2016
 
$
—

2017
 
96,000

2018
 
—

2019
 
—

2020
 
—

Thereafter
 
—

Total
 
$
96,000

The Company's mortgage note payable requires compliance with certain property-level debt covenants. As of March 31, 2016, the Company was in compliance with the debt covenants under its mortgage note agreement.
Note 6 — Fair Value of Financial Instruments
The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the instrument. This alternative approach also reflects the contractual terms of the instrument, as applicable, including the period to maturity, and may use observable market-based inputs, including interest rate curves and implied volatilities, and unobservable inputs, such as expected volatility. The guidance defines three levels of inputs that may be used to measure fair value.

12
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

 
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 has an investment in a real estate income fund that is traded in active markets and therefore, due to the availability of quoted market prices in active markets, classifies this investment as Level 1 in the fair value hierarchy.
The following table presents information about the Company's asset measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015, aggregated by the level in the fair value hierarchy within which that instrument falls.
 
 
Quoted Prices in Active Markets
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
 
 
(In thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
March 31, 2016
 
 
 
 
 
 
 
 
Investment Securities
 
$
487

 
$
—

 
$
—

 
$
487

December 31, 2015
 
 
 
 
 
 
 
 
Investment Securities
 
$
472

 
$
—

 
$
—

 
$
472

There were no transfers between levels of the fair value hierarchy during the three months ended March 31, 2016 or 2015.
Financial instruments not carried at fair value
The Company is required to disclose at least annually 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, accounts payable and distributions payable approximates their carrying value on the consolidated balance sheet due to their short-term nature.
As of March 31, 2016 and December 31, 2015, the Company did not have any financial instruments not carried at fair value or an amount that approximates fair value. The fair value of the mortgage note payable is deemed to be equivalent to its carrying value because it bears interest at a variable rate that fluctuates with market rates and there has been no material change in the credit risk or credit markets since origination.
Note 7 — Common Stock
As of March 31, 2016, the Company had 30.6 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total proceeds from public offerings of $760.1 million, inclusive of $30.5 million from the DRIP and net of repurchases. The Company had 30.4 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total gross proceeds of $754.6 million, inclusive of $24.9 million from the DRIP, as of December 31, 2015.

13
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

In May 2014, the board of directors of the Company authorized, and the Company declared, a distribution payable to stockholders of record each day during the applicable period equal to $0.0041438356 per day, which is equivalent to $1.5125 per annum, per share of common stock. In March 2016, the board of directors of the Company ratified the existing distribution amount equivalent to $1.5125 per annum, per share of common stock, and, for calendar year 2016, affirmed a change to the daily distribution payable to stockholders of record each day during the applicable period to $0.004132513665 per day per share of common stock to accurately reflect that 2016 is a leap year. The distributions are payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month. Distribution payments are dependent on the availability of funds. The board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.
The Company has a Share Repurchase Program ("SRP") that enables stockholders, subject to certain conditions and limitations, to sell their shares to the Company. Under the SRP, stockholders may request that the Company repurchase all or any portion of their shares of common stock, if such repurchase does not impair the Company's capital or operations.
On January 25, 2016, the Company's board of directors approved an amendment to the SRP to supersede and replace the existing SRP. Under the SRP amendment, repurchases of shares of the Company's common stock, when requested, are at the sole discretion of the Company's board of directors and generally will be made semiannually (each six-month period ending June 30 or December 31, a "fiscal semester").
Prior to the establishment of Estimated Per-Share NAV, the purchase price per share for requests other than for death or disability under the SRP depends on the length of time investors have held such shares as follows (in each case, as adjusted for any stock distributions, combinations, splits and recapitalizations):
•
after one year from the purchase date - the lower of $23.13 and 92.5% of the amount they actually paid for each share; and,
•
after two years from the purchase date - the lower of $23.75 and 95.0% of the amount they actually paid for each share.
Prior to the establishment of Estimated Per-Share NAV, in the case of requests for death or disability, the repurchase price per share is equal to the price paid to acquire the shares from the Company.
Following the establishment of Estimated Per-Share NAV, the purchase price per share for requests other than for death or disability under the SRP depends on the length of time investors have held such shares as follows (in each case, as adjusted for any stock distributions, combinations, splits and recapitalizations):
•
after one year from the purchase date - 92.5% of the Estimated Per-Share NAV;
•
after two years from the purchase date - 95.0% of the Estimated Per-Share NAV;
•
after three years from the purchase date - 97.5% of the Estimated Per-Share NAV; and,
•
after four years from the purchase date - 100.0% of the Estimated Per-Share NAV.
Subsequent to the establishment of Estimated Per-Share NAV, in the case of requests for death or disability, the repurchase price per share is equal to the Estimated Per-Share NAV at the time of the repurchase.
Repurchases for any fiscal semester will be limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year, with a maximum for any fiscal year of 5.0% of the weighted average number of shares of common stock outstanding on December 31st of the previous calendar year. In addition, the Company is only authorized to repurchase shares in a given fiscal semester up to the amount of proceeds received from the DRIP in that same fiscal semester, as well as any reservation of funds the Company's board of directors, may, in its sole discretion, make available for this purpose. If the establishment of an Estimated Per-Share NAV occurs during any fiscal semester, any repurchase requests received during such fiscal semester will be paid at the Estimated Per-Share NAV applicable on the last day of the fiscal semester. The SRP amendment was effective beginning on February 28, 2016.
During the first quarter of 2016, the Company completed share repurchases based on requests made during 2015 for 68,491 shares at a weighted-average repurchase price of $23.11 that were accrued as of December 31, 2015. As of March 31, 2016, the Company had completed cumulative repurchase requests for 183,780 shares at an average price per share of $23.63.

14
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

As of March 31, 2016, the Company had accrued repurchase requests consisting of 3,575 shares at an average price per share of $25.00, which were completed in April 2016. The accrual for these repurchases is reflected in the accounts payable, accrued expenses and other liabilities line item in the consolidated balance sheets. The additional shares will be deducted from the applicable limits of the SRP amendment when processing share repurchases for the first fiscal semester of 2016.
Note 8 — Commitments and Contingencies
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.
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. As of March 31, 2016, 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 results of operations.
Note 9 — Related Party Transactions and Arrangements
As of March 31, 2016, an entity wholly owned by the Sponsor owned 8,888 shares of the Company’s outstanding common stock.
Realty Capital Securities, LLC (the “Former Dealer Manager”) served as the dealer manager of the IPO. American National Stock Transfer, LLC, a subsidiary of the parent company of the Former Dealer Manager ("ANST"), provided the Company with transfer agency services through February 2016. RCS Capital Corporation, the parent company of the Former Dealer Manager and certain of its affiliates that provided services to the Company, filed for Chapter 11 bankruptcy protection in January 2016, prior to which it was also under common control with AR Global, the parent of the Sponsor.
As of March 31, 2016 and 2015, the Company had $0.5 million invested in a mutual fund managed by an affiliate of the Sponsor. See Note 4 — Investment Securities. There is no obligation to purchase any additional shares and the shares can be sold at any time. The Company recognized income from investment securities of approximately $4,000 and $7,000, respectively, during the three months ended March 31, 2016 and 2015.
Fees Paid in Connection with the IPO
The Former Dealer Manager was paid fees and compensation in connection with the sale of the Company's common stock in the IPO. The Former Dealer Manager was paid a selling commission of up to 7.0% of the per share purchase price of offering proceeds before reallowance of commissions earned by participating broker-dealers. In addition, the Former Dealer Manager was paid up to 3.0% of the gross proceeds from the sale of shares as a dealer manager fee. The Former Dealer Manager was able to reallow its dealer manager fee to participating broker-dealers. A participating broker-dealer had the option to elect to receive a fee equal to 7.5% of the gross proceeds from the sale of shares (not including selling commissions and dealer manager fees) by such participating broker-dealer, with 2.5% thereof paid at the time of such sale and 1.0% thereof paid on each anniversary of the closing of such sale up to and including the fifth anniversary of the closing of such sale. If this option was elected, the dealer manager fee would have been reduced to 2.5% of gross proceeds (not including selling commissions and dealer manager fees).
The following table details total selling commissions and dealer manager fees incurred from and due to the Former Dealer Manager as of and for the periods presented:
 
 
Three Months Ended March 31,
 
Payable as of
(In thousands)
 
2016
 
2015
 
March 31, 2016
 
December 31, 2015
Total commissions and fees incurred from the Former Dealer Manager
 
$
—

 
$
10,597

 
$
—

 
$
—


15
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

The Advisor and its affiliates were paid compensation and reimbursement for services relating to the IPO, including transfer agent services and other professional services provided by an affiliate of the Former Dealer Manager. All offering costs incurred by the Company, the Advisor and affiliated entities of the Advisor on behalf of the Company were charged to additional paid-in capital on the accompanying consolidated balance sheets through the end of the IPO. Subsequent to the closing of the IPO, transfer agent and other professional fees are recognized as a component of general and administrative expenses on the accompanying consolidated statements of operations and comprehensive loss. The following table details offering costs and reimbursements incurred from and due to the Advisor and affiliated parties of the Former Dealer Manager as of and for the periods presented:
 
 
Three Months Ended March 31,
 
Net Receivable as of
(In thousands)
 
2016
 
2015
 
March 31, 2016
 
December 31, 2015
Fees and expense reimbursements from the Advisor and affiliates of the Former Dealer Manager
 
$
—

 
$
3,169

 
$
758

 
$
758

As of March 31, 2016 and December 31, 2015, cumulative offering costs, including selling commissions and dealer manager fees, were $84.0 million. The Company was responsible for paying offering and related costs from the IPO, excluding commissions and dealer manager fees, up to a maximum of 2.0% of gross proceeds received from the IPO, measured at the end of the IPO. Offering costs, excluding commissions and dealer manager fees, in excess of the 2.0% cap as of the end of the IPO are the Advisor’s responsibility. As of March 31, 2016 and December 31, 2015, the Company had a receivable from the Advisor totaling $0.8 million related to excess offering and related costs.
Fees and Participations Paid in Connection With the Operations of the Company
The Advisor is paid an acquisition fee of 1.5% of (A) the contract purchase price of each acquired property and (B) the amount advanced for a loan or other investment. The Advisor is also reimbursed for expenses actually incurred related to selecting, evaluating and acquiring assets on the Company's behalf, regardless of whether the Company actually acquires the related assets. Specifically, the Company pays the Advisor or its affiliates for any services provided for which they incur investment-related expenses, or insourced expenses. Such insourced expenses are fixed initially at and may not exceed 0.50% of the contract purchase price of each property and 0.50% of the amount advanced for each loan or other investment, which is paid at the closing of each such investment. The Advisor is also reimbursed for legal expenses incurred in the process of acquiring properties, in an amount not to exceed 0.10% of the contract purchase price. In addition, the Company also pays third parties, or reimburses the Advisor for any investment-related expenses due to third parties. In no event will the total of all acquisition fees, acquisition expenses and any financing coordination fees (as described below) payable with respect to the Company's portfolio of investments exceed 4.5% of (A) the contract purchase price or (B) the amount advanced for all loans or other investments. Once the proceeds from the primary offering have been fully invested, the aggregate amount of acquisition fees and any financing coordination fees may not exceed 1.5% of (A) the contract purchase price and (B) the amount advanced for a loan or other investment, as applicable, for all the assets acquired.
If the Advisor provides services in connection with the origination or refinancing of any debt that the Company obtains and uses to acquire properties or to make other permitted investments, or that is assumed, directly or indirectly, in connection with the acquisition of properties, the Company pays the Advisor a financing coordination fee equal to 0.75% of the amount made available or outstanding under such financing, subject to certain limitations.

16
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Until September 30, 2015, for its asset management services, the Company issued to 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 performance-based, restricted, forfeitable partnership units in the OP designated as “Class B Units” on a quarterly basis in an amount equal to: (i) the product of (y) 0.1875% multiplied by (z) the cost of the Company's assets divided by (ii) the value of one share of common stock as of the last day of such calendar quarter, which is equal initially to $22.50 (the primary offering price minus selling commissions and dealer manager fees). The Class B Units are intended to be profits interests and will vest, and no longer be subject to forfeiture, at such time as: (a) the value of the OP's assets plus all distributions made by the Company to its stockholders equals or exceeds the total amount of capital contributed by investors plus a 6.0% cumulative, pretax, non-compounded annual return thereon, or the "economic hurdle;" (b) any one of the following events occurs concurrently with or subsequently to the achievement of the economic hurdle described above: (i) a listing of the Company's common stock on a national securities exchange; (ii) a transaction to which the Company or the OP is a party, as a result of which OP units or the Company's common stock are or will be exchanged for or converted into the right, or the holders of such securities will otherwise be entitled, to receive cash, securities or other property or any combination thereof; or (iii) the termination of the advisory agreement without cause by an affirmative vote of a majority of the Company's independent directors after the economic hurdle has been met; and (c) the Advisor pursuant to the advisory agreement is providing services to the Company immediately prior to the occurrence of an event of the type described in clause (b) above, unless the failure to provide such services is attributable to the termination without cause of the advisory agreement by an affirmative vote of the majority of the Company's independent directors after the economic hurdle has been met (the "performance condition"). The value of issued Class B Units will be determined and expensed when the Company deems the achievement of the performance condition to be probable. As of March 31, 2016, the Company cannot determine the probability of achieving the performance condition. The Advisor receives distributions on its vested and unvested Class B Units at the same rate as distributions received on the Company's common stock. Such distributions on issued Class B Units are expensed in the consolidated statements of operations and comprehensive loss until the performance condition is considered probable to occur. As of March 31, 2016, the Company's board of directors has approved the issuance of 159,159 Class B Units in connection with the arrangement. Beginning on October 1, 2015, and in lieu of the asset management subordinated participation, the Company pays an asset management fee to the Advisor or its assignees as compensation for services rendered in connection with the management of the Company’s assets. The asset management fee is payable on the first business day of each month in the amount of 0.0625% multiplied by (i) the cost of the Company's assets for the preceding monthly period or (ii) during the period of time after the Company publishes NAV, the lower of the cost of assets and the estimated fair market value of the Company’s assets as reported in the applicable periodic or current report filed with the SEC disclosing the fair market value. The Company paid $1.0 million in cash asset management fees during the three months ended March 31, 2016. The Company did not pay any cash asset management fees during the three months ended March 31, 2015.
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 the 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. The Company paid $0.1 million in property management fees during the three months ended March 31, 2016. The Company did not pay any property management fees during the three months ended March 31, 2015.
The Company reimburses the Advisor’s costs of providing administrative services, subject to the limitation that the Company will not reimburse the Advisor for any amount by which the Company’s operating expenses at the end of 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, impairments or other similar non-cash expenses and excluding any gain from the sale of assets for that period, unless the Company's independent directors determine that such excess was justified based on unusual and nonrecurring factors which they deem sufficient, in which case the excess amount may be reimbursed to the Advisor in subsequent periods. Additionally, the Company reimburses the Advisor for personnel costs in connection with other services; however, the Company may not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives acquisition fees or real estate commissions. Total reimbursement of costs and expenses for the three months ended March 31, 2016 was $0.4 million. No reimbursement was incurred for the three months ended March 31, 2015.

17
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

The predecessor to AR Global was a party to a services agreement with RCS Advisory Services, LLC, a subsidiary of the parent company of the Former Dealer Manager (“RCS Advisory”), pursuant to which RCS Advisory and its affiliates provided the Company and certain other companies sponsored by AR Global with services (including, without limitation, transaction management, compliance, due diligence, event coordination and marketing services, among others) on a time and expenses incurred basis or at a flat rate based on services performed. The predecessor to AR Global instructed RCS Advisory to stop providing such services in November 2015 and no services have since been provided by RCS Advisory.
The Company was also party to a transfer agency agreement with ANST, pursuant to which ANST provided the Company with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services), and supervisory services overseeing the transfer agency services performed by DST Systems, Inc., a third-party transfer agent ("DST"). AR Global received written notice from ANST on February 10, 2016 that it would wind down operations by the end of the month and would withdraw as the transfer agent effective February 29, 2016. DST continued to provide the Company with transfer agency services and, on March 10, 2016, the Company entered into a definitive agreement with DST to provide the Company directly with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services).
The following table details amounts incurred, waived and payable in connection with the Company's operations-related services described above as of and for the periods presented:
 
 
Three Months Ended March 31,
 
 
 
 
2016
 
2015
 
Payable (receivable) as of
(In thousands)
 
Incurred
 
Waived(1)
 
Incurred
 
Waived(1)
 
March 31, 2016
 
December 31, 2015
Acquisition fees and reimbursements:
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition fees and related cost reimbursements
 
$
—

 
$
—

 
$
5,060

 
$
—

 
$
—

 
$
—

Financing coordination fees capitalized
 
—

 
—

 
825

 
—

 
—

 
—

Ongoing fees:
 
 

 
 

 
 
 
 
 
 
 
 
Operating fees incurred from related parties
 
1,053

 
—

 
—

 
86

 
(2
)
 
(44
)
Professional fees and other reimbursements
 
444

 
—

 
92

 
—

 
355

 
167

Distributions on Class B Units
 
60

 
—

 
4

 
—

 
—

 
—

Total related party operation fees and reimbursements
 
$
1,557

 
$
—

 
$
5,981

 
$
86

 
$
353

 
$
123

______________________
(1)
Waived fees for the three months ended March 31, 2015 related to property management and leasing fees, which were charged beginning in the third quarter 2015.
Fees and Participations Paid in Connection with Liquidation or Listing
The Company will pay to the Advisor an annual subordinated performance fee calculated on the basis of the Company’s return to stockholders, payable annually in arrears, such that for any year in which investors receive payment of 6.0% per annum, the Advisor will be entitled to 15.0% of the excess return, provided that the amount paid to the Advisor does not exceed 10.0% of the aggregate return for such year, and that the amount paid to the Advisor will not be paid unless investors receive a return of capital contributions. This fee will be paid only upon the sale of assets, distributions or other event which results in the return on stockholders’ capital exceeding 6.0% per annum. No subordinated performance fees were incurred during the three months ended March 31, 2016 and 2015.
The Company will pay a brokerage commission to the Advisor or its affiliates on the sale of properties, not to exceed the lesser of 2.0% of the contract sale price of the property and 50.0% of the total brokerage commission paid if a third party broker is also involved; provided, however, that in no event may the real estate commissions paid to the Advisor, its affiliates and unaffiliated third parties exceed the lesser of 6.0% of the contract sales price and a reasonable, customary and competitive real estate commission, in each case, payable to the Advisor if the Advisor or its affiliates, as determined by a majority of the independent directors, provided a substantial amount of services in connection with the sale. No such fees were incurred during the three months ended March 31, 2016 and 2015.

18
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Upon a sale of all or substantially all assets, the Special Limited Partner will receive a subordinated distribution from the OP equal to 15.0% of remaining net sale proceeds after return of capital contributions to investors plus payment to investors of an annual 6.0% cumulative, pre-tax non-compounded return on the capital contributed by investors. The Special Limited Partner will not be entitled to the subordinated participation in net sale proceeds unless the Company’s investors have received a return of their capital plus a 6.0% cumulative non-compounded annual return on their capital contributions. No such participation in net sales proceeds became due and payable during the three months ended March 31, 2016 and 2015.
If the Company’s shares of common stock are listed on a national exchange, the Special Limited Partner will receive a subordinated incentive listing distribution from the OP equal to 15.0% of the amount by which the Company’s market value plus distributions exceeds the aggregate capital contributed by investors plus an amount equal to a 6.0% cumulative, pre-tax non-compounded annual return to investors. The Special Limited Partner will not be entitled to the subordinated incentive listing distribution unless investors have received a 6.0% cumulative, pre-tax non-compounded annual return on their capital contributions. No such distributions were incurred during the three months ended March 31, 2016 and 2015. Neither the Special Limited Partner nor any of its affiliates can earn both the subordinated participation in net sales proceeds and the subordinated incentive listing distribution.
Upon termination or non-renewal of the advisory agreement with or without cause, the Special Limited Partner will be entitled to receive distributions from the OP equal to 15.0% of the amount by which the sum of the Company’s market value plus distributions exceeds the sum of the aggregate capital contributed by investors plus an amount equal to an annual 6.0% cumulative, pre-tax, non-compounded annual return to investors. The Special Limited Partner may elect to defer its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or other liquidity event occurs.
Note 10 — 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, 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 the Advisor and its affiliates are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.
Note 11 — Share-Based Compensation
Restricted Share Plan
The Company has an employee and director incentive restricted share plan (the “RSP”), which provides for the automatic grant of 1,333 restricted shares of common stock to each of the independent directors, without any further approval by the Company’s board of directors or the stockholders, after initial election to the board of directors and after each annual stockholder meeting, with such shares vesting annually beginning with the one year anniversary of initial election to the board of directors and the date of the next annual meeting, respectively. Restricted stock issued to independent directors will vest over a five-year period in increments of 20.0% per annum. The 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. The total number of common shares granted under the RSP shall not exceed 5.0% of the Company’s outstanding shares of common stock on a fully diluted basis at any time and in any event will not exceed 1.5 million shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar events).

19
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Restricted share awards entitle the recipient to receive shares of common stock from the Company under terms that provide for vesting over a specified period of time. For restricted share awards granted prior to July 1, 2015, such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient's employment or other relationship with the Company. For restricted share awards granted on or after July 1, 2015, such awards provide for accelerated vesting of the portion of the unvested shares scheduled to vest in the year of the recipient's voluntary termination or the failure to be re-elected to the board. 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 distributions prior to the time that the restrictions on the restricted shares have lapsed. Any distributions 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, 2016:
 
 
Number of
Restricted Shares
 
Weighted-Average Issue Price
Unvested, December 31, 2015
 
4,799

 
$
22.50

Granted
 
1,333

 
22.50

Unvested, March 31, 2016
 
6,132

 
$
22.50

As of March 31, 2016, the Company had $0.1 million of unrecognized compensation cost related to unvested restricted share awards granted under the Company's RSP. That cost is expected to be recognized over a weighted-average period of 4.0 years. Restricted share awards are expensed in accordance with the service period required. Compensation expense related to restricted stock was approximately $13,000 and $(1,000) for the three months ended March 31, 2016 and 2015, respectively. Compensation expense was negative for the three months ended March 31, 2015 due to the resignation of a board member during the quarter and the reversal of the corresponding accumulated compensation expense associated with the forfeiture of that director's restricted shares. Compensation expense related to restricted stock is recorded as general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss.
Other Share-Based Compensation
The Company may issue common stock in lieu of cash to pay fees earned by the Company's directors at the respective director's election. There are no restrictions on the shares issued. There were no shares of common stock issued in lieu of cash during the three months ended March 31, 2016 or 2015.
Note 12 — Net Loss Per Share
The following is a summary of the basic and diluted net loss per share computation for the periods presented:
 
 
Three Months Ended March 31,
 
 
2016
 
2015
Net loss (in thousands)
 
$
(3,405
)
 
$
(7,239
)
Basic and diluted weighted average shares outstanding
 
30,562,487

 
22,694,003

Basic and diluted net loss per share
 
$
(0.11
)
 
$
(0.32
)
The Company had the following potentially dilutive securities as of March 31, 2016 and 2015, which were excluded from the calculation of diluted net loss per share attributable to stockholders as the effect would have been antidilutive:
 
 
Three Months Ended March 31,
 
 
2016
 
2015
Unvested restricted stock
 
6,132

 
2,667

OP Units
 
90

 
90

Class B units
 
159,159

 
72,513

Total potentially dilutive securities
 
165,381

 
75,270


20
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Note 13 — 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.

21

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
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 American Realty Capital New York City REIT, Inc. (including, as required by context, New York City Operating Partnership, L.P. and its subsidiaries, the "Company," "we," "our" or "us") and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
•
We have a limited operating history which makes our future performance difficult to predict;
•
All of our executive officers are also officers, managers or holders of a direct or indirect controlling interest in our advisor, New York City Advisors, LLC (our "Advisor") and other entities affiliated with AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global"); 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 AR Global affiliates and conflicts in allocating time among these entities and us, which could negatively impact our operating results;
•
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 operations;
•
Our properties may be adversely affected by economic cycles and risks inherent to the New York metropolitan statistical area ("MSA"), especially New York City;
•
We have not generated and may not generate cash flows from operations sufficient to cover distributions paid to stockholders; as such, we may be unable to maintain cash distributions or increase distributions over time;
•
We are obligated to pay fees, which may be substantial, to our Advisor and its affiliates;
•
We may fail to continue to qualify to be treated as a real estate investment trust for United States federal income tax purposes ("REIT");
•
Because investment opportunities that are suitable for us may also be suitable for other AR Global-advised programs or investors, our Advisor and its affiliates may 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 are party to an investment opportunity allocation agreement (the "Allocation Agreement") with another program that is sponsored by American Realty Capital III, LLC (our "Sponsor"), pursuant to which we may not have the first opportunity to acquire all properties identified by our Advisor and its affiliates;
•
No public market currently exists, or may ever exist, for shares of our common stock and our shares are, and may continue to be, illiquid;
•
If we and our Advisor are unable to find suitable investments, then we may not be able to achieve our investment objectives, or pay distributions with cash flows from operations;
•
Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions;
•
We are permitted to pay distributions from unlimited amounts of any source. Until substantially all of the proceeds from our initial public offering ("IPO") are invested, we may use proceeds from our IPO and financings to fund distributions until we have sufficient cash flows from operations. There are no established limits on the amount of net proceeds and borrowings that we may use to fund distribution payments, except in accordance with our organizational documents and Maryland law;
•
Any distributions may reduce the amount of capital we ultimately invest in properties and other permitted investments and negatively impact the value of your investment;

22

•
We may be deemed to be an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and thus subject to regulation under the Investment Company Act; and
•
As of March 31, 2016, we owned only five properties and therefore have limited diversification.
Overview
We were incorporated on December 19, 2013 as a Maryland corporation and elected and qualified to be taxed as a REIT beginning with our taxable year ended December 31, 2014. On April 24, 2014, we commenced our IPO on a "reasonable best efforts" basis of up to 30.0 million shares of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts, for total gross proceeds of up to $750.0 million, pursuant to our registration statement on Form S-11, as amended (File No. 333-194135) (the "Registration Statement") filed with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"). The Registration Statement also covered up to 10.5 million shares available pursuant to a distribution reinvestment plan (the "DRIP") under which our common stockholders may elect to have their distributions reinvested in additional shares of our common stock at a price of $23.75 per share, which is equal to 95% of the offering price in the IPO.
On May 29, 2014, we received and accepted subscriptions in excess of the minimum offering amount for the IPO of $2.0 million in shares, broke general escrow and issued shares of common stock to initial investors who were admitted as stockholders. In February 2015, as permitted, we reallocated the remaining 10.0 million DRIP shares available under the Registration Statement to the primary offering. On May 22, 2015, we registered an additional 25.0 million shares to be issued pursuant to the DRIP pursuant to a registration statement on Form S-3 (File No. 333-204433). We closed our IPO on May 31, 2015, and continued to accept subscriptions in process as of that date. As of March 31, 2016, we had 30.6 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total gross proceeds from the IPO and the DRIP of $760.1 million, inclusive of $30.5 million from the DRIP. The per share purchase price in the IPO was up to $25.00 per share (including the maximum allowed to be charged for commissions and fees) and shares issued under the DRIP is equal to $23.75 per share, which is equal to 95% of the offering price in the primary offering.
We expect to establish our estimated net asset value per share of common stock ("Estimated Per-Share NAV") no later than October 26, 2016, which is 150 days following the second anniversary of the date that we broke escrow in the IPO. After we have initially established our Estimated Per-Share NAV, we expect to update it periodically, at the discretion of our board of directors, provided that such updated estimates will be made at least once annually.
We were formed to invest our assets in properties in the five boroughs of New York City, with a focus on Manhattan. We may also purchase certain real estate assets that accompany office properties, including retail spaces and amenities, as well as hospitality assets, residential assets and other property types exclusively in New York City. All such properties may be acquired and owned by us alone or jointly with another party. As of March 31, 2016, we owned five properties consisting of 841,868 rentable square feet, which were 89.2% leased, with a weighted average remaining lease term of 7.7 years. Our five properties include one commercial property, one property consisting of three condominium units (one retail unit, a parking garage and one office unit), one parking garage and two institutional-quality office buildings.
Substantially all of our business is conducted through New York City Operating Partnership, L.P. a Delaware limited partnership (the “OP”). We are the sole general partner and hold substantially all of the units of limited partner interests in the OP, entitled "OP Units" (“OP units”). The Advisor contributed $2,020 to the OP in exchange for 90 OP units, which represents a nominal percentage of the aggregate OP ownership. A holder of OP units has the right to convert OP units for the cash value of a corresponding number of shares of our common stock or, at the option of the OP, a corresponding number of shares of our common stock, in accordance with the limited partnership agreement of the OP, provided, however, that such OP units must have been outstanding for at least one year. The remaining rights of the limited partners in the OP 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.
We have no employees. Our Advisor manages our affairs on a day-to-day basis. New York City Properties, LLC (our "Property Manager") manages our properties, unless services are performed by a third party for specific properties. The Advisor and Property Manager are under common control with AR Global, the parent of our Sponsor, as a result of which they are related parties and have received or will continue to 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:

23

Offering and Related Costs
All offering costs incurred by us, our Advisor and its affiliates on our behalf are charged to additional paid-in capital on the consolidated balance sheets. Offering and related costs include all expenses incurred in connection with our IPO. Offering costs (other than selling commissions and the dealer manager fees) include costs that may be paid by the Advisor, the Former Dealer Manager or their affiliates on our behalf. These costs include but are not limited to (i) legal, accounting, printing, mailing, and filing fees; (ii) escrow service related fees; (iii) reimbursement of the Former Dealer Manager for amounts it may pay to reimburse itemized and detailed due diligence expenses of broker-dealers; and (iv) reimbursement to the Advisor for a portion of the costs of its employees and other costs in connection with preparing supplemental sales materials and related offering activities. We are obligated to reimburse the Advisor or its affiliates, as applicable, for organization and offering costs paid by them on our behalf, provided that the Advisor is obligated to reimburse us to the extent organization and offering costs (excluding selling commissions and the dealer manager fee) incurred by us in our IPO exceed 2.0% of gross offering proceeds in the IPO. As a result, these costs are our liability to the extent aggregate selling commissions, the dealer manager fee and other organization and offering costs are less than 12.0% of the gross proceeds determined at the end of the IPO.
Revenue Recognition
Our revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. Because many of our leases provide for rental increases at specified intervals, accounting principles generally accepted in the United States ("GAAP") require 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 acquisition date is considered to be the commencement date for the purposes of this calculation.
Rental revenue recognition commences when the tenant takes possession of 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 if 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 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 capitalize the cost to construct the tenant improvements, including costs paid for or reimbursed by the tenants. 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 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.
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 these provisions, contingent rental income will be included in rental income on the consolidated statements of operations and comprehensive loss.
Cost recoveries from tenants are included in operating expense reimbursement in the period the related costs are incurred, as applicable.
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.

24

In business combinations, we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities and non-controlling 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- 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 and signage rights, 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.
Disposals of real estate investments that represent a strategic shift in operations that will have a major effect on our operations and financial results are presented as discontinued operations in the consolidated statements of operations and comprehensive loss for all periods presented; otherwise, we continue to report these properties' operations within continuing operations. 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
Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five to seven years for fixtures and improvements, and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
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.
The value of in-place leases, exclusive of the value of above 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 estimated fair value less estimated cost to dispose of the asset. Generally, we determine estimated fair value for properties held for sale based on the agreed-upon selling price of an asset. These assessments may result in the immediate recognition of an impairment loss resulting in a reduction to net income (loss).

25

Recent Accounting Pronouncement
In March 2016, the Financial Accounting Standards Board (the "FASB") issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of this new guidance.
Recently Adopted Accounting Pronouncements
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 ("VIE") or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership and affect the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships). The revised guidance is effective for our fiscal year ended December 31, 2016. In determining whether we have a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a VIE for which we are the primary beneficiary. We have evaluated the impact of the adoption of the new guidance on our consolidated financial statements and determined that the OP, which holds substantially all of our assets and liabilities, is considered to be a VIE. We meet the disclosure exemption criteria of the new guidance as we are the primary beneficiary of the OP and our partnership interest is considered a majority voting interest in a business, and the OP's assets can be used for purposes other than settling its obligations, such as paying distributions. Further, we have consolidated the OP even prior to the adoption of the new guidance. As such, the adoption of the new guidance did not have a material impact on our consolidated financial statements.
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 on the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB added that, for line of credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line, regardless of whether or not there are any outstanding borrowings. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. We have adopted the revised guidance in the current reporting period.
In March 2016, the FASB issued an update that changes the accounting for certain aspects of share-based compensation. Among other things, the revised guidance allows companies to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. We have adopted the provisions of this guidance beginning January 1, 2016 and have elected to account for forfeitures when they occur. We have determined that there is no impact to our consolidated financial position, results of operations and cash flows.
Properties
The following table presents certain information about the investment properties we owned as of March 31, 2016:
Portfolio
 
Acquisition Date
 
Number of Properties
 
Rentable Square Feet
 
Occupancy
 
Remaining Lease Term (1)
421 W. 54th Street - Hit Factory
 
Jun. 2014
 
1
 
12,327

 
100.0
%
 
4.5
400 E. 67th Street - Laurel Condominium
 
Sept. 2014
 
1
 
58,750

 
100.0
%
 
8.0
200 Riverside Boulevard - ICON Garage
 
Sept. 2014
 
1
 
61,475

 
100.0
%
 
21.5
9 Times Square
 
Nov. 2014
 
1
 
166,640

 
52.6
%
 
4.8
123 William Street
 
Mar. 2015
 
1
 
542,676

 
97.7
%
 
8.0
 
 
 
 
5
 
841,868

 
89.2
%
 
7.7
_______________________________
(1) Remaining lease term in years as of March 31, 2016, calculated on a weighted-average basis, as applicable.
Results of Operations
We were incorporated on December 19, 2013. We purchased our first property and commenced our real estate operations in June 2014. From June 2014 through December 31, 2014, we acquired four properties (our "Same Store"). In March 2015 we acquired one additional property, 123 William Street (our "Acquisition"), and therefore own five properties as of March 31, 2016. Accordingly, due to our Acquisition, our results of operations for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015 reflect significant increases in most categories.

26

Comparison of Three Months Ended March 31, 2016 to Three Months Ended March 31, 2015
Rental Income
Rental income increased $5.4 million to $8.0 million for the three months ended March 31, 2016, from $2.6 million for the three months ended March 31, 2015, primarily due to our Acquisition, which contributed $5.3 million to the increase. Our Same Store contributed $0.1 million to the increase in rental income.
Operating Expense Reimbursements
Operating expense reimbursements increased $0.3 million to $0.5 million for the three months ended March 31, 2016, compared to $0.2 million for the three months ended March 31, 2015, primarily due to our Acquisition. Our Same Store contributed a minimal amount to the increase.
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 most operating costs of the respective properties. Therefore, operating expense reimbursements are directly affected by changes in property operating expenses, although not all increases in property operating expenses may be reimbursed by our tenants.
Property Operating Expenses
Property operating expenses increased $2.3 million to $3.5 million for the three months ended March 31, 2016 from $1.2 million for the three months ended March 31, 2015, primarily due to our Acquisition. Our Same Store contributed a minimal amount to the increase. Property operating expenses related to the costs of maintaining our five properties including real estate taxes, condominium fees, utilities, repairs and maintenance and property insurance.
Operating Fees incurred from Related Parties
We incurred $1.1 million in fees for asset and property management services from our Advisor and Property Manager for the three months ended March 31, 2016. Property management fees increase in direct correlation with gross revenue and amounted to $0.1 million for the three months ended March 31, 2016. The Property Manager elected to waive property management fees for the three months ended March 31, 2015. For the three months ended March 31, 2015, we would have incurred additional property management fees of approximately $0.1 million had these fees not been waived.
Until September 30, 2015, for its asset management services, we issued to the Advisor performance-based, restricted, forfeitable partnership units in the OP designated as "Class B units." Beginning on October 1, 2015, we began paying monthly asset management fees in cash, in shares of common stock, or a combination of both, the form of payment to be determined at the sole discretion of the Advisor. We paid $1.0 million in cash for asset management fees for the three months ended March 31, 2016.
Acquisition and Transaction Related Expenses
We incurred approximately $40,000 of acquisition and transaction related expenses for the three months ended March 31, 2016 which related to our entering into an agreement of purchase and sale to acquire the leasehold interest in an institutional-quality office building located at 1140 Avenue of the America, which is scheduled to close in the second quarter of 2016. For the three months ended March 31, 2015, acquisition and transaction related expenses of $5.9 million related to our Acquisition, which was purchased in March 2015.
General and Administrative Expenses
General and administrative expenses increased $0.3 million to $1.4 million for the three months ended March 31, 2016 from $1.1 million for the three months ended March 31, 2015, primarily due to general and administrative expense reimbursements incurred from our Advisor of $0.4 million. During the year ended December 31, 2015, our Advisor began requesting reimbursement of general and administrative expenses, which had not previously been requested, but no such reimbursement requests were made during the three months ended March 31, 2015. This increase was partially offset by lower professional fees incurred related to the audit of our 2015 financial statements.
Depreciation and Amortization
Depreciation and amortization expenses increased $3.0 million to $4.8 million for the three months ended March 31, 2016, compared to $1.8 million for the three months ended March 31, 2015, primarily due to our Acquisition, which contributed $2.9 million to the increase. Our Same Store contributed $0.1 million to the increase.
Interest Expense
Interest expense of $1.2 million for the three months ended March 31, 2016 related to our mortgage note payable, the proceeds of which funded a portion of our Acquisition in March 2015. As of March 31, 2016, the loan had a balance of $96.0 million and an effective interest rate of 2.73%. For the three months ended March 31, 2015, interest expense was $0.1 million.

27

Income from Investment Securities and Interest
Income from investment securities and interest increased to $0.1 million for the three months ended March 31, 2016 from approximately $34,000 for the three months ended March 31, 2015. The income related to interest earned on our cash balance for the three months ended March 31, 2016 and dividends earned on our investment in equity securities purchased in August 2014.
Cash Flows for the Three Months Ended March 31, 2016
During the three months ended March 31, 2016, net cash provided by operating activities was $1.3 million, compared to $5.4 million of net cash used in operating activities during three months ended March 31, 2015. Net cash provided by operating activities contained acquisition and transaction related expenses of approximately $40,000 and $5.9 million, respectively, for the three months ended March 31, 2016 and 2015.
The level of cash flows used in or provided by operating activities is affected by the volume of acquisition activity, the timing of interest payments, the receipt of scheduled rent payments and the level of property operating expenses. Notwithstanding a net loss of $3.4 million, net cash used in operating activities included adjustments for depreciation and amortization of tangible and intangible assets and other non-cash expenses of $4.7 million, which resulted in cash inflows of $1.3 million. Net cash used in operating activities also included net cash inflows of $1.3 million for an increase in deferred rent related to payments received from tenants in advance of their due dates and other liabilities as well as $0.3 million related to the increase in accounts payable and accrued expenses associated with operating activities.
Net operating cash outflows primarily related to an increase in prepaid expenses and other assets of $1.6 million primarily related to an increase in unbilled rent receivables recorded in accordance with accounting for rental income on a straight-line basis.
Net cash used in investing activities during the three months ended March 31, 2016 was $23.4 million, primarily related to deposits for real estate acquisitions of $18.0 million related to our impending acquisition of 1140 Avenue of the Americas in Manhattan, New York. Net cash used in investing activities also related to capital expenditures of $5.4 million relating to building and tenant improvements at 9 Times Square and 123 William Street.
Net cash used in financing activities of $7.5 million during the three months ended March 31, 2016 consisted primarily of distributions to stockholders of $5.8 million and repurchases of common stock of $1.6 million.
Cash Flows for the Three Months Ended March 31, 2015
During the three months ended March 31, 2015, net cash used in operating activities was $5.4 million. The level of cash flows used in or provided by operating activities is affected by acquisition activity, the timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments. Cash flows used in operating activities during the three months ended March 31, 2015 included $5.9 million of acquisition and transaction costs. Cash flows used in operating activities included a net loss adjusted for non-cash items of $5.6 million (net loss of $7.2 million adjusted for non-cash items consisting of depreciation and amortization of tangible and intangible real estate assets, share based compensation, and deferred financing costs of $1.6 million) and an increase in prepaid expenses and other assets of $1.1 million related to prepaid insurance and real estate taxes as well as accounts receivable and unbilled rent receivables recorded in accordance with accounting for rental income on a straight-line basis. These cash outflows were partially offset by an increase in accounts payable and accrued expenses of $0.9 million, primarily related to accrued property operating costs and professional fees in addition to an increase in deferred rent and other liabilities of $0.4 million.
Net cash used in investing activities during the three months ended March 31, 2015 of $156.0 million primarily related to the acquisition of one property for $157.0 million, consisting of an average purchase price of $253.0 million partially funded with a mortgage note payable of $96.0 million. Investing activities also included funds released from escrow of $2.0 million related to a prior acquisition, which are released to us in accordance with an escrow agreement, as well as capital expenditures of $1.0 million relating to building and tenant improvements at our properties at 9 Times Square and 123 William Street.
Net cash provided by financing activities of $87.0 million during the three months ended March 31, 2015 consisted of proceeds, net of receivables, from the issuance of common stock of $108.9 million, partially offset by payments of offering costs of $13.4 million, distributions to stockholders of $3.9 million and payments of financing costs of $4.6 million relating to our mortgage note payable.

28

Non-GAAP Financial Measures
This section includes non-GAAP financial measures, including funds from operations ("FFO") and modified funds from operations ("MFFO"). A description of these non-GAAP measures and reconciliations to the most directly comparable GAAP measure, which is net income (loss), is provided below.
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.
Because of these factors, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has published a standardized measure of performance known as FFO, which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT’s operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards set forth in 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, but excluding gains or losses from sales of property and real estate related impairments, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.
We believe that the use of FFO 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.
Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.
Because of these factors, the Investment Program Association (the “IPA”), an industry trade group, has published a standardized measure of performance known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that, when compared year over year, both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisitions fees or other related costs, it 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. MFFO is not equivalent to our net income or loss as determined under GAAP.
We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses, amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments, mark-to-market adjustments included in net income, gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.

29

We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.
Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations, as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guideline or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
The table below reflects the items deducted or added to net loss in our calculation of FFO and MFFO for the periods presented.
 
 
Three Months Ended
(In thousands)
 
March 31, 2016
Net loss (in accordance with GAAP)
 
$
(3,405
)
Depreciation and amortization
 
4,769

FFO
 
1,364

Acquisition and transaction-related fees and expenses
 
40

Accretion of below- and amortization of above-market lease liabilities and assets, net
 
(635
)
Straight-line rent
 
(1,126
)
MFFO
 
$
(357
)
Liquidity and Capital Resources
As of March 31, 2016, we had cash and cash equivalents of $153.1 million. Our principal demands for cash will be for acquisition costs, including the purchase price of any properties, loans and securities we acquire, improvement costs, the payment of our operating and administrative expenses, continuing debt service obligations, distributions to our stockholders and repurchases under our Share Repurchase Program ("SRP"). Generally, we will fund our acquisitions from the net proceeds of our offering. We intend to acquire our assets with cash and mortgage or other debt, but we also may acquire assets free and clear of mortgage or other indebtedness by paying the entire purchase price for the asset in cash or in OP units.
We expect to fund our future short-term operating liquidity requirements through a combination of net cash provided by our current property operations and the operations of properties to be acquired in the future, the remaining proceeds from the sale of common stock and proceeds from secured mortgage financings. Management expects that, as our portfolio of investments stabilizes, cash flow from our properties will be sufficient to fund operating expenses and a larger portion of the payment of our monthly distributions. Other potential future sources of capital include proceeds from secured and unsecured financings from banks or other lenders, proceeds from public and private offerings, proceeds from the sale of properties and undistributed funds from operations.

30

We have used mortgage financing to acquire one of our properties and expect to use debt financing as a source of capital. Under our charter, the maximum amount of our total indebtedness may not exceed 300% of our total "net assets" (as defined in our charter) as of the date of any borrowing, which is generally equal to 75% of the cost of our investments. We may exceed that limit if approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for exceeding such limit. This charter limitation, however, does not apply to individual real estate assets or investments. In addition, it is currently our intention to limit our aggregate borrowings to 40% to 50% of the aggregate fair market value of our assets unless borrowing a greater amount is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for borrowing such a greater amount. This limitation will be calculated once we have invested substantially all the proceeds of our IPO and will not apply to individual real estate assets or investments. At the date of acquisition of each asset, we anticipate that the cost of investment for such asset will be substantially similar to its fair market value, which will enable us to satisfy our requirements under our charter. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits.
Once we begin calculating NAV and our NAV exceeds $1.0 billion, we intend to maintain 5% of our NAV in liquid assets that can be liquidated more readily than properties. However, our stockholders should not expect that we will maintain liquid assets at or above this level. To the extent that we maintain borrowing capacity under a line of credit, such available amount will be included in calculating our liquid assets. Our Advisor will consider various factors in determining the amount of liquid assets we should maintain, including, but not limited to, our receipt of proceeds from sales of additional shares, our cash flow from operations, available borrowing capacity under a line of credit, if any, our receipt of proceeds from any asset sale, and the use of cash to fund repurchases. Our board of directors will review the amount and sources of liquid assets on a quarterly basis.
Share Repurchase Program
Our board of directors has adopted the SRP, that enables stockholders, subject to certain conditions and limitations, to sell their shares to us. On January 25, 2016, we announced that our board of directors had unanimously approved an amendment to the SRP. Under the SRP amendment, repurchases of shares of our common stock, when requested, are at the sole discretion of our board of directors and generally will be made semiannually (each six-month period ending June 30 or December 31, a "fiscal semester"). Repurchases for any fiscal semester will be limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year, with a maximum for any fiscal year of 5.0% of the weighted average number of shares of common stock outstanding on December 31st of the previous calendar year. In addition, we are only authorized to repurchase shares in a given fiscal semester up to the amount of proceeds received from the DRIP in that same fiscal semester, as well as any reservation of funds our board of directors may, in its sole discretion, make available for this purpose. If the establishment of an Estimated Per-Share NAV occurs during any fiscal semester, any repurchase requests received during such fiscal semester will be paid at the Estimated Per-Share NAV applicable on the last day of the fiscal semester. The SRP amendment became effective beginning on February 28, 2016.
During the first quarter of 2016, we completed share repurchases based on requests made during 2015 for 68,491 shares at a weighted-average repurchase price of $23.11 that were accrued as of December 31, 2015. As of March 31, 2016 we had completed cumulative repurchase requests for 183,780 shares at an average price per share of $23.63.
As of March 31, 2016, we had accrued repurchase requests consisting of 3,575 shares at an average price per share of $25.00, which were completed in April 2016. The accrual for these repurchases is reflected in the accounts payable, accrued expenses and other liabilities line item in the consolidated balance sheets. The additional shares will be deducted from the applicable limits of the SRP amendment when processing share repurchases for the first fiscal semester of 2016.
Capital Expenditures
We may invest in additional capital expenditures to further enhance the value of our investments. Additionally, many of our lease agreements with tenants include provisions for tenant improvement allowances.
As of March 31, 2016, 9 Times Square was 52.6% occupied. Subsequent to the acquisition of 9 Times Square in November 2014, we allowed leases to expire and terminate as part of the implementation of our repositioning, redeveloping and remarketing plan with respect to the property. As a result of these initiatives, we expect to incur $10.0 million to $15.0 million of additional capital expenditures during 2016 related to building improvements, tenant improvements and leasing commissions as we continue to execute on our repositioning, redeveloping and remarketing plan. For the the three months ended March 31, 2016, we incurred $0.7 million of capital expenditures related to building improvements, tenant improvements and leasing commissions for 9 Times Square.
The remainder of our capital expenditures related to building and tenant improvements at 123 William Street.

31

Acquisitions
On March 18, 2016, we, through a wholly-owned subsidiary of our OP, entered into an agreement of purchase and sale to acquire the leasehold interest in an institutional-quality office building located at 1140 Avenue of the Americas in Manhattan, New York. The contract purchase price for the property is $180.0 million, exclusive of closing costs. We intend to fund the purchase price with proceeds from our IPO and debt financing from a lender. There is no assurance that we will be able to secure financing on terms that we deem favorable, or at all.
Our Advisor evaluates potential acquisitions of real estate and real estate-related assets and engages in negotiations with sellers and borrowers on our behalf. Investors should be aware that after a purchase contract is executed that contains specific terms, the property will not be purchased until the successful completion of due diligence and fully negotiated binding agreements. During this period, we may decide to temporarily invest any unused proceeds from common stock offerings in certain investments that could yield lower returns than the properties. These lower returns may affect our ability to make distributions.
Distributions
We are required to distribute annually at least 90% of our annual REIT taxable income, determined without regard for the deduction for distributions paid and excluding net capital gains. On March 9, 2016, our board of directors approved a change to the daily distribution amount to $0.0041325137 per day per share of common stock to accurately reflect that 2016 is a leap year and maintain equivalence to $1.5125 per annum, per share of common stock. Distributions to record holders are payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month.
Future distributions to our stockholders will be determined by our board of directors and are dependent on a number of factors, including funds available for distribution, our financial condition, capital expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to maintain our status as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). Distribution payments are dependent on the availability of funds. Our board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.
During the three months ended March 31, 2016, distributions paid to common stockholders totaled $11.5 million. Of that amount, $5.6 million was reinvested in shares of our common stock pursuant to the DRIP. During the three months ended March 31, 2016, cash used to pay our distributions was generated from cash flows from operations, proceeds from our IPO and proceeds from the sale of our shares through the DRIP.
We do not expect to generate sufficient cash flow from operations in 2016 to fund distributions at our current level and we may not generate sufficient cash flows from operations to fund future distributions. The amount of cash available for distributions is affected by many factors, such as rental income from acquired properties and our operating expense levels, as well as many other variables. Actual cash available for distributions may vary substantially from estimates. With limited operating history, we cannot assure our stockholders that we will be able to continue to pay distributions or that distributions will increase over time. We cannot give any assurance that rents from the properties we have acquired will increase, or that future acquisitions of real properties will increase our cash available for distributions to stockholders. Our actual results may differ significantly from the assumptions used by our board of directors in establishing a distribution rate to stockholders.
If we do not generate sufficient cash flows from our operations, we expect to use a portion of our cash on hand, which represents the remaining proceeds we received in our IPO, and the proceeds from our DRIP to pay distributions. A decrease in the level of stockholder participation in our DRIP could have an adverse impact on our ability to meet these expectations. If these sources are insufficient, we may use other sources, such as from borrowings, the sale of additional securities, advances from our Advisor, and our Advisor's deferral, suspension or waiver of its fees and expense reimbursements, as to which it has no obligation, to fund distributions.

32

The following table shows the sources for the payment of distributions to common stockholders for the periods presented:
 
 
Three Months Ended
 
 
March 31, 2016
(In thousands)
 
 
 
Percentage of Distributions
Distributions:(1)
 
 
 
 
Distributions to stockholders
 
$
11,485

 
 
Source of distribution coverage:
 
 
 
 
Cash flows provided by operations(2)
 
$
1,308

 
11.4
%
Net proceeds from the sale of shares through DRIP
 
4,019

 
35.0
%
Offering proceeds from issuance of common stock
 
6,158

 
53.6
%
Total sources of distributions
 
$
11,485

 
100.0
%
Cash flows provided by operations (GAAP basis)(2)
 
$
1,308

 
 
Net loss (in accordance with GAAP)
 
$
(3,405
)
 
 
__________________________________
(1)
Excludes distributions related to Class B Units, the expense for which is included in general and administrative expenses on the consolidated statements of operations and comprehensive loss.
(2) Cash flows provided by operations for the three months ended March 31, 2016 includes cash acquisition and transaction related expenses of approximately $40,000.
The following table compares cumulative distributions paid to cumulative net loss, cumulative cash flows used in operations (in accordance with GAAP) and cumulative FFO for the period from December 19, 2013 (date of inception) through March 31, 2016:
 
 
For the Period
from December 19, 2013
 (date of inception) to
(In thousands)
 
March 31, 2016
Distributions paid:
 
 
Total distributions paid
 
$
59,709

 
 
 
Reconciliation of net loss:
 
 
Revenues
 
$
37,793

Acquisition and transaction-related
 
(12,203
)
Depreciation and amortization
 
(23,543
)
Other operating expenses
 
(23,315
)
Other non-operating expenses
 
(4,441
)
Net loss (in accordance with GAAP)(1)
 
$
(25,709
)
 
 
 
Cash flows used in operations
 
$
(8,851
)
 
 
 
FFO
 
$
(2,166
)
_______________________
(1) Net loss as defined by GAAP includes the non-cash impact of depreciation and amortization as well as costs incurred relating to acquisitions and related transactions.

33

Contractual Obligations
Debt Obligations
The following is a summary of our contractual debt obligations as of March 31, 2016:
 
 
 
 
 
 
Years Ended December 31,
 
 
(In thousands)
 
Total
 
April 1, 2016 — December 31, 2016
 
2017 — 2018
 
2019 — 2020
 
Thereafter
Mortgage note payable:
 
 
 
 
 
 
 
 
 
 
Principal payments
 
$
96,000

 
$
—

 
$
96,000

 
$
—

 
$
—

Interest payments
 
$
2,595

 
$
1,964

 
$
631

 
$
—

 
$
—

Election as a REIT 
We elected and qualified to be taxed as a REIT under the Code, effective for our taxable year ended December 31, 2014. We believe that, commencing with such taxable year, we have been organized and operated in a manner so that we qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to remain qualified for taxation as a REIT. In order to continue to qualify for taxation as a REIT we must, among other things, distribute annually at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP) determined without regard for the deduction for dividends paid and excluding net capital gains, and must comply with a number of other organizational and operational requirements. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax on that portion of our REIT taxable income that we distribute to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and properties as well as federal income and excise taxes on our undistributed income.
Inflation
Many 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 operating expenses resulting from inflation.
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 control with our Advisor in connection with acquisition and financing activities, asset and property management services and reimbursement of operating and offering related costs. Realty Capital Securities, LLC (the "Former Dealer Manager") served as the dealer manager of the IPO. American National Stock Transfer, LLC, a subsidiary of the parent company of the Former Dealer Manager ("ANST"), provided us with transfer agency services through February 2016. RCS Capital Corporation, the parent company of the Former Dealer Manager and certain of its affiliates that provided services to us, filed for Chapter 11 bankruptcy protection in January 2016, prior to which it was also under common control with AR Global, the parent of our Sponsor.
The predecessor to AR Global is a party to a services agreement with RCS Advisory Services, LLC, a subsidiary of the parent company of the Former Dealer Manager (“RCS Advisory”), pursuant to which RCS Advisory and its affiliates provided us and certain other companies sponsored by AR Global with services (including, without limitation, transaction management, compliance, due diligence, event coordination and marketing services, among others) on a time and expenses incurred basis or at a flat rate based on services performed. The predecessor to AR Global instructed RCS Advisory to stop providing such services in November 2015 and no services have since been provided by RCS Advisory. We were party to a transfer agency agreement with ANST, a subsidiary of the parent company of the Former Dealer Manager, pursuant to which ANST provided us with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services), and supervisory services overseeing the transfer agency services performed by a third-party transfer agent. AR Global received written notice from ANST on February 10, 2016 that it would wind down operations by the end of the month and would withdraw as the transfer agent effective February 29, 2016. DST Systems, Inc., a third-party transfer agent ("DST") continued to provide us with transfer agency services and, on March 10, 2016, we entered into a definitive agreement with DST to provide us directly with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services).

34

Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have had 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 financing, bears interest at a variable rate. 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, caps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We will 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, 2016, our debt consisted of variable-rate debt. We had a variable rate secured mortgage note payable with an aggregate carrying value and fair value of $96.0 million. Interest rate volatility associated with this variable-rate mortgage note payable 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, 2016 levels, with all other variables held constant. A 100 basis point increase or decrease in variable interest rates on our variable-rate mortgage note payable would increase or decrease our interest expense by $1.0 million annually.
These amounts were determined by considering the impact of hypothetical interest rate 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, 2016 and 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.
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our management, under the supervision and with the participation of our Chief Executive Officer and Interim Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded, as of the end of such period, that our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in our reports that we file or submit under the Exchange Act.
No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

35

PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
As of the end of the period covered by this Quarterly Report on Form 10-Q, we are not a party 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, 2015.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of Registered Securities.
Recent Sales of Unregistered Securities
On February 12, 2016, we granted 1,333 shares of restricted stock that vest over a period of five years to a recently-appointed independent director, pursuant to our employee and director incentive restricted share plan. No selling commissions or other consideration was paid in connection with such issuance, which was made without registration under the Securities Act in reliance upon exemption from the registration in Section 4(a)(2) of the Securities Act as transactions not involving any public offering.
Use of Proceeds from Sales of Registered Securities
On April 24, 2014, we commenced our IPO on a "reasonable best efforts" basis of up to 30.0 million shares of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts, pursuant to the Registration Statement filed with the SEC under the Securities Act (File No. 333-194135). The Registration Statement also covered 10.5 million shares of common stock issuable pursuant to the DRIP under which common stockholders may elect to have their distributions reinvested in additional shares of common stock. On May 29, 2014, we received and accepted subscriptions in excess of the minimum offering amount for the IPO of $2.0 million in shares, broke general escrow and issued shares of common stock to initial investors who were admitted as stockholders. On May 31, 2015, we closed our IPO after having sold substantially all of the shares registered in our IPO, and continued to accept subscriptions in process as of that date. As of March 31, 2016, we had 30.6 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total gross proceeds from the IPO and DRIP of $760.1 million, inclusive of $30.5 million from the DRIP.
The following table reflects the offering costs associated with the issuance of common stock:
 
 
Year Ended December 31,
(In thousands)
 
2015
 
2014
Selling commissions and dealer manager fees
 
$
22,374

 
$
46,997

Other offering costs
 
6,050

 
8,628

Total offering costs
 
$
28,424

 
$
55,625

The Former Dealer Manager was able to reallow the selling commissions and a portion of the dealer manager fees to participating broker-dealers. The following table details the selling commissions incurred and reallowed related to the sale of shares of common stock:
 
 
Year Ended December 31,
(In thousands)
 
2015
 
2014
Total commissions paid to the Former Dealer Manager
 
$
22,374

 
$
46,997

Less:
 
 
 
 
  Commissions to participating brokers
 
(15,505
)
 
(31,920
)
  Reallowance to participating broker dealers
 
(2,625
)
 
(5,685
)
Net to the Former Dealer Manager
 
$
4,244

 
$
9,392

As of March 31, 2016, we have incurred $84.0 million of cumulative offering costs in connection with the issuance and distribution of our registered securities. Cumulative offering proceeds from the sale of common stock exceeded cumulative offering costs by $676.1 million at March 31, 2016.

36

As of March 31, 2016, cumulative offering costs included $69.4 million of selling commissions and dealer manager fees and $11.9 million of offering cost reimbursements incurred from the Advisor and Former Dealer Manager. We are obligated to reimburse the Advisor or its affiliates, as applicable, for organization and offering costs paid by them on our behalf, provided that the Advisor is obligated to reimburse us to the extent organization and offering costs (excluding selling commissions and the dealer manager fee) incurred by us in our IPO exceed 2.0% of gross offering proceeds in the IPO. As a result, these costs were only our liability to the extent aggregate selling commissions, the dealer manager fee and other organization and offering costs did not exceed 12.0% of the gross proceeds determined at the end of the IPO. As of the end of the IPO, aggregate selling commissions, dealer manager fees and other offering costs did not exceed 12.0% of the gross proceeds received in the IPO.
We have used and expect to continue to use substantially all of the net proceeds from our IPO to primarily acquire office and retail properties in the five boroughs of New York City, with a focus on Manhattan. We may also originate or acquire first mortgage loans secured by real estate. As of March 31, 2016, we have used the net proceeds from our IPO to purchase five properties with an aggregate purchase price of $507.5 million. We have incurred cumulative acquisition and transaction-related costs of $12.2 million, primarily related to our property acquisitions. As of March 31, 2016, we used $32.2 million in proceeds from our IPO to pay cash distributions of $32.2 million. During the three months ended March 31, 2016, we used proceeds from our IPO to make a $18.0 million deposit on an acquisition that is expected to close in the second quarter of 2016.
Issuer Purchases of Equity Securities
During the first quarter of 2016, we completed share repurchases based on requests made during 2015 for 68,491 shares at a weighted-average repurchase price of $23.11 that were accrued as of December 31, 2015. As of March 31, 2016, we had completed cumulative repurchase requests for 183,780 shares at an average price per share of $23.63.
As of March 31, 2016, we had accrued repurchase requests consisting of 3,575 shares at an average price per share of $25.00, which were completed in April 2016. The accrual for these repurchases is reflected in the accounts payable, accrued expenses and other liabilities line item in the accompanying consolidated balance sheets. The additional shares will be deducted from the applicable limits of the SRP amendment when processing share repurchases for the first fiscal semester of 2016.
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.

37

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.
 
AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.
 
By:
/s/ Michael A. Happel
 
 
Michael A. Happel
 
 
Chief Executive Officer, President and Secretary
(Principal Executive Officer)
 
 
 
 
By:
/s/ Nicholas Radesca
 
 
Nicholas Radesca
 
 
Interim Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)

Dated: May 12, 2016

38
EXHIBITS INDEX

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No.
  
Description
10.1 *
 
Agreement of Purchase and Sale, dated as of March 18, 2016, by and between BPGL HOLDINGS LLC and ARC NYC1140SIXTH, LLC.
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.
99.1*
 
Amended and Restated Share Repurchase Program effective as of February 28, 2016
101 *
 
XBRL (eXtensible Business Reporting Language). The following materials from American Realty Capital New York City REIT, Inc.'s Quarterly Report on Form 10-Q for the three months ended March 31, 2016, 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.
____________________
*     Filed herewith

39

New York City REIT, Inc. Reports