Attached files
| file | filename |
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| EX-99.2 - EXHIBIT 99.2 - QUARTERLY 9.30.2016 - New York REIT Liquidating LLC | nyrtexhibit992-9302016quar.htm |
| 8-K - 8-K - New York REIT Liquidating LLC | nyrt9302016-8xk.htm |
Exhibit 99.1
FOR IMMEDIATE RELEASE
New York REIT Announces Results for Third Quarter 2016
New York, November 9, 2016 - New York REIT, Inc. (NYSE: NYRT) (“NYRT” or the "Company"), a publicly traded real estate investment trust that acquires income-producing commercial real estate, including office and retail properties, in New York City, announced today its financial and operating results for the third quarter ended September 30, 2016.
Select Third Quarter Highlights and Subsequent Events
Strategic Process
• | The Board of Directors ("Board") has approved a plan of liquidation, subject to stockholder approval. |
• | The Company is currently seeking to obtain new financing of approximately $760 million in order to repay the existing credit facility in full, to provide additional liquidity for the Company to exercise its option to purchase the balance of the equity interest in Worldwide Plaza and to provide increased flexibility to pursue the plan of liquidation. |
• | The Company expanded the size of the Board from six to nine directors and elected James Hoffmann, Gregory Hughes, and Craig T. Bouchard as new members of the Board. |
• | The Company has scheduled its annual meeting for December 19, 2016. |
Portfolio Activity
• | Signed three new leases and one lease extension for a total of 16,188 square feet during the third quarter. |
◦ | Executed a new lease at 256 West 38th Street with Job Path totaling 8,610 square feet and a 12-year term and a new lease at 416 Washington Street with Yoga Vida totaling 3,833 square feet and a 10-year term. |
◦ | Extended the lease for Demiurge at 306 East 61st Street totaling 3,733 square feet for a 5-year term. |
Results for the Third Quarter Ended September 30, 2016
• | Net Loss: Recorded net loss attributable to stockholders of $45.3 million for the third quarter 2016, which includes an impairment charge of $27.9 million, deductions of $16.3 million for depreciation and amortization and $11.6 million for transaction expenses. See the attached tables and supplemental package attached hereto as Exhibit 99.2 for a reconciliation of all non-GAAP financial measures contained herein. |
• | Core FFO: Generated third quarter 2016 Core FFO of $15.8 million (or $0.09 per fully diluted share), compared to $17.7 million (or $0.11 per fully diluted share) in the third quarter 2015. |
• | AFFO: Realized third quarter 2016 AFFO of $5.3 million (or $0.03 per fully diluted share), compared to $18.4 million (or $0.11 per fully diluted share) in the third quarter 2015. |
• | Cash NOI: Generated third quarter 2016 Cash NOI of $27.7 million, compared to $32.1 million in the third quarter 2015. |
• | Same Store Cash NOI: Recorded third quarter 2016 Same Store Cash NOI, excluding the Viceroy Hotel, of $26.9 million compared to $30.1 million in the third quarter 2015. |
• | Occupancy: Total ending occupancy was 93.4% as of September 30, 2016, compared to 95.2% as of December 31, 2015. |
Michael Happel, Chief Executive Officer and President of NYRT, said "The Company remains focused on its strategic process and will seek a stockholder vote on the proposed plan of liquidation while also maintaining the flexibility to pursue a corporate sale or merger if our Board determines that is more attractive than the plan of liquidation.”
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Nicholas Radesca, Interim Chief Financial Officer of NYRT, commented "Operating results during the third quarter were solid with portfolio occupancy increasing modestly from 93.0% as of June 30, 2016 to 93.4% as of September 30, 2016. Core FFO was $0.09 per fully diluted share in the third quarter of 2016 compared to $0.10 per fully diluted share in the second quarter of 2016. The decrease was primarily attributable to higher general and administrative expenses relating to legal, accounting and public relations fees related to corporate and shareholder matters.”
Portfolio Activity and Occupancy
Occupancy
The overall portfolio occupancy was 93.4% as of September 30, 2016, with a weighted-average remaining lease term of 9.0 years. This compares to occupancy of 93.0% and a weighted-average remaining lease term of 9.3 years as of the end of the second quarter 2016 and occupancy of 97.2% and a weighted average remaining lease term of 9.2 years as of September 30, 2015.
Operating Results
Net loss attributable to stockholders was $45.3 million for the third quarter 2016 compared to $13.1 million in the third quarter of 2015, an increase of $32.3 million, primarily due to higher transaction-related expenses relating to the Company's strategic transaction process and the recognition of an impairment charge on the Viceroy hotel.
Core FFO was $15.8 million in the third quarter of 2016 compared to $17.7 million in the third quarter of 2015, a decrease of $1.9 million, primarily attributable to our five non-core asset sales along with lower revenue at 1440 Broadway due primarily to decreased occupancy.
Core FFO in the third quarter of 2016 was down approximately $1.4 million compared to Core FFO of $17.3 million in the second quarter of 2016, primarily due to higher general and administrative expenses mostly related to legal, accounting and public relations fees related to corporate and shareholder matters.
Same Store Cash NOI, excluding the Viceroy Hotel, was $26.9 million in the third quarter of 2016 compared to $30.1 million in the third quarter of 2015, a $3.2 million year-over-year decrease, primarily due to lower occupancy at 1440 Broadway and a lease modification at our 50 Varick Street property which resulted in temporary rent deferral but no rent forgiveness. The amendment was done partly as a result of elevator renovation work being done at the property.
Same Store Cash NOI, excluding the Viceroy Hotel, of $26.9 million in the third quarter of 2016 compared to $29.3 million in the second quarter of 2016, an 8.2% decrease primarily attributable to the lease modification at 50 Varick Street.
Financial Strength and Liquidity
NYRT’s combined total debt to enterprise value was 45% as of September 30, 2016. Enterprise value of $2.8 billion is based on the September 30, 2016 closing share price of $9.15, 168.6 million fully diluted shares outstanding and the quarter end total combined debt of $1.3 billion, which includes NYRT’s pro rata share of unconsolidated debt.
As of September 30, 2016, combined interest coverage was 2.5x based on Adjusted EBITDA. The weighted average interest rate on NYRT’s combined outstanding debt of $1.3 billion was 3.7% with an average remaining term of 3.6 years (3.7 years including extensions).
Dividends
During the third quarter 2016, NYRT paid monthly dividends of $0.038 per common share, representing an annualized dividend of $0.46 per share. In October 2016, NYRT announced that, in light of the plan of liquidation, which is subject to stockholder approval, the Board had determined that the Company will not pay a regular dividend for the month of November 2016 and does not currently expect to pay a regular monthly dividend for the month of December 2016. If the plan of liquidation is approved by the Company’s stockholders, the Company will thereafter make periodic liquidating distributions, subject to satisfying its liabilities and obligations, in lieu of regular monthly dividends. If the plan of liquidation is not approved by the Company’s stockholders, the Board will re-evaluate the Company’s dividend policy.
Supplemental Schedules
NYRT has filed supplemental information packages with the Securities and Exchange Commission ("SEC") to provide additional disclosure and financial information for the benefit of NYRT’s various stakeholders, including reconciliations of all non-GAAP measures contained in this press release. The supplemental package can be found under "Investors — Quarterly Supplemental" section of NYRT’s website at www.nyrt.com and on the SEC website at www.sec.gov.
Conference Call
NYRT will not be hosting a conference call to review financial and operating results for the third quarter 2016.
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About NYRT
NYRT is a publicly traded real estate investment trust listed on the NYSE that acquires income-producing commercial real estate, including office and retail properties, in New York City. Additional information about NYRT can be found on its website at www.nyrt.com. NYRT may disseminate important information regarding it and its operations, including financial information, through social media platforms such as Twitter, Facebook and LinkedIn.
Forward-Looking Statements
The statements in this press release that are not historical facts may be forward-looking statements. These forward looking statements involve substantial risks and uncertainties. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements NYRT makes. Forward-looking statements may include, but are not limited to, statements regarding stockholder liquidity and investment value and returns.
The words “anticipates,” “believes,” “expects,” “estimates,” “projects,” “plans,” “intends,” “may,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Factors that might cause such differences include, but are not limited to: the impact of current and future regulation; the impact of credit rating changes; the effects of competition; the ability to attract, develop and retain executives and other qualified employees; changes in general economic or market conditions; and other factors, many of which are beyond NYRT’s control, including other factors included in NYRT’s reports filed with the SEC, particularly in the “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” sections of NYRT's latest Annual Report on Form 10-K for year ended December 31, 2015, filed with the SEC on February 26, 2016, the Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filed with the SEC on August 9, 2016, and the Preliminary Proxy Statement on Schedule 14A with respect to the plan of liquidation filed with the SEC on September 27, 2016 as such Risk Factors may be updated from time to time in subsequent reports. NYRT does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Investor Contacts: | ||
Michael A. Happel | Matthew Furbish | Mahmoud Siddig |
CEO & President | Director | Jonathan Keehner |
New York REIT, Inc. | Investor Relations | Joele Frank, Wilkinson Brimmer Katcher |
mhappel@nyrt.com | mfurbish@nyrt.com | msiddig@joelefrank.com jkeehner@joelefrank.com |
(212) 415-6500 | (212) 415-6500 | (212) 355-4449 |
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NEW YORK REIT, INC.
Consolidated Balance Sheets
(In thousands)
September 30, 2016 | December 31, 2015 | |||||||
ASSETS | (Unaudited) | |||||||
Real estate investments, at cost: | ||||||||
Land | $ | 477,171 | $ | 477,171 | ||||
Buildings, fixtures and improvements | 1,175,518 | 1,208,138 | ||||||
Acquired intangible assets | 132,673 | 137,594 | ||||||
Total real estate investments, at cost | 1,785,362 | 1,822,903 | ||||||
Less accumulated depreciation and amortization | (197,076 | ) | (172,668 | ) | ||||
Total real estate investments, net | 1,588,286 | 1,650,235 | ||||||
Cash and cash equivalents | 59,841 | 98,604 | ||||||
Restricted cash | 5,095 | 2,019 | ||||||
Investment in unconsolidated joint venture | 194,325 | 215,370 | ||||||
Assets held for sale | — | 29,268 | ||||||
Derivatives, at fair value | 46 | 431 | ||||||
Tenant and other receivables | 4,890 | 3,537 | ||||||
Unbilled rent receivables | 51,045 | 42,905 | ||||||
Prepaid expenses and other assets | 9,390 | 10,074 | ||||||
Deferred costs, net | 10,473 | 12,319 | ||||||
Total assets | $ | 1,923,391 | $ | 2,064,762 | ||||
LIABILITIES AND EQUITY | ||||||||
Mortgage notes payable, net of deferred financing costs | $ | 363,851 | $ | 381,443 | ||||
Credit facility | 485,000 | 485,000 | ||||||
Market lease intangibles, net | 67,102 | 73,083 | ||||||
Liabilities related to assets held for sale | — | 321 | ||||||
Derivatives, at fair value | 1,569 | 1,266 | ||||||
Accounts payable, accrued expenses and other liabilities | 32,759 | 27,736 | ||||||
Deferred revenue | 8,315 | 3,617 | ||||||
Dividends payable | 17 | 27 | ||||||
Total liabilities | 958,613 | 972,493 | ||||||
Common stock | 1,659 | 1,626 | ||||||
Additional paid-in capital | 1,434,644 | 1,403,624 | ||||||
Accumulated other comprehensive loss | (1,555 | ) | (1,237 | ) | ||||
Accumulated deficit | (482,510 | ) | (369,273 | ) | ||||
Total stockholders' equity | 952,238 | 1,034,740 | ||||||
Non-controlling interests | 12,540 | 57,529 | ||||||
Total equity | 964,778 | 1,092,269 | ||||||
Total liabilities and equity | $ | 1,923,391 | $ | 2,064,762 | ||||
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NEW YORK REIT, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenues: | ||||||||||||||||
Rental income | $ | 30,267 | $ | 32,510 | $ | 89,045 | $ | 98,118 | ||||||||
Hotel revenue | 7,098 | 7,054 | 18,487 | 18,626 | ||||||||||||
Operating expense reimbursements and other revenue | 3,895 | 5,044 | 10,360 | 13,390 | ||||||||||||
Total revenues | 41,260 | 44,608 | 117,892 | 130,134 | ||||||||||||
Operating expenses: | ||||||||||||||||
Property operating | 11,539 | 11,197 | 31,994 | 32,264 | ||||||||||||
Hotel operating | 6,856 | 6,525 | 19,710 | 18,690 | ||||||||||||
Operating fees incurred from the Advisor | 3,500 | 3,121 | 9,624 | 9,366 | ||||||||||||
Transaction related | 11,623 | 2,850 | 18,233 | 3,071 | ||||||||||||
Impairment Loss on Real Estate Investment | 27,911 | — | 27,911 | — | ||||||||||||
General and administrative | 1,760 | 6,519 | (975 | ) | 15,672 | |||||||||||
Depreciation and amortization | 16,305 | 20,484 | 50,117 | 64,317 | ||||||||||||
Total operating expenses | 79,494 | 50,696 | 156,614 | 143,380 | ||||||||||||
Operating loss | (38,234 | ) | (6,088 | ) | (38,722 | ) | (13,246 | ) | ||||||||
Other income (expenses): | ||||||||||||||||
Interest expense | (8,875 | ) | (7,495 | ) | (27,913 | ) | (20,091 | ) | ||||||||
Income from unconsolidated joint venture | 711 | 473 | 2,556 | 1,278 | ||||||||||||
Income from preferred equity investment, investment securities and interest | 3 | 141 | 24 | 1,079 | ||||||||||||
Gain on sale of real estate investments, net | — | — | 6,630 | — | ||||||||||||
Loss on derivative instruments | (12 | ) | (540 | ) | (370 | ) | (544 | ) | ||||||||
Total other expenses | (8,173 | ) | (7,421 | ) | (19,073 | ) | (18,278 | ) | ||||||||
Net loss | (46,407 | ) | (13,509 | ) | (57,795 | ) | (31,524 | ) | ||||||||
Net loss attributable to non-controlling interests | 1,140 | 434 | 1,475 | 952 | ||||||||||||
Net loss attributable to stockholders | $ | (45,267 | ) | $ | (13,075 | ) | $ | (56,320 | ) | $ | (30,572 | ) | ||||
Basic and diluted net loss per share attributable to stockholders | $ | (0.27 | ) | $ | (0.08 | ) | $ | (0.34 | ) | $ | (0.19 | ) | ||||
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NEW YORK REIT, INC.
Funds from Operations, Core Funds from Operations and Adjusted Funds from Operations
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
(In thousands) | March 31, 2016 | June 30, 2016 | September 30, 2016 | September 30, 2016 | ||||||||||||
Net income (loss) (in accordance with GAAP) | $ | 419 | $ | (11,807 | ) | $ | (46,407 | ) | $ | (57,795 | ) | |||||
Gain on sale of real estate investments, net | (6,505 | ) | (125 | ) | — | (6,630 | ) | |||||||||
Impairment loss on real estate investment | — | — | 27,911 | 27,911 | ||||||||||||
Depreciation and amortization | 17,225 | 16,587 | 16,305 | 50,117 | ||||||||||||
Depreciation and amortization related to unconsolidated joint venture(1) | 6,114 | 6,400 | 6,403 | 18,917 | ||||||||||||
FFO | 17,253 | 11,055 | 4,212 | 32,520 | ||||||||||||
Transaction-related expenses | 349 | 6,261 | 11,623 | 18,233 | ||||||||||||
Other income(2) | (57 | ) | (132 | ) | — | (189 | ) | |||||||||
Straight-line rent bad debt expense | 79 | 98 | — | 177 | ||||||||||||
Deferred financing and other costs(3) | 345 | — | — | 345 | ||||||||||||
Core FFO | 17,969 | 17,282 | 15,835 | 51,086 | ||||||||||||
Non-cash compensation expense | (6,430 | ) | (1,932 | ) | (2,105 | ) | (10,467 | ) | ||||||||
Amortization of deferred financing costs | 2,426 | 2,406 | 1,795 | 6,627 | ||||||||||||
Amortization of market lease intangibles | (1,724 | ) | (1,616 | ) | (1,568 | ) | (4,908 | ) | ||||||||
Mark-to-market adjustments on derivatives | 251 | 107 | 12 | 370 | ||||||||||||
Straight-line rent | (2,252 | ) | (1,801 | ) | (4,301 | ) | (8,354 | ) | ||||||||
Straight-line ground rent | 686 | 686 | 686 | 2,058 | ||||||||||||
Tenant improvements - second generation | — | (430 | ) | (1,165 | ) | (1,595 | ) | |||||||||
Leasing commissions - second generation | (987 | ) | (473 | ) | (87 | ) | (1,547 | ) | ||||||||
Building improvements - second generation | (609 | ) | (1,174 | ) | (3,695 | ) | (5,478 | ) | ||||||||
Proportionate share of straight-line rent related to unconsolidated joint venture | (709 | ) | (364 | ) | (143 | ) | (1,216 | ) | ||||||||
AFFO | $ | 8,621 | $ | 12,691 | $ | 5,264 | $ | 26,576 | ||||||||
(1) | Proportionate share of depreciation and amortization related to unconsolidated joint venture and amortization of difference in basis. |
(2) | Represents approximately $60,000 of lease termination fee revenue and approximately $130,000 of insurance proceeds received relating to casualty claims. |
(3) | Represents prepayment penalties, deferred financing and other costs that were written off as a result of paying off mortgages in advance of their scheduled maturity dates. |
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NEW YORK REIT, INC.
Reconciliation of Net Loss to Adjusted EBITDA, NOI and Cash NOI
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
(In thousands) | March 31, 2016 | June 30, 2016 | September 30, 2016 | September 30, 2016 | ||||||||||||
Net income (loss) (in accordance with GAAP) | $ | 419 | $ | (11,807 | ) | $ | (46,407 | ) | $ | (57,795 | ) | |||||
Transaction related | 349 | 6,261 | 11,623 | 18,233 | ||||||||||||
Depreciation and amortization | 17,225 | 16,587 | 16,305 | 50,117 | ||||||||||||
Interest expense | 9,726 | 9,312 | 8,875 | 27,913 | ||||||||||||
Gain on sale of real estate investments, net | (6,505 | ) | (125 | ) | — | (6,630 | ) | |||||||||
Impairment loss on real estate investment | — | — | 27,911 | 27,911 | ||||||||||||
Loss on derivatives | 251 | 107 | 12 | 370 | ||||||||||||
Adjustments related to unconsolidated joint venture(1) | 11,129 | 11,414 | 11,471 | 34,014 | ||||||||||||
Adjusted EBITDA | 32,594 | 31,749 | 29,790 | 94,133 | ||||||||||||
General and administrative | (3,344 | ) | 609 | 1,760 | (975 | ) | ||||||||||
Operating fees incurred from the Advisor | 3,074 | 3,050 | 3,500 | 9,624 | ||||||||||||
Interest income | (18 | ) | (3 | ) | (3 | ) | (24 | ) | ||||||||
Preferred return on unconsolidated joint venture | (4,068 | ) | (3,987 | ) | (3,957 | ) | (12,012 | ) | ||||||||
Proportionate share of other adjustments related to unconsolidated joint venture | 1,989 | 1,949 | 1,935 | 5,873 | ||||||||||||
NOI | 30,227 | 33,367 | 33,025 | 96,619 | ||||||||||||
Amortization of above/below market lease assets and liabilities | (1,724 | ) | (1,616 | ) | (1,568 | ) | (4,908 | ) | ||||||||
Straight-line rent | (2,173 | ) | (1,702 | ) | (4,300 | ) | (8,175 | ) | ||||||||
Straight-line ground rent | 686 | 685 | 686 | 2,057 | ||||||||||||
Proportionate share of adjustments related to unconsolidated joint venture | (709 | ) | (364 | ) | (143 | ) | (1,216 | ) | ||||||||
Cash NOI | 26,307 | 30,370 | 27,700 | 84,377 | ||||||||||||
Free rent | 1,151 | 649 | 2,810 | 4,610 | ||||||||||||
Adjusted Cash NOI | $ | 27,458 | $ | 31,019 | $ | 30,510 | $ | 88,987 | ||||||||
_________________
(1) | Proportionate share of adjustments related to unconsolidated joint venture and amortization of difference in basis. |
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New York REIT, Inc.
Reconciliation of Net Income (Loss) to Adjusted EBITDA, NOI, Same Store NOI and Same Store Cash NOI(1)
(in thousands)
Q3 2016 | Q2 2016 | Q3 2015 | ||||||||||
Combined: | ||||||||||||
Net income (loss) | $ | (46,407 | ) | $ | (11,807 | ) | $ | (13,509 | ) | |||
Gain on sale of real estate investments, net | — | (125 | ) | — | ||||||||
Acquisition and transaction related expenses(2) | 11,623 | 6,261 | 2,850 | |||||||||
Impairment Loss on Real Estate Investment | 27,911 | — | — | |||||||||
Depreciation and amortization | 16,305 | 16,587 | 20,484 | |||||||||
Interest expense | 8,875 | 9,312 | 7,495 | |||||||||
Loss on derivatives | 12 | 107 | 540 | |||||||||
Adjustments related to unconsolidated joint venture(3) | 11,471 | 11,414 | 11,418 | |||||||||
Adjusted EBITDA | 29,790 | 31,749 | 29,278 | |||||||||
General and administrative | 3,865 | 2,541 | 2,438 | |||||||||
Equity-based compensation | (2,105 | ) | (1,932 | ) | 4,081 | |||||||
Operating fees incurred from the Advisor | 3,500 | 3,050 | 3,121 | |||||||||
Income from preferred equity investment, investment securities and interest | (3 | ) | (3 | ) | (141 | ) | ||||||
Preferred return on unconsolidated joint venture | (3,957 | ) | (3,987 | ) | (3,936 | ) | ||||||
Proportionate share of other adjustments related to unconsolidated joint venture | 1,935 | 1,949 | 1,924 | |||||||||
NOI | 33,025 | 33,367 | 36,765 | |||||||||
Non-same store NOI | (197 | ) | (452 | ) | (1,487 | ) | ||||||
Same Store NOI | 32,828 | 32,915 | 35,278 | |||||||||
Straight line rent adjustment | (4,444 | ) | (2,067 | ) | (3,458 | ) | ||||||
Above/below market lease amortization | (1,456 | ) | (1,504 | ) | (1,731 | ) | ||||||
Same Store Cash NOI | 26,928 | 29,344 | 30,089 | |||||||||
Viceroy Hotel | 815 | 1,033 | 1,135 | |||||||||
Same Store Cash NOI — Including Hotel | $ | 27,743 | $ | 30,377 | $ | 31,224 | ||||||
______________
(1) | Same store portfolio excludes the Viceroy Hotel unless otherwise noted and consists of only those properties owned and operated for the entire current and prior periods presented. |
(2) | Acquisition and transaction-related expenses in the third quarter of 2016 primarily represent costs related to the termination of the Combination Agreement with JBG. Acquisition and transaction-related expenses in the second quarter of 2016 primarily represent costs associated with the Company's evaluation of strategic alternatives and its Combination Agreement with JBG. Acquisition and transaction-related expenses in the third quarter 2015 primarily represent costs associated with third quarter 2015 mortgage payoffs and Credit Facility amendment. |
(3) | Proportionate share of adjustments related to unconsolidated joint venture and amortization of difference in basis. |
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Non-GAAP Financial Measures
Funds from Operations, Core Funds from Operations and Adjusted Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has promulgated a measure known as funds from operations (“FFO”), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure but is not equivalent to our net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards 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.
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of a real estate asset diminishes predictably over time, especially if not adequately maintained or repaired and renovated as required by relevant circumstances or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, because real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation and certain other items may be less informative. Historical accounting for real estate requires us to depreciate or amortize our assets in accordance with GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, among other things, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income (loss). However, FFO, core funds from operations ("Core FFO") and adjusted funds from operations (“AFFO”), as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance. In calculating FFO, Core FFO and AFFO, other REITs may not define FFO in accordance with the current NAREIT definition (as we do) or may interpret the current NAREIT definition differently than we do or calculate Core FFO or AFFO differently than we do. Consequently, our presentation of FFO, Core FFO and AFFO may not be comparable to other similarly titled measures presented by other REITs.
We consider FFO, Core FFO and AFFO useful indicators of our performance. Because FFO calculations exclude such factors as depreciation and amortization of real estate assets and gains or losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), FFO facilitates comparisons of operating performance between periods and between other REITs in our peer group.
Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT's definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are now expensed under GAAP instead of capitalized.
Core FFO is FFO, excluding transaction related costs and other items that are considered to be not comparable from period to period, such as gains on sales of securities and investments, miscellaneous revenue, such as lease termination fees and insurance proceeds, and expenses related to the early extinguishment of debt. Additionally, we exclude transaction related expenses, which are primarily comprised of expenses related to our strategic alternatives process, as these expenses are not the result of the operations of our properties. By excluding transaction related costs and other items that are considered to be not comparable from period to period, we believe Core FFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management's analysis of the investing and operating performance of our properties.
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We exclude certain income or expense items from AFFO that we consider more reflective of investing activities, other income and expense items which are not settled in cash and the income and expense effects of other activities that are not a fundamental attribute of our business plan. These items include unrealized gains and losses, which may not ultimately be realized, such as gains or losses on derivative instruments and gains or losses on contingent valuation rights. In addition, by excluding non-cash income and expense items such as equity-based compensation expenses, amortization of above-market and below-market lease intangibles, amortization of deferred financing costs and straight-line rent from AFFO, we believe we provide useful information regarding income and expense items which have a direct impact on our ongoing operating performance. We also include second generation capital expenditures in our calculation of AFFO because these funds are paid in order to maintain the level of operating performance. By providing AFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our ongoing operating performance without the impacts of transactions that are not related to the ongoing profitability of our portfolio of properties. We also believe that AFFO is a recognized measure of sustainable operating performance by the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies. However, AFFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. Investors are cautioned that AFFO should only be used to assess the sustainability of our operating performance excluding these activities, as it excludes certain costs that have a negative effect on our operating performance during the periods in which these costs are incurred.
In calculating AFFO, we exclude certain expenses, which under GAAP are characterized as operating expenses in determining operating net income All paid and accrued merger, acquisition and transaction related fees and certain other expenses negatively impact our operating performance during the period in which expenses are incurred will also have negative effects on returns to investors, but are not reflective of our ongoing performance. AFFO that excludes such costs and expenses would only be comparable to companies that did not have such activities. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating adjustments to net income. In addition, as discussed above, we view gains and losses from fair value adjustments as items which are unrealized and may not ultimately be realized and are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Excluding income and expense items detailed above from our calculation of AFFO provides information consistent with management's analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe AFFO provides useful supplemental information.
As a result, we believe that the use of FFO, Core FFO and AFFO, together with the required GAAP presentations, provide a more complete understanding of our performance relative to our peers and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.
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Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, Net Operating Income, Cash Net Operating Income and Adjusted Cash Net Operating Income.
We believe that earnings before interest, taxes, depreciation and amortization adjusted for transaction-related expenses, other non-cash items and including our pro rata share from unconsolidated joint ventures ("Adjusted EBITDA") is an appropriate measure of our ability to incur and service debt. Adjusted EBITDA should not be considered as an alternative to cash flows from operating activities, as a measure of our liquidity or as an alternative to net income as an indicator of our operating activities. Other REITs may calculate Adjusted EBITDA differently and our calculation should not be compared to that of other REITs.
Net operating income ("NOI") is a non-GAAP financial measure equal to net income (loss), the most directly comparable GAAP financial measure, less discontinued operations, interest, other income and income from preferred equity investments and investments securities, plus corporate general and administrative expense, transaction-related expenses, depreciation and amortization, other non-cash expenses and interest expense. NOI is adjusted to include our pro rata share of NOI from unconsolidated joint ventures. Cash NOI is NOI presented on a cash basis, which is NOI after eliminating the effects of straight-lining of rent and the amortization of above and below market leases. Adjusted Cash NOI is Cash NOI after eliminating the effects of free rent.
We use NOI, Cash NOI and Adjusted Cash NOI internally as performance measures and believe NOI, Cash NOI and Adjusted Cash NOI provide useful information to investors regarding our results of operations because it reflects only those income and expense items that are incurred at the property level. Therefore, we believe NOI, Cash NOI and Adjusted Cash NOI are useful measures for evaluating the operating performance of our real estate assets and to make decisions about resource allocations. Further, we believe NOI, Cash NOI and Adjusted Cash NOI are useful to investors as performance measures because, when compared across periods, NOI, Cash NOI and Adjusted Cash NOI reflect the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition activity on an unlevered basis. NOI, Cash NOI and Adjusted Cash NOI exclude certain components from net income in order to provide results that are more closely related to a property's results of operations. For example, interest expense is not linked to the operating performance of a real estate asset and Cash NOI is not affected by whether the financing is at the property level or corporate level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. NOI, Cash NOI and Adjusted Cash NOI presented by us may not be comparable to NOI, Cash NOI and Adjusted Cash NOI reported by other REITs that define NOI, Cash NOI and Adjusted Cash NOI differently. We believe that in order to facilitate a clear understanding of our operating results, NOI, Cash NOI and Adjusted Cash NOI should be examined in conjunction with net income (loss) as presented in our consolidated financial statements. NOI, Cash NOI and Adjusted Cash NOI should not be considered as an alternative to net income (loss) as an indication of our performance or to cash flows as a measure of our liquidity.
The table presented reflects the reconciliation of net income (loss) to Adjusted EBITDA, NOI, Cash NOI and Adjusted Cash NOI during the period presented. We have calculated our Adjusted EBITDA, NOI, Cash NOI and Adjusted Cash NOI based on our net income, which is before adjusting for the net loss attributable to our non-controlling interests, and all adjustments are made based on our gross adjustments, without excluding the portion of the adjustments attributable to our non-controlling interests, other than adjustments related to the unconsolidated joint venture as noted in the table presented.
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