American Finance Trust, Inc - FORM 8-K/A - EX-99.2 - EXHIBIT 99.2 - March 30, 2017

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EX-23.1 - EXHIBIT 23.1 - American Finance Trust, Incarcrca12312016ex231-consen.htm
EX-99.1 - EXHIBIT 99.1 - American Finance Trust, Incarcrca12312016ex991-financ.htm
EX-23.2 - EXHIBIT 23.2 - American Finance Trust, Incarcrca12312016ex232-consen.htm
8-K/A - 8-K/A - American Finance Trust, Incarcrca123120168-k.htm
Exhibit 99.2
AMERICAN FINANCE TRUST, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS


Introduction
On September 6, 2016, American Finance Trust, Inc. ("AFIN") and its operating partnership, American Finance Operating Partnership, L.P. (the "AFIN OP") entered into an Agreement and Plan of Merger (the “Merger Agreement”) with American Realty Capital — Retail Centers of America, Inc. (“RCA”), American Realty Capital Retail Operating Partnership, L.P. (the “RCA OP”) and Genie Acquisition, LLC, a Delaware limited liability company and wholly owned subsidiary of AFIN (the “Merger Sub”). The Merger Agreement provided for (a) the merger of RCA with and into the Merger Sub (the “Merger”), with the Merger Sub surviving as a wholly owned subsidiary of AFIN and (b) the merger of the RCA OP with and into the AFIN OP, with the AFIN OP as the surviving entity (the “Partnership Merger”, and together with the Merger, the “Mergers”). The Mergers became effective on February 16, 2017.
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Mergers (the “Effective Time”), each outstanding share of common stock of RCA, $0.01 par value per share (“RCA Common Stock”) (including any restricted shares of RCA Common Stock and fractional shares), was converted into the right to receive (x) a number of shares of common stock of AFIN, $0.01 par value per share (“AFIN Common Stock”) equal to 0.385 shares of AFIN Common Stock (the “Stock Consideration”) and (y) cash from AFIN, in an amount equal to $0.95 per share (the “Cash Consideration,” and together with the Stock Consideration, the “Merger Consideration”).
In addition, at the Effective Time, (i) each unit of partnership interest of the RCA OP designated as an OP Unit issued and outstanding immediately prior to the Effective Time (other than those held by RCA as described in clause (ii) below) was automatically converted into 0.424 validly issued units of limited partnership interest of the AFIN OP (the “Partnership Merger Consideration”); (ii) each unit of partnership interest of the RCA OP designated as either an OP Unit or a GP Unit held by RCA and issued and outstanding immediately prior to the Effective Time was automatically converted into 0.385 validly issued units of limited partnership interest of the AFIN OP; (iii) each unit of partnership interest of the RCA OP designated as a Class B Unit held by RCA’s advisor and a sub-advisor issued and outstanding immediately prior to the Effective Time was converted into the Partnership Merger Consideration (the "Class B Consideration," and together with the Partnership Merger Consideration and the Merger Consideration, the "Total Merger Consideration") and (iv) the interest of American Realty Capital Retail Advisor, LLC, the special limited partner of the RCA OP (the “RCA SLP”), in the RCA OP was redeemed for a cash payment, determined in accordance with the existing terms of the RCA OP’s agreement of limited partnership.
Prior to the Merger, AFIN owned a diversified portfolio of commercial properties comprised primarily of freestanding single-tenant properties that are net leased to investment grade and other creditworthy tenants. As of December 31, 2016, AFIN owned 455 properties with an aggregate purchase price of $2.2 billion, comprised of 13.3 million rentable square feet, which were 100.0% leased. In addition, to a lesser extent, AFIN invests in commercial real estate mortgage loans and other commercial real estate-related debt investments.
Prior the the Merger, RCA had acquired and owned anchored, stabilized core retail properties for investment purposes, including power centers and lifestyle centers, which are located in the United States and were at least 80.0% leased at the time of acquisition. As of December 31, 2016, RCA owned 35 properties with an aggregate purchase price of $1.2 billion, comprised of 7.5 million rentable square feet, which were 92.6% leased.
Accounting Acquirer
In applying the acquisition method specified by generally accepted accounting principles in the United States of America (“GAAP”) it is necessary to identify the accounting acquirer, which may be different from the legal acquirer. Factors considered in identifying an accounting acquirer include, but are not limited to, the relative size of the merging companies, the relative voting interests of the respective shareholders after consummation of a merger and the composition of senior management and the board after consummation of a merger.
After consideration of all applicable factors pursuant to GAAP, AFIN has been identified as the accounting acquirer of RCA. Accordingly, the Total Merger Consideration will be allocated to the estimated fair value of RCA’s assets acquired and liabilities assumed on the date of such acquisition.
Pro Forma Information
The following unaudited pro forma consolidated financial statements combine the historical consolidated financial statements of AFIN and RCA as if the Mergers had previously occurred on the dates specified below:
•
The accompanying Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2016 has been prepared as if the Mergers had occurred as of that date.
•
The accompanying Unaudited Pro Forma Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2016 have been prepared as if the Mergers occurred as of January 1, 2016.

1

AMERICAN FINANCE TRUST, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS


Pro forma adjustments, and the assumptions on which they are based, are described in the accompanying notes to the Unaudited Pro Forma Consolidated Financial Statements.
The pro forma adjustments and the purchase price allocation as presented are based on estimates and certain information that is currently available. The assignment of fair values to RCA’s assets and liabilities has not been finalized, is subject to change and could vary materially from the actual amounts at the time the Mergers are completed. A final determination of the fair value and allocation of the Total Merger Consideration will be based upon the actual net assets and liabilities at the time of the completion of the Mergers. Accordingly, the estimated fair value and allocation of the Total Merger Consideration are subject to adjustment and may vary significantly from the actual fair value and allocation of the Total Merger Consideration upon completion of the Mergers.
The pro forma information has been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). All significant adjustments necessary to reflect the effects of the Mergers that can be factually supported within the SEC regulations covering the preparation of pro forma financial statements have been made. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the combined operating results or financial position that would have occurred if such transactions had been consummated on the dates and in accordance with the assumptions described herein, nor is it necessarily indicative of future operating results or financial position. The unaudited pro forma consolidated financial statements do not reflect the costs of any integration activities or full benefits that may result from realization of future cost savings from operating efficiencies, revenue or other incremental synergies expected to result from the Mergers. The unaudited pro forma consolidated financial statements reflect the best estimates of AFIN's management based on available information and may be revised as additional information becomes available and as additional analyses are performed.
The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. You are urged to read the pro forma information below, together with AFIN’s and RCA’s publicly available information including historical consolidated financial statements and accompanying notes.

2
AMERICAN FINANCE TRUST, INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2016
(In thousands)


 
AFIN Historical
 
RCA Historical
 
Pro Forma Purchase Accounting Adjustments
 
Pro Forma Merrill Lynch Disposition Adjustments
 
Pro Forma Other Adjustments
 
AFIN Pro Forma Consolidated
 
(A)
 
(A)
 
(B)
 
(C)
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Real estate investments, at cost:
 
 
 
 
 
 
 
 
 
 
 
Land
$
328,656

 
$
273,375

 
$
6,395

 
$
—

 
$
—

 
$
608,426

Buildings, fixtures and improvements
1,395,602

 
826,487

 
260,940

 
—

 
—

 
2,483,029

Acquired intangible lease assets
300,129

 
180,213

 
5,721

 
—

 
—

 
486,063

Total real estate investments, at cost
2,024,387

 
1,280,075

 
273,056

 
—

 
—

 
3,577,518

Less: accumulated depreciation and amortization
(287,090
)
 
(120,300
)
 
120,300

 
—

 
—

 
(287,090
)
Total real estate investments, net
1,737,297

 
1,159,775

 
393,356

 
—

 
—

 
3,290,428

Cash and cash equivalents
131,215

 
30,950

 
(94,305
)
 
140,472

 
—

 
208,332

Restricted cash
7,890

 
4,600

 
—

 
5,000

 
—

 
17,490

Commercial mortgage loan, held for investment, net
17,175

 
—

 
—

 
—

 
—

 
17,175

Prepaid expenses and other assets
29,513

 
21,255

 
(6,855
)
 
(3,566
)
 
—

 
40,347

Deferred costs, net
3,767

 
7,276

 
(7,276
)
 
—

 
—

 
3,767

Assets held for sale
137,602

 
—

 
—

 
(136,641
)
 
—

 
961

Total assets
$
2,064,459

 
$
1,223,856

 
$
284,920

 
$
5,265

 
$
—

 
$
3,578,500

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
Mortgage notes payable, net of deferred financing costs
$
1,022,275

 
$
126,585

 
$
1,248

 
$
—

 
$
—

 
$
1,150,108

Mortgage premiums, net
10,681

 
3,776

 
534

 
—

 
—

 
14,991

Credit facility
—

 
304,000

 
—

 
—

 
—

 
304,000

Market lease liabilities, net
13,915

 
70,933

 
47,728

 
—

 
—

 
132,576

Derivatives, at fair value
—

 
251

 
—

 
—

 
—

 
251

Accounts payable and accrued expenses (including $910 and $1,175 due to related parties for AFIN historical and RCA historical, respectively)
13,553

 
16,411

 
(201
)
 
—

 
14,607

(D)
44,370

Deferred rent and other liabilities
9,970

 
3,469

 
—

 
—

 
—

 
13,439

Distributions payable
9,199

 
5,383

 
—

 
—

 
—

 
14,582

Total liabilities
1,079,593

 
530,808

 
49,309

 
—

 
14,607

 
1,674,317

Preferred stock
—

 
—

 
—

 
—

 
—

 
—

Common stock
658

 
993

 
(611
)
 
—

 
—

 
1,040

Additional paid-in capital
1,449,662

 
881,453

 
46,824

 
—

 
—

 
2,377,939

Accumulated other comprehensive (loss) income
—

 
(248
)
 
248

 
—

 
—

 
—

Accumulated deficit
(465,454
)
 
(189,150
)
 
189,150

 
5,265

 
(14,607
)
(D)
(474,796
)
Total stockholders' equity
984,866

 
693,048

 
235,611

 
5,265

 
(14,607
)
 
1,904,183

Total liabilities and stockholders' equity
$
2,064,459

 
$
1,223,856

 
$
284,920

 
$
5,265

 
$
—

 
$
3,578,500


The accompanying notes are an integral part of this unaudited pro forma consolidated financial statement.

3
AMERICAN FINANCE TRUST, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS

YEAR ENDED DECEMBER 31, 2016
(In thousands, except share and per share data)


 
AFIN Historical
 
RCA Historical
 
Pro Forma Purchase Accounting Adjustments
 
Pro Forma Merrill Lynch Disposition Adjustments
 
Pro Forma Other Adjustments
 
Combined Pro Forma
 
(AA)
 
(AA)
 
 
 
(EE)
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
164,386

 
$
102,134

 
$
1,805

(BB)
$
(12,714
)
 
$
—

 
$
255,611

Operating expense reimbursements
12,232

 
31,171

 
—

 
(9,354
)
 
—

 
34,049

Interest income from debt investments
1,050

 
—

 
—

 
—

 
—

 
1,050

Total revenues
177,668

 
133,305

 
1,805

 
(22,068
)
 
—

 
290,710

 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Asset management fees to related party
18,000

 
9,004

 
—

 
—

 
(6,004
)
(FF)
21,000

Property operating
13,614

 
44,498

 
2

(CC)
(9,355
)
 
—

 
48,759

Impairment charges
27,299

 
—

 
—

 
—

 
—

 
27,299

Fair value adjustment to contingent purchase price consideration
—

 
1,787

 
—

 
—

 
—

 
1,787

Acquisition and transaction related
7,063

 
3,598

 
—

 
—

 
(10,018
)
(GG)
643

General and administrative
11,168

 
9,007

 
—

 
—

 
—

 
20,175

Depreciation and amortization
101,143

 
61,995

 
(702
)
(DD)
(8,335
)
 
—

 
154,101

Total operating expenses
178,287

 
129,889

 
(700
)
 
(17,690
)
 
(16,022
)
 
273,764

Operating income
(619
)
 
3,416

 
2,505

 
(4,378
)
 
16,022

 
16,946

Other (expense) income:
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(54,253
)
 
(12,875
)
 
—

 
—

 
1,978

(HH)
(65,150
)
Gain on sale of real estate investments
454

 
—

 
—

 
—

 
—

 
454

Loss on disposition of land
—

 
(4
)
 
—

 
—

 
—

 
(4
)
Gain on involuntary conversion
—

 
214

 
—

 
—

 
—

 
214

Other income
163

 
18

 
—

 
—

 
—

 
181

Total other expense, net
(53,636
)
 
(12,647
)
 
—

 
—

 
1,978

 
(64,305
)
Net loss
$
(54,255
)
 
$
(9,231
)
 
$
2,505

 
$
(4,378
)
 
$
18,000

 
$
(47,359
)
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized loss on derivative
—

 
162

 
—

 
—

 
—

 
162

Comprehensive loss
$
(54,255
)
 
$
(9,069
)
 
$
2,505

 
$
(4,378
)
 
$
18,000

 
$
(47,197
)
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted net loss per share (II)
$
(0.83
)
 
$
(0.09
)
 
 
 
 
 
 
 
$
(0.46
)
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted weighted average shares outstanding (II)
65,450,432

 
98,557,238

 
 
 
 
 
 
 
103,399,873

 

The accompanying notes are an integral part of this unaudited pro forma consolidated financial statement.

4
AMERICAN FINANCE TRUST, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS



Note 1 — Basis of Presentation
As noted in the Introduction above, the Merger is accounted for under the acquisition method for business combinations pursuant to GAAP, with AFIN as the accounting acquirer of RCA. The consideration to be transferred by AFIN to acquire RCA establishes a new accounting basis for the assets acquired and liabilities assumed, measured at their respective fair value as of the date the Merger is consummated. Accordingly, the unaudited pro forma consolidated financial statements include adjustments to record the assets and liabilities of RCA at their estimated fair value, which are preliminary and subject to revision. To the extent fair value of the Total Merger Consideration exceeds fair value of net assets acquired, any such excess represents goodwill. Alternatively, if fair value of net assets acquired exceeds fair value of the Total Merger Consideration, the transaction could result in a bargain purchase gain that AFIN would recognize immediately in earnings. Adjustments to estimated fair value of identifiable assets and liabilities of RCA, as well as adjustments to the Total Merger Consideration may change the determination and amount of goodwill and/or bargain purchase gain and may impact depreciation, amortization and accretion based on the revised fair value of assets acquired and liabilities assumed. The final fair value and allocation of Total Merger Consideration will be determined upon completion of the Mergers, with the allocation to be finalized as soon as practicable within the measurement period of no later than one year following the closing date of the Mergers. The final acquisition accounting may vary significantly from that reflected in the unaudited pro forma consolidated financial statements.
The historical consolidated financial statements of AFIN and RCA have been adjusted in the pro forma financial statements to give effect to pro forma events that are directly attributable to the business combination, factually supportable and, with respect to the Pro Forma Statements of Operations and Comprehensive Loss, expected to have a continuing impact on the combined results following the Mergers. These adjustments are generally summarized as: 1) adjustments in the balance sheet and statement of operations and comprehensive loss to reflect the estimated purchase price allocation due to the acquisition of RCA by AFIN and 2) other adjustments described more fully below.
Note 2 — Adjustments to Unaudited Pro Forma Consolidated Balance Sheet
The adjustments to the unaudited pro forma consolidated balance sheet as of December 31, 2016 are as follows (dollar amounts in thousands, except per share amounts):
(A) Reflects the historical consolidated balance sheets of AFIN and RCA as of December 31, 2016.

5
AMERICAN FINANCE TRUST, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS


(B) In connection with the Merger, AFIN will acquire RCA, which comprised the following real estate assets as of December 31, 2016:
Portfolio
 
Acquisition Date
 
Property Type
 
Number of Properties
 
Rentable Square Feet
 
Percentage Leased
 
Remaining Lease Term (1)
Liberty Crossing
 
Jun. 2012
 
Power Center
 
1

 
105,779

 
94.0
%
 
2.5
San Pedro Crossing
 
Dec. 2012
 
Power Center
 
1

 
201,965

 
96.7
%
 
4.0
Tiffany Springs MarketCenter
 
Sep. 2013
 
Power Center
 
1

 
264,952

 
74.3
%
 
5.2
The Streets of West Chester
 
Apr. 2014
 
Lifestyle Center
 
1

 
236,842

 
92.1
%
 
11.5
Prairie Towne Center
 
Jun. 2014
 
Power Center
 
1

 
289,277

 
95.3
%
 
7.4
Southway Shopping Center
 
Jun. 2014
 
Power Center
 
1

 
181,809

 
99.3
%
 
3.6
Stirling Slidell Centre
 
Aug. 2014
 
Power Center
 
1

 
134,276

 
77.2
%
 
3.6
Northwoods Marketplace
 
Aug. 2014
 
Power Center
 
1

 
236,078

 
95.9
%
 
3.3
Centennial Plaza
 
Aug. 2014
 
Power Center
 
1

 
233,797

 
100.0
%
 
2.5
Northlake Commons
 
Sep. 2014
 
Lifestyle Center
 
1

 
109,112

 
95.9
%
 
4.4
Shops at Shelby Crossing
 
Sep. 2014
 
Power Center
 
1

 
236,107

 
97.0
%
 
2.7
Shoppes of West Melbourne
 
Sep. 2014
 
Power Center
 
1

 
144,484

 
96.0
%
 
4.5
The Centrum
 
Sep. 2014
 
Power Center
 
1

 
270,747

 
93.5
%
 
2.9
Shoppes at Wyomissing
 
Oct. 2014
 
Lifestyle Center
 
1

 
103,064

 
100.0
%
 
2.7
Southroads Shopping Center
 
Oct. 2014
 
Power Center
 
1

 
437,515

 
71.2
%
 
4.7
Parkside Shopping Center
 
Nov. 2014 & Dec. 2015
 
Power Center
 
1

 
181,620

 
94.6
%
 
6.0
West Lake Crossing
 
Nov. 2014
 
Power Center
 
1

 
75,928

 
90.2
%
 
4.4
Colonial Landing
 
Dec. 2014
 
Power Center
 
1

 
263,559

 
81.6
%
 
4.6
The Shops at West End
 
Dec. 2014
 
Lifestyle Center
 
1

 
381,831

 
81.9
%
 
8.7
Township Marketplace
 
Dec. 2014
 
Power Center
 
1

 
298,630

 
96.2
%
 
2.4
Cross Pointe Centre
 
Mar. 2015
 
Power Center
 
1

 
226,089

 
100.0
%
 
10.3
Towne Center Plaza
 
Apr. 2015
 
Power Center
 
1

 
94,096

 
100.0
%
 
6.1
Harlingen Corners
 
May 2015
 
Power Center
 
1

 
228,208

 
96.2
%
 
5.3
Village at Quail Springs
 
Jun. 2015
 
Power Center
 
1

 
100,404

 
100.0
%
 
2.2
Pine Ridge Plaza
 
Jun. 2015
 
Power Center
 
1

 
239,492

 
95.2
%
 
3.1
Bison Hollow
 
Jun. 2015
 
Power Center
 
1

 
134,798

 
100.0
%
 
5.8
Jefferson Commons
 
Jun. 2015
 
Power Center
 
1

 
205,918

 
93.4
%
 
9.0
Northpark Center
 
Jun. 2015
 
Power Center
 
1

 
318,327

 
99.2
%
 
3.8
Anderson Station
 
Jul. 2015
 
Power Center
 
1

 
243,550

 
95.9
%
 
2.6
Patton Creek
 
Aug. 2015
 
Power Center
 
1

 
491,294

 
94.5
%
 
4.7
North Lakeland Plaza
 
Sep. 2015
 
Power Center
 
1

 
171,397

 
96.3
%
 
3.7
Riverbend Marketplace
 
Sep. 2015
 
Power Center
 
1

 
142,617

 
97.2
%
 
6.2
Montecito Crossing
 
Sep. 2015
 
Power Center
 
1

 
179,721

 
97.4
%
 
5.3
Best on the Boulevard
 
Sep. 2015
 
Power Center
 
1

 
204,568

 
100.0
%
 
5.1
Shops at RiverGate South
 
Sep. 2015
 
Power Center
 
1

 
140,703

 
97.8
%
 
8.8
Total
 
 
 
 
 
35

 
7,508,554

 
92.6
%
 
5.3
_____________________
(1)
Remaining lease term in years as of December 31, 2016, calculated on a weighted-average basis, based on annualized straight-line rental income.
Pursuant to the Merger Agreement, AFIN and the AFIN OP issued the Total Merger Consideration. The pro forma fair value of the Total Merger Consideration is estimated as follows based on the number of AFIN and RCA shares outstanding as of December 31, 2016 and AFIN's published estimated net asset value per share of $24.17 as of December 31, 2015 ("Estimated Per-Share NAV") (dollar amounts in thousands, except per share data):

6
AMERICAN FINANCE TRUST, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS


 
 
Shares Outstanding(1)
 
Exchange Ratio
 
AFIN Common Shares/OP Units Issuable (2)
 
Merger Consideration
Stock Consideration (3):
 
 
 
 
 
 
 
 
RCA common stock
 
99,254,276

 
0.385
 
38,212,896

 
$
923,606

Unvested restricted RCA common stock
 
14,400

 
0.385
 
5,544

 
134

RCA OP units
 
202

 
0.424
 
86

 
2

Class B units of RCA OP
 
479,802

 
0.424
 
203,436

 
4,917

Total Stock Consideration
 
99,748,680

 
 
 
38,421,962

 
928,659

 
 
 
 
 
 
 
 
 
Cash Consideration (4):
 
 
 
 
 
 
 
 
RCA common stock
 
99,254,276

 
 
 
 
 
94,291

Unvested restricted RCA common stock
 
14,400

 
 
 
 
 
14

Total Cash Consideration
 
99,268,676

 
 
 
 
 
94,305

 
 
 
 
 
 
 
 
 
Total Merger Consideration
 
 
 
 
 
 
 
$
1,022,964

_____________________
(1)
Share amounts are as of December 31, 2016.
(2)
Each share of RCA common stock and unvested restricted RCA common stock was exchanged for 0.385 shares of AFIN common shares for the Stock Consideration. Each RCA OP unit and Class B unit of the RCA OP was exchanged for 0.424 units of limited partnership interest of the AFIN OP.
(3)
Stock Consideration calculated based on AFIN Common Shares/AFIN OP Units issuable multiplied by AFIN's Estimated Per-Share NAV. AFIN's Estimated Per-Share NAV is based on AFIN's annual estimate of its NAV as of December 31, 2015. See "Market Information" in AFIN's annual report on Form 10-K for a description of AFIN's methodology in estimating its Estimated Per-Share NAV. There can be no assurance that the Estimated Per-Share NAV represents the value per share of the AFIN Common Shares issued in the Merger. Subsequent to the closing of the Merger, AFIN published an updated Estimated Per-Share NAV as of December 31, 2016 of $23.37. For purposes of these pro forma financial statements, the Estimated Per-Share NAV as of December 31, 2015 was used, as that was the Estimated Per-Share NAV in effect at the Effective Time of the Merger.
(4)
Cash Consideration calculated based on RCA common shares outstanding multiplied by $0.95, the per share Cash Consideration.
The following allocation of the purchase price is based on estimates and assumptions and is subject to change based on a final determination of the fair value of the assets acquired and liabilities assumed (in thousands):
 
 
December 31, 2016
Estimated fair value of Total Merger Consideration to RCA shareholders (1)
 
$
1,022,964

Debt assumed at fair value
 
436,143

Total consideration paid
 
$
1,459,107

Allocation of consideration paid:
 
 
Land
 
$
279,770

Building, fixtures and improvements
 
1,087,427

Total tangible assets
 
1,367,197

In-place leases
 
160,180

Above market lease assets
 
24,355

Below market lease liabilities
 
(118,661
)
Below market ground lease asset
 
1,399

Total intangible assets
 
67,273

Other assets acquired and liabilities assumed, net
 
24,637

Total consideration paid
 
$
1,459,107

_____________________
(1)
Calculated as of December 31, 2016.

7
AMERICAN FINANCE TRUST, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS


The estimated purchase price of acquired properties is allocated to tangible and identifiable intangible assets acquired, and intangible liabilities assumed, based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements. Intangible assets may include the value of in-place leases and above- and below- market leases. The fair value of the tangible assets of an acquired property with in-place operating leases 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 the estimated fair market lease rate for the corresponding in-place lease, measured over the remaining term of the lease, including any below-market fixed rate renewal options for below-market leases.
In making estimates of fair values for purposes of allocating purchase price, a number of sources are utilized, including real estate valuations, prepared by independent valuation firms. Other factors considered include: market conditions, the industry that the tenant operates in, characteristics of the real estate, i.e.: location, size, demographics, value and comparative rental rates, tenant credit profile, store profitability and the importance of the location of the real estate to the operations of the tenant’s business. Information obtained about each property as a result of AFIN's pre-acquisition due diligence is also considered in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
Upon consummation of the Merger, rental revenue will be recorded by AFIN on a straight-line basis from date of acquisition through the end of the assumed lease term. Accordingly, unbilled straight-line rent previously recorded by RCA has been eliminated in the pro forma balance sheet.

8
AMERICAN FINANCE TRUST, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS


 
RCA Historical December 31, 2016
 
RCA Fair Value
 
Pro Forma Purchase Accounting Adjustments
 
ASSETS
 
 
 
 
 
 
Real estate investments, at cost:
 
 
 
 
 
 
Land
$
273,375

 
$
279,770

 
$
6,395

 
Buildings, fixtures and improvements
826,487

 
1,087,427

 
260,940

 
Acquired intangible lease assets
180,213

 
185,934

 
5,721

 
Total real estate investments, at cost
1,280,075

 
1,553,131

 
273,056

 
Less: accumulated depreciation and amortization
(120,300
)
 
—

 
120,300

 
Total real estate investments, net
1,159,775

 
1,553,131

 
393,356

 
Cash and cash equivalents
30,950

 
30,950

 
—

 
Restricted cash
4,600

 
4,600

 
—

 
Prepaid expenses and other assets
21,255

 
14,400

 
(6,855
)
(1) 
Deferred costs, net
7,276

 
—

 
(7,276
)
 
Total assets
$
1,223,856

 
$
1,603,081

 
$
379,225

 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
Mortgage notes payable, net of deferred financing costs
$
126,585

 
$
127,833

 
$
1,248

 
Mortgage premiums, net
3,776

 
4,310

 
534

 
Credit facility
304,000

 
304,000

 
—

 
Market lease liabilities, net
70,933

 
118,661

 
47,728

 
Derivatives, at fair value
251

 
251

 
—

 
Accounts payable and accrued expenses
16,411

 
16,210

 
(201
)
(2) 
Deferred rent and other liabilities
3,469

 
3,469

 
—

 
Distributions payable
5,383

 
5,383

 
—

 
Total liabilities
530,808

 
580,117

 
49,309

 
Preferred stock
—

 
—

 
—

 
Common stock
993

 
382

 
(611
)
 
Additional paid-in capital
881,453

 
1,022,582

 
141,129

 
Accumulated other comprehensive (loss) income
(248
)
 
—

 
248

 
Accumulated deficit
(189,150
)
 
—

 
189,150

 
Total stockholders' equity
693,048

 
1,022,964

 
329,916

 
Total liabilities and stockholders' equity
$
1,223,856

 
$
1,603,081

 
$
379,225

 
_____________________
(1)
Adjustments to prepaid expenses and other assets include reversal of historical RCA accrued straight-line rental income and lease inducements, net of amortization.
(2)
Adjustment to accounts payable and accrued expenses consists of reversal of historical RCA accrued straight-line ground rent expense.
(C) AFIN entered into a purchase and sale agreement dated as of October 11, 2016, as amended on November 10, 2016, November 18, 2016, November 23, 2016 and December 1, 2016, for the sale of the Merrill Lynch Properties owned by AFIN for a contract purchase price of $148.0 million, exclusive of closing costs. AFIN consummated the disposition of the Merrill Lynch Properties on January 31, 2017. The disposal of the Merrill Lynch Properties does not represent a strategic shift. All references to the Company after completion of the merger give effect to the mergers and to the disposition of the Merrill Lynch Properties.
For pro forma purposes, estimated cash proceeds from the disposition of the Merrill Lynch Properties is $145.5 million, based on the contract purchase price of $148.0 million, less closing costs of $2.5 million. The gain on disposition of the Merrill Lynch Properties is estimated to be $5.3 million.

9
AMERICAN FINANCE TRUST, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS


(D) Represents the following:
 
 
December 31, 2016
Accrued Merger transaction costs (1)
 
$
12,180

Subordinated participation (2)
 
2,427

Adjustment
 
$
14,607

_____________________
(1)
Represents non-recurring transaction and other costs incurred in connection with the Mergers, relating primarily to advisory, legal, accounting, tax and other professional services, which are factually supportable as such amounts are based on reliable, documented evidence such as invoices for costs incurred to date. Such costs are reflected as a reduction to retained earnings and are not included in the unaudited pro forma consolidated statement of operations.
(2)
Represents the paid for redemption of the interest of RCA's special limited partner in the RCA OP, as defined in the Merger Agreement, calculated in accordance with RCA's limited partnership agreement and the Merger Agreement as of the date of consummation of the transaction.
Note 3 — Adjustments to Unaudited Pro Forma Consolidated Statements of Operations and Comprehensive Loss
The pro forma results of operations of properties acquired, debt assumed, debt issued and capital raised by RCA are reflected as of the later of the date of the related transaction or January 1, 2016.
The adjustments to the unaudited pro forma consolidated statements of operations for the year ended December 31, 2016 are as follows (dollar amounts in thousands):
(AA) Reflects the historical statements of operations of AFIN and RCA for the year ended December 31, 2016.
(BB) Reflects the amortization of above- and below-market lease intangibles based on the preliminary purchase price allocation described above, as well as straight-line rent calculated based on the date of acquisition through the end of the lease term.
(In thousands)
 
Year Ended December 31, 2016
Remove historical RCA amortization of above-and below-market lease intangibles
 
$
(3,391
)
Remove historical RCA amortization of lease inducements
 
79

Amortization using preliminary fair value of above-and below-market leases
 
4,647

Adjustment
 
1,335

 
 
 
Remove historical RCA straight-line rent
 
(2,485
)
Straight-line rent based on the date of acquisition
 
2,955

Adjustment
 
470

 
 
 
Total Adjustment
 
$
1,805

AFIN amortizes acquired above- and below-market leases as a decrease or increase to rental income, respectively, over the lives of the respective leases. Upon consummation of the Merger, rental income will be recorded by AFIN on a straight-line basis from the date of acquisition through the end of the assumed lease term.
(CC) Reflects the adjustment to property operating expenses for below market ground lease intangible based on preliminary purchase price allocation described above.
(In thousands)
 
Year Ended December 31, 2016
Remove historical RCA below market ground lease amortization
 
$
(39
)
Below market ground lease intangible amortization, using preliminary fair value
 
35

Remove historical straight-line ground rent
 
(94
)
Straight-line ground rent based on the date of acquisition
 
100

Adjustment
 
$
2


10
AMERICAN FINANCE TRUST, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS


(DD) Reflects pro forma depreciation and amortization expense for the year ended December 31, 2016 calculated and presented based on the preliminary estimated fair values of the real estate and in-place lease intangible assets described above.
(In thousands)
 
Year Ended December 31, 2016
Remove historical RCA depreciation and amortization
 
$
(61,995
)
Depreciation and amortization using preliminary fair value
 
61,293

Adjustment
 
$
(702
)
Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests. Amortization of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to expense over the remaining periods of the respective leases. In utilizing these useful lives for determining the pro forma adjustments, consideration is given to the length of time the asset had been in existence, the maintenance history, as well as anticipated future maintenance and any contractual stipulations that might limit the useful life.
(EE) Reflects adjustments to remove the historical results of the Merrill Lynch Properties for the year ended December 31, 2016.
(FF) Reflects adjustment for AFIN's amendment to its Second Amended and Restated Advisory Agreement, as amended (the "Third A&R Advisory Agreement"), which became effective upon the Effective Time. Under the Third A&R Advisory Agreement, the fixed portion of the base management fee will increase to (i) $21.0 million annually for the first year following the Effective Time; (ii) $22.5 million annually for the second year following the Effective Time; and (iii) $24.0 million annually for the remainder of the term. The variable portion of the base management fee will change to an equal monthly payment of an aggregate amount equal to one-twelfth of 1.25% of the cumulative net proceeds of any equity raised by AFIN or its subsidiaries from and after the Effective Time (other than in connection with any specified transaction).
(In thousands)
 
Year Ended December 31, 2016
Remove historical AFIN and RCA asset management fees
 
$
(27,004
)
Pro Forma AFIN asset management fee
 
21,000

Adjustment
 
$
(6,004
)
(GG) Reflects the elimination of merger transaction costs incurred during the year ended December 31, 2016 for AFIN and RCA of $6.4 million and $3.6 million, respectively which are reflected in acquisition and transaction related costs. These costs are directly related to the acquisition of RCA.
(HH) Reflects pro forma amortization of assumed debt premiums for the year ended December 31, 2016 calculated based on preliminary estimated fair values of debt assumed. Certain of RCA's debt obligations used to fund acquisitions and which were outstanding for some of the year ended December 31, 2016 were subject to change in control provisions which were waived prior to the consummation of the Mergers. As such, the pro forma deferred financing amortization and interest expense relating to the bridge loan facility are excluded from the pro forma statement of operations for the year ended December 31, 2016.
(In thousands)
 
Year Ended December 31, 2016
Remove historical RCA premium amortization
 
$
(988
)
RCA premium amortization using preliminary fair value
 
927

Adjustment
 
(61
)
 
 
 
Remove historical RCA deferred financing costs amortization
 
2,039

 
 
 
Total adjustment
 
$
1,978


11
AMERICAN FINANCE TRUST, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS


(II) The following table presents pro forma basic and diluted net loss per share after giving effect to the pro forma adjustments to the unaudited consolidated statements of operations:
(In thousands, except share and per share data)
 
Year Ended December 31, 2016
Numerator:
 
 
Net loss attributable to stockholders
 
$
(47,359
)
Denominator:
 
 
Basic and diluted weighted average number of shares outstanding
 
103,399,873

Net loss per share:
 
 
Basic and diluted net loss per share
 
$
(0.46
)

12

American Finance Trust, Inc Reports